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What Is Activity-Based Budgeting (ABB)? How It Works and Example

Daniel Liberto is a journalist with over 10 years of experience working with publications such as the Financial Times, The Independent, and Investors Chronicle.

Investopedia / NoNo Flores

What is Activity-Based Budgeting (ABB)?

Activity-based budgeting (ABB) is a system that records, researches, and analyzes activities that lead to costs for a company. Every activity in an organization that incurs a cost is scrutinized for potential ways to create efficiencies . Budgets are then developed based on these results.

Activity-based budgeting (ABB) is more rigorous than traditional budgeting processes, which tend to merely adjust previous budgets to account for inflation or business development.

Key Takeaways

• Activity-based budgeting (ABB) is a method of budgeting where activities that incur costs are recorded, analyzed and researched.
• It is more rigorous than traditional budgeting processes, which tend to merely adjust previous budgets to account for inflation or business development.
• Using activity-based budgeting (ABB) can help companies to reduce costs and, as a result, squeeze more profits from sales.
• This method is particularly useful for newer companies and firms undergoing material changes.

How Activity-Based Budgeting (ABB) Works

Keeping costs to a minimum is a crucial part of business management. When done effectively and not too excessively, companies should be able to maintain and keep growing their revenues , while squeezing out higher profits from them.

Using activity-based budgeting (ABB) can help companies to reduce the activity levels required to generate sales. Eliminating unnecessary costs should boost profitability.

The activity-based budgeting (ABB) process is broken down into three steps.

• Identify relevant activities. These  cost drivers  are the items responsible for incurring revenue or expenses for the company.
• Determine the number of units related to each activity. This number is the baseline for calculations.
• Delineate the cost per unit of activity and multiply that result by the activity level.

Activity-Based Budgeting (ABB) Vs. Traditional Budgeting Processes

Activity-based budgeting (ABB) is an alternative budgeting practice. Traditional methods are more simplistic, adjusting prior period budgets to account for inflation or revenue growth. Rather than using past budgets to calculate how much a firm will spend in the current year, activity-based budgeting (ABB) digs deeper.

Activity-based budgeting (ABB) is not necessary for all companies. For example, established firms that experience minimal change typically find that applying a flat rate to data from the previous year to reflect business growth and inflation is sufficient.

In contrast, newer companies without access to historical budgeting information cannot consider this an option. Activity-based budgeting (ABB) is also likely to be implemented by firms undergoing material changes, such as those with new  subsidiaries , significant customers, business locations, or products. In these types of cases, historical information may no longer be a useful basis for future budgeting.

Example of Activity-Based Budgeting

Company A anticipates receiving 50,000 sales orders in the upcoming year, with each single order costing $2 to process. Therefore, the activity-based budget (ABB) for the expenses relating to processing sales orders for the upcoming year is $100,000 ($50,000 * $2). 

This figure may be compared to a traditional approach to budgeting. If last year’s budget called for $80,000 of sales order processing expenses and sales were expected to grow 10%, only $88,000 ($80,000 + ($80,000 * 10%)) is budgeted.

Advantages and Disadvantages of Activity-Based Budgeting

Activity-based budgeting (ABB) systems allow for more control over the budgeting process. Revenue and expense planning occurs at a precise level that provides useful details regarding projections. ABB allows for management to have increased control over the budgeting process and to align the budget with overall company goals.

Unfortunately, these benefits come at a cost. Activity-based budgeting (ABB) is more expensive to implement and maintain than traditional budgeting techniques and more time consuming as well. Moreover, ABB systems need additional assumptions and insight from management, which can, on occasion, result in potential budgeting inaccuracies. 

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Activity Based Budget (ABB)

It is the management accounting tool that does not consider the history data in prior years. The budget needs to build from scratch, the cost will be changed base on the activities.

Example of Activity Based Budget

The company plan to produce 500,000 units of products next year, please use the activity base budget to prepare the budget.

First, we need to calculate the overhead cost which requires to produce a unit of product X.

What are the advantages of Activity Based Budget?

What are the Disadvantages of Activity Based Budget?

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Activity-based budgeting: how to implement + pros & cons

To truly understand what your company is spending, it’s not enough to only know the financials, but you need to know what the key cost drivers are behind those expenses. To help understand these drivers, activity-based budgeting can help. Typically used when transparency is required to reveal inefficiencies that may be compressing the company’s profit margin, ABB can create clarity around spending pain points. 

In this article, we’ll explain what activity-based budgeting is and why it’s important for better understanding your financial picture. We’ll also review some of the pros and cons and explain how to implement ABB if it’s the right fit for your business. Like most budgeting or accounting practices, using activity-based budgeting requires a team effort, so it’s important to create alignment among your teams before getting started.

What is activity-based budgeting (ABB)?

Unlike creating a traditional operating budget , activity-based budgeting involves the recording, research, and analysis of the activities that generate costs for the company. It’s a more rigorous process than traditional budgeting, which adjusts according to inflation or business development. Companies generally implement ABB to find the cost drivers that are causing a company to overspend.

Examples of cost drivers are direct labor hours, customer contacts, engineering change orders, machine orders, and number of product returns. Each of these activities comes with a cost, and every company will be structured differently. With activity-based budgeting, a company can track each of those costs independently, providing greater budget transparency.     

How to set up activity-based budgeting

The first step in setting up ABB is to identify the activities where money is being spent, then determine the number of units that activity requires. Best practices for this is to start with labor and materials costs, then do administrative costs. All these costs should be set up in a spreadsheet format and grouped based on commonalities.  

For example, if a department requires three full-time employees, the number of units required would be 120 (hours worked) per week. If the cost per hour is $20, that equates to a cost of $2400 per week. That’s a person-hour cost, so it should be grouped with other activities where the unit of measurement is the labor cost.  

By breaking costs down in this manner, companies can determine where cuts can be made to increase profitability. In the scenario above, rather than simply cutting the department budget and expecting the department head to adjust, the numbers gleaned from ABB can facilitate research on how the number of person-hours can be reduced. 

Examples of activity-based budgeting

Activity-based budgeting provides more accurate numbers for business expenses and calculating cost of goods sold (COGS). In traditional budgeting, a company with $4,000 in COGS from last month and an average sales increase of 10%, the COGS for the new month is estimated at $4,400. If sales exceed the monthly projection, that number will be off. 

With activity-based budgeting, the cost per unit sold is used to calculate the budget. Let’s say in the example above that the $4,000 in monthly sales represents 800 units with a production cost of $5 per unit. Rather than estimating new month sales cost as a percentage, the company can calculate a per-unit cost increase. That 10% increase is now 80 units sold. 

The difference may seem trivial, but in this case, ABB fills in additional business expense categories that can be used to cut costs and/or improve profitability. Can production costs be cut down? Can the number of units sold be increased? Having access to the more granular data provided by ABB can help facilitate better decisions in these areas. 

Another example of ABB providing cost savings is maintenance and upkeep. In traditional budgets, these are entered as an estimated expense, leaving margin for inaccuracies and even abuse of funds. With activity-based budgeting, each maintenance call or upgrade is itemized based on its unit cost. This makes it easier to see where costs can be trimmed back.    

Pros and cons of activity-based budgeting

Activity-based budgeting offers some clear advantages over traditional budgeting and zero-based budgeting . It provides more accurate cost data and gives a company insights for making business decisions that are simply not available with traditional budgeting. It’s also difficult to implement and maintain, so it requires a commitment from your entire team. Here are some pros and cons to consider:

Pros of activity-based budgeting

Competitive edge

Using activity-based budgeting can cut unnecessary costs and allow a company to compete more effectively, particularly in price-sensitive markets. Reducing overhead gives a company more flexibility for expansion and product development.  

Viewing the business as a unit

ABB provides a single-unit view where costs are measured in units. Administration and sales might be different departments, but they can both be measured in hours. Manufacturing incorporates materials and production costs, but these are recorded on the company bottom line, not the department's.

ABB eliminates bottlenecks

Activity-based budgeting reveals activities that are not necessary or redundant, providing justification to eliminate them. This makes the company more efficient and frees up employees to work on new projects or expand on existing ones.   

Improves customer relationships

When the company eliminates unnecessary activities and streamlines production costs, customer service improves. Business owners are able to see which activities directly affect profitability, so they tend to spend more time addressing customer concerns. 

Better tail spend management

Tail spend management is a term used to describe the analysis of high-volume, low-value expenses that clog up the transaction list and represent usually 20% or less of total spending. A common example of tail spend is print and packaging expenses. They fall outside the main purchasing processes and are often not effectively managed by the procurement team. 

Cons of activity-based budgeting

Complexity and understanding

The most significant drawback to activity-based budgeting is the complexity of the system and learning to understand it. Business owners, the executive team (if applicable), and all managers and accounting personnel need to fully understand it before it can be implemented. 

Resource intensive

Everyone needs to be on board and each person involved will need to take on additional tasks. Time consuming analyses are required, so employees may have to work extra hours to get them done. Owners will need to be more hands on while this is happening.   ‍

Implementation costs

The main implementation cost for ABB is the training for the employees involved, including upper-level management. This may require the addition of new people who have previous experience with activity-based budgeting.   

How to implement activity-based budgeting

Before attempting the implementation of activity-based budgeting, it’s important to sit down with your team and get everyone on board. Evaluate your current budgeting process and determine whether the more detailed analysis of ABB is required. Companies with simple cost structures and fewer departments may not need it. 

Each member of your team needs to understand that there will be extensive training involved to learn how to do activity-based budgeting. You’ll also need tools for spend management with features like auto-categorization and expense tracking. This is all part of the “getting organized” portion of this exercise.  

