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Activity Based Budgeting

Activity Based Budgeting

Traditional Budgeting and Planning tend to focus on the purely financial aspects of a business i.e. generating sets of Profit and Loss and Balance Sheet accounts from General Ledger data. These can often overlook the operational aspects of a business.
But operational costs can play an important role in any budget because they can change rapidly at any time. If these are fully incorporated into a budget or planning model, results are more accurate and dynamically reactive to change.
In ABB, projection of any changes happening in demands placed on any product or service for the following year which stems from managers’ assumptions or market research efforts leads to the determination of the level of resources required for production to meet the demands. This way the organization prepares a performance budget based on the volume of products or services not based on an incremental change of the expended resources.

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