SBP Internship Report - Planning and Budgeting

Preamble
Internship is an integral part of management sciences. For the sake of internship the most initial
thing is to have a practical experience. This effort may get a student to get a practical experience
of right organization is selected. During the internship, a student comes to particle knowledge.
He/she learns what he has studied so far. As a team we have also done our internship at State
Bank of Pakistan Banking Services Corporation. Here we come to know a differentSUBMITTED and very
interesting experience of learning and working with people. BY:
KUBRA
This report has been prepared by Sardar Muhammad, Jan Sher Khan, Kubra and Sakina
(SBKWU)
from BUITEMS and SBK Womens University Respectively
SAKINA
Our team was provided full support by our supervisors i.e. Mr. Azhar Ali (SBKWU)
Khan,
SARDAR
Mr.Zainulabidin and Mr.Mubasherullah Khan. This report shall first give an overview of
central bank and statement of Pakistan moreover, it describes the working of GeneralMUHAMMAD
Services
(BUITEMS)
Department, it also elaborates the details of planning and budgeting comprehensively that is
JAN SHER
further enhanced by the inclusion of recommendations for institutions need development.
KHAN
(BUITEMS)
We have tried our best to keep the report simple keeping in view the report yet technically
correct we hope we succeed in our attempt.
PLANNING AND STATE BANK

OF PAKISTAN-
BANKING
SERVICES
BUDGETING- CORPORATION
SHER JAN
INSTITUTIONS NEED
(INTERNSHIP
COORDINATOR)
STATE BANK
FOR DEVELOPMENT
OF PAKISTAN-
BANKING
SERVICES
CORPORATION
PLANNING AND BUDGETING INSTITUTION NEEDS FOR 14 FEBRUARY 2017
DEVELOPMENT
PLANNING AND BUDGETING- INSTITUTIONS NEED FOR DEVELOPMENT
Letter of Transmittal
Internship coordinator,
State Bank of Pakistan,
Banking Services Corporation,
Quetta.
SUBJECT: REQUEST FOR THE SUBMISSION OF INTERNSHIP REPORT.

Respected Sir,
We conducted our internship at State Bank of Pakistan, Banking Services Corporation,

Quetta. During this internship, we prepared a report on Budgeting and Planning Financial
Institutions need for development. We worked in General Services unit with full
concentration and hard work. Now, at the completion of this internship we request you to accept
our internship report.
Thank you
Yours faithfully,
Sardar Muhammad - (BUITEMS)
Jan Sher Khan - (BUITEMS)
Kubra - (SBKWU)
Sakina - (SBKWU)
Supervisor: __________________ Co-Supervisor:___________________
STATE BANK OF PAKISTAN-

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BANKING SERVICES CORPORATION
Acknowledgment
The internship opportunity we had with State Bank Of Pakistan Banking Services
Corporation was a great chance for learning and professional development. Therefore, we
consider ourselves as a very lucky team as we were provided with an opportunity to be a part
of it. We are also grateful for having a chance to meet so many wonderful people and
professionals who led us through this internship period.
Bearing in mind previous we are using this opportunity to express our deepest gratitude and
special thanks to the CM of SBP BSC who in spite of being extraordinarily busy with his
duties, took time out to hear, guide and keep us on the correct path and allowing us to carry out
my project at their esteemed organization and extending during the training.
It is our radiant sentiment to place on record our best regards, deepest sense of gratitude to Mr
Azhar Ali khan, Mr Zain ul Abideen, Mr Mubashirullah Khan for their careful and
precious guidance which were extremely valuable for our study both theoretically and
practically.
We perceive this opportunity as a big milestone in our career development. We will strive to
use gained skills and knowledge in the best possible way, and we will continue to work on their
improvement, in order to attain desired career objectives. We hope to continue cooperation
with all of you in the future,

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Executive Summary
State Bank of Pakistan is the central bank of Pakistan and is an autonomous body. State bank
of Pakistan Act 1956, with subsequent amendments, forms the basis of its operations today. It
monitors and regulates all the commercial banks in Pakistan. SBP BSC has given us a golden
opportunity of internship. After weeks of rotation in different units, the project which is
assigned to us is about Planning and Budgeting; financial institutions needs for
development. Basically this is one of the tasks of General Services Department.
The report has been divided into six chapters in which the commencing chapter deals with a
descriptive prelude of central bank. The second chapter includes intro to SBP. The third chapter
consists of workings and operations of general services Department that also entails the
planning and budgeting process that forms the componential part of the forth chapter. Planning
is necessary for different occupations and there are different types of plans like strategic
planning, tactical planning and operational planning. These plans help us to achieve efficiency
and effectiveness. Besides planning, budgeting is detailed in the fifth chapter. Budgeting is an
important factor of financial success. Budget has got many techniques, incremental budgeting,
and zero based budgeting and flexed budgeting. Our report further includes budgeting process
at SBP BSC which includes capital budget and revenue budget. Budgeting process of different
countries are compared with budgeting process at SBP BSC after thorough study. Our report
also encompasses the needs of institutions for development. We ended our report with a precise
conclusion of the project.

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TABLE OF CONTENT
CHAPTER 1
1. Central Bank.......................................................................................................................6
1.1. History..........................................................................................................................6
1.2. Goals.............................................................................................................................7
1.3. Economics growth.......................................................................................................7
1.4. Independence...............................................................................................................8
CHAPTER 2
Introduction to SBP................................................................................................................10
1.5. Subsidiaries of SBP...................................................................................................10
2. General Services Department..........................................................................................14
2.1. Employee Benefits Division......................................................................................14
2.2. Procurement Division...............................................................................................15
2.3. Printing Press...........................................................................................................15
2.4. Introduction to PPRA...............................................................................................15
3. GSD Organogram.............................................................................................................16
CHAPTER 3
4. Planning ............................................................................................................................17
4.1. Business Planning......................................................................................................17
4.2. Planning Process........................................................................................................17
4.2.1. Strategic plans.................................................................................................17
4.2.2. Tactical plans..................................................................................................17
4.2.3. Operational plans...........................................................................................18
4.2.4. Advantages of Planning.................................................................................19
5. Policy..................................................................................................................................19
6. Rule....................................................................................................................................19
7. Procedure..........................................................................................................................19

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CHAPTER 4
8. Budget................................................................................................................................20
8.1. Budgetary Control....................................................................................................20
8.2. Objectives of Budgetary Control.............................................................................20
8.3. Scope ..........................................................................................................................21
8.4. Techniques.................................................................................................................21
9. Organization for budgetary control...............................................................................21
9.1. Conditions for Budgetary Control...........................................................................21
9.2. Characteristics of budget..........................................................................................23
9.3. Budgeting Techniques...............................................................................................24
9.4. Budgeting Types........................................................................................................26
CHAPTER 5
10. Budgeting at SBP BSC.....................................................................................................29
10.1. Budgeting steps...............................................................................................29
10.2. Capital Budget................................................................................................31
10.3. Revenue Budget..............................................................................................33
10.4. Submission of quarterly reports...................................................................43
CHAPTER 6
11. Institutions need for development development..........................................................44

12. Conclusions.......................................................................................................................47
13. Reference...........................................................................................................................48

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Central Bank
A central bank, or monetary authority, is a monopolized and often nationalized institution given
privileged control over the production and distribution of money and credit. In modern
economies, the central bank is responsible for the formulation of monetary policy and the
regulation of member banks.
Central banks are inherently non-market-based or even anticompetitive institutions. Many

central banks are often touted as independent or even private. However, even if a central bank
is not legally owned by the government, its privileges are established and protected by law.
The critical feature of a central bank distinguishing it from other banks is legal monopoly
privilege for the issuance of bank notes and cash; privately owned commercial banks are only
permitted to issue demand liabilities, such as checking deposits.
History
Sweden created the world' first central bank, the Riks, in 1668.
The Bank of England came next in 1694.
Napoleon created the Banquet de France in 1800.
Congress established the Federal Reserve in 1913.
The Bank of Canada began in 1935, and the German Bundes bank was reestablished
after World War II. In 1998,
The European Central Bank replaced all central banks in the member countries of the
Eurozone.
The European Central Bank building in Frankfurt

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Functions of a central bank may include:
Implementing monetary policies.

setting the official interest rate used to manage both inflation and the country's
exchange rate and ensuring that this rate takes effect via a variety of policy
mechanisms
controlling the nation's entire money supply
The Government's banker and the bankers' bank.
managing the country's foreign exchange and gold reserves and the Government's stock
register
regulating and supervising the banking industry
GOALS
High employment
Frictional unemployment is the time period between jobs when a worker is searching for, or
transitioning from one job to another. Unemployment beyond frictional unemployment is
classified as unintended unemployment.
For example, structural unemployment is a form of unemployment resulting from a mismatch

between demand in the labor market and the skills and locations of the workers seeking
employment. Macroeconomic policy generally aims to reduce unintended unemployment.
Keynes labeled any jobs that would be created by a rise in wage-goods (i.e., a decrease in real-
wages) as involuntary unemployment:
Men are involuntarily unemployed if, in the event of a small rise in the price of wage-goods
relatively to the money-wage, both the aggregate supply of labor willing to work for the current
money-wage and the aggregate demand for it at that wage would be greater than the existing
volume of employment.
Economic growth
Economic growth can be enhanced by investment in capital, such as more or better machinery.
A low interest rate implies that firms can borrow money to invest in their capital stock and pay
less interest for it. Lowering the interest is therefore considered to encourage economic growth
and is often used to alleviate times of low economic growth. On the other hand, raising the
interest rate is often used in times of high economic growth as a contra-cyclical device to keep
the economy from overheating and avoid market bubbles.

