IMPLEMENTING AN

ACTIVITY BASED BUDGET

SYSTEM

PRESENTATION BY
MATTHEW DINGIE
DIRECTOR OF BUDGET, MOFED
CONTENTS
Definition of Activity Based Budget System
Features and Advantages of an ABB System
The 27 Digit COA and the ABB System
Coding of Activities in the FY2014
Estimates
Use of relevant inputs to cost Activities
Use of the Revised MTEF PETS Form I
Conclusion
Definition of Activity Based Budgeting System

 Activity based budgeting is an approach to the

budgeting process that focuses on identifying the costs
of activities that take place in every area of an
organization, and determining how those activities
relate to one another.
 The data regarding those activities and how they relate
to one another is used to establish goals that allow the
organization to move forward.
 Activity based budgeting is more concerned with what
is being done within the organization, how those
actions or activities work together, and then allocating
funds to each activity based on how much it will cost
to successfully complete those activities.
Features and Advantages of an ABB System

 More realistic - involves looking inward at activities and costs rather

than basing the budget on line items;
 Creates financial forecasts that are more accurate;
 Prompts the organization to make the most efficient use of its
resources;
 Minimizes wasteful spending within an organization - the analysis of
each activity and its contribution to the ongoing success of the
organization means that any activities that do not appear to relate to
other activities within the organization structure may in fact be
unnecessary;
 Changes the way in which costs are counted;
 It is easier to align with the organization’s Strategic Plan
 Provides more flexibility in reallocation of funds than with line
budgeting systems
 It helps in setting performance targets and hence suitable for
monitoring
The 27 Digit COA and the ABB
System
 Understanding the COA
 1st – 3rd Digits – Sector and MDA - eg. 129, 301, 201
 4th – 5th Digits – Division within MDA – eg. 12901, 30101, 20101
 6th – 7th Digits – Cost Centre within MDA – eg. 1290101, 3010105
 8th -10th Digits – Fund Source segment and type of financing
 11th – 18th Digits – Activity/Project segment
 11th Digit – PRSP Pillar; 12th Digit – Thematic Area in PRSP; 13th
Digit – PRSP objective; 14th – 16th Digits – PRSP Activities in
MDA Strategic Plan; 17th – 18th Digits – PRSP sub-activities
 19th – 23rd Digits – Location
 24th – 27th Digits – Object of Expense or Revenue
Coding of Activities in the FY2014
Estimates
 Illustration
 132001-000-72132100
 7 – Pillar 7 (Governance and Public Sector Reform);
 72 – Thematic Area 2 (Public Financial Management);
 721 – Policy Objective under 1 Thematic Area 2 (To have a more
efficient and effective State management of public financial
expenditures);
 721321 – Activity #321 under Policy Objective 1 (Developing a
quality accounting class within the public service);
 What kinds of Input will go into the implementation of this Activity
(Note – Flexibility Vs Relevance) – Local Training? (Yes),
Stationery?(Yes), Computer Running Costs? (Yes), Generator
Running Cost? (No) Freight & Port Charges? (No)
Use of relevant inputs to cost
Activities
All the Standard Object Codes are
available to utilise in the costing of
activities
However, only the relevant ones should
be used for a specific activity
Object Codes that cannot be justified will
be eliminated and hence reduce the cost of
the Activity
Use of the Revised MTEF PETS
Form I
Additional Features:
Description of Activities
Objective(s) of the Activities
Scope, Coverage and Duration of
Activities
Target Beneficiaries and Expected
Outcome
Conclusion
The use of the ABB System ensures
efficient and effective budget execution
Avoids duplication of resources
especially for Foreign Funded
Programmes
Improved participation of Budget
Committee members in developing
budget request proposals
THANKS FOR YOUR
ATTENTION