Once the decision has been made and training is complete, the next step is to identify activities that incur costs and assign units to measure those costs. Calculate the cost per unit and multiple that by the activity level. Schedule regular meetings to evaluate those costs and uncover areas where they can be modified or reduced. 

In most cases, ABB is implemented as a temporary measure to streamline company costs. Once that’s done, most companies go back to more traditional budgeting practices. To learn more about this and to acquire the expense tracking and spend management tools you’ll need to be effective with activity-based budgeting, visit Ramp.com . 

The term activity-based budgeting is defined in our Ramp Finance Glossary .

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Activity-based budgeting: Overview, steps, benefits

Over the years, businesses have found measures to reduce costs and boost the overall efficiency of business processes. Traditional budgeting methods proved quite useful, but activity-based budgeting proved even more valuable. This is because it offers a more accurate way to budget and track product cost driver rates. 

Now, business activity-based budgeting has become a widely adopted method that allows businesses to reduce costs without using historical data (such as the previous year's budget). This guide will discuss this golden method, how it works, why you can count on it, and an example of its usage.

What is activity-based budgeting?

Activity-based budgeting is a process for analyzing business activities and costs to create budgets without taking historical data into account. It was born out of the sheer will to maximize efficiency while reducing costs.

The system comprises a series of steps involving recording, researching, and analyzing everything contributing to a company's cost driver. It doesn't require historical data like a traditional budgeting system.

The result is that each of the activities analyzed will allow the organization to find ways to cut costs without reducing performance. The company then creates its budget based on the insights from these results.

What are the features of activity-based budgeting?

Every business wants to improve its critical activities without incurring unnecessary costs. This can help increase profits when done right. Hence, activity-based budgeting ABB is an important tool for avoiding unnecessary costs while focusing on high-value activities that help generate more sales. 

For easier comprehension, the process can be split into three stages. 

Step 1: Identify your business activities

The first and most important step to maximizing output is a deep understanding of the inputs. So, this step is where you evaluate all the activities that call the shots for your operational costs.

Each of these activities you consider doesn't have to impact revenue or profits directly. So, ensure you pay attention to every business activity regardless of how minute it might seem. 

Once you've identified them, proceed to figure out the cost drivers, i.e., what factors determine the cost of each of these activities. 

The final process is to begin making material operational changes to the activities. Remember, the sole aim is to reduce costs and unnecessary activities, so make sure your changes contribute to the company's goal.

Step 2: Calculate the unit of each activity

After figuring out the cost drivers, find the unit of each activity as well. Finding the unit will help you progress to the next activity-based budgeting step. The unit can be any figure that denotes the amount of workforce behind an activity.

For example, a unit could be the number of raw materials, the number of factory workers, and the number of transport vehicles or equipment in a production line that contributes to the normal function of the business activities.

Step 3: Compute the cost per unit

The final task is to multiply the units calculated in step 2 by the costs you identified in step 1. This value is the cost per unit of production.

You can then use the cost per unit value to create your monthly or annual budget by identifying all the tasks and multiplying them by the corresponding task. While doing this, ensure you keep track of the figures and find ways to cut the cost per unit of activity completed.

When optimizing any cost drivers, you can check how much reduction you achieve by recalculating the cost per unit. Compare the value to the initial value to see how much cost you could reduce without reducing the overall efficiency of the process.

What is an activity-based budgeting example?

To further understand the concept, we'll illustrate an imaginary company's activity-based budgeting process. 

So, if Company A hopes to reach a net sale of 7,000 units of its products within a month, the company spends $3 to produce one unit. Since you can calculate the activity-based budgeting ABB with the cost and the total number of units, then:

Activity-based budget = 7,000 units × $3 = $21,000

This means the business will have an activity-based budgeting estimate of $21,000 for that month. 

Suppose Company A optimizes costs and manages to reduce them to $2 for the same number of units.

Activity-based budget = 7,000 × $2 = $14,000 

Hence, the new business line can boost efficiency, reduce costs, and gain an additional $6,000 profit. This figure is more reliable for budgeting than that of a traditional budgeting method.

What is the benefit of activity-based budgeting?

As discussed earlier, activity-based budgeting can be quite helpful for businesses and operational managers at any stage. Below are some of the several advantages you should consider adopting this method.

Proper budget management

When you create an activity-based budget, you'll get the liberty of proper business operations management. There'll be a better evaluation of certain costs, more clarification of each process, and reasons for inefficiencies. With this knowledge, the accounting unit can draw up a straightforward calculation and plan to create a budget with minimum incurred costs and accurate results.

Offers competitive edge

Reducing your operational costs can give you an edge over competitors. The activity-based budgeting method can help you sell products at a lower price and keep operations at an optimal level. The extra profit can also help build your organization and improve overall performance.

Efficiency boost

Regardless of your type of business, there are limitations to the resources available. Hence, it's smart to incorporate a process that can help maximize your required resources. 

Using activity-based budgeting, you can allocate resources effectively when necessary. So, you can focus more on relevant activities that create more cash inflow and meet the company goals.

More cost control insights

Activity-based budgeting helps reduce costs by using data and analytics of operational activities with costs. This insight allows any business or organization to easily track its operational costs and sales order processing expenses. This budgeting method gives you more idea into the factors that affect your production costs and steps to take if you want to reduce them.

Boost profitability

There is a chance to boost the overall profitability of company production processes with activity-based budgeting. Considering how well it deals with the production and associated costs, it's a simple process to optimize either of them, increase the earning capacity and reflect business growth.

What are the disadvantages of activity-based budgeting?

Costly process.

To effectively carry out activity-based costing, one must work at micro levels. Data collation and careful evaluation of various company activities and processes could be costly, especially compared to other budgeting methods like zero-based budgeting and traditional budgeting methods.

Time consumption 

The activity-based budgeting methods are quite time-consuming. Of course, it's a simple process if you're dealing with a small business. But you might be surprised how time-consuming it can be if the company or organization has many sections and departments. 

Can be complex

This method can be difficult if the budgeting team doesn't understand the technical details and factors that can help determine a cost driver. It might also be complex if it's your first time dealing with cost and unit calculations.

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Activity-Based Budgeting

Activity-based budgeting (abb).

Activity-based budgeting is a budgeting method that closely examines every cost associated with an activity. In contrast to typical budgeting methods, activity-based budgeting is more granular in nature and does not rely on data from prior years.

What Is Activity Based Budgeting?

Activity-based budgeting is one of many budgeting techniques. While not as common as methods, such as traditional budgeting or zero-based budgeting , it can nonetheless be a very useful exercise for many organizations. Activity-based budgeting is more thorough and rigorous than most other budgeting methods because it involves breaking out the costs associated with every single activity carried out by an organization. This more detailed method of budgeting allows companies to understand which activities are driving the most profits and how to better manage resources and reduce costs. It is also useful for companies who are undergoing significant changes in their business and need to re-evaluate the impact of every activity.

Activity-Based Budgeting vs. Traditional Budgeting

How does activity-based budgeting differ from traditional budgeting? When developing a traditional budget, companies will often look at values (such as revenue and expenses) from prior years and then use those values as a baseline when projecting future values. For example, a company might have revenues of $100 million in the prior year and project a 10% growth for a forecasted total of $110 million in revenue for the upcoming year. In contrast, activity-based budgeting igneous historical values. Instead, activity-based budgets look at all the activities expected to be carried out by a business in the upcoming year and then outlines the cost associated with each activity in detail.

Activity-based budgeting looks at all costs and resources associated with an activity such as:

• Raw materials
• Number of expected labor hours

Traditional Budgeting

Traditional budgeting involves:

• Reviewing historical costs
• Projecting future costs by increasing or decreasing historical costs

Examples of Activity-Based Budgeting

Company Y expects to receive 10,000 orders for one of their products in their next fiscal. To process each order, it costs Company Y a total of $5. In an activity-based budget, the costs for processing these 10,000 sales orders would be $50,000. Now, let’s look at this example from a traditional budgeting perspective, which we know looks at historical costs while activity-based budgeting does not. So let’s say that in the prior year budget, Company Y spent $40,000 on processing sales orders. And in the budget for the upcoming year, Company Y is expecting a 10% growth in sales. In this case, only $44,000 would be budgeted for.

Advantages of ABB

Here are a few advantages of activity-based budgeting (ABB):

• Helps cut costs
• Improves resource allocation
• Increase cross-departmental budget collaboration
• More control over the budget

Disadvantages of ABB

Here are a few disadvantages of activity-based budgeting (ABB):

• More expensive to implement
• More time-consuming to perform

How To Make an Activity-Based Budget

So how do you create your own activity-based budget? There are three main steps involved: 1. Identify Your Activities and Their Associated Costs. Any activity that supports the business or generates revenue counts as an activity. And any expense required to carry out that activity counts as a cost. 2. Compute Baseline Units for Each Activity. What do we mean by units? Examples include the number of staff and numbers of wage hours required to perform the activity. 3. Compute the Total Cost of Each Activity. First, calculate the cost per unit for each activity. Then multiply that number by the activity level. If you’re looking for templates for your budgeting needs, head on over to our library of free Excel templates .

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Activity-based budgeting: is this budgeting method right for you?

Budgeting & forecasting.

Updated: February 26, 2024 |

Jake Ballinger

FP&A Writer, Cube Software

Jake Ballinger is an experienced SEO and content manager with deep expertise in FP&A and finance topics. He speaks 9 languages and lives in NYC.

Running a business becomes more expensive every year.

After all, materials and wages aren’t getting cheaper. Nothing to be done about that.

...What's something you can control?

The budgeting process.

And there's a budgeting method that helps reflect business growth while also giving you fine control over spending.

It's called the activity-based budgeting method.

And in this post, we'll show you exactly how to do it.

Get out of the data entry weeds and into the strategy.

Sign up for The Finance Fix

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What is activity-based budgeting?

