aarthy final part

8/7/2019 Aarthy Final Part

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A STUDY ON THE BUDGET AND BUDGETARY CONTROL IN

BHARAT HEAVY ELECTRICALS LIMITED-TRICHY

A project report submitted in partial fulfillment of the Degree of Master of Business

Administration of Madurai Kamaraj University

By

Aarthy.V

Reg No A9410151

Under the guidance of

Somasundaram

Thiagarajar School of Management

Thiagarajar School of Management(Affiliated to Madurai Kamaraj University)

Madurai 625 005

December-January 2011


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DECLARATION BY THE CANDIDATE

AARTHY.V

Reg No A9410151

II MBA

THIAGARAJAR SCHOOL OF MANAGEMENT

MADURAI 5

I hereby state that the project entitled, A STUDY ON THE BUDGET AND BUDGETARY

CONTROL IN BHARAT HEAVY ELECTRICALS LIMITED, TRICHY was undertaken

at, Bharat Heavy Electricals Limited-Trichy submitted to Madurai Kamaraj University in partial

fulfillment of Master of Business Administration Degree is a record of original work done by me

and no part of this project has been submitted for the award of any other Degree, Diploma,

Fellowship or other similar studies.

Date:

Signature of the candidate


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NAME: Aarthy.V

AGE: 23

DATE OF BIRTH: 29 09 1987

EDUCATIONAL QUALIFICATION:

Pursuing M.B.A in THIAGARAJAR SCHOOL OF

MANAGEMENT, MADURAI, with finance as

specialization

BSc(BIOTECHNOLOGY) from S.P. COLLEGE

OF ARTS AND SCIENCE, MADURAI

Schooling in Capron hall Higher Secondary School,

Madurai

AREAS OF INTEREST: Finance and Marketing


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CONTENTS

Chapter No. CHAPTER NAME PAGE NO

List of Tables

List of Charts

1 Introduction

1.1 Introduction of the study

1.2 Introduction of the company

1.3 Objective of the study

1.4 Scope of the study

1.5 Limitations of the study

1.6 Review of literature

1.7 Research methodology

2 Budget Process

3 Budget Control

4 Data analysis and Interpretation

5 Findings & Suggestions

6 Conclusions

7 Bibliography


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ACKNOWLEDGEMENTS

I would like to express my sincere thanks to Prof.N.Venkiteswaran, Director, Thiagarajar

School of Management for facilitating my value addition at the institution.

I sincerely thank Dr. M. Nagaraju, Principal, Thiagarajar School of Management, for his

encouragement.

I express my deep sense of gratitude to MR.Somasundaram, Faculty, Thiagarajar School of

Management for providing support guidance and valuable ideas which helped me to complete

this project successfully.

I am deeply indebted to Mr. S. Wilford Simon(Sr. Manager BHEL Trichy) and Mr. S.

Sekar(Assistant Officer BHEL Trichy) for presenting me the opportunity to pursue a valuable

project and facilitating me in successful completion of the project.

Finally, I extend my heartfelt thanks to my friends and family members who have been a source

of inspiration and support throughout the project.


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LIST OF TABLES

Table

No.

DESCRIPTION

PAGE

NO

1Financial turnover from 2004 2005 to 2008 2009

2Profit before tax from 2004 2005 to 2008 2009

3Working capital 2004 2005 to 2008 2009

4Capital employed from 2004-2005 to 2008-2009

5 Value added from 2004 05 to 2008 09

6Cash inflow operation from 2004 2005 to 2008- 2009

7Cash outflow operation from 2004 2005 to 2008 2009

8Yearend inventory from 2004 2005 to 2008 2009

9Total sundry debtors 2004 2005 to 2008- 2009

10Highlight part 1

11Highlight part 2


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LIST OF CHARTS

Chart

No.

DESCRIPTION

PAGE

NO

1Financial turnover from 2004 2005 to 2008 2009

2Profit before tax from 2004 2005 to 2008 2009

3Working capital 2004 2005 to 2008 2009

4Capital employed from 2004-2005 to 2008-2009

5 Value added from 2004 05 to 2008 09

6Cash inflow operation from 2004 2005 to 2008- 2009

7Cash outflow operation from 2004 2005 to 2008 2009

8Yearend inventory from 2004 2005 to 2008 2009

9Total sundry debtors 2004 2005 to 2008- 2009


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List of Tables:

TABLES Page No

Table 1 Financial Turnover from 2005-2006 to 2009-201023

Table 2 Profit Before Tax from 2005-2006 to 2009-2010 24

Table 3 Working Capital from 2005-2006 to 2009-2010 25

Table 4 Capital Employed from 2005-2006 to 2009-2010 26

Table 5 Value Added from 2005-2006 to 2009-2010 27

Table 6 Cash Inflow Operation from 2005-2006 to 2009-2010 28

Table 7 Cash Outflow Operation from 2005-2006 to 2009-2010 29

Table 8 Year End Inventory from 2005-2006 to 2009-2010 30

Table 9 Total Sundry Debtors from 2005-2006 to 2009-2010 31


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CHARTS Page No

Chart 1 Financial Turnover from 2005-2006 to 2009-2010 23

Chart 2 Profit Before Tax from 2005-2006 to 2009-2010 24

Chart 3 Working Capital from 2005-2006 to 2009-2010 25

Chart 4 Capital Employed from 2005-2006 to 2009-2010 26

Chart 5 Value Added from 2005-2006 to 2009-2010 27

Chart 6 Cash Inflow Operation from 2005-2006 to 2009-2010 28

Chart 7 Cash Outflow Operation from 2005-2006 to 2009-2010 29

Chart 8 Year End Inventory from 2005-2006 to 2009-2010 30

Chart 9 Total Sundry Debtors from 2005-2006 to 2009-2010 31


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EXECUTIVE SUMMARY

The project aims to study about the Budget and Budgetary Control in BHEL

Trichy.

This was the primary objective of my study apart from the objective to find

out sales Budget, Production Budget, Cash Budget of the Company, how much

profit and profitability position. The second data were collected from annual

reports of the firm balance sheet, profit & loss a/c various magazine and

newspaper. The report includes with a list of suggestion based on the findings from

the study.


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1. Introduction of Company

1.1. About the Industry

PROFILE OF THE STUDY UNIT (BHEL TRICHY)

Bharath Heavy electrical Limited (BHEL), established in 1956, is a name

recognized across the industrial word. It is the engineering and manufacturing enterprise

of its kind in India and of the leading international companies in the field of power plant

equipment. BHEL offers a wide spectrum of products and services for the core sectors of


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economy viz.., Power Generation & Transmission, Industry, Transportation renewable

energy, Oil &Gas, Telecommunication, Defense, etc..,

The wide network of BHELS 14 manufacturing divisions, four power sector

regional centers, over 100 project sites, 8 service centers and 14 regional officers enable

the company to be closer to its customer and provide them with suitable products,systems and services at competitive prices. Having obtained ISO 9000 certification,

BHEL is now well on its journey towards business excellence through Total Quality

Management (TQM). With export presence on more than 50 countries, BHEL is truly

Indias industrial ambassador to the world.

