A systematic approach on collective diffusion in an interacting lattice gas adsorbed on a non-homogeneous substrate is formulated. It is based on a variational Ritz procedure of determining a diffusive eigenvalue of a transition rate matrix describing microscopic kinetics of particle migration processes in the system. Form of a trial eigenvector and a choice of variational parameters are discussed and justified on physical grounds. Reed-Ehrlich factorization of the collective diffusion coefficient into the thermodynamic and kinetic factors is explicitly shown to emerge naturally from the variational approach, and closed expressions for both factors are derived. Validity of the approach is tested by applying it to the simplest case of diffusion of noninteracting adparticles across steps on a stepped substrate ͑modeled by a Schwoebel barrier͒. The coverage dependence of collective diffusion coefficient, obtained in an algebraic form, agrees very well with the results of Monte Carlo simulations. It is demonstrated that the results obtained provide a substantial improvement over the mean-field theory results for the same system. Generalizations necessary to include interparticle interactions are listed and discussed.