Activity-based budgeting (ABB) is a top-down financial budgeting method focusing on resources allocated to individual budgeting activities instead of departments or products.

With an activity-based budgeting approach, you break down each business activity into tasks and assign costs for each task. This helps you determine the funding needed to support each task performed. 

Examples of business activities include:

• Purchasing materials and supplies for production, such as raw materials, components, and parts.
• Manufacturing processes for producing goods or services, like quality control checks and assembly workflows.
• Marketing activities like advertising campaigns, sales promotion efforts, and hiring .
• Research and development efforts such as product testing.

Breaking these processes down and identifying cost drivers  allows for greater control over financial decisions and better visibility into how funds are used.

Activity-based budgeting can also help organizations identify cost drivers and redundant processes to streamline business operations and maximize resource efficiency.

What’s a cost driver?

A cost driver is a factor that influences the cost of doing business, from production and manufacturing to marketing and hiring. Examples of cost drivers include:

• The number of units produced in a period
• The number of direct labor hours involved in a project
• The machine hours used in a week
• The square footage of factory space occupied
• The cost of hiring an employee or contractor in the current market 

The more of each cost driver you use for producing an item or a service, the higher the total associated costs with that item.

Breaking down these costs is the first step in reducing the cost of producing goods or providing services.

Resource allocation based on activities

Resource allocation based on activities, a core principle of Activity-Based Budgeting (ABB), ensures that financial resources are aligned with operational demands within an organization.  Unlike traditional methods, ABB prioritizes resource allocation according to specific activities' requirements, optimizing resource utilization and directing investments towards activities that contribute most to organizational goals.  This approach enhances transparency and accountability in budgeting, facilitating informed decisions and driving efficiency in financial planning and analysis processes.

Why do companies use activity-based budgets?

Controlling costs is imperative to preserving revenue , so companies always look for creative ways to avoid overspending. This is why activity-based budgeting is such an effective budgeting approach. 

Understand expenses incurred : Traditional methods of budgeting rely on the previous year’s data to establish the basis for changes. To perform activity-based budgeting, finance analyzes every cost from the ground up. Activity-based analysis occurs without consideration of the previous year's budgeting activities to justify every cost on its merit.

Improve business efficiency : Inefficiency creates a stealthy burden on cash . Using budget analysis to reduce inefficiencies in your process is an excellent way to ensure your business only spends money where it needs to.

Activity-based budgeting is an in-depth approach to planning future spending . It scrutinizes every expenditure at every step of the process to identify places to trim the fat and improve your business processes.

Companies use activity-based budgeting to get a deep understanding of and control costs. By breaking down costs into separate activities, companies can allocate resources more effectively, improve financial performance, and identify redundant or unnecessary activities.

Activity-based budgeting also helps ensure that the most important activities allocate the right budget . It can help uncover opportunities for cost savings It helps managers to track actual spending versus budgeted amounts and compare spending across different departments or locations.

You might consider using activity-based budgeting if: 

• Your organization is in cost-cutting mode
• There are visibility challenges in your spending
• You’re restructuring the entire organization
• Traditional method of budgeting hasn't been working well for you

What are the benefits of activity-based budgeting?

Companies turn to activity-based budgeting when they need a better handle on spending . This type of budgeting exercise helps young companies manage their costs from the start and established companies bring expenses under control when needed.

Full spend visibility : Activity-based budgeting creates a granular view of every process that crates cost or revenue for the company. This level of detail takes time, but the effort pays considerable dividends in cost savings.

Budgetary control : Making decisions for the budget based on cost drivers enables better control over your spending. It allows companies to understand exactly what drives spend (and budget inflation) for better cash performance.  

Competitive advantage : Reducing costs and optimizing processes allows you to produce goods more efficiently and retain more profit. Activity-based budgeting shows you where to improve and what’s essential to your process. 

What are the challenges of activity-based budgeting?

The biggest challenge of activity-based budgeting is when you have many new activities or variables—like new business locations—that you can't account for or that skew your numbers.

Time-consuming: The granular detail of an activity-based budget process requires significant research and analysis and can become time consuming. This budgeting system takes more time and labor investment than other planning methods . 

Expensive: The level of research required to complete an activity-based budget means that many stakeholders will invest time in preparing data. This has associated costs not experienced with traditional budgeting . However, the cost benefits of this exercise may well justify the investment.

How do you create an activity-based budget [with example]?

An activity-based budget breaks down each element of an organization’s spending into its component activities. 

This includes:

• Analyzing direct expenses, such as materials purchasing and machine hours
• Calculating overhead costs and indirect spend associated with each activity. 

By breaking down spending in this granular manner, organizations more accurately determine their total budgets for each activity and adjust accordingly.

To build an activity-based budget, use these steps.

1. Identify expense and revenue activities

Break down each process into its steps. For each step in the process, identify the expense it generates. 

For example, manufacturing a product isn’t just “buy materials, make products.” The process is more complicated. 

• Create an RFP to source materials.
• Purchase the raw materials and supplies needed for the product. 
• Create components from materials and parts. 
• Use those components to build the product.
• Test the product to ensure it meets quality standards. 
• Package the product in appropriate sleeving and materials. 
• Ship out the finished product.
• Track and record sales on delivered products.

If a company estimates it needs to build 50,000 units of a product (based on its previous year of sales), it must complete each of the above steps for every item. Each repetition of the above steps has an associated cost. 

2. Estimate the cost drivers necessary for activities

An activity-based analysis looks at each step in this example to identify every cost driver associated with production, including materials, equipment, labor hours, and utilities. 

In our manufacturing example, the product requires:

• Several machinists at market wage rates to keep up with expected production. 
• A dedicated production line with a specialty machine.
• Specialized packaging for shipment. 

All these factors affect the price of production for each unit you produce. 

So, we break down the product example above into its costs: 

• Machining operation: 500 machine hours at $5/hour = $2,500
• Labor costs: 500 hours at $15/hour = $7,500
• Materials costs: $2 per unit = $100,000
• Shipping costs : $.5 per unit = $25,000

From here, you can calculate the total and per-unit cost of producing your item.

3. Calculate the total cost 

Once you have the figures for every piece of activity, you can calculate the total cost and per-unit cost of production: 

Total cost: $135,000 for 50,000 units

Per-unit total: $2.70 per unit cost

4. Identify improvements and unnecessary costs

With the above information, the organization can evaluate activity performance to become deeply familiar with its granular costs and use the information to cut individual cost drivers, such as: 

• Sourcing less-expensive materials for production
• Improving shipping expenses through volume negotiation
• Optimizing machine outputs to produce items faster

This step-by-step analysis is intensive but effective to drive costs down and under control. This process helps organizations reduce costs for any business activity: Manufacturing, sales, marketing, recruiting, etc.

Best practices for successful activity-based budgeting

In this section, we'll explore key strategies for achieving success with ABB, from engaging stakeholders to leveraging technology and fostering a culture of collaboration.

Piloting : Start with pilot projects or smaller-scale implementations to test the effectiveness of ABB before scaling up. Monitoring : Continuously monitor and evaluate ABB processes to identify areas for improvement and make necessary adjustments. Training : Invest in training and skill development for employees involved in ABB implementation to ensure they have the necessary expertise. Culture : Foster a culture of collaboration and communication to facilitate the successful implementation and ongoing management of ABB. Technology : Utilize technology and software solutions to streamline ABB processes and improve data accuracy and analysis capabilities. Review : Regularly review and update ABB methodologies and assumptions to ensure they remain aligned with organizational goals and objectives.

Using Cube for activity-based budgeting

As you can see, activity-based budgeting can be a powerful strategy.

What about you? Are you going to try activity-based budgeting at your company this year?

If you're wondering about the logistics, like getting all your actuals together, then you should consider Cube.

Cube connects to your source systems (like your ERP) and matches, validates, and de-dupes you data so you fetch it into your Excel spreadsheet in a single click and start budgeting.

Interested in hearing more? Request a free demo below:

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What is Activity-Based Budgeting? Definition and Guide

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If you’re looking for a budgeting system to implement in your small business, activity-based budgeting is worthy of consideration—especially if you’re looking to cut costs in your operation. Not only does having a clear budget help you keep your operation running, it also allows you to identify supply chain problems in need of resolution. Perhaps most important of all, a budget helps you determine whether or not you’re on target to meet your goals—and if not, where you’re coming up short.

In this article, we’ll explain exactly what activity-based budgeting is, how the method works, and why you may want to consider using it for your business.

What is activity-based budgeting

Much like traditional budgeting, activity-based budgeting is a process by which you identify, analyze, and research your business’s key expenses and activities, then use that information to produce the budget. Where it differs from more traditional budgeting, however, is that instead of relying on prior-year values to set a forward-looking budget, an activity-based approach identifies cost drivers and accounts for them accordingly.

For example, instead of simply increasing your marketing department’s budget by 3% next year, activity-based budgeting breaks down the expenses associated with marketing for the year ahead and accounts for their anticipated costs in the upcoming year.

If you’re a business owner who feels overwhelmed by your expenses, or struggles each month to understand where your money went, this approach could be useful. Since you’re essentially trimming all the fat until only the most essential line items in your budget remain, you’re sure to save money with activity-based budgeting.

This approach to budgeting is rigorous and intense—if you’ve been working with a more lenient, traditional budget, you may find this approach difficult to adjust to at first. But if you need a whole new method to budgeting to start growing your accounts, the initial struggle could be worth it.

