Phase one of the Closed Loop Model attempts to achieve an operational balance.

Operational balance is
defined as providing sufficient resource capacity to meet the sum of all demands placed on the
organization with an acceptable level unused capacity. Unused capacity may often be considered as
useful buffer capacity, as opposed to negative idle or excess capacity. The first step in this phase is to
identify a strategy that fits with the organizational goals. This strategy is then used to develop a feasible
operational plan. The organization should identify the demand, constraints, resources, drivers, and
outputs desired with the particular operational process. Once these requirements are known, the model
tries to achieve an operational balance between the resources required to meet the demand and the
available capacity of the resources. The key aspect of operational balance is that it is achieved strictly on
nonfinancial terms.

The second phase is to develop a financial plan that works with the operational balance to achieve the
desired financial balance. Financial balance means generating a financial plan/budget that uses the
quantities and rates defined in the operational plan to deliver the required financial results. This phase
is simple because all the factors have been established. Management must now determine the cost of
resources, then trace these costs to the activity costs. The activity costs will ultimately arrive at the
product costs.
If any of these phases were to become imbalanced, the Closed Loop Model allows for an adjustment of
the following five elements to reach the target budget:

Product demand quality

Activity and resource consumption

Resource capacity

Resource cost

Product/service price

The ability to alter the above elements makes this Model very beneficial for any organization. This more
detailed view of the closed loop model is illustrated below.
Contrasting Traditional and ABPB Approaches

The following chart contrasts the two approaches:

Traditional Approaches ABPB Process

Financial view only
Lack of buy-in from all areas
of management
Too detailed
Lack of confidence in
information
Perceived "gaming" with
budget numbers
Too time consuming
Operational and financial view
All managers are involved on an on-going basis
Macro forward-looking approach with detail only when
and where required
Uses "hard" operational and resource information to
generate the model
Using an observational model reduces the amount of
room for disagreement on operational and financial
information
Is part of an on-going means of proactively managing
 the organization
Iterations are kept at a macro level and are more
Too may iterations
meaningful

Integration with Traditional Budgeting Process and Other Performance

Management Initiatives

ABPB can be used in conjunction with traditional budgeting process. The best way to
obtain integration is to use the Closed Loop Model for the parts of the organization
that produce identifiable products or services. The Model can also be used for the
parts of the organization that have processes that can be easily mapped. The parts of
the organization that can not be mapped or do not have easily identifiable products or
service can be budgeted using the traditional process.

ABPB can also be used as a management performance system. The Model helps the
employees to focus and clearly see the strategy and how to execute it. The most
important part of using ABPA is to view the Model as a one of many management
tools. It should not be viewed in isolation. As a management performance system,
ABPA can be coupled with the balance scorecard. These two methods compliment
each other because they both commence with a strategy.

Conclusion

The main benefit of this new approach to budgeting and planning is related to the
flexibility and dynamic aspect of the model. This aspect allows for a better link to
performance management and accountability. This approach is not too time
consuming because of the proactive and flexible planning involved. The ABPB
approach accommodates the dynamic business environment that the majority of
organizations operate in today.

Activity-based budgeting increases the sophistication of the operational planning

system and generates greater flexibility in responding to unforeseen events,
modeled as reducing the cost of soft capacity. Finally, the beyond budgeting
approach involves changing the ways that employees are compensated and
thereby improving performance evaluation, modeled as reducing the noise in the
external signal.
Manfaat ABB (vs traditional budgeting):

1. Menyeimbangkan kebutuhan operasional

a. Menghindari kalkulasi efek finansial yang tidak penting dari rencana
yang kurang tepat untuk diterapkan atas operasi perusahaan
b. Focus untuk menghasilkan budget dari aktifitas dan sumber daya. ABB
menggabungkan batch, fasilitas, dan tipe lain dari cost driver yang tidak
ditemukan pada budgeting tradisional sehingga bisa menyoroti
ketidakseimbangan sumber daya, inefisiensi, dan bottle neck
c. Membuat perusahaan dapat menghasilkan produk, proses, atau
perhitungan biaya per aktifitas, pembuatan keputusan, dan alokasi
sumber daya yang lebih baik untuk mendukung prioritas perusahaan.
2. Model operasi yang lebih canggih ini memberikan alat yang lebih banyak dan
lebih baik untuk menyeimbangkan kapasitas.
a. Selain menyesuaikan permintaan atau mengubah jumlah sumber daya
yang dipasok, perusahaan juga dapat menyesuaikan consumption rates
dari aktifitas ataupun sumber daya.
b. Membuat perusahaan dapat mengidentifikas masalah kapasitas dan
membuat penyesuaian lebih awal dalam proses budgeting, karena
budgeting tradisional tidak melacak pola konsumsi sumber daya.
3. Lower level manager dan karyawan dapat lebih mudah mengerti dan
mengkomunikasikan informasi budgeting menurut operasional daripada
finansial.
a. ABB menyediakan pemahaman tentang bagaimana sumber daya dan
aktifitas saling berhubungan sehingga dapat membantu para manajer
tentang bagaimana melakukan pekerjaannya dengan lebih baik.
b. Perbaikan dari model dari alur sumber daya dan aktifitas dapat
menyebabkan perbaikan dari evaluasi kinerja dengan memberikan detail
siap yang bertanggung jawab untuk aktifitas tertentu secara lintas
departemen
c. ABB menyediakan pilihan yang lebih luas untuk menyesuaikan hasil
sehingga menambah kemampuan manajer untuk merespon kontijensi
dan memperbaiki pengukuran dan evaluasi kinerja, serta pembuatan
keputusan
4.