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Further goals of monetary policy are stability of interest rates, of the financial market, and of
the foreign exchange market. Goals frequently cannot be separated from each other and often
conflict. Costs must therefore be carefully weighed before policy implementation.
Independence
Governments generally have some degree of influence over even "independent" central banks.
The aim of independence is primarily to prevent short-term interference. For example, the
Board of Governors of the U.S. Federal Reserve are nominated by the President of the U.S.
and confirmed by the Senate, publishes verbatim transcripts, and balance sheets are audited by
the Government Accountability Office.
The literature on central bank independence has defined a number of types of independence.
Legal independence
The independence of the central bank is enshrined in law. This type of independence is
limited in a democratic state; in almost all cases the central bank is accountable at some
level to government officials, either through a government minister or directly to a
legislature. Even defining degrees of legal independence has proven to be a challenge
since legislation typically provides only a framework within which the government and
the central bank work out their relationship.
Goal independence
The central bank has the right to set its own policy goals, whether inflation targeting,
control of the money supply, or maintaining a fixed exchange rate. While this type of
independence is more common, many central banks prefer to announce their policy
goals in partnership with the appropriate government departments. This increases the
transparency of the policy setting process and thereby increases the credibility of the
goals chosen by providing assurance that they will not be changed without notice. In
addition, the setting of common goals by the central bank and the government helps to
avoid situations where monetary and fiscal policy are in conflict; a policy combination
that is clearly sub-optimal.
Operational independence
The central bank has the independence to determine the best way of achieving its policy
goals, including the types of instruments used and the timing of their use. This is the
most common form of central bank independence. The granting of independence to the
Bank of England in 1997 was, in fact, the granting of operational independence; the
inflation target continued to be announced in the Chancellor's annual budget speech to
Parliament.

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Management independence
The central bank has the authority to run its own operations (appointing staff, setting
budgets, and so on.) without excessive involvement of the government. The other forms
of independence are not possible unless the central bank has a significant degree of
management independence. One of the most common statistical indicators used in the
literature as a proxy for central bank independence is the "turn-over-rate" of central
bank governors. If a government is in the habit of appointing and replacing the governor
frequently, it clearly has the capacity to micro-manage the central bank through its
choice of governors.

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INTRODUCTION TO STATE BANK OF PAKISTAN
Introduction:
The State Bank of Pakistan (SBP) is incorporated under the State Bank of Pakistan Act, 1956,
which gives the SBP the authority to work as the central bank of the country. The SBP Act
mandates the Bank to regulate the monetary and credit system of Pakistan and to foster its
growth in the best national interest with a view to securing monetary stability and best
utilization of the countrys financial resources.
Vision
To transform the SBP into a modern and dynamic central bank, highly professional and
efficient, fully equipped to play a meaningful role on sustainable basis in the economic and
social development of Pakistan
Mission
The mission is to promote monetary and financial stability and foster a sound and dynamic
financial system, so as to achieve sustained and equitable economic growth and prosperity in
Pakistan.
Subsidiaries Of The SBP
The SBP holds two fully owned subsidiaries to augment its functions.
SBP
NIBAF BSC

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SBP-BSC (Banking Services Corporation)
SBP BSC is the operational arm of State Bank of Pakistan. It was established under the SBP-
BSC Ordinance 2001. SBP-BSC supports SBP in performing functions such as handling of
currency and credit management, facilitating the inter-bank settlement system, and
sale/purchase of savings instruments of the Government on behalf of Central Directorate of
National Savings. SBP-BSC also collects revenue and makes payments for and on behalf of
the Government. It also carries out operational work relating to development finance,
management of public debt, foreign exchange operations and export refinance. The Board of
Directors of SBP-BSC, chaired by the Governor SBP, comprises of all members of the
Central Board of SBP and the Managing Director of SBP-BSC.
SBP-BSC is a subsidiary of SBP consisting of 16 Field Offices in Pakistan with the Head
Office in Karachi.
Vision:
To develop SBP-BSC into a dynamic and efficient organization equipped with requisite
technology and human resource capable of extending sustainable support to the State Bank of
Pakistan in achieving its objective.
Mission:
To provide excellent banking and financial services to stakeholders besides ensuring

implementation of SBP policies in order to command their trust and respect.
National Institute of Banking and Finance (NIBAF)
NIBAF is the training arm of SBP, providing executive development trainings to new
inductees and various levels of SBP employees. The subsidiary also conducts international
courses on central and commercial banking in collaboration with the federal Government.
Furthermore, NIBAF offers training to SBP-BSC and other financial institutions. NIBAF is
incorporated under Companies Ordinance, 1984 and has a separate Board of Directors.

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NIBAF AT ISLAMABAD

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ORGANOGRAM

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GENERAL SERVICES DEPARTMENT:
Mission:
Our mission is to provide dedicated and high quality service to our stakeholders with a sense
of warmth and friendliness. Our continuous focus would be towards preparing dynamic
policies, adopting innovative methods to solve unsolved problems and ultimately become
strategic partner in achieving the organizational objectives.
Vision:
Our vision is to help the Bank transform into a model institution by inculcating high spirit of
service and extending unmatchable facilitation to our stakeholders.
Introduction to GSD:
General Services Department has been instituted in order to provide an efficient services to the
employees of SBP Banking Services Corporation, through One Window approach. It
employees a rejuvenated vigor of the management to resolve all employees-related issues with
a proactive approach and advanced service delivery standards so as to inculcate more devotion
and commitment in their job performance.
General Services Department (GSD) is responsible for providing cost-effective and quality
support services to SBP-BSC. Procurement is a major function of the Department and
encompasses a wide range including procurements of IT equipment and services, professional
consultancy services, vehicles, office equipment, furniture & fixtures, medicines, etc.
GSD is also responsible for providing quality and cost effective health care services to Banks
employees and their eligible dependents. It also manages the processing of employees salary,
and their retirement & other benefits.
1. Employee Benefits Division:

Disbursement of monthly salary and allowances
Reimbursement of educational expenses
Management of staff loan cases and assessment of properties
Maintaining PF/GPF accounts of Bank employees
Payment of retirement benefits related to fund accounts
Financing of life insurance policies against PF/GPF accounts
2. Administration

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3. Procurement Division I:
Procurement of goods and services as per PPRA Rules 2004
Assisting departments and offices in the procurement process
Preparation of bidding documents for standardized procurement practices
Purchasing stationary for bank
Development of Business Plan
Preparation of annual budget
Maintaining employee leave records
4. Procurement Division II
5. Procurement Division III and FSD
6. Printing Press
7. Medical Division
8. Health Clinic
Introduction to PPRA:
The Public Procurement Regularity Authority is an autonomous body endowed with
the responsibility of prescribing regulation and procedures for public procurements by federal
governments owned public sector organizations with a view to improve governance,
management, transparency , accountability and quality of public procurement of good, works
and services. It is also endowed with the responsibility of monitoring procurement by public
sector agencies/organizations and has been delegated necessary powers under the Public
Procurement Regularity Authority Ordinance 2002.

