Costing Project | Budget | Inventory

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A STUDY OF BUDGETORY CONTROL SYSTEM IN GREYTRIX CONSULTING PRIVATE LIMITED (GCPL)
Submitted By:
 SUMAIYA DALAL

 MUZAMMIL FAZAL  DIGAMBAR KARALKAR  TERENCE LOBO  RAHUL MAHABARE  HIMSHREE SHELAR  PRASHANT SONI

68 74 85 86 88 105 108

A REPORT SUBMITTED TO THE UNIVERSITY/INSTITUTE IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF POST GRADUATE MASTERS IN FINANCIAL MANAGEMENT FOR THE ACADEMIC YEAR 2010 TO 2013.

UNDER THE GUIDANCE OF PROF. SANDEEP CHOPDE

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ACKNOWLEDGEMENT
WE EXPRESS OUR SINCERE THANKS TO PROFESSOR SANDEEP CHOPDE, FOR HIS CONSTANT ENCOURAGEMENT AND SUPPORT THROUGHOUT OUR COURSE, ESPECIALLY FOR THE USEFUL SUGGESTIONS REGARDING THIS REPORT. HE HAS BEEN A PERFECT MENTOR AND GUIDE TO GIVE US IMMENSE KNOWLEDGE AND UNDERSTANDING FOR THE SUBJECT, BUDGETORY CONTROL SYSTEM. THE PROJECT HAS NOT ONLY GIVEN INTENSE KNOWLEDGE ABOUT THE SUBJECT BUT ALSO TAUGHT US, ITS PRACTICAL IMPLICATIONS.

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CONTENT
INTRODUCTION WHAT IS BUDGET WHAT IS BUDGETORY CONTORL ORGANISATION FOR BUDGETING DIFFERENT TYPES BUDGETORY CONTROL CONCLUSION CASE STUDY OF: GREYTRIX CONSULTING PRIVATE LIMITED CONCLUSION BIBLIOGRAPHY

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INTRODUCTION For effective running of a business, management must know: where it intends to go i.e. organizational objectives how it intends to accomplish its objective i.e. plans whether individual plans fit in the overall organizational objective. i.e. coordination whether operations conform to the plan of operations relating to that period i.e. control “ Budgetary control is the device that a company uses for all these purposes.” BUDGET A budget is a plan expressed in quantitative, usually monetary term, covering a specific period of time, usually one year. In other words a budget is a systematic plan for the utilization of manpower and material resources. In a business organization, a budget represents an estimate of future costs and revenues. Budgets may be divided into two basic classes: Capital Budgets and Operating Budgets. Capital budgets are directed towards proposed expenditures for new projects and often require special financing. The operating budgets are directed towards achieving shortterm operational goals of the organization, for instance, production or profit goals in a business firm. Operating budgets may be sub-divided into various departmental of functional budgets. The main characteristics of a budget are: It is prepared in advance and is derived from the long-term strategy of the organization. It relates to future period for which objectives or goals have already been laid down. It is expressed in quantitative form, physical or monetary units, or both. Different types of budgets are prepared for different purposed e.g. Sales Budget, Production Budget, Administrative Expense Budget, Raw-material Budget etc. All these sectional budgets are afterwards integrated into a master budget, which represents an overall plan of the organization. Advantages of budgets A budget helps us in the following ways: • • It brings about efficiency and improvement in the working of the organization. It is a way of communicating the plans to various units of the organization. By establishing the divisional, departmental, sectional budgets, exact responsibilities are assigned. It thus minimizes the possibilities of buck passing if the budget figures are not met. It is a way or motivating managers to achieve the goals set for the units. It serves as a benchmark for controlling on-going operations. It helps in developing a team spirit where participation in budgeting is encouraged.

• • •

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• • • It helps in reducing wastage and losses by revealing them in time for corrective action. It serves as a basis for evaluating the performance of managers. It serves as a means of educating the managers.

BUDGETARY CONTROL No system of planning can be successful without having an effective and efficient system of control. Budgeting is closely connected with control. The exercise of control in the organization with the help of budgets is known as budgetary control. The process of budgetary control includes: • Preparation of various budgets. • Continuous comparison of actual performance with budgetary performance. • Revision of budgets in the light of changed circumstances. • A system of budgetary control should not become rigid. There should be enough scope of flexibility to provide for individual initiative and drive. Budgetary control is an important device for making the organization. More efficient on all fronts. It is an important tool for controlling costs and achieving the overall objectives. Installing a budgetary control system Having understood the meaning and significance of budgetary control in an organization, it will be useful for you to know how a budgetary control system can be installed in the organization. This requires, first of all, finding answers to the following questions in the context of an organization: • • • What is likely to happen? What can the objectives to be achieved? What are the constraints and to what extent their effects can be minimized?

