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
 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

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
 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

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.

LIST OF TABLES
Table PAGE
DESCRIPTION
No. NO
1 Financial turnover from 2004 – 2005 to 2008 – 2009
2 Profit before tax from 2004 – 2005 to 2008 – 2009
3 Working capital 2004 – 2005 to 2008 – 2009
4 Capital employed from 2004-2005 to 2008-2009
5 Value added from 2004 – 05 to 2008 – 09
6 Cash inflow operation from 2004 – 2005 to 2008- 2009
7 Cash outflow operation from 2004 – 2005 to 2008 – 2009
8 Yearend inventory from 2004 – 2005 to 2008 – 2009
9 Total sundry debtors 2004 – 2005 to 2008- 2009
10 Highlight – part 1
11 Highlight – part 2
 LIST OF CHARTS
Chart PAGE
DESCRIPTION
No. NO
1 Financial turnover from 2004 – 2005 to 2008 – 2009
2 Profit before tax from 2004 – 2005 to 2008 – 2009
3 Working capital 2004 – 2005 to 2008 – 2009
4 Capital employed from 2004-2005 to 2008-2009
5 Value added from 2004 – 05 to 2008 – 09
6 Cash inflow operation from 2004 – 2005 to 2008- 2009
7 Cash outflow operation from 2004 – 2005 to 2008 – 2009
8 Yearend inventory from 2004 – 2005 to 2008 – 2009
9 Total sundry debtors 2004 – 2005 to 2008- 2009
List of Tables:

TABLES Page No
Table 1 Financial Turnover from 2005-2006 to 2009-2010 23
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

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

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.
 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
economy viz.., Power Generation & Transmission, Industry, Transportation renewable
energy, Oil &Gas, Telecommunication, Defense, etc..,

The wide network of BHEL’S 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
India’s industrial ambassador to the world.

The company’s 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, with
an 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.

1.3 About the product

PRODUCT RANGE
The products manufactured by BHEL, Tiruchirappalli find wide application in
Thermal and Nuclear Power 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 worth
Rs. 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 ISO
18001 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 BHEL’s 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

BHEL is world class, innovative competitive and profitable engineering enterprise
providing total business solutions.

MISSION
The BHEL’s mission is to be the leader in Indian engineering enterprise providing
quality products, system and services in the field o energy, transportation industry and
infrastructure.

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 company’s 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 imported
technologies to suit needs and priorities, and provide a competitive
advantages to the company.

5. IMAGE
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”
1.5 Organization of the report
The following are the bird’s 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 organization’s effectiveness.
Chapter 6 – This chapter summarizes and concludes the project.
 RESEARCH METHODOLOGY
2.1 Statement of the problem

2.2 Scope of the Study

Budgets 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.

2.3 OBJECTIVES 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 DESIGN

A 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 collection

Secondary data have been collected from the respective unit though manuals and annual
reports of the company
2.6 Nature of Data
The study is based on secondary data.

2.7 Source of data

Secondary data have been collected from the respective unit though manuals and
annual reports of the company. The sources of the data are budgeted fixed and actual
attained by the concern under the period of the study.

2.8 Tools for analysis

Data has been collected, analyzed and tabulated keeping in view, the
objectives of study.
2.9 Limitations of study

 The study covers only a period of five years.

 The results may be different under new environment with changes in the
management policy.
 Further, the study is based on secondary data.
 The results of the study will about be applicable to all the public sector
organizations.
 Time was insufficient to carry out the research and hence its depth
INTERPRETATION could not be made.
 REVIEW OF LITERATURE

REVIEW OF LITERATURE
Budgetary control and defined by the Institute of cost and Management
Accountants (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”.

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 company’s 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
General Introduction of Budgeting
Definition of budget
Chartered 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.

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 SLACK
Because 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 management’s 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
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 company’s 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 company’s goals and objectives. Linking the master budget to the company’s 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.

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, Production
Budget, 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 budget
A 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 may
apply:
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.
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
3) Statistical methods ( correlation INTERPRETATION and examination
of trends)
4) Mathematical methods

In using these techniques consider:

1) Company’s 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 manager’s 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 budget’s 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/

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 management’s plans in cash terms.
 To illustrate the financial impact of changes in management policy, e/g change of
credit terms offered to customers.
Receipts of cash may come from one of the following:
1) Cash sales
2) Payments by debtors
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
 BUDGET PROCESS
BUDGETING FUNDAMENTALS
Looking 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 accounting
data, 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
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 processing
systems 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.
Today’s 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 than
in 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 management’s

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 a
variable expense driven by sales volume. As sales decrease, shipments decrease and
fewer supplies are used.

THE PHASES OF BUDGETING

The 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 programs

The 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 company’s operating and profit objectives. Like all other line managers,
the vice president of engineering must also prepare a program for operating the
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 also
complete 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.