The companys inherent potential coupled with its strong performance over the

years, has resulted in its being chosen as one of the Navertha public sector Enterprises

(PSE) that would enjoy support from the Government in their endeavors to become

global player.

1.2 About the company

BHEL-TIRUCHIRAPPALLI-PLANTING POWER FOR PROSPERITY

The Tiruchirappalli plant of Bharat Heavy Electrical Limited was set up in 1963

for the manufacture of high pressure Boilers. The plant was set up with technical

assistance from Skoda export under an Indo-Czeck economic co-operation program, withan initial investment of Rs. 24.5 crores. The plant reached its rated capacity of 750 MW

in recent time and the first 60 MW boilers was commissioned at Ennore in 1971.

In order to meet the rapidly growing power requirements of the country, BHEL,

Tiruchirappalli augmented its capacity to the present level of 400 MW a year, in three

successive phases of expansion, with an additional investment of Rs. 57.42 crores.

Over the year, the Trichy Division has been a vast growth. The additions have

been the Auxiliaries plant at Ranipet, the piping center is Chennai and industrial valves

plant at Goindwal in Punjab.

BHEL, Trichy is the largest engineering and manufacturing complex in Tamil

Nadu, spread over 2908 acres of land at Tiruchirappalli and 1,256 acres at Ranipet. The

high pressure Boiler plant has a total covered area of 1,64,588 square meters, while the

Seamless Street Tube plant has 37,920 square meters and Boiler Auxiliaries plant, 44,280

square meters.


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1.3 About the product

PRODUCT RANGE

The products manufactured by BHEL, Tiruchirappalli find wide application in

Thermal and NuclearPower Stations and in industries such as fertilizers, Petrochemicals,

refineries, coal, steel, aluminum, paper, sugar, rubber, cement, oil drilling, mining etc

FINANCIAL PERFORMANCE

High pressure Boiler plant, Tiruchirappalli achieved a turnover of Rs.1675 crores

and a profit before a tax of Rs. 158.7 crores spares and service worthRs. 242 crores for boilers and auxiliaries supplied. Over for Rs. 83 crores (conversion

cost) placed on ancillaries and small industries. And Rs. 79 crores has been achieved by

commercializing product and systems through in house R&D technology development.

BUSINESS EXCELLENCE

(HPBP) OF BHEL, Trichy has been awarded the CIF Exim Bank commendation

certificate for strong commitment of Total quality management on the journey towards

business excellence for the year 2003 HPBP has emerged has the only organization

having more than 10,000 employees to be followed by different units for formation and

implementation of occupational health and safety system, oriented toward acquired ISO18001 certification. An ERP (Enterprise Resource Planning) project has been initiated at

BHEL, Tiruchirappalli for valves product group. Under the project, it is planned to

introduce and integrate operations approach for all business processes using SAP ERP

software, this is an MOU project between BHEL and the Government of India. The

external customer satisfaction survey carries out by and independent consultant has

revealed a higher satisfaction level from BHELs customers both in the public and private

sectors.

POSITIONING FOR THE FUTURE

BHEL gears up to manufacture more efficient, eco friendly, super critical higher

rating thermal sets of 660 MW capacities for future mega power projects.

BHEL-VISION, MISSION AND OBJECTIVES VISION


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BHEL is world class, innovative competitive and profitable engineering enterprise

providing total business solutions.

MISSIONThe BHELs mission is to be the leader in Indian engineering enterprise providing

quality products, system and services in the field o energy, transportation industry andinfrastructure.

OBJECTIVES

1. GROWTH

To ensure a steady growth by the unchanged competitive edge of BHEL, in

existing business, new areas and international operations.

2. PROFITABILITY

The profitability is an objective of the BHEL is providing a reasonable and

adequate return on capital employed primarily through improvement in

operational efficiency. Capital utilization and productivity and generate

adequate resources to finance the companys growth to realize at least 30%

returns (gross margin) employed.

3. CUSTOMER FOCUS

To build a high degree of customer confidence by providing increased

value for its money through international standard products quality,

performance and superior customer service.

4. TECHNOLOGY

To achieve technology excellence in operations by development of

indigenous technologies, efficient absorbs and adaptation importedtechnologies to suit needs and priorities, and provide a competitive

advantages to the company.

5. IMAGE


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To fulfill the expectation, which the holders like government as owner,

employees, customers and the country at large from BHEL.

6. AWARDS

HPBP, SSTP, WRI have won the Tamil Nadu Government industrial safety

awards 20 employees have won UYARNTHA UZHAILPALAR

VIRUDRU


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1.5Organization of the report

The following are the birds eye view of the details included in the various Chapters of the study.

Chapter 1 It gives an introduction about the industry, the organizations and the reason for

choosing the project.

Chapter 2 - It deals with the methodology adopted in this study highlighting the research

problem, scope, sources of data, etc.

Chapter 3 This chapter presents various concepts of Budgeting and budgetary control.

Chapter 4 This chapter analyses the data collected from secondary sources and represents

them in the form of tables.

Chapter 5 This chapter lists out the findings of the research undertaken and presents

suggestions to improve the organizations effectiveness.

Chapter 6 This chapter summarizes and concludes the project.


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RESEARCH METHODOLOGY

2.1 Statement of the problem

2.2 Scope of the StudyBudgets are regarded as the of control. Budgeting points out controlling based on a

budget. Budget serves as a planning and controlling mechanism. Budgeting is a wide

term and includes not only budgetary control but also budget preparation, planning and

using at budget reports, Budgetary control involves preparation of budgets and

comparison of actual performance and taking corrective action to improve efficiency.

Budgeting is done mainly by top management.

2.3OBJECTIVES OF THE STUDY:

1. To make a comparative study of the past 5 years BHEL proposals vs. actual

against various heads

2. To study the control mechanism of reporting in BHEL and the salient

features in the budget process of BHEL as a profit making Public Sector

Company.

3. To critically see the parameters considered for BHEL budget proposals.

4. To study the monitoring mechanism and control systems employees by

BHEL from various departments.

2.4 RESEARCH DESIGNA research design is the arrangement of conditions of conditions for collection and

interpretation of data in manner that aims to combine relevance to the research purpose

with economy in procedure.

2.5 Method of data collectionSecondary data have been collected from the respective unit though manuals and annual

reports of the company


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2.6 Nature of DataThe study is based on secondary data.