Having found answers to the above questions, the following steps may be taken for installing an effective system of budgetary control in an organization. ORGANIZATION FOR BUDGETING: The setting up of a definite plan of organization is the first step towards installing budgetary control system in an organization a budget manual should be prepared giving details of the powers, duties, responsibilities and areas of operation of each executive in the organization. • Budget Manual: "A document which setout, inter alias, the responsibilities of the persons engaged in, the routine of, and the forms and records required for, budgetary control."

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• • • • Web for obtaining the necessary approval of budgets, the authority of granting approval should be stated in explicit terms. Whether one, two or more signatures are to be required on each document should also be clearly stated. Timetable for all stages of budgeting. Reports, statements, forms and other records to be maintained. The accounts classification to be employed. It is necessary that the framework within which the costs, revenues and other financial amount are classified must be identical both in accounts and the budget department.

There are many advantages attached to the use of budget manual. It is a formal record defining the functions and responsibilities of each executive. The methods and procedures of budgetary control are standardized. There is synchronization of the efforts of all which result in maximization of the profits of the organization. The responsibility for preparation and implementation of the budgets may be fixed as under: Budget Controller Although the chief executive is finally responsible for the budget programme, it is better if a large part of the supervisory responsibility is delegated to an official designated as Budget Controller or Budget Director. Such a person should have knowledge of the technical details of the business and should report directly to the president or the Chief Executive of the organization. Fixation of the budget period Budget period mean the period for which a budget is prepared and employed. The budget period depends upon the nature of the business and the control techniques. For example, a seasonal industry will budget for each season while an industry requiring long periods to complete work will budget for four, five or even larger number of year. However, it is necessary of control purposes to prepare budgets both for long as well as short periods. Budget Procedures Having established the budget organization and fixed the budget period, the actual work or budgetary control can be taken upon the following pattern: Steps in budgetary control 1. Organization for budgeting 2. Budget manual + Theory

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"A document which sets out, inter alias, the responsibilities of the persons engaged in, the routine of and forms and records required for budgetary control." The budget manual is a written document or booklet that specifies the objectives of budgeting organization and procedures. Following are some of the important matters covered in a budget manual: 1. A statement regarding the objectives of the organization and how they can be achieved through budgetary control. 2. A statement regarding the functions and responsibilities of each Executive by designation both regarding preparation and execution of budgets. 3. Procedures to be followed for obtaining the necessary approval of budgets. 4. The authority of granting approval should be stated in explicit terms. 5. Whether one, two or more signatures are to be required on each document 6. Should also be clearly stated. 7. Timetable for all stages of budgeting. 8. Reports, statements, forms and other records to be maintained. 9. The accounts classification to be employed. It is necessary that the framework within which the costs, revenues and other financial amount are classified must be identical both in accounts and the budget departments. There are many advantages attached to the use of budget manual. It is a formal record defining the functions and responsibilities of each executive. The methods and procedures of budgetary control are standardized. There is synchronization of the efforts of all which result in maximization of the profits of the organization. Making a forecast Consideration of alternative combination of forecasts: Alternative combinations of forecasts are considered with a view to contain the most efficient overall plan so as to maximize profits. When the optimum -profit combination of forecasts is selected, the forecasts should be regarded as being finalized. Sales budget Past sales figures and trend. The record of previous experience forms the most reliable guide as to future sales as the past performance is related to actual business conditions. However the other factors such as seasonal fluctuations, growth of market, trade cycles etc., should not be lost sight of salesmen's estimates. Salesmen are in a position to estimate the potential demand of the customers more accurately because they come in

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direct contact with the customers. However, proper discount should be made for overoptimistic or too conservative estimates of the salesmen depending upon their temperament. Plant Capacity. It should be the endeavor of the business to ensure proper utilization of plant facilities and that the sale budget provides an economic and balanced production on the factory. General trade prospects. The general trade prospects considerable affect the sales. Valuable information can be gathered in this connection from trade papers and magazines. Orders on hand. In case of industries where production is quite a lengthy process, orders on hand also have a considerable influence in the amount of sales. Proposed expansion of discontinuance of products. It is affects sales and therefore, it should also be considered. Seasonal fluctuations. Past experience will be the best guide in this respect. However, efforts should be made to minimize the effects of seasonal fluctuations by giving special concessions or off-season discounts thus increasing the volume of sales. Potential market. Market research should be carried out for ascertaining the potential market, for the company's products. Such an estimate on the basis of expected population growth, purchasing power of consumers and buying habits of the people. Availability of material and supply. Adequate supply of raw materials and other supplies must be ensured before drafting the sales programme. Financial aspect. Expansion of sales usually require increase in capital outlay also, therefore, sales budget must be kept within the bounds of financial capacity. Other factors: a. The nature and degree of competition within the industry; b. Cost of distributing goods; c. Governments controls, rules and regulations related to the industry; d. Political situation - national and international as it may have an influence upon the market. The sales manager, after taking into consideration all these factors, will prepare the sales budget in terms if quantities and money, distinguishing between products, periods and areas of sale. Production Budget

