Activity-Based Budgeting (ABB) is a budgeting method that focuses on the costs of activities necessary to produce goods or services. Instead of allocating funds based on historical data, ABB identifies specific activities and assigns costs to them, allowing organizations to understand the true cost drivers behind their operations. This approach helps businesses make informed decisions by linking expenses to the activities that generate revenue. By analyzing the costs associated with each activity, organizations can identify inefficiencies, prioritize spending, and improve overall financial performance. ABB ultimately supports better resource allocation and strategic planning.