2.7 Source of data

Secondary data have been collected from the respective unit though manuals andannual reports of the company. The sources of the data are budgeted fixed and actual

attained by the concern under the period of the study.

2.8Tools for analysis

Data has been collected, analyzed and tabulated keeping in view, the

objectives of study.

2.9 Limitations of study

y

The study covers only a period of five years.y The results may be different under new environment with changes in the

management policy.

y Further, the study is based on secondary data.

y The results of the study will about be applicable to all the public sector

organizations.

y Time was insufficient to carry out the research and hence its depth

INTERPRETATION could not be made.


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REVIEW OF LITERATURE

REVIEW OF LITERATURE

Budgetary control and defined by the Institute of cost and ManagementAccountants (CIMA) as:-

The establishment of budgets relating the responsibilities executives to the

requirements of a policy and the continuous comparison of actual with budgeted results,

either to secure by individual action the objectives of that policy, or to provide a basis for

its revision.


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Managers need to be able to exercise control over the organizations they manage

i.e. to make sure that the organization is keeping to plan and that necessary action can be

taken to put it back on track when needed. In the same way that a thermostat will regulate

and control the temperature of you central heating, system managers need to take control

tools to make sure that financial plans and targets are being achieved.

Budgeting is a management tool is used for planning and control. Traditionally

budgets have been employed as devices to limit expenditure, but a much more useful and

constructive view is to treat the budgeting process as a means for obtaining the most

effective and profitable use of the companys resources through planning and control.

Thus, budgeting serves two very different purposes in most organizations. The first

function is that of financial and cost and the second that of management control, the task

of ensuing those diverse activities are co-ordinates in to coherent packages.

Concepts


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General Introduction of Budgeting

Definition of budgetChartered institute of Management Accountants, London, has defined budget as

A financial and or quantitative statement prepared prior to a defined at time of the

policy to be pursued during that period for the purpose of attaining a given objective.

Advantages of budgeting and budgetary control:

There are a number of advantages to

Budgeting and budgetary control:1) Compels management to think about the future, which is probably the most

important feature of a budgetary planning and control system, Forces management

to look ahead, to set up detailed plans for achieving the targets for each

department, operation and (ideally) each manager, to anticipate and give the

organization purpose and direction.

2) Promotes coordination and communication.

3) Clearly defines area of responsibility, requires managers of budget centers to be

made responsible for the achievement of budget targets for the operation sunder

their personal control.

4) Provides a basis for performance appraisal (variance analysis). A budget is

basically a yardstick against which actual performance is measured and assessed.

Control is provided by comparisons of actual results against budget plan.

Departures from budget can then be investigated and the reasons for the

differences can be divided into controllable and non-controllable factors.

5) Enables remedial action to be taken as variances emerge.

6) Motivates employees by participating in the setting of budgets.


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7) Improves the allocation of scarce resources.

8) Economizes management time by using the management by exception principle.

Problems in budgeting:While budgets may be an essential part of nay marketing activity they do have a

number of disadvantages, particularly in perception terms.

Budgets can be seen as pressure devices imposed by management, thus resulting

in :

a) Bad labor relations

b) Inaccurate record-keeping

Departmental conflict arises due to:

a) Disputes over resource allocation

b) Departments blaming each other if targets are not attained.

It is difficult to reconcile personal individual and corporate goals.

Waste may arise as managers adopt the view empire building in order to

enhance the prestige of a department.

Responsibility versus controlling, some costs are under the influence of more than

one person, e.g., power costs.

Managers may overestimate costs so that they will not be blamed in the future

should they overspend.

BUDGETARY SLACKBecause performance objectives are set during the budgeting process, conflicts

between personal and organizational goals can arise. Managers have personal goals with

regard to personal income, status and career growth with regard to personal income,

status and career path. In some companies, management bonus or incentive systems are

linked in some way to the attainment of the budget. Managers tend to formulate budgets

that can be achieved readily and that meet top managements expectations. Because

failure to achieve budget can be viewed very negatively, managers are tempted to build in

slack, or a cushion.

Budgetary slack provides for some margin of error. It typically involves some

discretionary fixed expenses that can be cut back quickly if business conditions or


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performance is worse than planned. A good example is maintenance. When

performance is better than budget, the division manager may overspend on maintenance,

making some repairs and replacements that could have been postponed for a few years

new roofing on all buildings, for example. Because division profits are over budget,

much attention probably will not be paid to over budget maintenance expenses. In bad

times, the maintenance would be deferred. Instead of having the roofs replaced,managers would have them patched.

Slack within the company tends to grow in good years, in bad times; it is to some

extent voluntarily reduced. Some division managers, however, are never inclined to

reduce slack. For the managers, top management might embark on a cost-cutting

campaign to encourage slack reduction. Too much pressure to cut slack, however, can

result in conflict and can damage the budgetary process for years.

Effective budgeting systems facilitate the value creation process. They are an

invaluable component of a companys planning and control efforts. The system

Forces managers to plan and promotes coordination. The system supports responsibility

accounting and reporting. The master budget, accompanied by detailed plans, documents

the companys goals and objectives. Linking the master budget to the companys long-

range and strategic planning enhances the overall planning effort.

A budget is a plan expressed in quantitative, usually monetary term, covering a

specific period of time, usually one year. In other words a budget is a systematic plan for

the utilization of manpower and material resources.

In a business organization, a budget represents an estimate of future costs and

revenues. Budgets may be divided into two basic classes:

1. Capital Budgets

2. Operating Budgets

Capital budgets are directed towards proposed expenditures for a new project and

often require special financing. The operating budgets are directed towards achieving

short-term operational goals of the organization, for instance, production or profit goals

in a business firm. Operating budgets may be sub-divided into various departmental

functional budgets.

The main characteristics of a budget are:

1. It is prepared In advance and is derived from the long-term strategy of the

organization.


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2. It relates to future period for which objectives or goals have already been laid

down.

It is expressed in quantitative form, physical or monetary units, or both. Different

types of budgets are prepared for different purposes e/g/ Sales Budget, ProductionBudget, Administrative Budget, Raw-material Budget etc., All these

Sectional budgets are afterwards integrated into a master budget, which represents an

overall plan of the organization

Characteristics of a budgetA good budget is characterized by the following:

1) Participation: involve as many people as possible in drawing up a budget.

2) Comprehensiveness: embrace the whole organization.

3) Standards: base it on established standards of performance.

4) Flexibility: allow for changing circumstances.

5) Feedback: constantly monitor performance.

6) INTERPRETATION of costs and revenues: this can be done on the basis of

product lines, departments or cost centers.

Budget organization and administration:

In organizing and administering a budget system the following characteristics mayapply:

a) Budget centers: Units responsible for the preparation of budgets. A budget centre

may encompass several cost centers.

b) Budget committee: This may consist of senior members of the organization, e.g.