Consolidation
Having 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 quarterly
or semiannual projected basis.

Management Review
At 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.

Adjustments
When 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 line
managers 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 publication

Final 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 company’s operating plan has been stated adequately in the
form 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 MEASURES
As 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 company’s strategy is growth, profits must provide a sound
and continuing basic for growth. Some widely accepted measures of performance are the
following:
Profitability:
Percent return on the net sales, percent return on owner’s 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 company’s strategy were
to be lowest-cost producer, an alternative set of measurements would be required.
EFFECTIVE BUDGETING
Due 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
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 company’s operational control needs.

EFFECTIVE BUDGETING SYSTEMTS IN PRACTICE

Top 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 with
variable 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.

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

BHEL’s control system. The system pinpoints responsibility for all controllable costs by
individual integrates standard cost reported what the company’s 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 emphasizes
information that is useful to the individual manager.
BUDGET CONTROL
BUDGERARY CONTROL METHODS

a) Budget:
 A formal statement of the financial resources set aside for carrying out specific
activities 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.
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 separately
3. 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
 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. The
following 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
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.
 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 end
of 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
Data ANALYSIS AND
INTERPRETATION
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
Budget Actual Variances in
S.No. Years
Rs. (in lakhs) Rs. (in lakhs) Rs. (in lakhs)
1 2005 - 2006 363271 353589 -9682
2 2006 - 2007 455092 460656 5564
3 2007 - 2008 540106 555399 15293
4 2008 - 2009 720207 746031 25824
5 2009-2010 950228 1000853 50625

INTERPRETATION
The variation in financial turnover programme between budgeted and actual is due to
 Non materialization of anticipated 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 in opposite trend.
 CHART - 1
FINANCIAL TURNOVER FROM 2005 – 2006 TO 2009 – 2010

1200000

1000000

800000

600000
BUDGET
ACTUAL
400000

200000

0
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
 TABLE – 2
PROFIT BEFORE TAX FROM 2005 – 2006 TO 2009 – 2010
Budget Actual Variances in
S.No. Years
Rs. (in lakhs) Rs. (in lakhs) 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

INTERPRETATION
In 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.
 CHART - 2

PROFIT BEFORE TAX FROM 2005– 2006 TO 2009 – 2010

300000

250000

200000

150000
BUDGET
ACTUAL
100000

50000

0
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
 TABLE - 3

WORKING CAPITAL 2005 – 2006 TO 2009 – 2010

Budget Actual Variances in

S.No. Years
Rs. (in lakhs) Rs. (in lakhs) 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

INTERPRETATION
The large variation between budgeted and actual in the year 2005 – 2010 and a negative
result in 2006-07 and 2008 – 09 is due to
 Increase in provision for doubtful debts
 Increase in current liabilities.
 Advance payment are received from the customer
 It will be done after 5 years only so variances are goes down.
 CHART - 3

WORKING CAPITAL 2005 – 2006 TO 2009 – 2010

0
2005-... 2006-... 2007-... 2008-... 2009-...
budget
-2
ACTUAL
-4

-6

-8

-10
 TABLE - 4

CAPITAL EMPLOYED FROM 2005-2006 TO 2009-2010

Budget Actual Variances in

S.No. Years
Rs. (in lakhs) Rs. (in lakhs) 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.
 CHART - 4

CAPITAL EMPLOYED FROM 2005-2006 TO 2009-2010

2
BUDGET
0
ACTUAL
2005-... 2006-... 2007-... 2008-... 2009-...
-2

-4

-6

-8
 TABLE - 5

VALUE ADDED FROM 2005– 06 TO 2009 – 10.

Budget Actual Variances in

S.No. Years
Rs. (in lakhs) Rs. (in lakhs) 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.
\
 CHART-5
VALUE ADDED FROM 2005– 06 TO 2009 – 10.

500000
450000
400000
350000
300000
250000 BUDGET
ACTUAL
200000
150000
100000
50000
0
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
 TABLE - 6

CASH INFLOW OPERATION FROM 2005 – 2006 TO 2009- 2010

Budget Actual Variances in

S.No. Years
Rs. (in lakhs) Rs. (in lakhs) 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.
 Increase in business
 Advance received against new order.
 CHART - 6

CASH INFLOW OPERATION FROM 2005 – 2006 TO 2009- 2010

in years

1200000

1000000

800000

600000
BUDGET
ACTUAL
400000

200000

0
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
 TABLE- 7

CASH OUTFLOW OPERATION FROM 2005 – 2006 TO 2009 – 2010

Budget Actual Variances in

S.No. Years
Rs. (in lakhs) Rs. (in lakhs) 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
 Increase in business volume.
 Increase imports
 Increase personal payments.
 Increase in power and fuel and other industry expenses.
 CHART- 7
CASH OUTFLOW OPERATION FROM 2005– 2006 TO 2009 – 2010

