Activity Based Planning & Budgeting

The Coming of Age of the "Consumption-Based" Approach

Consumption-Based Modeling.pdf

In recent years, there has been a growing interest in the subject of activity based planning. Many articles and books have condemned the annual budgeting ritual in favor of more relevant planning to support the strategic objectives of an organization. Some organizations have gone so far as to eliminate the budget completely. Mark Stevens of PCS Consulting sheds light on these developments in this article published in the March/April 2004 issue of The Journal of Corporate Accounting & Finance.

At the same time, leveraging advances in information technology and seeking products to expand their current offerings, software providers have begun to offer better planning and budgeting tools to meet the growing demand. However, many of these tools continue to focus on financial planning instead of the operational demand and activities that consume an organization’s resources. This is making the same mistake that many past budgeting and ABC approaches have made. The financial performance of an organization is driven by demand for its products and services and the consumption of the activities and resources required to provide them. Therefore, the planning and budgeting process should be a consumption-based approach reflecting the causal relationships of an organization’s demand for activities and resources.

The activity-based planning and budgeting approach described in this article utilizes consumption-based relationships to provide the operational focus missing from many of the planning and budgeting systems used today.

 
 
 

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