Departmental heads and executives (with the managing director as chairman).

Every part of organist ion should be represented on the committee, so there should

be a representative from sales, production marketing and so on. Function of budget

committee include:

1) Coordinating of the preparation of budgets, including the issue of a manual.

2) Issuing of timetables for preparation of budgets.


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3) Provision of information to assist budget preparations

4) Comparison of actual results with budget and investigation of variances.

c) Budget offer:Controls the budget administration. The job involves:

1) Liaising between the budget committee and managers responsible for

budget preparation.

2) Dealing with budgetary control problems.

3) Ensuring that deadlines are met.

4) Educating people about budgetary control.

d) Budget manual:

This document:

1) Charts the organization

2) Details the budget procedures.

3) Contains account codes for items of expenditure and revenue.

4) Timetables the process

5) Clearly defines the responsibility of persons involved in the budgeting system.

Budget preparation:

Firstly, determine the principal budget factor. This is also known as the key

budget factor or limiting budget factor which will limit the activities of an undertaking.

This limits output, e/g/ sales, material or labor.

a) Sales budget:

This involves a realistic sales forecast. This is prepared in units of each

product and also in sales value. Methods of sales forecasting include:

1) Sales force opinions

2) Market research


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3) Statistical methods ( correlation INTERPRETATION and examination

of trends)

4) Mathematical methods

In using these techniques consider:1) Companys pricing policy.

2) Economic and political conditions.

3) Changes in the population

4) Competition

5) Consumers income and tastes

6) Advertising and other sales promotion techniques

7) After sales service

8) Credit terms offered.

b) Production budget:

It is expressed in quantitative terms only and is geared to the sales budget.

The production managers duties include:

INTERPRETATION of plant utilization

Work-in-progress

If requirements exceed capacity he may:

Subcontract

Plan for overtime

Introduce shift work

Hire or buy additional machinery

The materials purchases budgets both quantitative and financial.

c) Raw material and purchasing budget:

The material usage budget is in quantities

The materials purchases budget is both quantitative and financial/


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Factors influencing a) and b) include:

Production requirements

Planning stock levels

Storage space

Trends of material prices

d) Labor budget is both quantitative and financial:

This is influenced by:

Production requirements

Man-hours available

Grades of labor required.

Wage rates( union agreement

The need for incentives

e) Cash budget:

Cash plan for a defined period of time. It summarizes monthly receipts and payments.

Hence, it highlights monthly surpluses and deficits of actual cash. Its main uses are:

To maintain control over a firms of cash requirements, e/g/ stock and debtors.

To enable a firm to take precautionary measures and arrange I advance for

investment and loan facilities whenever cash surpluses or deficits arises.

To show the feasibility of managements plans in cash terms.

To illustrate the financial impact of changes in management policy, e/g change ofcredit terms offered to customers.

Receipts of cash may come from one of the following:1) Cash sales

2) Payments by debtors


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3) The sale of fixed assets

4) The issue of new shares

5) The receipt of interest and dividend

Payments of cash may be for one or more of the following:

1) Purchase of stocks

2) Payments of wages or other expenses

3) Purchase of capital items

4) Payment of interest, dividends or taxation

Other budgets:These include budgets for:

Administration

Research and development

Selling and distribution expenses

Capital expenditures

Working capital(debtors and creditors)

Having identified cost centers, the next step will be to make a quantitative calculation

of the resources to be used, and to further break this down to shorter periods, say, n

month or three months. The length of period chosen is important in that the shorter it is,

the greater the control that can be exercised by the budget but the greater the expense in

preparation of the budget and reporting of any variances


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BUDGET PROCESS

BUDGETING FUNDAMENTALSLooking at how a budget is fabricated in a medium-size business organization will

give you some insight into the fundamental aspects of budgeting. Initially, the controller

receives the operating plans of the line managers and other department heads and

translates these plans into a comprehensive projection of financial condition and

operating results. Final judgment should not be made until the effect of the plans can be

estimated by the CEO in terms of their impact on company resources and profits.

Chart of accounts

The charter of accounts represents a standardized classification of all accountingdata, including account for every component of assets, liabilities and stockholder equity.

The focus is on accounts related to expenditures. Accounting classifications for

expenditures such as salaries, fringe benefits, rents and taxes are very familiar. When

businesses are relatively small and simple, a one-dimensional description of expenditures

is adequate. For more complex businesses, additional coding is needed to implement

responsibility reporting.

Responsibility Reporting Responsibility reporting requires that all expenditures be

traceable to some manager must be able to authorize or veto each expenditure.

Responsibility reporting parallels the requirement that all performance objectives be

traceable to some manager in the organization. Accordingly, the expenditures incurred

by a manager and the organizational unit under his or her control I pursuing a

performance objective need to be recorded. The addition of responsibility accounting

arose from the need for budgeting in terms that could be related to the managers

responsible for the expenditures. This dimension, then largely reflects the organizational

structure of the company.

Controllability is a matter of degree. In practice, judgment is used. The question

can be asked, does this manager have significant influence over this cost? It the answer is

no, he or she should not be charged. Instead, someone at the same level or at a higher

level should be charged.

Reporting transactions in two dimensions-firstly by the nature of the expenditure,

secondly by the organizational unit responsible for the action permits management to

pinpoint responsibilities for the rupee consequences of planning, execution and control.

Budgets and actual performance against the budgets can be reflected in separate


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statements for each block on the organizational chart, thus permitting business people to

make budget process and integral part of the management function.

Coding can be added to enable management to gain additional insight into how the

business works. For example, coding revenue and expense data on customers allows and

INTERPRETATION of customer profitability. Computerized sales order processingsystems generally have the capability to provide reports of sales by customer. However,

a more important question is which customers are sources of high profits and which

customers may be generating losses. This requires data on expenses by customer.

Todays information technology enables management to perform expense

INTERPRETATION at a reasonable cost.

Flexible Budgeting

Flexibility is an essential component of an effective budget program. A flexible

budget is defined as a budget whose amount depends on the actual activity level

achieved. In months with high planned activity, the master budget amount is higher thanin months with low activity. Flexible budgets make sense because most companies have

costs that fluctuate with activity. Some costs, such as advertising expense costs, are

budgeted as a fixed amount based on managements

Decisions. These are discretionary fixed expenses, and the flexible budget amount is a

fixed amount.

With a flexible budget, supervisory salaries are an indirect fixed expense and are

not expected to fluctuate directly with sale volume. They can change in a supervisory

position is added or dropped or if a salary is raised or cut. Conversely, shipping is avariable expense driven by sales volume. As sales decrease, shipments decrease and

fewer supplies are used.