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PLANNING
Planning is the part of management concerned with creating procedures, rules and
guidelines for achieving a stated objective. Plans commit individuals, departments,
organizations, and the resources of each to specific actions for the future. Organizations need
to create broad objectives and mission statements as well as look after the day to day running
of the company.
Business Plan:
A business plan is a formal statement of business goals and needs, reasons for
achieving that goals and plans for reaching them. It may also contain background information
about the organization to reach those goals.
Planning Process:
Clear statement of goals and objectives

Creating budget centers
Developing accounting controls
Communication
Budget administration
Below, we take a look at the three types of plans in management and how they are used within
an organizational framework:
Strategic Plan:
A strategic plan is a high-level overview of the goals of the entire organization as a
whole in mind, rather than with the goals of specific divisions or departments. Strategic
planning begins with an organization's mission.
Strategic plans look ahead over the next two, three, five, or even more years to move the
organization from where it currently is to where it wants to be. Requiring multilevel
involvement, these plans need involvement of all levels of management within the
organization. Top level management develops the directional objectives for the entire
organization, while lower levels of management develop objectives and plans to achieve them.
Top management's strategic plan for the entire organization becomes the framework and sets
dimensions for the lower level planning. Thus, the strategic plan must be forward looking,
robust but flexible, with a keen focus on accommodating future growth.
Tactical plans
A tactical plan is concerned with what the lower level units within each division must
do, how they must do it, and who is in charge at each level. Tactics are the means needed to
activate a strategy and make it work. Tactical plans are concerned with shorter time frames and

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narrower scopes than are strategic plans. These plans are usually one year or less because they
are considered short term goals. Long term goals, on the other hand, can take several years or
more to accomplish. Normally, it is the middle manager's responsibility to take the broad
strategic plan and identify specific tactical actions.
If the strategic plan is a response to What? the tactical plan responds to How?
The tactical plan is a very flexible document; it can hold anything and everything required to
achieve the organizations goals.
There are some components shared by most tactical plans:
1. Specific Goals with Fixed Deadlines

The tactical plan break down the broad objectives into smaller, actionable goals. The goals
should be highly specific and have fixed deadlines to be completed
2. Budgets
The tactical plan should list budgetary requirements to achieve the goals/needs specified in the
strategic plan. This should include the budget for hiring personnel, marketing, sourcing,
manufacturing, and running the day-to-day operations of the company.
3. Resources
The tactical plan should list all the resources you can imagine to achieve the organizations
needs. This should include human resources, cash resources, etc.
Operational plans:
The operational plan describes the day to day plans of the company. The operational
plan describes a roadmap to achieve the tactical goals within a limited timeframe. The specific
results expected from departments, work groups, and individuals are the operational goals.
Creating the operational plan is the responsibility of low-level managers and supervisors.
Operational plans can be either single use, or ongoing, as described below:
1. Single Use Plans

These plans are made for events/activities with one time occurrence. This can be a one-
time sales program, a marketing campaign, a recruitment drive, etc. Single use plans tend to be
highly specific.
2. Ongoing Plans
These plans can be used in multiple settings on an ongoing basis. Ongoing plans are
created on an ad-hoc basis but can be repeated and changed as required.
Advantages of planning

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Planning can alert management as to whether or not resources are being used effectively
and efficiently. If there are inefficiencies, this can be overcome by improving performance. For
this the organization requires to:
clearly state the objectives of the activity or program;

prepare budgets for each activity or program
have better communication and coordination of activities; and
Control the performance of activities by providing effective measures for performance.
Policy:
A policy is a general document that dictates how managers should approach a problem.
It influences decision making at the micro level. Specific plans on hiring employees,
terminating contractors, etc. are examples of policies.
Rule:
Rules are specific regulations according to which an organization functions. A rule
provides employees with specific guidelines of behavior that is what they should and should
not do as a member of the organization No smoking within premises, or Employees must
report by 9 a.m., are two examples of rules.
Procedure:
A procedure describes a step-by-step process to accomplish a particular objective. For
example: most organizations have detailed guidelines on hiring and training employees, or
sourcing raw materials. These guidelines can be called procedures.

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BUDGET:
A budget is defined as a quantitative statement for a defined period of time, which

may include planned revenues, assets, liabilities and cash flows. A budget provides a focus for
the organization, aids the co-ordination of activities and facilitates control. A budget is a
document for recording actual and projected income and expenditures over time.
Budgetary Control:
Budgetary Control is the process of establishment of budgets relating to various
activities and comparing the budgeted figures with the actual performance for arriving at
deviations, if any. Accordingly, there cannot be budgetary control without budgets. Budgetary
Control is a system which uses budgets as a means of planning and controlling.
According to I.C.M.A. England Budgetary control is defined by Terminology as the

establishment of budgets relating to the responsibilities of executives to the requirements of a
policy and the continuous comparison of actual with the budgeted results, either to secure by
individual actions the objectives of that policy or to provide a basis for its revision. Brown and
Howard defines budgetary control is "a system of controlling costs which includes the
preparation of budgets, coordinating the department and establishing responsibilities,
comparing actual performance with the budgeted and acting upon results to achieve maximum
profitability."
The above definitions reveal the following essentials of budgetary control:
(1) Establishment of objectives for each function and section of the organization.
(2) Comparison of actual performance with budget.
(3) Ascertainment of the causes for such deviations of actual from the budgeted performance.
(4) Taking suitable corrective action from different available alternatives to achieve the desired
objectives.
Objectives of Budgetary Control
Budgetary Control is planned to assist the management for policy formulation,

planning, controlling and coordinating the general objectives of budgetary control and can be
stated in the following ways:
(1) Planning:
A budget is a plan of action. Budgeting ensures a detailed plan of action for a
Business over a period of time.
(2) Co-ordination:
Budgetary control co-ordinates the various activities of the entity or organization and
secure co-operation of all concerned towards the common goal.

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(3) Control:
Control is necessary to ensure that plans and objectives are being achieved. Control
follows planning and co-ordination. No control performance is possible without predetermined
standards. Thus, budgetary control makes control possible by continuous measures against
predetermined targets. If there is any variation between the budgeted performance and the
Actual performance, the same is subject to analysis and corrective action. Scope and
Techniques of Standard Costing and Budgetary Control.
Scope:
(1) Budgets are prepared for different functions of business such as production, sales etc.
Actual results are compared with the budgets and control is exercised. Standards on the other
hand are compiled by classifying, recording and allocation of the expenses to cost units. Actual
costs are compared with standard costs.
(2) Budgets have a wide range of coverage of the entire organization. Each operation or process
is divided into number of elements and standards are set for each such element.
(3) Budgetary control is concerned with origin of expenditure at functional levels. Standard
costing is concerned with the requirements of each element of cost.
(4) Budget is a projection of financial accounts whereas standard costing projects the cost
accounts.
Technique:
(1) Budgetary control is exercised by putting budgets and actuals side by side. Variances are
not normally revealed in the accounts. Standard costing variances are revealed through
accounts.
(2) Budgetary control system can be operated in parts. For example, Advertisement Budgets,
Research and Development Budgets, etc. Standard costing is not put into operation in parts.
(3) Budgetary control of expenses is broad in nature whereas standard costing system is a far
more technically improved system by means of which the variances are analyzed in detail.
Organization for Budgetary Control
In order to introduce budgetary control system, the following are essential to be

considered for a sound and efficient organization. The important aspects to be considered are:
1. Organization Chart

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2. Budget Center
3. Budget Officer
4. Budget Committee
5. Budget Manual
6. Budget Period
7. Key Factor
Conditions for Implementing a Budgetary Control System
1. Statement of goals and objectives

2. Creating budget centers
3. Developing accounting control
4. Communication
5. Coordination
6. Budget administration
Advantages of Budgetary Control
The advantages of budgetary control may be summarized as follows:

(1) It facilitates reduction of cost.
(2) Budgetary control guides the management in planning and formulation of policies.
(3) Budgetary control facilitates effective co-ordination of activities of the various departments
and functions by setting their limits and goals.
(4) It ensures maximization of profits through cost control and optimum utilization of
resources.
(5) It evaluates for the continuous review of performance of different budget centers.
(6) It helps to the management efficient and economic production control.
(7) It facilitates corrective actions, whenever there is inefficiencies and weaknesses comparing
actual performance with budget.
(8) It guides management in research and development.
(9) It ensures economy in working.
(10) It helps to adopt the principles of standard costing.
Limitations of Budgetary Control

Budgetary Control is an effective tool for management control. However, it has certain
important limitations which are identified below:
(1) The budget plan is based on estimates and forecasting. Forecasting cannot be considered to
be an exact science. If the budget plans are made on the basis of inaccurate forecasts then the
budget pregame may not be accurate and ineffective.
(2) For reasons of uncertainty about future, and changing circumstances which may develop
later

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On, budget may prove short or excess of actual requirements.