How activity-based budgeting works

Here’s how you would go about establishing and maintaining an activity-based budget for your own business:

• Identify your cost drivers: Identify each and every cause of costs relevant to your business. These could include things like labor costs, the price of renting your facilities, manufacturing costs, materials, and products returned by customers. Be sure to include not only the revenue-generating activities but also those necessary to fulfill orders and keep your business running.
• Determine the number of units necessary for each cost driver: This could include the number of staff working on administrative tasks, vehicles needed to make deliveries, and staff members working on producing physical materials.
• Calculate the cost per unit for each cost driver: For each cost driver, determine the cost per unit. The formula used to determine this involves taking the total number of units for a given cost driver and dividing that number by the total cost for that cost driver.
• Push activity costs to the appropriate budget: Once you quantify cost drivers, attribute them to the business’s core cost centers. This will begin to paint a picture of the business’s overall budget. This will give you your general framework for your activity-based budget.

Once you have your activity-based budget, compare it with your expenses from the last six months. Are there other areas where you’ve spent significant money? How will removing them from your budget shift your operation or the quality of the product?

Looking at your expenses from the standpoint of what is truly essential will allow you to determine where you’ve been unnecessarily spending. Over time, you may also realize that things you left off your list originally were actually essential to your operation. Feel free to adjust and reevaluate what is included in your budget as you move through the year to ensure it’s aligning well with your business needs.

Activity-based budgeting in practice

To give you a sense of what this approach to budgeting actually looks like in day-to-day situations, let’s take a look at a real-life example of the system in action.

Let’s say that your business wants to create a forward-looking budget for its widget department. At the beginning of the year, you’ll ask your vice president of widget development to put together a budget of the anticipated costs to run this business line. Then, as expenses are incurred for the widget department, they’re pushed to that cost center and reviewed against projected costs.

Over time, the budget becomes clearer based on where projected costs are realized, exceeded, or not incurred at all. As a result, the business gets a better understanding of how much it’s actually spending on the widget department.

In this method, because the cost of each activity is consistently updated, you don’t need to consider things like inflation when projecting your upcoming year’s budget—the cost per unit has already been corrected to reflect that.

Advantages and disadvantages of activity-based budgeting

The advantage of approaching budgeting in this way is that you as a small business owner have more control over the process of budgeting overall. Since planning for your expenses and projecting your revenue each period is broken down into individual units and activities, you’re more clearly seeing your business’s bottom line. Consider which costs are necessary in order to reach your goals, and which ones need to be eliminated or substituted for a more cost-effective alternative.

One of the major downsides is that this budgeting method requires careful analysis of both your business model and your finances to establish and maintain it. While this is often seen as a negative, for business owners who are struggling to overcome their financial challenges, adopting a budgeting system that forces you to look closely at your operation on a regular basis can be just what you need to turn things around.

Final thoughts

There is no perfect budgeting model for every business. In order to find yours, consider carefully what your objectives are and what is realistic for your business to take on and maintain. While the activity-based budgeting system can be more intensive than other models, it’s a great way to tap into your business, determine what’s working and what isn’t, and trim the fat until you get your operation on the path toward growth.

Although it’s not always a model most small business owners are interested in maintaining over the long term, the rigorous analysis baked into activity-based budgeting can help you quickly achieve your short-term financial goals.

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How To Do Activity Based Budgeting

It was during my early days as a financial analyst. The company I worked for was struggling with managing its resources effectively. That’s when I stumbled upon Activity-Based Budgeting.

It was like finding a compass in the middle of a dense financial forest. Implementing ABB not only helped the company regain control over its finances, but it also gave me a fresh perspective on budget management.

Understanding Activity-Based Budgeting is crucial for managing your business finances effectively. It’s more than just crunching numbers; it’s about understanding the pulse of your business operations. By aligning your budget with your activities, you can make informed decisions, optimize your resources, and steer your business towards growth and profitability.

Key Takeaways

Imagine you’re planning a party. You wouldn’t just say, “I’m going to spend $200,” without knowing what you need, right? You’d probably make a list: $50 for food, $30 for decorations, $20 for drinks, and so on. That’s essentially what an Activity-Based Budget is.

It’s a budget that breaks down your expenses based on different activities in your business. Instead of just saying, “We’ll spend $10,000 next month,” you’d say, “We’ll spend $3,000 on manufacturing, $2,000 on marketing, $1,000 on delivery, and so on.” This way, you have a clear idea of where your money is going and can make more informed financial decisions.

Understanding the Basics of Activity-Based Budgeting

Have you ever tried to bake a cake without knowing how much flour, sugar, or eggs you need? You might end up with a culinary disaster on your hands. Similarly, running a business without understanding where and how your resources are being used is like trying to bake that cake blindfolded. And that’s where Activity-Based Budgeting (ABB) comes into play.

In simple terms, ABB is your recipe for financial success. It tells you exactly how much of each resource you need (and where you need it) based on the activities or tasks being performed in your business. It’s like having a financial blueprint that guides you in allocating resources more accurately and efficiently.

Now, I know what you’re thinking: “Finance and fun don’t usually go together.” But who says we can’t have a little chuckle while we’re navigating the labyrinth of budgeting? Here’s a joke to lighten the mood: Why don’t accountants trust calculators? Because they can always count on their fingers!

Now, let’s talk about a traditional budgeting versus ABB. Imagine you’re planning a road trip. With traditional budgeting, you would set aside a lump sum of money for the whole journey without considering the specifics. It’s like saying, “I have $500 for this trip,” without thinking about the cost of gas, food, accommodation, and those irresistible roadside souvenirs.

On the other hand, ABB is like meticulously planning your budget for each segment of your trip. You allocate funds for gas based on the distance you’ll cover, for food based on the number of meals you’ll have, and so on. That way, you know exactly where your money is going, and you can make adjustments as needed.

So, in essence, while traditional budgeting gives you a bird’s eye view of your finances, ABB lets you zoom in and manage each activity’s budget effectively. It provides a clearer picture of where your resources are going, helping you make more informed decisions and ensuring smooth business operations.

Activity-Based Budgeting Versus Zero Based Budgeting

Activity-Based Budgeting is a method of budgeting that focuses on activities or tasks rather than departments or units. It identifies the key activities in business processes and allocates costs to these activities based on the resources required to perform them. This approach allows for a more accurate and detailed budgeting process, as it takes into account the specific needs of each activity.

On the other hand, Zero Based Budgeting is a budgeting method that requires you to start from scratch every year. It involves justifying and building your budget from zero based on the current needs and priorities of your business. This approach helps to eliminate unnecessary costs and encourages thorough analysis of each expense. However, it can be a time-consuming and resource-intensive process.

So, which one is better for your business? It ultimately depends on your priorities and the level of detail you need in your budgeting process. If you want a more accurate and detailed budget that considers the specific needs of each activity, ABB may be a better fit for your business. However, if you want to thoroughly evaluate and justify each expense in your budget, ZBB may be a more suitable method.

Activity-Based Budgeting Versus Activity-Based Costing

Activity-Based Costing and Activity-Based Budgeting are like two sides of the same financial coin. ABC is a method for determining the cost of each activity involved in producing a product or service. It’s about looking back and understanding where your money went.

On the other hand, the Activity-Based Budgeting method is for planning future costs based on those activities. It’s about looking forward and deciding where your money should go. So while ABC helps you understand your past and present financial situation, ABB helps you plan for your financial future.

Step-by-Step Guide to Implementing Activity-Based Budgeting

Alright, now that we’ve set the stage, let’s dive into the nitty-gritty of implementing the Activity-Based Budgeting method in your business. It might seem like a daunting task, but remember, every expert was once a beginner. So let’s break it down together, shall we?

Make sure to download our free Excel template to follow along:

Step 1: Identify Your Activities

The first step is to identify all the activities or tasks that your business performs. Think of it as taking inventory of everything you do. For instance, if you run a bakery, your activities might include baking bread, making pastries, packaging, and delivery.

Step 2: Assign Costs to Each Activity

Once you have your list of activities, it’s time to assign costs to each one. This is where ABB really shines. Instead of just looking at your total expenses, you’re breaking them down based on each activity. Remember our road trip analogy? It’s like calculating the cost of gas for each leg of the journey.

Step 3: Identifying Cost Drivers

Next, you need to determine the cost drivers, i.e., what causes the costs for each activity. In our bakery example, the drivers could be the number of loaves baked, the hours spent on baking, or the number of deliveries made. Identifying these drivers will help you understand what influences your costs and where you can make adjustments.

Step 4: Create Your Budget

Now comes the fun part – creating your budget! Based on the costs and drivers you’ve identified, you can allocate resources for each activity. It’s like planning your road trip budget based on the distance, meals, and accommodations.

Step 5: Monitor and Adjust

Finally, keep an eye on your budget and adjust as needed. Just like you might need to reroute during your road trip due to unexpected detours, you’ll need to fine-tune your budget as your business evolves.

Now, I won’t sugarcoat it – the activity-based budget process can come with its challenges compared to a traditional budget. It requires a detailed understanding of your operations and when you incur costs. It can also be time-consuming. But remember, Rome wasn’t built in a day. Start small, perhaps with one department or project. As you get the hang of it, you can gradually implement ABB across your entire business.

Activity-Based Budgeting Advantages

Alright folks, it’s time for the grand reveal: the benefits of mastering Activity-Based Budgeting! If you’ve been following along, you’re already getting a sense of what this powerful tool can do. But let’s really dig into the gains that ABB can bring to your business.

Improved Accuracy

With ABB, you’re not just making educated guesses about where your resources are going. It’s like having a GPS for your finances; you know exactly where you’re headed and how to get there. This leads to more accurate budgeting, which in turn helps you avoid nasty financial surprises down the line.

Greater Efficiency

Activity-Based Budgeting is all about ensuring that every dollar works as hard as it can for your business. By aligning your budget with your activities, you can identify areas where you might be overspending and find cost savings. It’s like realizing you’ve been using premium gas for a car that runs perfectly fine on regular. Who doesn’t love finding ways to save?