THE PHASES OF BUDGETINGThe receipt of the budget planning report from the CEO by the various line

managers initiates the budget preparation phase. Each of these managers prepares an

operating plan for the next year and submits it to the budget director,

Preparation of operating programsThe vice president of engineering prepares a recommended program of research

and development, including proprieties for the projects recommended. This step is

important because the decision as to how much can be spent on research must await the

financial budget review procedure. Usually, the research budget contains more proposed

projects than as expected to the funded, which permits the CEO to select projects that

best meet the companys operating and profit objectives. Like all other line managers,

the vice president of engineering must also prepare a program for operating the


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engineering and the research and development departments, a program that will become

the basis for those departments operating cost and expense budgets.

The sales vice president prepares the sales projections and the operating plans for

the various sales activities and advertising campaign. The manufacturing vice president

prepares the inventory and manufacturing plans. The treasurer and controller alsocomplete programs for the operations of their departments.

Preparation of financial programs

In addition to the operating plans of the various heads, the budget director must be

furnished with details of the financial programs for the year. The treasurer must prepare

projection of cash requirements, preferably in the form of cash flow statements, and

indicate sources of additional financing if required. The capital investment programs

required by the various line managers to accomplish their operation programs also must

be furnished to budget director for the capital expenditures budget.

ConsolidationHaving completed the preparation of the individual department budgets, the

budget director consolidates them into operating and financial budget summaries I a form

identical to that normally used when reporting operating and financial results, to

management In other words, when the budget department has completed its work, it has

a product that looks exactly like the monthly operating and financial reports often

business, except that the figures represent budgets for the next year instead of actual

results for a completed period. These budget summaries usually show operating results

for each month of the budget year. Normally, cash flow statements are also presented for

such month of the year, but other balance sheet items may be shown on only a quarterlyor semiannual projected basis.

Management ReviewAt this point, director submits the budget summaries to the CEO with comments

and recommendations. As a result of the work involved in the preparation of these

summaries, the budget director has had an opportunity to gain a real insight into the

operating plans of the various managers and has determined the consequences in financial

terms, which the CEO may now review in a comprehensive way. The effective budget

directors helps the CEO analyze the plan and develop possible alternatives if he projected

results appear unsatisfactory.

The budget director sets as an analyst and a catalyst but does not make operating

decision or plans. A good budget director has the ability to point out why the projected

result is or is not satisfactory and when the CEO can do to change the situation if he or

she so derides.


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AdjustmentsWhen the financial consequences of the initial plans are not satisfactory, the CEO

or budget director asks the line managers and department heads to adjust their programs

in specifies ways to accomplish the desired profit and return on investment goals. In

effect, the operating and financial programs included in the budget requests are returned

to the originating line managers with specific suggestions for change. After the linemanagers have made the suggested changes, the programs are resubmitted to the budget

director who then makes changes, the programs are resubmitted to the budget director

who then makes the corresponding financial adjustments and resubmits consolidated

operating and financial budget summaries to the CEO for final approval and publication.

Approval and publicationFinal approval and publication may not be immediately forthcoming realizing the

importance of the budget, the CEO again performs the management review process.

Further adjustments of programs and corresponding budget summaries may be required

before eh CEO feels that the companys operating plan has been stated adequately in theform of a master budget. This process is sometimes called cycle-up, cycle-down. The

resulting master badger will be used in planning and controlling the company

PERFORMANCE MEASURESAs stated earlier, the desired profit level and return on investment level are

commonly established planning goals. The basic economic mission is to earn an

acceptable return on investment over the long run.

The profit earned must provide a sufficient return on the capital employed to

satisfy shareholders. If the companys strategy is growth, profits must provide a sound

and continuing basic for growth. Some widely accepted measures of performance are thefollowing:

Profitability:

Percent return on the net sales, percent return on owners equity, percent return on

the total assets employed.

Growth

Percent increase in sales, percent increase in earnings per share, percent increase

in market share.

Value creation:

Percent increase in common stock value per share. If the companys strategy wereto be lowest-cost producer, an alternative set of measurements would be required.

EFFECTIVE BUDGETINGDue to the growing complexity of business and business problems not because of t

his movement toward decentralization in large enterprises, increased attention is being

given to better planning and control techniques. Consequently, the use of sound

budgeting techniques is becoming more prevalent. In addition, corporate restructuring has


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resulted in a trend toward placing the responsibility for budgeting at higher levels in the

organization. In earlier days it was customary to find the budget function buried deeply

in the accounting operation; today it is not uncommon to have the budget function report

to levels of management above the controller. Although it is still useful for the budget

director to report to the corporate controller, the trend toward reporting to a higher level

is recognition of

The need to have the budget function broadly based I all operating areas of the

business. The company use budget committees. The budget committee typically is

composed of representatives from most operating areas. This composition promotes

coordination. If properly administered, the budget committee can perform the very useful

role of encompassing and reconciling the many diverse interests that make up a modern

business.

An effective budgeting system facilitates control. The budgeting system must

form the companys operational control needs.

EFFECTIVE BUDGETING SYSTEMTS IN PRACTICETop executives are able to control every part of the organization through a system

of budgetary planning and control reporting by responsibility area. Yardsticks of

performance are provided for all productive and service areas, and results of operations

are accumulated and reported in terms of these yardstick at all supervisory levels.

Sales and profit contribution are compared with precious plans thus lower or

higher than planned results are readily determined. Selling expenses are controlled by the

budgeting, accounting, and reporting personnel are responsible for the expenses.

Measurements of sales and selling expenses result in the effective control of income.

Production costs are measures by appropriate controls over material costs, labor

cost, and manufacturing overhead expenses. Costs incurred for materials are controlled

through standards; price variations are segregated; and materials utilization is measured

by charging excess issues of productive materials to the departments responsible for

spoilage and comparing the charges with variable budget allowances.

Productive labor costs are measured against standards, and variances are reported

in terms of department forepersons responsible for the variances, Manufacturing

overhead expenses are controlled by reporting actual expenditures compared withvariable or fixed budgets in terms of the individual who participated in planning the

budgets and who had report ability for the expenditures made. Control over service of

auxiliary departments, over general overhead expenses is affected by comparing just

costs (in terms of departments and of individuals incurring the costs) with expenditures

previously land and approved levels or required service or for programs adopted.


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Responsibility in budget preparation and in cost control is a major feature of

BHELs control system. The system pinpoints responsibility for all controllable costs by

individual integrates standard cost reported what the companys budgetary control.

Reports are prepared for all levels of management, from the operating forepersons and

service department supervisors to the CEO. The reporting system is designed as a tool

for all levels of supervision to control their operations and their costs. It emphasizesinformation that is useful to the individual manager.


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BUDGET CONTROL


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BUDGERARY CONTROL METHODS

a) Budget:

A formal statement of the financial resources set aside for carrying out specificactivities in a given period of time.