(3) Effective implementation of budgetary control depends upon willingness, co-operation and
understanding among people reasonable for execution. Lack of co-operation leads to inefficient
performance.
(4) The system does not substitute for management. It is mere like a management tool.
(5) Budgeting may be cumbersome and time consuming process.
Budgeting:
Budgeting is the process of setting financial goals, describing future financial resources
and needs, monitoring and controlling income and expenditures, and evaluating progress
toward achieving the financial goals.
In other words, budgeting is the process of translating financial resources into human
purposes. Projections for sales, operating expenses (fixed, variable, and semi-variable) and
financing expenses, examination of proposals for capital expenditures,
Budgeting is also viewed as a process of identifying, gathering, summarizing and

communicating financial information of an organizations future activities. Blumentritt (2006)
further explained that budgeting processes include a review and study of the prior periods
financial results.
Budget:
A budget is a document for recording actual and projected income and expenditures over time.
Characteristics of Budget
As stated earlier, a budget is a blueprint for management action. The following are the
common features of budget:
A budget is quantitatively stated: The figures in the budget are expressed in monetary
terms. However, the monetary figures are supported by non-monetary information such
as units to be sold, units to be purchased and others.
A budget is prepared in advance: A budget must be drawn up before the period to

which it refers. Figures produced during or after the period may be important, but they
are not part of a budget.
A budget relates to a particular period: Generally, the budget is prepared for one
year. However, in the case of a seasonal business, there may be two budgets for each
year a slack season budget and a peak season budget.

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A budget is a plan of action: A budget is a plan because it concerns actions to be taken

rather than a passive acceptance of future trends. Planning is the establishment of
objectives and the formulation, evaluation and selection of the policies, strategies,
tactics and action required to achieve the objectives. Like all plans, budgets seldom turn
out to be totally correct predictions of the future. Conditions may change during the
budget period, which renders the budget to be inaccurate.
Budgeting Techniques:
A budget is basically a plan of action for the forthcoming business period and budget
planning should involve the whole organization. The ability to budget effectively is crucial
both in terms of performance and profitability as without having an awareness of costs it is all
too easy to spiral down into losses over a period of time.
There are three main budgeting techniques:
Incremental budgeting
Zero-based budgeting
Flexed budgeting
Incremental budgeting:
The incremental approach to budgeting combines the costs identified from the previous
accounting period with percentage additions. These percentage additions are utilized to cover
two key areas which include cost increases as a result of inflation or higher purchases costs and
predictions associated with increases in costs and income as a result of business volume
predictions.
A key limitation of the incremental budgeting system is the manner in which
percentages are added in a blanket fashion resulting in the likelihood of higher overall costs in
the long-term. This may then also result in a business having to increase its sale prices to a
level that is no longer competitive.
Advantages of incremental budgeting
Easily understood (as it is retrospective), makes marginal changes and secures

agreement through negotiation;
administratively straightforward (and therefore cheap)
Allows policy makers to concentrate of the key areas of change. Ministers, elected
representatives and senior officials are not required to study long and detailed
budgetary documents.
Particularly useful where outputs are difficult to define/quantify; and, stable and,
therefore, changes are gradual.

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Disadvantages of incremental budgeting
Backward looking focus more on previous budget than future operational

requirements and objectives
does not allow for overall performance overview
does not help managers identify budgetary slack
Often underpinned by data or service provision which is no longer relevant or is
inconsistent with new priorities;
encourages systemic inertia and empire building
tends to be reactive rather than proactive
Assumes existing budget lines are relevant and satisfactory.
Zero based budgeting:

The clue is in the title here as the zero-based budgeting system requires budgeting to
commence with the assumption that every cost has a zero base. Next, each item relating to
expenditure is worked through and decisions are made as to whether the purchase is completely
essential. Then different purchasing options associated with the specific item are explored as a
means of ensuring the item is obtained as cost-effectively as possible.
One of the main limitations of the zero-budgeting system is that it can take an awful lot
of time to work through each individual cost in this manner. However, it is fair to add that
utilizing this approach will then provide an extremely useful database containing valuable,
time-saving information for the years to come.
Advantages of zero-based budgeting
allows questioning of the inherited position and challenge to the status quo;
focuses the budget closely on objectives and outcomes;
Actively involves operational managers rather than handing them down a budget from
above;
can be adaptive to changes in circumstances and priorities; and,
Can lead to better resource allocation.
Disadvantages of zero-based budgeting
More time consuming than incremental budgeting (i.e. it may become overly
bureaucratic and produce excessive paperwork);
need for specialized skills/training;
Difficulties can arise in the identification of suitable performance measures and
decision/prioritization criteria (if there is insufficient information in some areas
ranking them could also be problematic);
The specification of a minimum level of service provision (if below the current level)

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may demotivate managers;

questioning of the inherited position can be seen as threatening to organizations and
their people (so careful management of the people element is essential); and,
May be difficult to cost and estimate resource requirements for options different from
the current practice (giving rise to greater uncertainty).
Flexed budgeting:
As with zero-based budgeting, the flexed budgeting system gives its name away in the
title as it involves flexing the normal budget. The benefits of flexed budgeting are that it is
likely to be considerably more accurate as the budget is adapted to suit various external
changes. Within this approach managers are able to provide key information resulting in an
achievable budget, pessimistic budget and optimistic budget.
Through undertaking the process of flexed budgeting, managers are better able to make
important decision relating to risk and expenditure, having gained a wider perspective on best
and worst outcomes.
As highlighted above, there are three main categories associated with budgeting which
include incremental, zero-based and flexed budgeting. Each of these approaches has various
strengths and limitations with the latter approach being able to provide more accurate
information
TYPES OF BUDGETING:

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(A) Classification on the Basis of Time
1. Long-Term Budgets:
Long-term budgets are prepared for a longer period varies between five to
Ten years. It is usually developed by the top level management. These budgets summaries the
general plan of operations and its expected consequences. Long-Term Budgets are prepared
for important activities like composition of its capital expenditure, new product development
and research, long-term finance etc.
2. Short-Term Budgets:
These budgets are usually prepared for a period of one year. Sometimes they may be
prepared for shorter period as for quarterly or half yearly. The scope of budgeting activity may
vary considerably among different organization.
3. Current Budgets:
Current budgets are prepared for the current operations of the business. The planning
period of a budget generally in months or weeks. As per ICMA London, "Current budget is a
budget which is established for use over a short period of time and related to current
conditions."
(B) Classification on the Basis of Function
1. Functional Budget:
The functional budget is one which relates to any of the functions of an
organization. The number of functional budgets depend upon the size and nature of
business. The following are the commonly used:
(1) Sales Budget

(2) Purchase Budget
(3) Production Budget
(4) Selling and Distribution Cost Budget
(5) Labor Cost Budget
(6) Cash Budget
(7) Capital Expenditure Budget
2. Master Budget:
The Master Budget is a summary budget. This budget encompasses all the
functional activities into one harmonious unit. The ICMA England defines a Master
Budget as the summary budget incorporating its functional budgets, which is finally
approved, adopted and employed.

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(C) Classification on the Basis of Capacity
1. Fixed Budget:
A fixed budget is designed to remain unchanged irrespective of the level of activity

actually attained.
2. Flexible Budget:
A flexible budget is a budget which is designed to change in accordance with the
various level of activity actually attained. The flexible budget also called as Variable Budget
or Sliding Scale Budget, takes both fixed, variable and semi fixed manufacturing costs into
account.
Key Factor
Key Factor is also called as "Limiting Factor" or Governing Factor. While preparing
the budget, it is necessary to consider key factor for successful budgetary control. The influence
of the Key Factor which dominates the business operations in order to ensure that the functional
budgets are reasonably capable of fulfilment. The Key Factors include:
(1) Raw materials may be in short supply.

(2) Non-availability of skilled labors.
(3) Government restrictions.
(4) Limited sales due to insufficient sales promotion.
(5) Shortage of power.
(6) Underutilization of plant capacity.
(7) Shortage of efficient executives.
(8) Management policies regarding lack of capital.
(9) Insufficient research into new product development.
(10) Insufficiency due to shortage of space.

