IMPLEMENTING AN ACTIVITY BASED

BUDGET SYSTEM

PRESENTATION BYMATTHEW DINGIE

DIRECTOR OF BUDGET, MOFED

CONTENTSCONTENTSDefinition of Activity Based Budget

SystemFeatures and Advantages of an ABB

SystemThe 27 Digit COA and the ABB SystemCoding of Activities in the FY2014

EstimatesUse of relevant inputs to cost ActivitiesUse of the Revised MTEF PETS Form IConclusion

Definition of Activity Based Budgeting Definition of Activity Based Budgeting SystemSystem

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 Features and Advantages of an ABB SystemABB 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 The 27 Digit COA and the ABB SystemABB 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 Coding of Activities in the FY2014 EstimatesEstimates

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 Use of relevant inputs to cost Activitiescost 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 Use of the Revised MTEF PETS Form IPETS Form I

Additional Features:Description of ActivitiesObjective(s) of the ActivitiesScope, Coverage and Duration of

ActivitiesTarget Beneficiaries and

Expected Outcome

ConclusionConclusionThe 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