It helps to co-ordinate the activities of the organization.

b) Budgetary control:

A control technique whereby results are compared with budgets.

Any differences (variances) are made the responsibility of key individuals who

can either exercise control action or revise the original budgets.

Budgetary control and responsibility centers:These enable managers to monitor organizational functions:

A responsibility centre can be defined as any functional unit headed by a manager who is

responsible for the activities of that unit.

Types:There are four types of responsibility centers:

a) Revenue centers

Organizational units in which outputs are measured in monetary terms but are not

directly compared to input costs.

b) Expense centers:

Units where inputs are measured in monetary terms but outputs are not.

c) Profit centers:

Where performance is measured by the difference between revenues (outputs)

band expenditure (inputs). Inter-departmental sales are often made using transfer

prices.

d) Investment centers:

Where outputs are compared with the assets employed in producing them, i.e.

ROI.


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Budget procedure:

After the establishment of budget organization and fixation of the budget period, the

actual work of budgetary control begins. The procedure followed in designing and

operating a budgetary control system largely depends upon the nature of the business.

However, the usual pattern is as follows:

1. Determination of key factor:

Key factor is that the extent of whose influence must first be accessed in order

to ensure that functional budgets (relating to different functions of a business, e/g.

sales, production, purchases cash. Are reasonably capable of fulfillment/ this is

also termed in Principal Budget or Limiting or Governing Factor.

2. Making of forecasts

Forecasts mean an estimate about the probabilities for a given period of time.

It differs from budget. Budget is an operating and financial plan of a business

enterprise. It is a sort of commitment or a target which the management seeks to

attain on the basis of the forecasts made. Forecasts are made regarding sales,

production cost and the financial requirements of the business. Physical quantities

as well as monetary values are estimated separately3. Consideration of alternatives combinations of forecasts

Alternative combinations of forecasts are considered with a view to obtain the

most effect overall plan so as to maximize profits. When the largest combination

of forecasts is selected, the forecasts should be regarded as being finalized

4. Preparation of budgets

On finalization of the forecasts the budgets will be prepared. Production

budget will be prepared on the basis of the sales budget and also age taking in to

consideration the available productive capacities. Different costs of production

budgets will also be prepared on the basis of the production budget. Financial

budget will be prepared on the basis of sales forecast and production budget. All

these budgets will be combined and coordinated into one master budget. These


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budgets may be revised from time to time taking into account the current

developments.

CLASSIFICATION OF BUDGETS:

Budgets can be classified into different categories form different points of view. Thefollowing are the most common basis of classification:

1. According to time

2. According to function

3. According to flexibility

Classification According to Time:

In terms of time, the budgets can broadly be classified into three categories;

a) Long term Budget:

A budget designed for a long period (generally for a period of 5 to 10 years)

is termed as a long term budget/ this budget s are

Concerned with planning of the operations of a firm over a considerably long

period of time. They are generally prepared in terms of physical quantities.

b) Short term Budget

These budgets are designed for a period generally not exceeding 5years.

They are generally prepared in physical as well as in monetary units.

c) Current Budget

These budgets cover a very short period say month or a quarter. They are

essentially short term budgets adjusted to current conditions or prevailing

circumstances.

d) Rolling Budgets

Some companies follow the practice of preparing a rolling or progressive

budget/ In case of such companies there will always be a budget for a year in

advance. A new budget is prepared after the end of each month/quarter for a


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full year ahead/ the figures for the month or quarter which has rolled down are

dropped and the figures for the next month or quarter are added.

Classification According To Function:Budgets can be classified on the basis of functions they are meant to

perform. These budgets are therefore also termed as function al budgets.

Their number depends on the size and the nature of the business. The

following are the usual functional budgets

a) Sales Budget

The budget forecasts total sales in terms of quantity, value, items, period,

areas, etc

b) Production Budget

The budget is based on sales budget; it forecasts quantity of production in

terms of items, periods, areas, etc.

c) Cost of Production Budget

The budget forecasts the cost of production. Separate budgets are prepared

for different elements of costs such as direct materials budget, direct labout

budget, factor overheads budget, office overheads budget, selling and

distribution overheads budget etc.

d) Purchase Budget:

The budget forecasts the quantity and value of purchases required for

production. It gives quantity wise, money wise and period wise

information about the materials to be purchased

e) Personnel Budget

The budget anticipates the quantity of personnel required during a period

for production activity. This may be further split up between direct and

indirect personnel budgets.

f) Research BudgetThe budget related to the research work to be done the

improvement in quality of the products or research for new products.


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g) Capital Budget

The budget is a forecast of the cash position by time period by time period

for a specific duration of time. It states the estimated amounts of cash

receipts and cash payments and the likely balance of cash in hand at the endof different periods.

h) Capital expenditure Budget

The budget provides a guidance regarding the amount of capital that may

be required for procurement of capital assets during the budget period.

i) Master budget

It is a summary budget incorporating all functional budgets in a capsule

form. Ti interprets different functional budgets and covers within its range

the preparation of projected income statement and perfected balance sheet.

Classification according to flexibility

On the basis of flexibility budgets can be divided into two categories

1. Fixed budget

2. Flexible budge

1. Fixed budget

A budget prepared on the basis of a standard or a fixed level of activity is

called a fixed budget. It does not change with the change in the level of

activity

2. Flexible budget

A budget designed in a manner so as to give the budgeted cost of any

level of activity is termed as a flexible budget


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Data ANALYSIS ANDINTERPRETATION


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FINANCIAL TURNOVER FROM 2005 2006 TO 2009 2010

This system refers to sales, which actually implies the production. When such

production is measured in monetary terms is called as financial turnover.

TABLE - 1

S.No. YearsBudget

Rs. (in lakhs)

Actual

Rs. (in lakhs)

Variances in

Rs. (in lakhs)

1 2005 - 2006 363271 353589 -9682

2 2006 - 2007 455092 460656 5564

3 2007 - 2008 540106 555399 152934 2008 - 2009 720207 746031 25824

5 2009-2010 950228 1000853 50625

INTERPRETATIONThe variation in financial turnover programme between budgeted and actual is due to

Non materializationofanticipated order (for first two years).

Inability to meet the dispatch target (for first two years).

Variation in expected and actual level contracts execution (for first two years).

Remaining three years are inopposite trend.