Informed Decision-Making

One of the biggest advantages of ABB is the clarity it provides. When you understand the cost driver of each activity, you can make more informed decisions about where to invest your resources. It’s like knowing exactly how much bang you’re getting for your buck.

Now, let’s talk about some real-life success stories. Take the case of ABC Bakery (name changed for privacy). They were struggling with high production costs and low profitability. After implementing an Activity-Based Budget, they discovered that their packaging costs were through the roof due to custom boxes for each product. By switching to standardized packaging, they were able to drastically reduce costs and boost profitability.

Then there’s XYZ Manufacturing (name changed for privacy). They used ABB to identify that their assembly process was consuming a large portion of their budget. By streamlining the process and training their employees to work more efficiently, they were able to cut costs significantly.

Potential Pitfalls and How to Avoid Them

Let’s talk about some common pitfalls businesses encounter when implementing ABB and, more importantly, how to steer clear of them.

Overcomplicating the Process

Remember when you first learned to ride a bike? You didn’t start by tackling the Tour de France route. Similarly, when implementing ABB, it’s easy to get overwhelmed if you try to do too much too soon. Start small, perhaps with one department or project, and as you gain confidence, gradually expand your ABB implementation.

Neglecting to Involve the Team

ABB is not a one-person show. It’s like a choir performance; everyone needs to be in sync for it to work. Make sure to involve all relevant team members in the process. Their insights can be invaluable in identifying activities and cost drivers, and their buy-in will be crucial for successful implementation.

Ignoring the Need for Regular Updates

Implementing ABB isn’t a “set it and forget it” kind of deal. It’s more like tending a garden; it needs regular attention and care. As your business evolves, so will your activities and costs. Regularly review and update your ABB to ensure it remains accurate and relevant.

Have any questions? Are there other topics you would like us to cover? Leave a comment below and let us know! Make sure to subscribe to our Newsletter to receive exclusive financial news right to your inbox.

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FP&A Leader | Digital Finance Advocate | Small Business Founder

Mike Dion brings a wealth of knowledge in business finance to his writing, drawing on his background as a Senior FP&A Leader. Over more than a decade of finance experience, Mike has added tens of millions of dollars to businesses from the Fortune 100 to startups and from Entertainment to Telecom. Mike received his Bachelor of Science in Finance and a Master of International Business from the University of Florida, laying a solid foundation for his career in finance and accounting. His work, featured in leading finance publications such as Seeking Alpha, serves as a resource for industry professionals seeking to navigate the complexities of corporate finance, small business finance, and finance software with ease.

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ACTIVITY-BASED BUDGETING: MEANING, ADVANTAGES, AND DISADVANTAGES

A budget is a quantitative plan or forecast for a future period of a business. An activity-based budget is one of the types of the budget which is made based on an activity or different activities in a business.

In an activity-based budget, the business closely considers every cost incurred to determine if it can reduce these costs and create efficiencies.

How to make an Activity-Based Budget?

A business that wants to operate an activity-based budget must use a three-step process to make these budgets. These are as below.

1) Identify cost drivers

2) estimate the number of units for each cost driver.

The number of units for each cost driver will depend on the level of planned activity of the business.

3) Calculate the cost per unit of activity according to the cost driver

When should businesses use an activity-based budget.

Before using an activity-based budget, businesses must first determine whether this budget can help the business. Therefore, businesses must first know when to use this type of budget before applying it.

Advantages of Activity-Based Budgeting

There are many advantages of activity-based budgeting for businesses. These advantages are as below.

Provide a fresh start

Are forward-looking.

Activity-based budgets do not rely on historical data to contemplate a budget. These budgets are more forward-looking and future-oriented rather than depending on data from past activities, as is the case in traditional budgets.

Help identify inefficiencies

Are goal-oriented.

This makes activity-based budgets more goal-oriented than other types of budgets.

Avoid conflicts

Disadvantages of activity-based budgeting, are time-consuming.

Activity-based budgets can be time-consuming as they involve a thorough examination of the activities of a business to identify cost drivers.

Require skills and knowledge

Require costs.

Furthermore, to successfully implement activity-based budgets, a business needs to have trained employees.

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Activity-Based Budgeting: Understanding the Concept and How it Works

Activity-based budgeting is a powerful tool for companies looking to optimise their spending and improve their bottom line. With the increasing complexity of businesses, traditional budgeting methods are becoming obsolete, leading many organisations to adopt activity-based budgeting as a more effective solution. The process of activity-based budgeting can be challenging. However, its benefits, such as improved cost control and better decision-making, make it a valuable tool.

What is Activity-Based Budgeting?

Activity-Based Budgeting (ABB) is a sophisticated budgeting method, considering activities that result in costs for the company. It aims to provide an accurate picture of how the company spends its monetary resources on individual activities or projects.

ABB follows a bottom-up approach to budgeting in that the company gathers and analyses the cost of every activity. This information is then used to identify inefficiencies and optimise them to improve operational efficiency, thereby reducing costs. Now, based on these results, the company creates a budget.

While traditional budgeting methods rely on a broad, aggregate categorisation of expenses, ABB gives a more accurate picture of the costs associated with individual activities.

How Does Activity-Based Budgeting Work?

Businesses strive to minimise their expenditure, and ABB lets them take a step in the right direction. If done effectively, ABB helps companies grow revenues and maximise profits. But how, let’s see:

Identify Activities

Identify the activity cost drivers — activities that affect expenses and revenues. These activities are generally divided into two parts — main and secondary.

Main activities cannot be eliminated as they are directly related to their purpose. Secondary activities generate value for the customers but are not the main ones. If they are costly, they can be subcontracted.

For simplicity, let’s take an example of a keyboard company. In this company, the main activity cost drivers could be making, packaging, and advertising keyboards, among others.

Determine the Number of Units

Now, determine or identify the number of units associated with each activity.

The keyboard company needs to determine how many keyboards they make and sell in a month in a certain period. Let’s say they sell 1,000 keyboards per month – this is the number of units related to the activity ‘making and selling keyboards’.

Calculate Cost per Activity

You need to determine the cost of making and selling one unit. If it costs £10 to make and sell one keyboard, you need £10,000 for 1,000 units. This is one simplistic example, though.

Usually, companies are involved in multiple activities, and to split the costs of doing those activities between different things, they can consider these three inductors:

• Transaction: Number of times they do a particular thing.
• Duration: How long does it take to do the said thing?
• Intensity: What are the resources required?

Since the company knows the cost of creating one keyboard, it can identify inefficiencies and eliminate unnecessary costs, boosting profitability.

Activity-Based Budgeting — Example

ABB provides a systematic approach to budgeting, enabling firms to make informed decisions and improve operational efficiency. Let’s understand this further using a simple activity-based budgeting example.

The keyboard company expects to receive 5,000 keyboard orders from ABN Technologies next year, and processing every order is expected to cost £3. Therefore, the ABB budget for this order is £15,000 (= £5,000 * 3).

In contrast, using traditional budgeting models, the company might have arrived at a different number. For example, if the last year’s budget was £20,000 and sales were expected to grow 10%, it would have set aside an amount of £22,000.

Comparing Budgeting Approaches: Activity-Based Budgeting Advantages & Disadvantages

ABB provides valuable insights into business operations and enables better resource allocation. It comes with higher costs, a longer implementation time, and requires specialised knowledge.

Businesses must weigh the benefits against the disadvantages before deciding if ABB is the right fit. Following are some activity-based budgeting pros and cons:

It ensures that resources are aligned to more efficient activities, reducing costs and maximising sales, leading to higher profits, and preventing resource wastage.

Undertaken after intensive research and analysis, allowing the management to eliminate bottleneck-related activities, ensuring smooth business operations.

Provides valuable insights into operational inefficiencies and imbalances, enabling the management to make more informed decisions.

This makes it easier for the management to evaluate activity performance, hold employees accountable and track progress.

Improves decision-making efficiency, contingency planning, performance measurement, and evaluation.

Disadvantages

It is expensive compared to other types of budgeting due to the additional resources required for research, analysis, and tracking.

ABB requires more time and information to develop and implement, making it a slower process.

Developing and implementing ABB requires a deep understanding of the business processes, making it a complex task for those without the necessary skills.

ABB is primarily used for short-term goals, making it less suitable for businesses with long-term objectives.

Activity-Based Budgeting vs Zero-Based Budgeting

ABB aims to identify and allocate costs to specific activities that cause an organisation’s costs. It is particularly useful for complex operations with multiple products or services.

Zero-based budgeting (ZBB) is a traditional approach in which the budget is created from scratch for each budget period. In this approach, each expense must be justified for each new budget period, regardless of whether it was included in the previous budget.

The idea behind ZBB is to ensure that the budget is based only on current needs and that all expenses are justified on a current basis. This approach is particularly useful for organisations that want to control costs, increase efficiency, and improve decision-making.

Activity-Based Budgeting: Key Takeaways

Activity-based budgeting considers the costs of individual activities that result in costs for a company. It provides an accurate picture of how the company spends its resources, enables better resource allocation and operational efficiency, and enhances decision-making. By improving resource allocation, reducing costs and maximising sales, ABB can positively impact cash flow .

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Home > Finance Glossary > Activity-Based Budgeting

Activity-Based Budgeting

Activity-based budgeting (ABB) is a rigorous form of budgeting that is often used in conjunction with cost cutting efforts. It is a useful form of budgeting for fledgling organizations that need to keep a tight lid on costs and provides good insight into expenses that drive revenue. 

While it is more intense than a traditional budget, activity-based budgeting can be an incredibly useful practice. In this FAQ we will discuss what activity-based budgeting is, why it is important, and how to create an activity based budget. 

What Is An Activity-Based Budget?

An activity-based budget is a budget that scrutinizes every cost in a business. Like the name implies, an activity-based budget is created using the activities that drive costs.

