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A REPORT ON

ANNUAL OPERATING PLAN


A Project on Financial Planning & Internal Control

By Deepesh Mittal 10BSPHH010219 IBS Hyderabad

A REPORT ON

ANNUAL OPERATING PLAN


A Project on Financial Planning & Internal Control
By Deepesh Mittal 10BSPHH010219

A report submitted in partial fulfillment of the requirements of MBA Program of IBS Hyderabad Distribution List: GlaxoSmithKline Consumer Healthcare Ltd. Dr. Rajnandan Patnaik (Professor, IBS Hyderabad)

May 13, 2011

Authorization
This is to certify that this project entitled Annual Operating Plan has been submitted by Deepesh Mittal while doing his Summer Internship at GlaxoSmithKline Consumer HealthCare Ltd, Gurgaon, as partial fulfillment of the requirement of MBA Program IBS Hyderabad 2010-2012.

______________________ Mr. Rakesh K. Bansal


(General Manager Finance Operations) (GlaxoSmithKline Consumer Healthcare Ltd.)

Date: May 13, 2011

Summer Internship Program (2010-2011) i

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Acknowledgments
I would like to express my profound gratitude to all those who have been instrumental in the preparation of my project report. To start with, I would like to thank the organization GlaxoSmithKline Consumer Healthcare Ltd. (GSKCH) for providing me the chance to undertake this internship study and allowing me to explore the area of finance which was totally new to me and which would prove out to be very beneficial to me in my future assignments, my studies and my career ahead. I would like to thank Mr. Rakesh Bansal, Mr. Deepak Gupta and Mr. Arup Chakraborti for their continuous support, advice and encouragement, without which this report could not have been completed. I am deeply grateful to my faculty guide, Dr. Rajnandan Patnaik, for his invaluable suggestions, comments, feedback and support throughout the internship.

Summer Internship Program (2010-2011)

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Table of Contents
Content
Authorization Acknowledgment Executive Summary About GSK Introduction 1 . Objectives 2 . Scope of the Project 3 . Methodology The Study 1. Strategic Planning 1. 1 Introduction 1. 2 Benefits of Strategic Planning 1. 3 Limitations 2. Annual Operating Plan 2. 1 Nature of Annual Operating Plan 2. 2 Relation to Strategic Planning 2. 3 Contrast with Forecasting 2. 4 Use of an Annual Operating Plan 2. 5 Content of an Annual Operating Plan 2. 6 Annual Operating Plan Categories 2.6.1 Budgeted Production Cost 2.6.2 General & Administrative Expense 2.6.3 Research and Development Expense 2.6.4 Logistics Expense 2.6.5 Management by Objective 2. 7 Annual Operating Plan Preparation Process Page No. i ii 1 2 4 4 5 5

6 6 9

11 11 12 13 17

19 20 21 21 21

2.7.1 Issuance of Guidelines 2.7.2 Preparation of Formats and Templates 2.7.3 Initial Budget Proposal

22 23 25

2.7.4 Negotiation 2.7.5 Review and Approval 3. Internal Control & Variance Analysis 3.1 Need for comparison of actual & operating plan 3.2 Causes of Budget Variances 3.3 Variance Analysis 3.4 Calculating & Analysis variances 3.4.1 Variable Cost Variances 3.4.1.1 Direct Material Variance 3.4.1.2 Direct labor total variance 3.4.1.3 Variable production overhead total variances 3.4.2 Fixed Production Overhead Variances 3.4.2.1 Fixed Production overhead variance classification 3.4.3 Materials mix & yield variances 3.5 Reasons for variances 3.6 Interdependence between variances 4. Observations 5. Conclusion Annexure I Reference s

26 26 28 29 31 34 36 39 42 44 47 50 51 53 54 55 60

List of Illustrations
List of Exhibits
Page No. Exhibit 1.1 Exhibit 1.2 Exhibit 2.1 Exhibit 3.1 Exhibit 3.2 Exhibit 3.3 A company without a strategic planning process A company with a strategic planning process Types of plans and their contents Need of Internal Control Internal control process flow Variance analysis disaggregation 7 8 18 28 29 34

List of Tables
Table 1.1 Table 1.2 Table 1.3 Table 1.4 Table 1.5 Table 1.6 Table 1.7 Table 1.8 Table 1.9 Table 1.10 Table 1.11 Table 1.12 Table 1.13 Table 1.14 Table 1.15 Table 1.16 Table 1.17 Table 1.18 Table 1.19 Initial Financial Details Financial Details After Revised Budget Per unit profit Example to show Variance Calculations Direct Material Variance Direct Material Price Variance Direct Material Usage Variance Direct Labor Total Variance Direct Labor Rate Variance Direct Labor Efficiency Variance Variable Production Overhead Variable Production Overhead Expenditure Variance Variable Production Overhead Efficiency Variance Fixed Production Overhead Expenditure Variance Fixed Production Overhead Volume Variance Fixed Production Overhead Efficiency Variance Fixed Production Overhead Capacity Variance Material Mix for Product X Planned Standard Mix 31 32 32 35 36 37 38 39 40 41 42 43 44 45 45 46 47 48 48

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