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CHART - 1FINANCIAL TURNOVER FROM 2005 2006 TO 2009 2010

0

200000

400000

600000

800000

1000000

1200000

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

BUDGET

ACTUAL


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TABLE 2

PROFIT BEFORE TAX FROM 2005 2006 TO 2009 2010

S.No. YearsBudget

Rs. (in lakhs)

Actual

Rs. (in lakhs)

Variances in

Rs. (in lakhs)

1 2005 - 2006 27762 39684 11922

2 2006 - 2007 45854 87228 41374

3 2007 - 2008 110106 151226 41120

4 2008 - 2009 190174 165311 -24863

5 2009-2010 245896 281319 35423

INTERPRETATIONIn the year, 2006-07, 2007-08 Profit before tax actual figure is more than budgeted

figure. It is favorable trend, due to increase in value of production, decrease in materials

and fabrication cost, on account of favorable exchange rate variation.

Slight fall in PBT for the year 2008- 09 is due to on account of increase in personal

payments, on account of increase in miscellaneous expenses.


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CHART - 2

PROFIT BEFORE TAX FROM 2005 2006 TO 2009 2010

0

50000

100000

150000

200000

250000

300000

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

BUDGET

ACTUAL


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TABLE - 3

WORKING CAPITAL 2005 2006 TO 2009 2010

S.No. YearsBudget

Rs. (in lakhs)

Actual

Rs. (in lakhs)

Variances in

Rs. (in lakhs)

1 2005 - 2006 49288 5676 -43612

2 2006 - 2007 51760 -10719 -62479

3 2007 - 2008 1000 -34176 -35176

4 2008 - 2009 -77725 -87502 -9777

5 2009-2010 11225 19280 -8055

INTERPRETATIONThe large variation between budgeted and actual in the year 2005 2010 and a negative

result in 2006-07 and 2008 09 is due to

y Increase in provisionfor doubtful debts

y Increase incurrent liabilities.

y Advance payment are received from the customer

y It will be done after 5 years only so variances are goes down.


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CHART - 3

WORKING CAPITAL 2005 2006 TO 2009 2010

-100000

-80000

-60000

-40000

-20000

0

20000

40000

60000

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 budget

ACTUAL


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TABLE - 4

CAPITAL EMPLOYED FROM 2005-2006 TO 2009-2010

S.No. YearsBudget

Rs. (in lakhs)

Actual

Rs. (in lakhs)

Variances in

Rs. (in lakhs)

1 2005 - 2006 41764 19066 -22698

2 2006 - 2007 67456 1083 -66373

3 2007 - 2008 43432 -22373 -65805

4 2008 - 2009 -13163 -64596 -51433

5 2009-2010 41347 66144 -24797

INTERPRETATION

The decrease was Significance during the year 2005-06, 2006-07, 2007-08,2008-2009

and 2009-10. This because of investment in fixed asset was minimum; there is a dip in

working capital leading to unfavorable variance.


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CHART - 4

CAPITAL EMPLOYED FROM 2005-2006 TO 2009-2010

-80000

-60000

-40000

-20000

0

20000

40000

60000

80000

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

BUDGET

ACTUAL


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TABLE - 5

VALUE ADDED FROM 2005 06 TO 2009 10.

S.No. YearsBudget

Rs. (in lakhs)

Actual

Rs. (in lakhs)

Variances in

Rs. (in lakhs)

1 2005 - 2006 97143 103779 6636

2 2006 - 2007 139233 173498 34265

3 2007 - 2008 203474 241348 37874

4 2008 - 2009 299268 285062 -14206

5 2009-2010 453505 430082 23423

INTERPRETATION

Comparing the budget with actual the value added of HPBP shows a favorable or

unfavorable trend. This because of change in work in progress and finished goods. In the

year 2005-06, 2006-07 and 2007-08 shows unfavorable trend, due to increase in sub

contracts payments.

Slight fall in the value added for the year 2008-09 is due to

Material cost exceeding budgeted figures (it means cost was increases so the

profit is less).

Material procurement for anticipated order.

\


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CHART-5

VALUE ADDED FROM 2005 06 TO 2009 10.

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

500000

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

BUDGET

ACTUAL


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TABLE - 6

CASH INFLOW OPERATION FROM 2005 2006 TO 2009- 2010

S.No. YearsBudget

Rs. (in lakhs)

Actual

Rs. (in lakhs)

Variances in

Rs. (in lakhs)

1 2005 - 2006 380312 390305 9993

2 2006 - 2007 454932 506536 51604

3 2007 - 2008 567489 655949 88460

4 2008 - 2009 821849 864279 42430

5 2009-2010 895856 929354 33498

INTERPRETATION

In the year 2005-2010 the actual exceeds the budgeted.

y Increase in business

y Advance received against new order.


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CHART - 6

CASH INFLOW OPERATION FROM 2005 2006

TO 2009- 2010in years

0

200000

400000

600000

800000

1000000

1200000

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

BUDGET

ACTUAL


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TABLE- 7

CASH OUTFLOW OPERATION FROM 2005 2006 TO 2009 2010

S.No. YearsBudget

Rs. (in lakhs)

Actual

Rs. (in lakhs)

Variances in

Rs. (in lakhs)

1 2005 - 2006 340150 341936 1786

2 2006 - 2007 399046 397896 -1150

3 2007 - 2008 460597 504030 43433

4 2008 - 2009 600419 656460 56041

5 2009-2010 691104 715117 24013

INTERPRETATION

In the year 2005 10 the actual outflow is more than budgeted figure. This was mainly

because of

y Increase in business volume.

y Increase imports

y Increase personal payments.

y Increase in power and fuel and other industry expenses.


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CHART- 7

CASH OUTFLOW OPERATION FROM 2005 2006 TO 2009 2010

0

100000

200000

300000

400000

500000

600000

700000

800000

900000

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

BUDGET

ACTUAL


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TABLE - 8

YEAR END INVENTORY FROM 2005 2006 TO 2009 2010

S.No. YearsBudget

Rs. (in lakhs)

Actual

Rs. (in lakhs)

Variances in

Rs. (in lakhs)

1 2005 - 2006 93905 116732 22827

2 2006 - 2007 100734 138509 37775

3 2007 - 2008 148335 231209 82874

4 2008 - 2009 191397 305672 114275

5 2009-2010 225000 303080 -78080

INTERPRETATIONThe variation in budgeted and actual is due to

Material procurement for anticipated order.

Increased buffer stock level to meet fresh order.

Procurement to meet the short term delivery commitment, hence the variance is

high.


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CHART--8YEAR END INVENTORY FROM 2005 2006 TO 2009 2010

0

50000

100000

150000

200000

250000

300000

350000

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

BUDGET

ACTUAL


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TABLE - 9

TOTAL SUNDRY DEBTORS 2005 2006 TO 2009- 2010

S.No.Years Budget

Rs. (in lakhs)

Actual

Rs. (in lakhs)

Variances in

Rs. (in lakhs)

1 2005 - 2006 112701 180822 68121

2 2006 - 2007 168251 230500 62249

3 2007 - 2008 237642 316792 79150

4 2008 - 2009 291090 455944 164854

5 2009-2010 362795 629869 267074

INTERPRETATIONThe major reason for such variances is shortfall of cash collections from which

was forecasted.