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BUDGETING AT SBP BSC BANK
Overview
Only the expenditure part of Budget is prepared in order to ensure that the organization
is moving in the strategic direction specified by the top management and to implement the
financial controls. Zero Based Budgeting approach is being followed for the purpose of
Budgeting at SBP BSC. This technique involves formulating budget from scratch instead of
relying on historical expenditure data.
The Budget Monitoring Unit of Accounts Department coordinates with the departments and
field offices to assist them in preparation of their annual budget.
Budgeting Process at SBP BSC

At SBP BSC, the budget process is divided into six phases which are as follows:
Planning
Approval
Allocation
Execution
Monitoring
Reporting
Each of the above phases is discussed as under;
Budget Planning
Budget planning involves the basic conception and development of Budget Proposal of
SBP BSC with the input from all departments / offices. Planning phase at SBP BSC consists
of following steps:
Budgeting Steps
Step 1 Preliminary meetings

Budget Unit at Accounts Department meets with Strategy & Corporate Affairs Department
(SCAD) and concerned departments (CMD, IBSD, and HRMD, GSD & Engg Dept. etc.) to
formulate strategy for the business planning and budgeting of upcoming financial year. Based
on the said meetings, timelines for budget planning are decided.
Step 2 Budget orientation session

Accounts Department conducts a budget orientation session to guide the Budget Coordinators
/ persons involved in the budgeting exercise and provide the necessary formats upon which
proposals are to be submitted to Accounts Department.
Step 3 Preparation of Annual Business Plans

All departments / field offices prepare and submit their Annual Business Plans to SCAD for
the next financial year, specifying their operational and developmental projects, objectives,
strategies and action plan to achieve quantitative and qualitative goals.

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Step 4 Reconciliation of Budget Proposals and Business Plans

After finalizing the Annual Business Plans of departments / offices in Business Planning
meetings, SCAD forwards the finalized Business Plans to Accounts Department. Accounts
Department than adjusts the consolidated Budget Proposal accordingly to ensure that Budget
Proposal is in line with the approved Annual Business Plans.
Step 5 Review meeting with MD / MCB

Consolidated Budget Proposal is than presented in the review meetings with the Managing
Director SBP BSC wherein Budget Proposals are discussed.
Step 6 Budget Finalization by Accounts Department

Budget Unit at Accounts Department then finalizes the consolidated Budget Proposals
approved in the review meeting, in the light of discussions and guidelines issued by the MD
SBP BSC.
Approval
Budget approval phase includes processes and procedures required for obtaining approval of
Budget Proposals. Steps involved in this phase are as follows:
Step 1 Submission of Budget proposal to MD SBP BSC.

Draft budget proposal, prepared in the light of approved Business Plan is submitted to MD SBP
BSC for his final approval.
Step 2 Submission of Budget to Finance Department SBP

After approval from MD SBP BSC, the budget is submitted to Finance Department SBP for
consolidation and approval from the Audit Committee / Board.
Step 3 Budget Presentation to the Audit Committee

Finance Department in liaison with Accounts Department presents consolidated Revenue and
Capital Expenditure Budget to Audit Committee for recommendation to the Central Board.
Step 4 Central Board Approval

After recommendation of budget by the Audit Committee, it is presented to the Central Board
for its final approval.
Step 5 Communication of Approved Budget by FD SBP

After approval from the Central Board, Finance Department SBP communicates the approved
Budget to Accounts Department SBP BSC.

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Allocation
Budget approved by the Central Board is then intimated to all the departments / field
offices of SBP BSC by Accounts Department along with any specific instructions, guidelines
etc. received from the Central Board for strengthening the control environment of SBP BSC.
Execution
Execution phase is the longest phase in terms of duration. In this phase all departments
/ field offices carry out their planned actives from their allocated budget in order to achieve the
pre-defined goals / projects. Any anomalies or issues faced by the departments / field offices
regarding budget are referred to Budget Unit, Accounts Department. The Unit provides their
opinion on these matters on case to case basis. Special care may be taken to complete the
approved projects within the designated timelines so as to avoid any unnecessary explanation
during monitoring phase. Budgetary allocations / limits must be strictly adhered to and under
no circumstances these limits be breached without prior approval from Accounts Department.
Monitoring
Monitoring phase entails the monitoring of allocated budget and respective utilization
throughout the year by Budget Monitoring Unit. All field offices / departments are required to
submit their quarterly budget utilization reports to Budget Monitoring Unit along with detailed
reasons for any significant variances, immediately after close of the quarter no later than 8th of
succeeding month. Budget Monitoring Unit continuously reviews and monitors the utilization
and variance reports submitted by departments / field offices or from obtaining reports from
ERP (in case of Revenue Budget) and issue instructions to employ required controls.
Reporting
Budget Unit collect, compiles and present the utilization position to the Managing
Director SBP BSC for his review. Quarterly utilization / variance reports are also submitted to
Finance Department SBP for consolidation and onward presentation to the Audit Committee /
Board.
CAPITAL BUDGET
A capital expenditure is an amount spent to acquire / improve productive assets in order
to increase the capacity or efficiency of an organization for more than one accounting period.
Capital budget is required for procurement of ready to use items, having value of Rs.25, 000/-
or more and are required to be depreciated. Ready to use items may be required to run the
affairs of departments / offices effectively. Accounts Department BSC HOK has already
provided guidelines for utilization of Capital Budget and its review during financial year for
timely action and better monitoring.
Capital expenditure includes procurement of the following:

Furniture & Fixtures;

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Motor Vehicles;
Office Equipment; and
EDP Equipment.
Furniture & Fixture

An item may be classified as Furniture & Fixture if it is part of the office / department's
ambiance / design. These may include chairs, tables, cabinets / built in cabinets, iron safes,
desks, sofa sets, beds, side tables, Amirah, installation of bins in the vault and partitions /
erection of boxes / shelves in strong rooms etc. These items along with relevant details are
required to be submitted to the Budget Monitoring Unit in the Capital Budget Proposal. Items
costing below Rs. 25,000/- will be categorized under Expense Assets. During the course of
business planning, departments / field offices identify their needs for Furniture & Fixture.
Motor Vehicles
Motor Vehicle budget is broadly divided into two categories viz. Office Use and
CLDP (fresh / replacement).
Motor Vehicles for Office Use may be requested in case of genuine needs only along with
complete justification, record of currently available vehicles in pool, details of vehicle against
which replacement is being requested including mileage, condition, repair & maintenance cost
incurred etc. Vehicles for Office Use will be proposed by concerned field offices and GSD
in case of Head Office.
Concerned offices / departments should submit the budget proposal for vehicles provided to
entitled officers (i.e. OG-5 and above) under CLDP Replacement as per their maturity i.e.
after five years.
Office Equipment
An asset may be classified as Office Equipment if it is a functional or mechanical item
used to facilitate operations in the office / department. During the course of business planning,
departments / field offices identify their needs for office equipment for routine operational
work as also for replacement needs. Moreover, said need can also include equipment require
to execute developmental projects.
All field offices / departments should submit their demands for office equipment falling
under the category of Cash related equipment to CMD under intimation to Accounts
Department. After review and approval, CMD will submit a consolidated proposal for the
requirement of Cash related Machines across SBP BSC to Accounts Department.
In the same way, budget proposals for Office Equipment related to Engineering
Department such as Diesel Generators, Air Conditioners etc. should be submitted to
Engineering Department under intimation to Accounts Department. After review and approval,

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Engineering Department will submit a consolidated proposal for the requirement of said
equipment across SBP BSC to Accounts Department.
Cash Related Office Equipment

Currency related machines / equipment. Note Counting & Note Sorting Machines, Coin
Counting Machines, Note Shredding Machines, Note Punching Machines, and Tri-color Bonds
Stamping Machines. However, Currency Management Department can also asses and identify
such needs directly in view of future plans and can submit the same as per standard format to
the Accounts Department for adding in budget proposals.
Security Related Office Equipment

Security related Equipment. Baggage Scanner Machine, Walk through Gate, Weapons,
Bullet proof Jackets, CCTV cameras / DVR & Monitor, Hydraulic Road Blocker, Fire alarms
/ Smoke detector and other security related equipment can be part of this. The Internal Bank
Security Department can also identify such demand of SBP BSC, Head Office and its field
offices directly and submit the same as per standard format to the Accounts Department;
Engineering Related Office Equipment

Building Related Equipment include procurement and installation of Diesel Generator
(DG Sets), Transformers, Air Conditioners, Water Sprinkles etc. Field offices route such plan
through Engineering Department, while the Department can also identify such demand for field
offices or for Head Office directly.
Other Office Equipment