The process is agnostic to the type of costs or their importance to the organization. The ABB process demands that each cost is researched thoroughly and then justified before being included in the budget.

Because of the heavy emphasis placed on researching and justifying each expense, it takes far more time and resources than a traditional budget. It is important that you weigh the costs and benefits of devoting the time and resources required for a successful ABB.

Why Is An Activity-Based Budget Important?

Probably the most obvious benefit of creating an ABB is the process of examining, researching, and justifying every expense in the business.

This does two critical things for a business:

• It forces the enterprise to become intimately familiar with every cost associated with revenue generation
• It helps the organization unify to find ways to reduce and manage expenses.

The idea behind an ABB is to help the organization maintain its current level of revenue while simultaneously reducing its costs. In this way, an ABB can be a powerful tool that hypothetically should increase the bottom line.

Activity-Based Budgeting vs Traditional Budgeting

A traditional budget relies on prior-year expenses and revenues that are then projected into the future and adjusted for sales growth/decline or changes in economic conditions.

Typically, a traditional budget uses some percentage basis to adjust prior-year values. Because of this, traditional budgets tend to bloat unnecessarily over time and can result in relaxed cost management. 

An activity-based budget differs from this in that it disregards prior year values entirely and instead focuses on identifying cost drivers. The process then eliminates unnecessary costs to develop a new budget independent of prior-year values.

Although every business can benefit from an ABB, it is not always the best approach for every business. Well-established businesses that have mature revenue generation and expense management might find an ABB overly time consuming and of little benefit.

However, an ABB is a great option for new businesses that might not have historical information at their disposal. In addition, new businesses should heavily scrutinize every cost as they look to grow.

An ABB is also a great budgeting approach for businesses that are experiencing some material change to their organizational structure. This might be a recent acquisition, an establishment of a new subsidiary, or major shifts in demand.

How To Make An Activity-Based Budget

While the process of making an ABB is time consuming and can be arduous, there are actually only a few steps in the process. Each of the steps is straightforward, with the most emphasis placed on the first step. 

Step 1: Identify the Relevant Business Activities and Examine Cost

The first step is to identify all of the relevant business activities that support the organization and then to peel each one apart to scrutinize each of the cost drivers.

This list should not be limited to activities only associated with revenue generation and order fulfillment — they should include all of the business activities in the entire organization. 

Once all of the activities are identified, begin the process of identifying the cost drivers of the activity. Remember to thoroughly review each expense and in the process justify its existence.

Once the base budget is created, begin the process of implementing changes in the business activities aimed at reducing costs.

Step 2: Calculate Units

Once you have determined the cost drivers behind your business activities, calculate the number of units related to each activity.

These values are used in the third step. An example of units would be: number of production line workers, number of administrative staff, or number of vehicles required to conduct normal business. 

Step 3: Determine Cost Per Unit

Now multiply the number of units required for each of the respective business activities you identified in the step by the cost you identified for that task in the first step. This is your baseline cost per unit. 

Use the cost per unit to build the budget from the ground up, first identifying each required unit for every task and multiplying it by the cost.

Remember to justify each additional dollar needed to operate the business and look for ways to reduce the cost per unit.

When you make changes to the cost drivers, simply recalculate the cost per unit and compare it to your baseline calculation to determine its value. 

Using Datarails to Build Your Activity-Based Budget

Every finance department knows how challenging building an activity-based budget can be. Regardless of the budgeting approach your organization adopts, it requires big data to ensure accuracy, timely execution, and of course, monitoring.

Datarails’ FP&A software can help your team create and monitor budgets faster and more accurately than ever before.

By replacing spreadsheets with real-time data and integrating fragmented workbooks and data sources into one centralized location, you can work in the comfort of excel with the support of a much more sophisticated data management system behind you.

This takes budgeting from time-consuming to rewarding. 

Drive Business Performance With Datarails

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Better Knowledge. Your Insight Is Sharper

Activity-Based Budgeting: Meaning, Steps, Simple Examples, Pros, Cons

Updated: April 15, 2022 - By Ahmad Nasrudin

What’s it:  Activity-based budgeting is a budgeting method by quantifying only key business activities and their associated costs. In the process of allocating money, the company maps critical activities to achieve company goals. Then, the company calculates the costs and develops its budget based on these activities.

This method differs from the traditional method, where the company simply adjusts the previous period’s budget by considering factors such as sales growth and inflation.

When does the company use activity-based budgeting methods?

Generally, companies use activity-based budgeting when they have minimal information regarding historical budgets. They should detail any potential activities that will be undertaken. For this reason, startups are suitable for this approach.

Apart from new companies, this method is also appropriate for companies that are experiencing material operational changes. Examples are when there is a change in the customer base, a change in business lines, a shift in business locations, and business expansion in a new business line. When establishing a subsidiary, management usually adopts this method as well.

In contrast, for companies with minimal operational changes, traditional budgeting is more common. Under the traditional method, companies use data from the previous year, plus a certain percentage increase to reflect business growth and inflation. Traditional methods are faster and require less resources than activity-based budgeting methods.

Steps in building an activity-based budget

Activity-based budgeting is one way to improve the efficiency of business operations. Under this method, management should try to determine how well a particular activity contributes to its goal and explain the possible deviation from each activity’s budget.

To achieve company goals, management determines the activities to be carried out. They also estimate the costs for each activity.

Also, management maps the relationship between activities, whether they are following the objectives or not. From each activity, management then decides how much they should allocate resources.

In general, the activity-based budgeting process is divided into three stages, namely:

• Identify critical activities.  Management breaks down the company’s goals into several activities to carry out. Next, management screens them and determines the main activities, i.e., those generating revenue or incur expenses.
• Determines the number of units associated with each activity . Management will use this figure to calculate costs. For example, for raw material purchasing activities, management considers purchasing personnel and warehouse leases.
• Calculates the cost per unit of activity and multiplies the result by the number of units in each activity.  Say, the purchasing activity requires 5 personnel and a salary of IDR5 million each year. Meanwhile, the company only needs one warehouse with a lease of IDR100 million a year. So, the company will budget for a cost of IDR125 million from the purchasing activity, consisting of a personnel salary of IDR25 million (5 x IDR25 million) and a warehouse rental of IDR100 million.

The above case is a simple example. Companies will usually break down key activities in more detail, from purchasing raw materials to processing to product delivery activities. Each of these incurs costs or contributes to revenue.

Advantages of activity-based budgeting

Compared to traditional budgeting, activity-based budgeting has several advantages, including:

• Provides details of the main activities.  Budgeting reflects the estimated workload and financial burden to achieve the company’s strategic goals. This method provides a more detailed list, particularly of overhead costs. This is important for future budget evaluations.
• Better budget control.  The company identifies activities that add value and their driving factors. This kind of information is essential for decision making and better control of cash inflows and outflows. Management gets a clear picture of the cause-and-effect relationship between costs and activities. It can align the budget with the overall goals of the company.
• Empowering resources better and efficiently . Management can direct all personnel to focus on main activities. Management eliminates less critical activities. So, the staff has clear roles and targets during the fiscal year.
• Eliminates waste of money . Management designs budgets and activities based on causal relationships. Management filters various activities into several main activities and determines their cost consumption. So, this method eliminates all kinds of unnecessary costs.
• Achieve excellence while reducing workload . Before designing a budget, management should gain a deep understanding of how to create value for customers. Then, they determine various activities to fulfill the, from purchasing inputs, selling to providing after-sales service. So, every activity contributes to providing the best value for customers.
• Supports synergy . This method helps in viewing the business as a whole. Management maps the relationship between activities and tries to eliminate all kinds of bottlenecks that often occur in cross-division cooperation.

Disadvantages of activity-based budgeting

This method is not ideal for all companies. This method contains some drawbacks so that some companies do not adopt it. Among the disadvantages of activity-based budgeting are:

• More expensive and time-consuming than traditional budgeting.  Management must collect and detail information about various operational activities. The details may not only take a page or two. They have to sort out and determine which activities are essential to arrive at a cost determination. The process will likely take a long time.
• Assumption inaccuracy . The disaggregation of critical activities is often biased. Determining what contributes to revenue and what doesn’t is difficult. Management may overspend on activities that contribute less to revenue and reduce budgets for activities that are actually more important.
• More complex . Management requires a deep understanding of every business activity before determining what is important and what is not. Misunderstanding will only result in an inaccurate budget.
• Requires more resources . Management may have to involve everyone to map the various activities that should be carried out. Why? Each of them has a duty and role in the company’s operations. Also, this method requires trained employees to know how vital their role is. So, ideally, management should question all of them. For this reason, activity-based budgeting is suitable for large companies with more structured operations and management.
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About Ahmad Nasrudin

I’m an introvert but I love writing. While my passion lies in storytelling, my professional journey began in the analytical world of finance. At a leading rating agency, I honed my analytical skills through equity research, credit risk assessment, and financial modeling. My background in statistics with a focus on macroeconomics adds a unique dimension to my writing.

Free Project Budget Templates: Simple to Advanced

By Andy Marker | February 25, 2022

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We’ve compiled the most useful free project budget templates for project managers, professional services teams, accountants, and other project budget stakeholders. 

Included on this page, you’ll find a simple project budget template , a construction project budget template , a sample project proposal budget template , and a multiple project budget Gantt chart template , as well as a list of helpful tips for completing a project budget template.

Simple Project Budget Template

Download Simple Project Budget Template Microsoft Excel | Microsoft Word | Google Sheets  

Use this simple project budget template to plan and track all required tasks, resources, and the associated costs. Simply enter project tasks, subtasks, status, start and end dates, as well as labor and materials costs. You can enter fixed costs and compare budgeted and actual amounts. 