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CHART - 9

TOTAL SUNDRY DEBTORS 2005 2006 TO 2009- 2010

0

100000

200000

300000

400000

500000

600000

700000

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

BUDGET

ACTUAL


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HIGHLIGHT - part I 2004 - 05 2005-06BE Actu. BE Actu. R.E.

2006-07 2006-07 2007-08 2007-08 2007-08

Order receipts - non -bhel 366648 349246 463900 815423 667930 1019561 9975

Order outstanding (bhel) 37098 32247 6625 39

Order o/s - non -bhel 678406 752559 879711 1189279 1241284 1810431 17082

Total debtors 133253 200871 185361 253613 237642 316792 2856

Collectible debtors 55868 83258 68585 115930 71398 144915 1048

Defferred debtors 56166 80126 99182 111214 111566 138717 1352

Special deferred debtors - - - - - - -

Unbilled dispatches 21219 37487 17594 18556 18988 20850 165

Valn. Adj & others 7913 35700 12310 290

Inventory 82718 116732 100734 138509 148335 231209 1690

Inventory held under 1375 - - - -

AMA - - - - - -

Imports (CIF) 39643 74417 88238 65947 135706 120086 1196

Capital expenditure non -planned 62 755 910 4704 16596 15649 190

Economic value added 2694 16304 23219 53639 62607 96962 876

Man power 9099 8966 9677 8819 8996 8855 87


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HIGHLIGHT - part II 2004 - 05 2005-06

BE Actu. BE Actu. R.E.

2006-07 2006-07 2007-08 2007-08 2007-08

Growth in turnover (net fo BAP) 13.0% 63.00% 45.00% 30.00% 18.60% - 21.60%

Growth in turnover 9.7% 60.60% 27.90% - - 20.6% -

Shop turnover to total turnover% 61.9% 60.90% 70.90% 66.80% 73.80% 70.9% 71.70%

Turnover per rupee of gross block 3.8% 5.9 6.9 7.4 6.3 8.5 7.6

D.matls+fb+trans in GTO-ED 64.7% 68.10% 64.20% 57.50% 57.20% 53.5% 53.90%

Imports(CIF) as % ofGTO-ED 17.9% 21.90% 21.70% - - 22.5% -

Cost of purchase resold turnover (%) 76.4% 82.00% 79.50% - - 71.7% -

VA-as % ofGTO less ED 32.9% 30.50% 34.20% 80.30% 77.00% 45.2% 76.30%

VA-per rupee of personal payments 2.2% 2.81 3.43 3.86 4.45 4.49 4.2

VA - per employee (yr.end) 8.0% 11.57 14.39 19.67 22.62 27.26 27.05

Power & fuel /GTO-ED 2.4% 1.40% 1.60% 1.50% 1.30% 1.2% 1.20%

PBIT/Capital employed 6.0% 200.00% 69.00% 7777.00% 247.00% -646% 2728%

PBT/capital employed 64.0% 208.00% 68.00% 8054.00% 254.00% -676%2863.00

%

Gross billing/turnover (non-bhel) 108.0% 122.00% 102.00% 112.00% 105.00% 112% 109.00%

Net billing/g.billing (non-bhel) 95.0% 84.00% 89.00% 85.00% 89.00% 89% 85.00%

PBT/turnover 6.3% 11.20% 10.10% 18.90% 20.40% 27.2% 24.70%

Inventory(days) 137 120 81 110 100 152 110

Inventory(days of shop turnover) 122 198 114 164 136 214 154

Book debts (days) 221 207 149 206 170 213 190


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Collectible debts(days) 93 86 55 92 51 97 20

Networking 11 6 42 -8 9 -22 -16

FINDINGS AND

SUGGESTIONS


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Findings, suggestions & recommendations

After a thorough study and INTERPRETATION of the budgetary control system

of BHEL, Trichy following observation are made:

1. There is a well defined budgetary control system, the importance of which is

understood by all levels of management and workers in BHEL.

2. The corporate is giving suitable guidelines in setting up parameters for achieving

goals in the budget year especially the areas of financial turnover, physical

turnover, order book, manpower planning, inventory management, sundry debtors

management, and cash management.

3. There is a close co-ordination between the corporate office, order booking division

and BHEL, Tricky.

4. There is a well defined product oriented division in the organization in each

product group functioning under a product manager. This ensures healthy

competition between various production groups which enables the unit

management to achieve the objectives.

5. The order book position, productivity improvement, technological growth, global

competition and also the quantity improvement, customer satisfaction are taken

into account while preparing the budget. Further possible savings due to large

scale economy in material requirement, services requirement and also the tax

benefits are given due importance while making the budget.

6. The yearly budget is further divided into monthly budget and the monthly targets

are accumulated to the down level, so that the total efforts for all employees


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organization are coordinated and put in the right direction towards achieving the

organizational goals.

7. To achieve the desired production and budget and to solve problems, faced by the

product areas, timely action is taken in the course of various services meetings at

the unit level management.

8. While each one of the employee know their well defined role in achieving the

targets, the unit level management has derived many incentive schemes by which

the employee are rewarded for increased performance.

9. The success of the organization depends on the effective budgetary control system.

Cash budget is made meticulously and most of the budget parameters are split into

product level targets with monthly break-up.

10.Periodic reviews are taking place at appropriate levels. However the increase in

debtors is a cause for concern.

11.Variation is seen between targets and actual in key parameters like inventory,

debtors, PBT. The process needs to be strengthened in such a way that the

variance is the lowest minimum. This may be due to, setting up of unrealistic

targets and issues beyond the control of the unit management.


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CONCLUSION


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Conclusion1. Involvement of everyone in the budgeting process is not evident.

Commitment from individuals needs to be built up. Although soft targets are

to be avoided, a committed tartest is better than a forced target. This

management should try to secure full cooperation of the workers for making

budgetary control more effective.

2. Profitability parameters at a product level are not transparent. Display boards

may be thought of to slow each product manager as to the past performance,

target and actual.

3. The works committee may be constituted consisting of representative of

workers to get help for developing cordial relationship.

4. The customer satisfaction measures should also be ensured properly. Such as

timely, delivery, quality, and reasonable price.

5. The guidelines should be framed aiming to minimize cost at each level.

6. Inventory variance should be reduced.


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BIBLIOGRAPHY

BIBLIOGRAPHY1. Management Accounting Sharma R.K. and Gupta 10

thedition.

2. Dr. Maheswari S.N Management Accounting and Financial control sultan chand

and sons New Delhi. 1992.

3. Annual Report of BHEL Trichy.

aarthy final part

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