We helped the Vocational Education and Training Authority (VETA), a large organization with offices and training centres in many parts of Tanzania, move from traditional budgeting to Activity Based Budgeting (ABB).
Adopting ABB has given rise to a new culture at VETA!
Everyone is now involved in planning and budgeting, not just the accountants. The result is a more effective cost structure geared to meeting customer expectations.
Through ABB VETA has managed to:
- Allocate financial resources equitably and effectively across its regional offices, training centres, and departments.
- Conduct budget negotiations on the basis of return on investment rather than last year’s budget.
- Tie spending to implementation of planned activities only.
- Focus clearly on results and customers.
- Improve accountability.
- Enhance cross understanding of operations amongst its personnel.
- Make value based decisions regarding budget cuts.
- Always prioritize high value results.
What VETA staff had to say about ABB:
"I don’t know how I would have managed resources allocation and accounting for such a huge and geographically dispersed organization without using ABB. ABB has instilled financial Discipline on Sub-accounting Officers across the organization because all expenditures are based on planned and approved activities only. No expenditure outside planned and approved activities. As all the activities are coded, use of a computerized financial management system safeguards users’ budgetary allocations. In turn this motivates employees to participate and take interest in annual planning."
"Apart from providing opportunity for better communication of strategic objectives throughout VETA, ABB enhanced accuracy of financial forecast (Budget) and also increased management and staff commitment to budget and budgetary control. It has moved us from an unsystematic, little participation and time consuming activity to a systematic, highly participatory and within time activity."
What were the challenges?
- Adopting results based work planning. The essence of ABB is focusing activities on organizational objectives. All work planning must follow suit. This was a new way of thinking for VETA.
- Computing direct and indirect costs of service delivery. For adequate resource allocation the cost of each activity has to be identified. This requires computing all direct and indirect costs involved. Given the scale of VETA this was a large undertaking.
- Individualizing planning and budgeting. Organizational objectives are ultimately achieved by activities carried out by individuals. An effective cost structure requires each individual to plan and budget for their work. At VETA this meant moving this function from the realm of accounting staff only.
How did we undertake it?
- Spreading understanding of ABB. It was important for the whole organization to understand and embrace ABB. We provided training to all personnel.
- Coaching management and personnel. We provided guidance on preparing results based annual work plans and then carrying out activity based budgeting.
- Restructuring accounting system. We helped VETA restructure their accounting system to be activity based. This allows them to track and relate expenditure to achieved outputs and outcomes.
- Training accounting staff. We trained the accounting staff to manage the new accounting system and produce progress reports.