Photo copier / Fax machines, Paper Shredders, Microwave, Refrigerator, Sound
System, Multi-media, Queue Management System, UPS, automated / electronic locks at server
rooms and other equipment with digital / electronic features but does not involve computer to
process data.
REVENUE BUDGET
The Revenue Budget is the sum of Establishment Expenses, Operating Expenses and
Staff Retirement Benefits Allowances. Details of each head are as follows: 4.1 Establishment
Expenses - Staff
a) Salaries
Salaries and related benefits are direct operating expenses of field offices and
departments. The Chief Managers at offices and General Services Department at Head Office
are responsible to arrange payment of salaries and other related benefits to the bank employees.
Human Resource Management Department at Head Office is responsible to propose salaries
budget on organization wide basis as per next year HR plan keeping in view the following:

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Existing staff strength and existing total salary expenditure
Next years retirement schedule;

expected new induction under banks recruitment plan;
expected promotions during the year;
Average expected Annual Merit Increase (AMI) & Salary review as and when due;
transfers / posting during next financial year; and
expected policy changes
b) Rest and Recreation

The budget for Rest and Recreation Allowance is proposed by HRMD as per R & R
policy of the bank. Normally this expenditure directly corresponds with the salaries of
employees of the bank.
c) Other Benefits
This head includes following expenses:
i) Staff Overtime Allowance:
All departments / field Offices should prepare their budget proposals taking into
consideration their actual budget needs for overtime along with proper justification / basis of
said proposal. Five working days in a week and expected late sitting / duties to be performed
by security and others staff requiring payment of overtime need to be considered while,
requesting this budget.
ii) Uniforms Expenses:
Cost of summer and winter uniforms payable to the entitled staff during the year is made
on the approved scales. This expenditure is made and paid by the Chief Managers and the
Director GSD.
All field offices / departments should request budget for Overtime and Uniform expenses
as per their last year payment history and number of staff entitled for Overtime and Uniform.
iii) Interest Expense on Employee Related Funds:
This includes Interest expense on Provident Fund, General Provident Fund and Benevolent
Fund. Consolidated budget proposal in respect of interest expenses on Defined Contributory
Benefits would be worked out by GSD in line with the policies and practices of charging
Interest expense.
Medical Expenditures

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The consolidated budget proposal in respect of medical expenditures of SBP BSC

would be proposed by MSD (GSD) to Accounts Department. While budgeting medical
expenses, MSD should take into account the price variance trends and expected inflation in
Medical products / services, consumption trends keeping in view the expected changes in the
HR strength and any expected policy changes.
Training Expenditures
Training expenses are directly linked with the training calendar approved by the
Managing Director. These expenses should be budgeted and consolidated by HRMD
(previously by Training and Development Department) at Head Office on the basis of the
organizational training needs keeping in view their Annual Business Plan.
Operational Expenses
a) Rent, Taxes Insurance & Utilities Charges

i) Rent, Taxes & Insurance
These expenses are of corporate nature and mostly pertain to General Services
Department and Engineering Department for Head Office. While the field offices will prepare
their budget keeping in view their requirements. All these expenses should be budgeted on
accrual basis instead of payment basis.
Rent
While proposing budget in respect of rent expense, a list of all rental buildings,
facilities, booths etc. should be provided to Accounts Department along with current rental
rates, applicability of relevant rental contracts and expected rates upon extension in contract /
new contract.
Taxes
While proposing the budget for tax expense, a list of items against which taxes are
applicable is to be developed and applicable tax is to be ascertained against the same.
Appropriate impact of expected changes in taxes may also be incorporated to arrive at a more
reasonable figure.
Insurance
Budgetary proposal pertaining to insurance expense of Furniture Fixture, Office
Equipment, and EDP Equipment is to be proposed by GSD for Head Office and field offices
keeping in view the expected procurements in upcoming year. Insurance of Motor Vehicle is
to be budgeted by all concerned offices and GSD in case of Head Office, keeping in view
currently available vehicles as well as expected procurements in upcoming year

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b) Legal Expenses
All departments and field offices will communicate their legal fee estimates budget
taking in to consideration the number of suits filed / expected to be filed by them. Budget
proposal for legal expenses may include any current cases for which fee have been decided as
well as expected legal services requirements. Field offices should specifically segregate
budgeted legal expense proposals relating to controlling departments of HOK. In case, any
other department requires legal services in respect of affairs pertaining to it, May also be
propose budget.
c) Professional Expenses
These expenses include:
i) Directors: The expenditure / payment on account of members fee to the Board member and
their other expenses like stay, food, transportation etc. in connection with Board / Sub-
Committees meetings.
ii) Auditors: The expenditure on account of Auditors fees and other out of pocket expenses
is categorized in this head. Appointment of External Auditors and fixation of Audit fee are
approved by the State Bank of Pakistan. However, payment of External Auditors remuneration
is the responsibility of Accounts Department, SBP BSC HOK.
iv) Professional (consultancy): Consultants fee should be based on assignments

expected to be executed during budget year. Expenses on travelling, TA/DA, fuel
and conveyance of the Professional / Consultant should also come under this head.
d) Stationery & Publication

The requirements of stationary should be linked with existing staff strength. Budget
proposal in respect of stationery expenses are to be proposed by field office and GSD at HOK.
e) Travelling Expenditures
Travelling Expenditures is broadly categorized under following three sub-heads:
Travelling (ticketing)
Daily Allowance
Fuel and Conveyance Charges
f) Computer Consumables
Operating expenses relating to computers and printers will be charged under the
following heads of accounts. All the departments / field offices should budget their expenses
on computer supplies under following heads:
Computer supplies / consumables (like cables, keyboard, mouse etc.)

36
Printer paper /supplies/ consumables (like printer ink and papers etc.)
EDP Equipment maintenance
Other computers running expenses
g) Repairs & Maintenance

The major repair work is done by the Engineering Unit at field offices under guidance
and supervision of Engineering Department at Head office. Budget for all major repair work
i.e. building / infrastructure improvements is required to be estimating logically and
realistically by field offices under Annual Business Plan and should be sent to Engineering
Department under intimation to Accounts Department.
h) Advertisement & Publicity Expenses

Expenditures under this head are further classified in the following:
Advertisement HR Issues:
This expense pertains to advertisement related to staff matters and should be budgeted
by HRMD. However, in an emergent situation wherein filed offices need to incur such
expenses, prior approval from HRMD should be obtained before proceeding.
Advertisement Corporate Issues:

This expense pertains to advertisement other than HR issues. Budget should be
proposed by GSD on organizational needs basis in consultation with other departments of HOK
specially Engineering Department. Field offices should also make proposal in view of their
requirements.
i) EXPENSE ASSETS
The Expense Assets are those assets which have a unit cost of less than Rs. 25,000/-.
These assets are recorded in the Fixed Asset Register but are not capitalized. This category is
further divided into Expense Assets and Expense Assets Imprest. Detail are as follows:
Expense Assets
781501 -Expense Assets - Furniture & Fixtures (Having per unit cost of Rs.5, 000 to Rs.
24,999)
781502- Expense Assets - Office Equipment (Having per unit cost of Rs.5, 000 to Rs.24, 999)

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781503 - Expense Assets EDP Equipment (Having per unit cost of Rs.5, 000 to Rs.24, 999)
Expense Assets - Imprest

788050 - Expense Assets - Furniture & Fixtures Imprest (Having per unit cost up to Rs.
4,999)
788051- Expense Assets - Office Equipment - Imprest (Having per unit cost up to Rs.4, 999)
788052- Expense Assets - EDP Equipment Imprest (Having per unit cost up to Rs.4, 999)
j) Sports Activities Expenses

All expenditures incurred in connection with sports activities like Travelling Allowance
/ Daily Allowance, ticketing, food, hotel and etc. should be categorized in this head in
coordination with Accounts Department.
k) Recruitment Expenses
Recruitment expenses include various expenditures incurred by HRMD on account of
surveys, recruitment advertisement, testing / examination, travelling in connection with
interviews, medical expenses for recruitment, professional charges / fees of HR related
consultants and TA/DA of consultants in connection with HR related surveys / assessments are
also included in this head.
l) Corporate Events
This head includes expenditures incurred by offices / HOK on different events held for
their staff and stakeholders such as Eid Milad-Un-Nabi, Eid Milan Party, Independence Day,
Fun Fair and other recreational activities for the purpose of employee welfare. Following
account should be used:
788061 Corporate Events
m) Miscellaneous Expenses
Miscellaneous expenditures include various routine expenses needed to be incurred for
day to day operations of the Bank. Details of expenses categorized under this head are given in
last section of this Manual.