The Balance column reflects each task’s under/over amount, and the built-in subtotal line tallies all task balances to give you the big picture of your project’s financial outlook. Use this customizable template to define and track any expenses your project incurs, and to ensure that you successfully complete your project within budget. 

Find additional project proposal templates and learn more about getting the most out of your project-budget proposals.

Project Management Budget Template

Download Project Management Budget Template Microsoft Word | Adobe PDF | Google Docs  

Use this template to stay on top of your project budget and ensure that you, your team, and all other project stakeholders have easy access to the project’s financial details. This advanced project budgeting template offers space for you to define your project’s purpose, reporting requirements, spending limit authorization levels, cost variance action plan, cost estimation process, cost baseline, work breakdown structure (WBS), cost control and metrics, change control process, and total project budget. This detailed template helps you monitor your estimated and actual budget amounts in order to successfully launch and manage the project.

Construction Project Budget Template

Download Construction Project Budget Template  Microsoft Excel | Google Sheets

Use this construction project budget template to break down construction task costs by general requirements, site prep, on-site water or sewer, utilities, excavation and earthwork, foundation, rough framing, electrical, and all the other construction stages. Enter labor costs for each task or subtask hours and rate) and materials (quantity and cost) to determine your project’s budgeted and actual amount, and by how much you’re over or under budget. Customize this template to reflect your unique construction project tasks and needs. 

Read our guide on construction budgeting to find more construction-budgeting resources, and to ensure that you hit your budget goals.

Project Proposal Budget Template

Download Project Proposal Budget Template Microsoft Excel | Google Sheets

Use this comprehensive project proposal budget to account for the costs of every task in your proposed budget. For each task, enter a unique WBS, a description, status, planned and actual start dates, targeted end date, labor and materials costs, and budgeted amount. Then, enter the actual amount spent to complete each task, and view the under/over amount and make any necessary adjustments. Use this tool to anticipate the differences between your proposed and actual budget, and to adapt accordingly.

Project Budget Control Template

Download Project Budget Control Template — Microsoft Excel

Keep an accurate budgeting record and tight control of project-related spending with this unique project budget control template. Enter line-by-line tasks and subtask costs, and the template will automatically calculate subtotals to reflect whether your individual components — as well as the project as a whole — are over or under budget. You can use this simple project budget control template to control costs for a single project, related projects, original project budget figure comparison, or multiple projects.

Project Budget Definition Spreadsheet

Download Project Budget Definition Spreadsheet Microsoft Excel | Google Sheets  

In order to create a successful project-specific budget, you need a customizable blueprint to account for all of the components. Use this project budget definition template to list a project’s profit and loss (P&L) components, including revenue, cost of goods sold (COGS), labor costs, and more. Under Balance Sheet Category , list cash (budgeted, actual, and variance), inventory, net fixed assets, long-term debt, and other financial factors. The template provides you with a month-by-month, quarter-by-quarter, and annual insight into your project’s planned or implemented budget.

Sample Project Proposal Budget Template

Download Sample Project Proposal Budget Template Microsoft Excel | Google Sheets

Take the guesswork out of creating a project proposal budget with this sample template. The template includes sample text that guides you through the project budget creation process, along with sample labor, materials, and fixed costs; it also prompts you to assign individual task statuses, labor costs, proposed start and end dates. Use the pre-filled, editable task and subtask line-item amounts to determine whether you’re over or under your proposed budget, and how you might adjust to ensure that your proposed project comes in under budget.

Project Expense Tracking Template

Download Project Expense Tracking Template Microsoft Excel | Google Sheets | Smartsheet

Use this project expense tracking template to ensure that you proactively account for all of your project expenses, so that any shortfalls don’t risk your project’s success. This template includes customizable budget-component categories, auto-tallying materials and labor sections, space to note budgeted versus actual amount for each budget component, and the over/under amount. Propose and track the expenses for each individual task, and keep an eye on how each of these variables affect your project’s bottom line. 

Read our project cost templates article to find additional templates and learn more about getting the most out of your project budgeting.

Multiple Project Budget Gantt Chart Template

Download Multiple Project Budget Tracking Template — Excel

Manage multiple projects at once with this Gantt chart template, which provides a project budget that’s unique for each individual. Guide team members and project sponsors through your financial details with this dynamic template, which includes example text and a visually rich Gantt chart that lists your projects’ over/under figures. Compare project-by-project budgets, or adjust figures for an individual project to ensure that you’ve adequately budgeted for your proposed project and are prepared for successful execution.

Project Budget Breakdown Template

Download Project Budget Breakdown Template  Microsoft Excel | Adobe PDF | Google Sheets  

Keep tabs on your project’s proposed versus actual budget with this easy-to-use project budget breakdown template. This fully customizable template enables you to accurately estimate the cost of each project category, review category subtotals, and then compare the total budgeted amount with your allotted budget.

What Is a Project Budget Template?

A project budget template is a tool that project managers use to estimate, implement, and gauge projected versus actual project costs. Use a template to track the project budget at the tasks level and identify your budget projections. 

A project budget template takes the guesswork out of budgeting for projects, so that you have an accurate financial picture of all project-related costs and can identify how the costs of every project facet affect the big picture of your allotted budget. A project budget template can also alert you when tasks run over budget, so that you can adjust costs or other expenditures to stay within project budget. 

A project budget template provides insight into the accuracy of anticipated expenditures and revenue sources so that you can use the template to justify any project-related cost adjustments to successfully execute the project. 

A strong project proposal template will typically include the following sections to account for all of your proposed expenses: 

• Actual: Enter the actual cost of each budgeted task.
• Budget: Review the budgeted amount for each individual task.  
• Category: Enter category names for each task series or each subtask for your project’s budget. 
• Fixed Amounts: Enter the fixed costs for each task. 
• Labor: Enter each budgeted task’s projected hours and hourly rate.
• Materials: Enter task units, cost per unit, travel-related costs, and costs per piece of equipment or required office or work space. 
• Project Title: Enter a title for the project and the projected and implemented tasks plan to track. 
• Subtotal: Review the combined under/over amounts to determine your subtotal and assess whether your project is within budget.
• Task: Enter each budgeted task, a WBS number, a description, status (e.g., not started, in progress, completed), anticipated and actual start dates, and a proposed end date. 
• Under/Over: Review each task’s under/over amount to determine any discrepancies between budgeted and actual task amount, and make adjustments accordingly.

Streamline Budgeting with Smartsheet for Project Management

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Activity-based budget template.

This is a basic activities-based budget template. It allows program managers to plan expenses by activity, including labor, travel, materials, overhead, and equipment costs. The template is designed to be used as part of the Communication Strategy how-to guide .

Last modified: March 25, 2019

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Creative Ways to Use Graphic Novels in the Classroom! 🎥

25 Meaningful Saving and Budgeting Activities for High School Students

Teach teens financial fitness now so they have a prosperous future.

If we let students graduate high school without learning key skills like saving and budgeting, we’re doing them a real disservice. These budgeting activities are terrific for a life-skills class, morning meeting discussion, or advisory group unit. Give teens the knowledge they need to make smart financial choices now and in the future!

Classroom Saving and Budgeting Activities

Try the Jellybean Game

Before you get into the nitty-gritty of numbers, start with this clever activity that gives kids practice allocating assets in a low-stakes way. They’ll use jellybeans to decide what they need, want, and can truly afford.

Learn more: The Jellybean Game

Use budget-planning worksheets

The Consumer Financial Protection Bureau has developed lots of tools to help teens and adults learn to manage money. Show kids how to use their Income Tracker, Spending Tracker, Bill Calendar, and Budget Worksheet (all at the link below). Start by having kids consider their current financial situation. Then, give them hypothetical “adult” situations to plan for, with income and expenses drawn from typical people in your area.

Learn more: Budgeting Worksheet Tools

Create a buying plan

This activity encourages kids to think about purchases, especially major ones. Saving money is just one part of the process—they also need to consider what makes a good purchase and whether they should pay up front or borrow the money instead.

Learn more: Creating a Buying Plan

Practice grocery shopping

Most kids probably have no idea how much groceries cost. Use grocery store websites to your advantage, and have kids take a virtual shopping trip. They can plan meals and determine what they’ll need to buy. Or have them start with a weekly food budget and work backwards from there. Either way, remind them to make sure their menus include healthy options.

Learn more: Make a Great Grocery List at WebMD

Build a savings “first-aid kit”

It’s no secret that things can and do go wrong. Budgeting activities like this one help students learn what to do when unexpected expenses crop up. Students learn about real-world costs and come up with ways to save in advance and adjust on the fly.

Learn more: Savings First Aid Kit

Discover what jobs actually pay

Ask students to list some jobs they think they’d like to do someday. Then, have them research average salaries for those jobs. Encourage them to factor in where they plan to live (salary ranges can be dramatically different across the country). Plus, ask them to think about the education they’ll need to land those jobs, and how long it will take them to earn the money to pay back any loans they’ll have to take.

Learn more: Job Salaries by Field

Find out how credit cards work

These days, most people pay with plastic instead of cash. Sometimes they use debit cards, but often they’re credit cards. If you’re going to use them, you need to know how they work. Divide your class into groups, and ask each to research a different question about credit cards, like how they work, what interest they charge, and how to use them safely.

Learn more: Best Credit Cards at Money Under 30

Experiment with different budget models

There’s no one right way to set up a budget. Expose students to a variety of models, like proportional budgets, the “pay yourself first” model, the envelope budget, and more. Ask them to think about which kind of person each model works best for and which one they’d choose.

Learn more: 6 Different Ways To Budget Your Money at Young Adult Money

Explore Budgeting Apps

Teens are usually pretty attached to their phones, so show them one way to make really good use of screen time: budgeting apps. Learn how to choose a good one in this video.

