A budgeting method wherein the activities that are accumulating costs in the organization's functional areas are recorded and its relationship are analyzed and defined. Activities are then interlaced to the strategic goals, after which the budget is created with the use of costs of the activities.

The activity-based budgeting is contradictory to the traditional, cost-based budgeting practice wherein a predetermined budget for the period is simply adjusted to account for revenue growth or inflation. As such, ABB gives opportunities to conform activities with objectives, improve business practices and streamline costs.