Activity-based budgeting is a method for setting expense budgets base on the levels of activities that drive expenses. For example, the numbers of sales orders, order line items, new customers, special orders and credit approvals might drives expenses in the order processing unit. Activity-based budgets are generally more accurate and defensible budgets.
ModelSheet has a customizable Activity-Based Budget model that has the main features needed to apply this powerful budgeting method. The model accommodates numerous cost centers; each cost center can have numerous expense accounts; each expense account can be driven by numerous activities; and each activity driver can drive any number of expense accounts.
The key inputs to an activity-based budget are the cost-per-activity-count, and the budgeted activity counts in the budget time range. The ModelSheet model allows the user to specify both numbers by time period. The model starts by suggesting cost-per-activity-count coefficients based on historical data for expenses and activity counts. You can use these values as the budget inputs, or use them as historical benchmarks and override the suggested numbers. You can also separate out fixed costs that are not driven by activity counts and add the fixed costs into the final budget.
One of the key benefits of activity-based budgets is the ways you can analyze variances from plan. An expense variance can be due to either higher-than-planned activity counts, or higher-than-planned cost per activity count. These types of variances have quite different causes and remedies. The ModelSheet template enables you to include actual activity counts and actual expenses, from which it can report both types of variance for each activity and for each expense account in each cost center.
In the customizable templates, you can specify the activity drivers, cost centers, expense accounts in each cost center, the activities that drive each expense account, the expense-per-activity-count coefficients, the history time range, the budget time range, and the time grain (day, week, month, etc.). The current versions can handle up to 500 expense accounts that are driven by up to 100 activity counts. We can raise these limits for special projects.
This tool is designed to help people who already use activity-base budgeting by providing a customized tool at low prices, and to help people to experiment with the method without having to manually build spreadsheet tools. You can access the template on our website at http://templates.modelsheetsoft.com/modelsheettemplates/activity-based-budget-templates.aspx . You can customize and download a small free working sample to get an idea how it works before buying one. [Note: If you want this model before February 15, 2010, please contact us directly for more information. After that date, the model will be publicly available at the URL listed above.]