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BUDGET FOR PROJECTS

This budget includes items and services required for accomplishment of:
IT related Developmental Projects

Civil, Electrical & Mechanical Projects
Repairs & Maintenance Projects
Security Block Budget
IT Related Projects
Information Technology Department is providing services and solutions for
improvement and strengthening of SBPs information technology portfolio and as such
identifies future requirements of IT related equipment /soft-wares. It also identifies the areas
of IT advancement for its own routine operational work and support to other departments under
their developmental projects. These projects, after their identification, technical evaluation and
deliberations are submitted to higher management for budgetary approval and allocation
through Finance Department of SBP.
Civil, Electrical & Mechanical Projects (Capital Projects)

Engineering Departments provides services for improvement and maintenance of
good physical environment in the Bank. It is delegated with the responsibility of facilitating
offices and departments in having physical infrastructure conforming to the needs of the
organization. During the course of business planning, projects requiring the Civil, Electrical &
Mechanical advancements / services like acquisition of land, construction of new buildings,
additions in infrastructure for budgetary approval are proposed by Engineering Department
directly to Finance Department SBP for allocation. SBP BSC field offices and departments can
also communicate such needs directly to the Engineering Department, which consolidates all
such requirements for further action. These projects are also called Capital Projects as they
last for over a year and the final output is capitalized.
Repairs & Maintenance Projects (Revenue Projects)
The major repair work is undertaken by the Engineering Unit at field offices under
guidance and supervision of Engineering Department at Head office. Budget for all major
repair work i.e. building / infrastructure improvements is required to be accurately estimated
by field offices in their Annual Business Plan and should be sent to Engineering Department
under intimation to Accounts Department. The budget for Revenue Projects is allocated to
Engineering Department after getting approved.

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Security Block Budget

Security Block Budget is allocated to Internal Bank Security Department (IBSD) for
the procurement of Security Related Office Equipment. The budget is utilized on need basis
for the purpose of enhancing security arrangements at Head Office / offices. The Department
allocates the budget to offices according to their devised security plan. In case where the unit
cost of any security related equipment falls below Rs. 25,000/- and becomes an Expense Asset,
Security Block Budget may be utilized / adjusted accordingly. For e.g. if a weapon was
budgeted at an estimated cost of Rs.30,000/-, however, it is procured at a cost of Rs. 23,000/-
then in that case the same Security Block Budget may be utilized instead of requesting
additional budget for Expense Assets and the required adjustment in Block Budget and expense
asset would be made accordingly.

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BUDGET AVAILABILITY CERTIFICATE

Under SBP BSC Expenditure Regulations, Budget Availability Certificate shall be
required where expenditure will exceed Rs.100, 000/-. This condition will apply on both
Capital as well as Revenue Expenditure of SBP BSC. In case unit cost of the items to be
procured is below Rs.100,000/- but the total cost of more than one item being procured
collectively exceeds Rs.100,000/- then BAC would be required provided that items fall under
the same head / category. The specimen of said budget availability certificate is given here
under:-

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9. SUBSEQUENT BUDGETARY ALLOCATION

Offices / departments may send request for additional budget to Accounts Department if the
initially allocated budget in any particular head is insufficient to incur the necessary
expenditure for any financial year. However, the request for additional budget should be sent
no later than December 31 of any Financial Year with strong justification after analysing each
head of account so that the request is sent once and for all.
In case of budgetary requirements which arise subsequent to December 31, the offices
/ departments may send request for additional budget with concrete basis and reasoning which
may be allocated with the approval of Director Accounts provided that the office intends to
utilize the budget in the same financial year. Offices / departments should ensure that the budget
is requested before proceeding with any particular work / procurement and after the additional
budget is allocated, the same may be added / updated in the Oracle system (in case of revenue
budget) to ensure that system reflects the exact total budget allocated under each head to the
office / department at any point in time.
10. REALLOCATION
Reallocation (or Re-appropriation) is referred to shifting of budget from one sub-head to
another to overcome budget shortfall in any particular main head.
Budget among main heads (reporting line for Central Board) cannot be reallocated since these
are approved by the Central Board of Director. However, offices / departments can send
requests for reallocation of budget among defined sub-heads within the main head. This
reallocation will be approved with the approval of concerned Cluster Head / Executive
Director, on case to case and justification basis, subject to condition that reallocation does not
exceed total approved budget in any particular main head. Examples of sub-heads among which
budget can be reallocated are as follows:
Example:
Travelling (main reporting line for CB) initially approved Budget Reallocated in the given
example:
Head of Account Initially approved Budget reallocated
i) Travelling 500,000 400,000
ii) Daily allowance 400,000 450,000
iii) Conveyance & Fuel 100,000 150,000
Total Allocated Budget in Head
1,000,000 1,000,000
11. ENTERING BUDGET IN ORACLE
Budget amounts will be entered with the help of budget definition and budget organization in
Oracle General Ledger. The authorized person will select the appropriate budget name and
the budget organization assigned to enter budget amounts. Each general ledger account code
defined in the range of accounts of a budget organization will represent an element of budget.
In BSC, Budget Journal method is used for entering the budget amounts. It is a mandatory
requirement of Oracle General Ledger to enter budget through budget journals due to the
feature of encumbrance accounting and budgetary control feature.

42
Before proceeding to the system, monthly budget allocation (against each child account) should
be prepared / finalized in an excel sheet after getting the child level allocation approved from
Accounts Department because the budget will be entered in oracle on month wise basis.
12. SUBMISSION OF QUARTERLY REPORTS

All field offices / departments are required to submit following quarterly reports, immediately
after close of the quarter no later than 8th of the succeeding month:
Capital Budget Utilization Report

Field Offices / Departments should submit the reports on the format specified by Budget
Monitoring Unit along with detailed and strong reasons for under / over utilization of Capital
Budget allocated. Budget Unit collect, compiles and submits the report to Finance Department
SBP for consolidation and onward presentation to the Audit Committee / Board.
Offices / departments should ensure that total capital budget allocated for the particular period
(i.e. initially allocated + subsequently allocated by the Accounts Department) must be reported
in the Report. Work Order No. and Work Order date for every Commitment reported must be
provided in the report.
Note:
Budget should be treated as Utilized if the payment has been made or the item has been
delivered, however, an amount should be treated as Commitment if a Work Order has been
issued against it but the delivery is awaited or the payment has not been made. Where the Work
Oder is not issued, budget should be reported as Unutilized.
Utilities Consumption Report

All field offices and Engineering Department, HOK are required to control the Utilities
Expenses as much as possible. All concerned should ensure reduction in the utilization of
utilities by plugging leakages and developing an energy conscious environment. A log book
for electricity usage in terms of units and for DG set(s) operation should be maintained in light
of SOPs issued by Engineering Department. Data maintained in the logbook should be in line
with the expenses recorded in the Trail Balance and the same should be submitted to the Budget
Monitoring Unit along with comparatives on the specified format. Field office and Engineering
Department, HOK should ensure that all necessary accruals / provisions have been made with
regards to utilities expenses at the end of each quarter and the same should be reflected in the
Utilities Consumption Report.
Revenue Budget Variance Report

All field offices / departments should submit Revenue Budget Variance Report to Budget
Monitoring Unit along with detailed reasons for any significant variances. Care should be taken
that all necessary accruals / provisions have been created at the end of each quarter so to reflect
the true and accurate picture of utilized revenue budget in the variance report.

43
INSTITUTIONS NEEDS FOR DEVELOPMENT
Insights From The Worlds Most Successful Companies:
For decades, business consultants and authors have studied the most successful companies in
America and the world, and attempted to define what separates the winners from the losers.
Almost daily someone will come up with his or her own list of what he thinks are the key
factors for success often called Critical Success Factors.
Over time it became apparent that all these consultants and authors were saying very much the
same thing, just using different language. Thats because the Critical Success Factors for any
organization are directly related to what an organization is, and how it operates in the world.
Its sort of like saying, to survive as a human you have to have food, water, the right
temperature range and protection from danger. Once you understand what an organization
needs to survive, you can better understand the Critical Success Factors
What Any Organization Needs To Survive and Succeed:
Essentially five things or factors are needed by any organization wanting to succeed:
People those who make up the organization

Purpose a reason for organizing and working together
Processes activities which the people undertake to fulfil their purpose
Physical Resources a place to work, the right equipment, money to pay the bills and
the people who work there
Customers people outside the organization who are willing to pay money in return for
the products and services the organization provides; for government organizations
taxpayers are the customers; many non-profits depend on contributions from donors
who believe in the value of what the organization is doing.
But its not just the existence of these five basic factors that enables success -its what you do
with them. In the same manner, just having a body will not make you a successful athlete you
have to train, learn the skills, practice, eat right, sleep enough, and much more. So now lets
translate the
Five basic factors into what we call the 5 Key Success Factors the consistent winners, the
best of the best.
Managing and developing people People today want some direction and structure, but they
also want freedom and encouragement to develop their skills and knowledge. Effectively
managing people requires balancing constraining forces (providing direction, structure,
organization, some rules) with liberating forces (encourage personal growth, development and
creativity). If you as manager/leader err too much in one direction or the other, your

