Abb - Activity Based Budgeting
Activity-Based Budgeting:
Creating a Nexus between Workload and Costs
By
Jon M. Shane
INTRODUCTION
At some point in an executive’s career they will be required to develop a budget for something. Indeed it is a prime responsibility. A budget is merely a plan described in financial terms. Knowing which budget plan to choose is a matter of what needs to be conveyed. There are many different budget styles, each with a different purpose. For example, the most common government budget is the line-item style, which answers the question: what is to be bought? This budget plan is oriented toward control and economy. A program budget answers the question: what is to be achieved? This budget plan is oriented toward planning and effectiveness. And a performance budget answers the question: what is to be done? This plan is oriented toward management and efficiency.1 Each has its place depending upon the goal. However, one budget style, which has gained popularity over the last few years, has the ability to link activities to
costs, giving executives a better understanding of the full costs of service and resource allocation. This plan is an activity-based budget (ABB).
Activity-based budgeting is an outgrowth of activity-based costing (ABC), which is similar to zero-based budgeting.2 This budget type accounts for how staff members allocate their effort among activities. Once the full cost of each activity has been calculated, drivers can be established that link support activities to the primary activities of the organization—in a law enforcement environment the primary activities are the direct costs of program delivery3 (e.g., patrol services, investigations, tactical operations, traffic control, etc.). By developing a comprehensive activity-based budget executives are able to create a clear nexus between workload and costs. Once developed, executives and managers can exercise control in several ways: 1) assign personnel based upon a demonstrated need, 2)
Creating a Nexus between Workload and Costs
By
Jon M. Shane
INTRODUCTION
At some point in an executive’s career they will be required to develop a budget for something. Indeed it is a prime responsibility. A budget is merely a plan described in financial terms. Knowing which budget plan to choose is a matter of what needs to be conveyed. There are many different budget styles, each with a different purpose. For example, the most common government budget is the line-item style, which answers the question: what is to be bought? This budget plan is oriented toward control and economy. A program budget answers the question: what is to be achieved? This budget plan is oriented toward planning and effectiveness. And a performance budget answers the question: what is to be done? This plan is oriented toward management and efficiency.1 Each has its place depending upon the goal. However, one budget style, which has gained popularity over the last few years, has the ability to link activities to
costs, giving executives a better understanding of the full costs of service and resource allocation. This plan is an activity-based budget (ABB).
Activity-based budgeting is an outgrowth of activity-based costing (ABC), which is similar to zero-based budgeting.2 This budget type accounts for how staff members allocate their effort among activities. Once the full cost of each activity has been calculated, drivers can be established that link support activities to the primary activities of the organization—in a law enforcement environment the primary activities are the direct costs of program delivery3 (e.g., patrol services, investigations, tactical operations, traffic control, etc.). By developing a comprehensive activity-based budget executives are able to create a clear nexus between workload and costs. Once developed, executives and managers can exercise control in several ways: 1) assign personnel based upon a demonstrated need, 2)