900000
800000
700000
600000
500000
400000 BUDGET
ACTUAL
300000
200000
100000
0
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
 TABLE - 8

YEAR END INVENTORY FROM 2005 – 2006 TO 2009 – 2010

Budget Actual Variances in

S.No. Years
Rs. (in lakhs) Rs. (in lakhs) 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

INTERPRETATION
The 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.
 CHART--8
YEAR END INVENTORY FROM 2005 – 2006 TO 2009 – 2010

350000

300000

250000

200000
BUDGET
150000 ACTUAL

100000

50000

0
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
 TABLE - 9

TOTAL SUNDRY DEBTORS 2005 – 2006 TO 2009- 2010

Years Budget Actual Variances in

S.No.
Rs. (in lakhs) Rs. (in lakhs) 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

INTERPRETATION
The major reason for such variances is shortfall of cash collections from which
was forecasted.
 CHART - 9
TOTAL SUNDRY DEBTORS 2005 – 2006 TO 2009- 2010

700000

600000

500000

400000
BUDGET
300000 ACTUAL

200000

100000

0
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
 BE Actu. BE Actu. R.E.
HIGHLIGHT - part I 2004 - 05 2005-06
2006-07 2006-07 2007-08 2007-08 2007-08 20

Order receipts - non -bhel 366648 349246 463900 815423 667930 1019561 997526 9

Order outstanding (bhel)       37098 32247 6625 3995

Order o/s - non -bhel 678406 752559 879711 1189279 1241284 1810431 1708201 19
Total debtors 133253 200871 185361 253613 237642 316792 285612 2

Collectible debtors 55868 83258 68585 115930 71398 144915 104886 1

Defferred debtors 56166 80126 99182 111214 111566 138717 135217 1

Special deferred debtors - - - - - - -

Unbilled dispatches 21219 37487 17594 18556 18988 20850 16509

Valn. Adj & others       7913 35700 12310 29000

Inventory 82718 116732 100734 138509 148335 231209 169017 1

Inventory held under     1375 - - - -

AMA - - - - - - -
Imports (CIF) 39643 74417 88238 65947 135706 120086 119668 1

Capital expenditure non -

planned 62 755 910 4704 16596 15649 19068

Economic value added 2694 16304 23219 53639 62607 96962 87605 1

Man power 9099 8966 9677 8819 8996 8855 8743

 BE Actu. BE Actu. R.E. BE
HIGHLIGHT - part II 2004 - 05 2005-06
2006-07 2006-07 2007-08 2007-08 2007-08 2008-09

Growth in turnover (net fo BAP) 13.0% 63.00% 45.00% 30.00% 18.60% - 21.60% 28.60%
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% 75.60%
Turnover per rupee of gross block 3.8% 5.9 6.9 7.4 6.3 8.5 7.6 5.
D.matls+fb+trans in GTO-ED 64.7% 68.10% 64.20% 57.50% 57.20% 53.5% 53.90% 54.00%
Imports(CIF) as % of GTO-ED 17.9% 21.90% 21.70% - - 22.5% - 29.20%
Cost of purchase resold turnover (%) 76.4% 82.00% 79.50% - - 71.7% - -
VA-as % of GTO less ED 32.9% 30.50% 34.20% 80.30% 77.00% 45.2% 76.30% 44.70%
VA-per rupee of personal payments 2.2% 2.81 3.43 3.86 4.45 4.49 4.2 5.1
VA - per employee (yr.end) 8.0% 11.57 14.39 19.67 22.62 27.26 27.05 33.8
Power & fuel /GTO-ED 2.4% 1.40% 1.60% 1.50% 1.30% 1.2% 1.20% 1.20%
7777.00
PBIT/Capital employed 6.0% 200.00% 69.00% % 247.00% -646% 2728% -1403%
8054.00 2863.00
PBT/capital employed 64.0% 208.00% 68.00% % 254.00% -676% % -444%
109.0
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% 0.00%
PBT/turnover 6.3% 11.20% 10.10% 18.90% 20.40% 27.2% 24.70% 26.40%
Inventory(days) 137 120 81 110 100 152 110 9
Inventory(days of shop turnover) 122 198 114 164 136 214 154 12
Book debts (days) 221 207 149 206 170 213 190 15
Collectible debts(days) 93 86 55 92 51 97 20 5
Networking 11 6 42 -8 9 -22 -16 -3
 FINDINGS AND SUGGESTIONS

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 debtor’s
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’
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.
CONCLUSION
Conclusion
1. 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.

 BIBLIOGRAPHY

BIBLIOGRAPHY
1. Management Accounting – Sharma R.K. and Gupta 10th edition.
2. Dr. Maheswari S.N – Management Accounting and Financial control sultan chand
and sons New Delhi. 1992.
3. Annual Report of BHEL – Trichy.
4. Departmental procedure manual.
5. Website of BHEL – WWW.BHEL.COM