Calculate compound interest

When you invest your money in an interest-bearing account, it earns money just by sitting there! That money can really grow over time too. Have students complete budgeting activities like looking up current interest rates and then calculating the potential interest from using those accounts for short and long periods of time. Explore local bank offerings, and take into account things like fees too.

Learn more: Compound Interest Calculator

Learn what “living expenses” means

Kids generally don’t think about all the costs of daily living. Start by brainstorming a big list as a class of all the things people need to spend money on each month: rent or mortgage, car payments, credit card payments, food, entertainment, utilities, Internet access, and more. Break kids into groups and have each group research the average costs of those items in your area. Come back together as a class and add up their findings to see what “living expenses” can really be.

Learn more: Monthly Expenses at Inspired Budget

Get a reality check

Everybody’s got dreams, but how realistic are they? That’s where the Jump$tart Reality Check program comes in. By making choices about the future they want, teens will learn what they’ll need to earn to make it happen. The answers might really surprise them.

Learn more: Reality Check—Online Tool for Students

Reflect on needs vs. wants

Ask students to reflect on what they truly need to survive vs. things that just make life easier or more fun. Budgeting activities like this can help them identify items they can eliminate when funds get really tight.

Learn more: Needs vs. Wants

Learn to protect your money

If teens don’t learn smart skills like avoiding phishing scams, how to choose good passwords, or identifying fraudulent sites, they can lose everything they save. Take time to learn about the most common fraud issues, and teach them how to be responsible online.

Learn more: 8 Ways To Protect Your Money That All Students Should Know at We Are Teachers

Savings and Budgeting Online Games

How Not To Suck at Money

The title pretty much says at it all: By playing this game, students learn how to manage their money and use it responsibly.

Learn more: How Not To Suck at Money

The Uber Game

Let students imagine life as an Uber driver. This game is based on actual Uber driver experiences and can be a real eye-opener.

Learn more: The Uber Game

Hit the Road

Think of this like Oregon Trail for the modern age. A group of friends is setting off on a cross-country trip, but they’ve got to manage their funds to get where they want to go. Try this one as a group activity so kids have to work together to make smart choices.

Learn more: Hit the Road

Budgeting and saving is important, but students should also learn about the importance of having the right kind of insurance. Because sometimes life really is just a bummer!

Learn more: Bummer

College-bound kids might figure they’ll take loans now and figure out how to pay them back later, but do they really have a handle on the true costs? These interesting online simulations let you pick your school, then walk through four years of potential expenses and income opportunities to find out how you fare in the end.

Learn more: Payback

Misadventures in Money Management

This online game feels a bit like a graphic novel, and it helps kids learn the basics of budgeting and money management. Explore multiple topics and complete missions to learn valuable skills.

Learn more: Misadventures in Money Management

Lights, Camera, Budget!

Managing your own money can feel a little dull, so why not try your hand at managing a multimillion-dollar movie budget instead? This one has levels for both middle and high school students too.

Learn more: Lights, Camera, Budget!

Living on the financial edge is a sad reality for so many people. Show kids what that can feel like with this online simulation. When the game starts, you have no housing and no job and just $1,000 in the bank. Can you get a job and make it to the end of the month?

Learn more: Spent

Claim Your Future

This cool online game assigns you a career (or lets you choose one) and tailors your experience to your location. You get to make choices about housing and other expenses, and the game calculates how those things fit into a responsible budget.

Learn more: Claim Your Future

The Biggest Bang for Your Buck

This online game guides kids through a shopping trip with financial literacy questions along the way. It’s simple but a terrific way to introduce a discussion on spending, saving, and budgeting.

Learn more: The Biggest Bang for Your Buck

For kids who are sure they can make enough money to live on with their social media accounts, this game might be a bit of a reality check.

Learn more: Influenc’d

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The Four Main Types of Budgets and Budgeting Methods

Levels of involvement in the budgeting process, additional resources, types of budgets.

Four common ways to creating a budget

There are four common types of budgets that companies use: (1) incremental, (2) activity-based, (3) value proposition, and (4) zero-based. These four budgeting methods each have their own advantages and disadvantages, which will be discussed in more detail in this guide.

Source: CFI’s Budgeting & Forecasting Course .

1. Incremental budgeting

Incremental budgeting takes last year’s actual figures and adds or subtracts a percentage to obtain the current year’s budget.  It is the most common type of budget because it is simple and easy to understand.  Incremental budgeting is appropriate to use if the primary cost drivers do not change from year to year.  However, there are some problems with using the method:

• It is likely to perpetuate inefficiencies. For example, if a manager knows that there is an opportunity to grow his budget by 10% every year, he will simply take that opportunity to attain a bigger budget, while not putting effort into seeking ways to cut costs or economize.
• It is likely to result in budgetary slack. For example, a manager might overstate the size of the budget that the team actually needs so it appears that the team is always under budget.
• It is also likely to ignore external drivers of activity and performance. For example, there is very high inflation in certain input costs.  Incremental budgeting ignores any external factors and simply assumes the cost will grow by, for example, 10% this year.

2. Activity-based budgeting

Activity-based budgeting is a top-down type of budget that determines the amount of inputs required to support the targets or outputs set by the company.  For example, a company sets an output target of $100 million in revenues.  The company will need to first determine the activities that need to be undertaken to meet the sales target, and then find out the costs of carrying out these activities.

3. Value proposition budgeting

In value proposition budgeting, the budgeter considers the following questions:

• Why is this amount included in the budget?
• Does the item create value for customers, staff, or other stakeholders?
• Does the value of the item outweigh its cost? If not, then is there another reason why the cost is justified?

Value proposition budgeting is really a mindset about making sure that everything that is included in the budget delivers value for the business. Value proposition budgeting aims to avoid unnecessary expenditures – although it is not as precisely aimed at that goal as our final budgeting option, zero-based budgeting.

4. Zero-based budgeting

As one of the most commonly used budgeting methods,  zero-based budgeting starts with the assumption that all department budgets are zero and must be rebuilt from scratch.  Managers must be able to justify every single expense. No expenditures are automatically “okayed”. Zero-based budgeting is very tight, aiming to avoid any and all expenditures that are not considered absolutely essential to the company’s successful (profitable) operation. This kind of bottom-up budgeting can be a highly effective way to “shake things up”.

The zero-based approach is good to use when there is an urgent need for cost containment, for example, in a situation where a company is going through a financial restructuring or a major economic or market downturn that requires it to reduce the budget dramatically.

Zero-based budgeting is best suited for addressing discretionary costs rather than essential operating costs. However, it can be an extremely time-consuming approach, so many companies only use this approach occasionally.

We want buy-in and acceptance from the entire organization in the budgeting process, but we also want a well-defined budget and one that is not manipulated by people.  There is always a trade-off between goal congruence and involvement. The three themes outlined below need to be taken into consideration with all types of budgets.

Imposed budgeting

Imposed budgeting is a top-down process where executives adhere to a goal that they set for the company.  Managers follow the goals and impose budget targets for activities and costs.  It can be effective if a company is in a turnaround situation where they need to meet some difficult goals, but there might be very little goal congruence.

Negotiated budgeting

Negotiated budgeting is a combination of both top-down and bottom-up budgeting methods.  Executives may outline some of the targets they would like to hit, but at the same time, there is shared responsibility for budget preparation between managers and employees. This increased involvement in the budgeting process by lower-level employees may make it easier to adhere to budget targets, as the employees feel like they have a more personal interest in the success of the budget plan.

Participative budgeting

Participative budgeting is a roll-up approach where employees work from the bottom up to recommend targets to the executives. The executives may provide some input, but they more or less take the recommendations as given by department managers and other employees (within reason, of course). Operations are treated as autonomous subsidiaries and are given a lot of freedom to set up the budget.

Budget Head

Cash Flow Statement

Operating Budget

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Abigail Cruz, Office of International and Tribal Affairs/American Indian Environmental Office, 2690R, Environmental Protection Agency, 1200 Pennsylvania Ave. NW, Washington, DC 20460; telephone number: 202-564-5999; fax number: 202-566-9744; email address: [email protected] .

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Public comments were previously requested via the Federal Register on December 4, 2023 during a 60-day comment period ( 88 FR 84140 ). This notice allows for an additional 30 days for public comments. Supporting documents, which explain in detail the information that the EPA will be collecting, are available in the public docket for this ICR. The docket can be viewed online at www.regulations.gov or in person at the EPA Docket Center, WJC West, Room 3334, 1301 Constitution Ave. NW, Washington, DC. The telephone number for the Docket Center is 202-566-1752. For additional information about EPA's public docket, visit http://www.epa.gov/​dockets .

Abstract: EPA is seeking approval to begin use of a combined EPA-Tribal Environmental Plan (ETEP) and Indian Environmental General Assistance Program (GAP) work plan template. Use of the template would assist grantees and the Agency by providing Tribes with a standardized and streamlined method to report required information outlined at 40 CFR 35.507 , in the 1992 Indian Environmental General Assistance Program Act, and in the 2022 GAP Guidance.

Form numbers: None.

Respondents/affected entities: Federally recognized Tribes and intertribal consortia.

Respondent's obligation to respond: Mandatory if the recipient chooses to combine their GAP EPA-Tribal Environmental Plan and Work Plan into one document.

Estimated number of respondents: 520 (total).

Frequency of response: once every 3-5 years with annual updates.

Total estimated burden: 212.5 hours (per year). Burden is defined at 5 CFR 1320.03(b) .

Total estimated cost: $23,035 (per year), which includes $0 annualized capital or operation & maintenance costs.

Changes in the estimates: This is a new collection.

Courtney Kerwin,

Director, Information Engagement Division.

[ FR Doc. 2024-14494 Filed 7-1-24; 8:45 am]

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