1 00:00:03,250 --> 00:00:09,310 ‫Activity based budgeting as a top down approach that determines the amount of inputs required to support 2 00:00:09,310 --> 00:00:14,920 ‫your outputs, what you're set by the company or department, you're asking for the budget. 3 00:00:15,430 --> 00:00:21,100 ‫An example would be your department sets an output of a target of 10 million in sales. 4 00:00:22,000 --> 00:00:27,850 ‫This department now needs to determine what activities needs to be undertaken to meet that particular 5 00:00:27,850 --> 00:00:32,860 ‫target and then find out what the costs are for those associated activities. 6 00:00:33,400 --> 00:00:39,100 ‫Many companies or departments were using this approach of activity based budgeting tend to have minimal 7 00:00:39,100 --> 00:00:41,290 ‫information regarding historical budgets. 8 00:00:42,010 --> 00:00:47,610 ‫So this could be a brand new project, new program or is if this is at the company level. 9 00:00:47,650 --> 00:00:51,580 ‫This could be a new company where, again, there is no historical data. 10 00:00:52,180 --> 00:00:57,610 ‫Typically, this is a great approach for a startup or smaller companies where you're gathering the data 11 00:00:57,610 --> 00:01:00,550 ‫to associate the cost to activity correlation. 12 00:01:01,390 --> 00:01:07,510 ‫One of the first steps in using this activity based budgeting model is writing down or determining what 13 00:01:07,510 --> 00:01:10,300 ‫activities are associated with this particular budget. 14 00:01:11,530 --> 00:01:16,870 ‫Once those activities are determined, you're going to go back and determine what the costs are for 15 00:01:16,870 --> 00:01:17,740 ‫each activity. 16 00:01:18,860 --> 00:01:22,280 ‫So you're essentially doing a cost estimate for each activity. 17 00:01:23,660 --> 00:01:28,940 ‫And secondly, you would go through and prioritize those activities while looking for activities you 18 00:01:28,940 --> 00:01:29,690 ‫can eliminate. 19 00:01:30,200 --> 00:01:34,130 ‫And that's something we'll look at at the upcoming activity related to this section. 20 00:01:34,580 --> 00:01:38,360 ‫There are many advantages and disadvantages of activity based budgeting. 21 00:01:39,490 --> 00:01:45,550 ‫The number one advantage is when using this particular method, you've already evaluated all of the 22 00:01:45,550 --> 00:01:49,840 ‫cost drivers that are taken into consideration to complete this budget. 23 00:01:50,440 --> 00:01:55,150 ‫So anything that's really irrelevant has already been eliminated from this program's budget. 24 00:01:55,690 --> 00:02:01,330 ‫Moving forward in determining your activities through walking through the cost, estimation and activity 25 00:02:01,330 --> 00:02:06,490 ‫prioritization, you've already eliminated the bottlenecks within this particular project. 26 00:02:07,090 --> 00:02:09,400 ‫So each activity has been prioritized. 27 00:02:10,400 --> 00:02:16,130 ‫And by doing so, the business eliminates any bottlenecks that are associated with an activity and the 28 00:02:16,130 --> 00:02:18,680 ‫business functions are carried out a bit more smoothly. 29 00:02:19,370 --> 00:02:25,730 ‫Now moving on to some disadvantages, of course, with this particular budget, it's short term. 30 00:02:26,090 --> 00:02:31,940 ‫So what is very ideal for this one particular program's budget and the activities to not be relevant 31 00:02:31,940 --> 00:02:33,770 ‫to the next program or project? 32 00:02:34,950 --> 00:02:40,890 ‫It can be slightly complex and requires various levels of research and understanding as you're walking 33 00:02:40,890 --> 00:02:42,960 ‫through reviewing those activities. 34 00:02:43,440 --> 00:02:45,750 ‫Germany the cost and prioritization. 35 00:02:46,350 --> 00:02:52,680 ‫So this will not only require the research team work within your team and taking up a bit of that resource 36 00:02:52,680 --> 00:02:59,310 ‫consumption. When we're thinking about resources that are involved in prioritization and discussing this 37 00:02:59,310 --> 00:03:00,330 ‫particular budget. 38 00:03:00,780 --> 00:03:06,600 ‫This includes taking them away from their main focus of work, which again, we're looking at the consumption 39 00:03:06,600 --> 00:03:12,120 ‫of our resources and the costs that it's incurring the company to remove those resources from their 40 00:03:12,120 --> 00:03:13,260 ‫primary projects. 41 00:03:14,530 --> 00:03:20,980 ‫So overall, activity based budgeting can be a bit more costly and time consuming to implement when 42 00:03:20,980 --> 00:03:22,780 ‫compared to other budgeting methods. 43 00:03:23,760 --> 00:03:30,210 ‫And this section focus on activities for a current or prior project you've been involved in using the 44 00:03:30,240 --> 00:03:36,060 ‫handout, you'll walk through the process of identifying activities, creating a cost estimate for each 45 00:03:36,060 --> 00:03:41,640 ‫activity, prioritizing activities and eliminating unnecessary activities. 46 00:03:42,610 --> 00:03:47,290 ‫At the end of the activity, you should have a better understanding of how activity based budgeting 47 00:03:47,290 --> 00:03:53,320 ‫works, along with the decision components and talking points when having a discussion with leadership 48 00:03:53,320 --> 00:03:54,010 ‫or your team.