What is Activity Based Budgeting (ABB) or Activity Based Costing (ABC)?

Activity Based Budgeting (ABB) is a form of budgeting based on allocating costs to each and every cost that occurs within the business to produce the product. 

A business organization has a variety of departments. Eg: procurement, production, human resources, sales and marketing and so on. Each of these departments incur costs in order to produce the product. Every cost occurred within the business is directly or indirectly related to the output. So it is only fair to consider all these costs in preparing budgets. 

When conducting a budget based on the activities of the business, the business should identify cost centers and allocate predicted budgets to each cost center. By breaking down the departments and process into smaller cost centers, the business is able to identify clearly where the unnecessary costs are being occurred. This is a big advantage of ABB. 

Examples of activities are; bringing in raw materials (fuel and salaries for drivers), each machinery costs, supervisor salary, cost of hiring new employees, lay off costs, transportation cost of finished goods and so on.

Activity Based Budgeting or Costing is a tedious process, as there could literally be thousands of activities in a production business. So it is quite impractical to implement ABB or ABC into large organizations. It also takes a lot of time to prepare budgets based on this approach. These are a few disadvantages of ABC. 

If you have further questions about Activity Based Costing or Activity Based Budgeting comment below.

Hofstede's Cultural Dimensions Explained

Geert Hofstede was a pioneer in research on culture and different types of cultures on an international scale. When he was working at IBM back in 1960s he conducted a research across 66 nations (Wikipedia says 50) to analyse the different cultures existing in the world. He came up with 5 cultural dimensions.

1. Power Distance
2. Uncertainty Avoidance
3. Masculinity vs Femininity
4. Individualism vs Collectivism
5. Long Term Orientation

01) Power Distance

The gap between different hierarchy levels within the society or a workplace. More or less people's acceptance of the unequal distribution of power and authority within the culture. High Power Distance means people are tolerant of the vast gap between lower and higher hierarchical figures of the society. 

02) Uncertainty Avoidance

This refers to the degree of acceptance of 'uncertainty' in their lives. This could also be interpreted as how well or not people perceive or accept the uncertainties and ambiguities in the society or the workplace. High Uncertainty Avoidance cultures tend to have strict and precise rules to minimize uncertainties. 

03) Masculinity vs Femininity 

This refers to the people's perception of gender roles within the culture. Masculine cultures tend to have clear cut roles assigned to both men and women. Masculinity is associated with assertiveness, competitiveness, achievement oriented, ambition and power. However Femininity is associated with quality of life. A Feminine culture will have interwoven gender roles. Both genders will be performing same roles in the society.

04) Individualism vs Collectivism 

This cultural dimension refers to the level of individual integration to groups within societies. Individualist cultures consist of people who put themselves before the group's needs. They like to work alone and achieve their personal objectives. In Collectivist cultures people put the group's needs in front of theirs'. They work towards the good of the group rather than their personal benefit. 

05) Long-term Orientation

This dimension focuses on a culture's time focus. If a culture is long term oriented, it necessarily means they are focusing on the future. They will be sacrificing short term benefits in pursuit of long terms benefits.

Hofstede's Cultural dimensions allow us to identify different traits and personalities existing within different cultures.

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What is "Culture"? Definition by Edgar Schein and Simple Explanation

"a set of basic assumptions – shared solutions to universal problems of external adaptation (how to survive) and internal integration (how to stay together) - which have evolved over time and are handed down from one generation to the next"

(Schein, 2004: 14) 

According to Schein people fundamentally search for two solutions--'how to survive' and 'how to stay together'. Put these two in to day to day context and a lot of things will start to make sense. Anyway according to Schein, Culture that we live in is all about survival and staying together. 

'Culture' is believed to be 'learnt' rather than 'inherited'. People are not born with a culture--people are born into a culture. With time people will adjust to the culture to stay together (since humans are a collective type of animals) and to survive among the other cultures. This is why the definition says the 'culture' is handed down from generation to generation.

Culture obviously evolves over time. Nothing stays permanent--that is the universal law of everything. And so does culture. With different forces, internal and external, acting upon the culture we live in, it changes it's nature, it's norms, values, beliefs, behavior etc. People of a culture must adapt to the change it undergoes. Or else he will be an outcast--he will not 'stay together' with the group.

A simple yet powerful and comprehensive definition to the vague term 'Culture' is provided by Edgar Schein. 

There are many more definitions and explanations to Culture and it's actors and how it affects businesses. So we will be back with more articles on how Culture affects businesses in the future. 

If you have any questions, comment below.