44
organization will be either too rigid or too chaotic. To make it more complicated, each person
has a different set of needs for structure vs. freedom, order vs. opportunity, logic vs. personal
values, factual information vs. meaning and connections, and so on. Effective managers do not
manage all people the same, except for some basic rules. They manage each person according
to what he or she needs, what motivates them to do their best. Very complicated but essential
for success.
Strategic focus In todays rapidly changing world, its not just enough to have a purpose for
existing. Leaders have to focus the organizations resources on the greatest opportunities,
which shift with each new day. Just run through your mind what has happened in the world or
your organization in the past year or two, and youll understand what we mean by the reality
of constant change. Doors open and doors close. Major customers or income sources can
change or even go out of business at any time. So its necessary for leaders to keep focused on
the desired end results such as increased sales and profits, or more satisfied customers, while
constantly steering the organization across the stormy waters of the marketplace. As the
illustration shows, the job of focused leaders is to connect and align all the Success Factors for
optimum performance.
Operations, or what people do all day What the people in your organization do day in and
day out to create value for customers, to earn or justify income, strongly determines whether
you succeed or fail. Like the other Top 5 Success Factors, you cant separate operations from
strategic focus which gives direction, people which do the work, customers who pay the money
and physical resources to do the work. Effective operations ensure that customers get exactly
what they want at the right time, the right price and the right quality. Thus effective operations
management focuses on what is called cycle time (producing a product or service from start to
finish), cost control, and quality control (which requires some form of measurement). Strategic
focus is largely externally oriented, operations largely internally oriented. Both need to be
totally in sync with each other not something that happens automatically but rather requiring
constant effort. This is why communication is the true lifeblood of a successful organization
a high flow of information so everyone and everything is connected. Easy to say, hard to do.
Physical resources Finances, facilities and equipment are the big 3 physical resources. If
you dont have enough money, you cant start or sustain an organization. And one of the biggest
expenses is providing adequate facilities and equipment for people to work in and with.
Experienced managers learn that cash flow is king. It doesnt matter how much customers owe
you, its when their money enters your bank account so you can use it to sustain the
organization. Failing to manage cash flow is the No. 1 reason for business failure. Too many
business owners leave the money up to someone else and can easily get blind-sided when
suddenly the money isnt there to keep the doors open. And in a few rare, unfortunate cases,
the person tracking the money embezzles or cooks the books, and then you really are in trouble.
Likewise nice facilities can be energizing, something to feel proud about, but also very
expensive. The economy is always cyclical, and if you buy or lease really nice facilities when
times are good, paying for them can be difficult or impossible in a downturn.

45
Customer relations Customers are where the money comes from, so in many ways this is
the most important success factor. As the famous business guru Peter Drucker said years
ago, the purpose of a business is to get and keep customers. Getting customers involves
marketing indeed this success factor includes all kinds of marketing and sales. The key to
successful customer relations is to give them what they need, not just what you want to sell.
Effective sales and marketing begins with asking existing and potential customers what they
need, what problem they want solved or deficiency filled. By keeping in touch with customers
and asking these questions often, youll do a better job of developing customer loyalty and
keeping competitors away. In the broadest sense customer relations can be considered the
organizations relationships with the external world. It involves tracking competitor actions,
analyzing changes in the market environment, and adapting according. This is closely linked
to Strategic Focus.

46
Conclusion:
Central bank is a monopolized monetary authority that performs basic functions of

implementing monetary policy, setting interest and exchange rates and acting as banker to bank
and government. It basically aims high employment, economic growth and independence. SBP
is also a central bank having SPB BSC and NIBAF as its subsidiary which primarily aims to
promote financial stability, sound and dynamic financial system.
General services unit is an essential unit of general services department that is basically
engaged with endowing day to day items required for routine work purposes. GSU is also
involved in procurement, management and supply of items. It functions as a support unit to
other units moreover; GSU is also involved in planning and budgeting process. Planning is the
process of setting organizations goals and deciding how best to achieve them by selecting a
course of action from a set of alternatives planning process can include forming of any either
plans that is strategic, tactical, operational or contingency plan. Similarly, budgeting is the
process of setting financial goals describing future financial resources and need monitoring and
controlling income and expenditures and evaluating progress towards achieving the financial
goals. Budgeting owns different techniques like incremental, zero based, flexed budgeting and
has been categorized on the basis of time, functions and capacity. The budgeting process at
SBP BSC passes through the phases planning, approval, and allocation, execution, monitoring
and reporting. The budget consists of capital budget that includes procurement of furniture and
fixtures, motor vehicles, office and EDP equipment whereas the revenue budget consists of
operating and establishment expenses and staff retirement benefits allowances.
There are different needs of an organization or institute to be successful which are people,
purpose, processes, physical resources and customers.

47
REFERENCES:
http://www.sbp.org.pk/sbp_bsc/index.asp
http://www.sbp.org.pk/sbp_bsc/FieldOff.asp
http://www.khaleejtimes.com/international/pakistan/pakistan-budget-promises-
pro-business-policies
https://www.thenews.com.pk/print/118657-Pakistan-budget-promises-pro-
business-policies
http://www.threesigma.com/planning_budgeting.htm
http://searchfinancialapplications.techtarget.com/definition/Budgeting-planning-
and-forecasting-BPF

48

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Preamble

PLANNING AND STATE BANK

SUBJECT: REQUEST FOR THE SUBMISSION OF INTERNSHIP REPORT.

We conducted our internship at State Bank of Pakistan, Banking Services Corporation,

Supervisor: __________________ Co-Supervisor:___________________

STATE BANK OF PAKISTAN-

STATE BANK OF PAKISTAN-

STATE BANK OF PAKISTAN-

STATE BANK OF PAKISTAN-

11. Institutions need for development development..........................................................44

STATE BANK OF PAKISTAN-

Central banks are inherently non-market-based or even anticompetitive institutions. Many

The European Central Bank building in Frankfurt

STATE BANK OF PAKISTAN-

Functions of a central bank may include:

Implementing monetary policies.

For example, structural unemployment is a form of unemployment resulting from a mismatch

STATE BANK OF PAKISTAN-

STATE BANK OF PAKISTAN-

STATE BANK OF PAKISTAN-

INTRODUCTION TO STATE BANK OF PAKISTAN

Subsidiaries Of The SBP

STATE BANK OF PAKISTAN-

SBP-BSC (Banking Services Corporation)

To provide excellent banking and financial services to stakeholders besides ensuring

National Institute of Banking and Finance (NIBAF)

STATE BANK OF PAKISTAN-

STATE BANK OF PAKISTAN-

STATE BANK OF PAKISTAN-

GENERAL SERVICES DEPARTMENT:

1. Employee Benefits Division:

STATE BANK OF PAKISTAN-

STATE BANK OF PAKISTAN-

STATE BANK OF PAKISTAN-

Clear statement of goals and objectives

STATE BANK OF PAKISTAN-

There are some components shared by most tactical plans:

1. Specific Goals with Fixed Deadlines

Operational plans can be either single use, or ongoing, as described below:

1. Single Use Plans

STATE BANK OF PAKISTAN-

clearly state the objectives of the activity or program;

STATE BANK OF PAKISTAN-

A budget is defined as a quantitative statement for a defined period of time, which

According to I.C.M.A. England Budgetary control is defined by Terminology as the

The above definitions reveal the following essentials of budgetary control:

Objectives of Budgetary Control

Budgetary Control is planned to assist the management for policy formulation,

STATE BANK OF PAKISTAN-

Organization for Budgetary Control

In order to introduce budgetary control system, the following are essential to be

STATE BANK OF PAKISTAN-

Conditions for Implementing a Budgetary Control System

1. Statement of goals and objectives

Advantages of Budgetary Control

The advantages of budgetary control may be summarized as follows:

Limitations of Budgetary Control

STATE BANK OF PAKISTAN-

On, budget may prove short or excess of actual requirements.

Budgeting is also viewed as a process of identifying, gathering, summarizing and

A budget is prepared in advance: A budget must be drawn up before the period to

STATE BANK OF PAKISTAN-

A budget is a plan of action: A budget is a plan because it concerns actions to be taken

Advantages of incremental budgeting

Supervisor: Co-Supervisor:_