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Inventory policies. Inventory standards should be predetermined as that neither there is a shortage nor over-stocking of goods. Sales requirements. The quantity of goods to be sold would decide to a great extent how much is to be produced. Therefore, this budget depends upon the sales budget. Production stability. For reduction of costs, stability in employment and better utilization of plant facilities, the production should be evenly distributed throughout the year. In case of seasonal industries, since it is not possible to have stable levels of production or inventory, an effort should be made to have the optimum balance between the two. Plant capacity. How much can be produced depends upon the available plant capacity. There must be sufficient capacity to proceed the annual requirements and also to meet seasonal high demands. Availability of material and labour. Adequate and timely supply of raw material and labour should have an important effect on the planning of production. Time taken in production process. The production should commence well in time deeping in view how much time it would take in the factory to translate the raw materials into finished goods. Capital Expenditure Budget The budget provides guidance as to the amount of capital that may be needed for procurement of capital assets during the budget period. The budget is prepared after taking into account the available productive capacitates probable reallocation of existing assets and possible improvement in production techniques. If necessary separate budgets may be prepared for each item o assets, such a building budget, a plant and equipment budget etc. Cash budget The cash budget can be prepared by any of the following methods; 1. Receipts and payments method 2. The adjusted profit and loss method 3. The balance sheet method. 1. Receipts and payments method: In case of this method the cash receipts from various sources and the cash payments to various agencies are estimated. In the opening balance of cash, estimated cash receipts are added and from the total, the totals of estimated cash payments are deducted to find out the closing balance.

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2. The adjusted profit and loss method: In case of this method the cash budget is prepared on the basis of opening cash and bank balances, projected profit and loss account and the balances of the various assets and liabilities. 3. The balance sheet methods: With the help of budget balances at the end except cash and bank balances, a budgeted balance sheet can be prepared and the balancing figure would be the estimated closing cash/ bank balance. Thus under this method, closing balances other than cash/bank will have to be found out first to be put in the budgeted balance sheet. This can be done by adjusting the anticipated. Research and Development Budget Research and development costs are to be incurred so that the products or the methods of the concern do not become out of date. The research and development budget is a forecast of all such expenses. Classification of budgets Budgets can be classified into different categories on the basis of time, function or flexibility. The different budgets covered under each category are shown Classification of Budgets Time Function Flexibility Long-Term 1. Sales 1. Fixed Short-Term 2. Production 2. Flexible Current 3. Cost of Production Rolling 4. Purchase 5. Personnel 6. Research 7. Capital Expenditure 8.Cash 9. Master Some of the budgets covered in the above classification. Rolling Budget Some organizations follow the practice of preparing a rolling or

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Progressive budget. In such organizations, a budget for a year in advance will always be there. Immediately after a month, or a quarter, passes, as the case may be, a new budget is prepared for a twelve months. The figures for the month/quarter which has rolled down are dropped and the figures for the next month/quarter are added. For example, if a budget has been prepared for the year 19*7, after the expire of the first quarter ending 31st march 19*7, a new budget for the full year ending 31st march, 19*8 will be prepared by dropping the figures for the quarter which has rolled past and adding the figures for the new quarter ending 31st march 19*8. The figures for the remaining three quarters ending 31st December 19*7 may also be revised, if necessary. This process will continue whenever a quarter ends and a new quarter begins. It is also termed as limiting factor. The extent of influence of this factor must first be assessed in order to ensure that the budget targets are met. It would be desirable to prepare first the budget relating to this particular factor, and then prepare the other budgets. We are giving below an illustrative list of key factors in certain industries. Industry Motor car Aluminum Petroleum refinery Electrooptics Hydel power generation Key factor Sales demand Power Supply of crude oil skilled technicians Monsoon The key factors should be correctly identified and examined. The key Factors need not be of a permanent nature. In the long run, the management may overcome the key factors by introducing new products, by changing material mix or by working overtime or extra shifts etc. Making a forecast A forecast is an estimated of the future financial conditions or Operating results. Any estimation is based on consideration of probabilities. An estimate differs from a budget in that the latter embodies an operating plan of an organization. A budget envisages a commitment to certain objectives or targets which the management seeks to attain on the basis of the forecasts prepared. A forecast on the other hand is an estimate based on probabilities of an event. A forecast may be prepared in financial or physical terms for sales, roduction cost, or other resources required for business. Instead of just one forecast a number of alternative forecasts may be considered with a view to obtaining the most realistic overall plan. Consideration of alternative combination of forecasts. Alternative combinations of forecasts are considered with a view to contain the most efficient overall plan so as to maximize profits. When the optimum-profit combination of forecasts is selected, the forecasts should be regarded as being finalized. Preparing budgets

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After the forecasts have been finalized the preparation of budgets follows. The budget activity starts with the preparation of the sales budget. Then production budget is prepared on the basis of sales budget and the production capacity available. Financial budget (i.e., cash or working capital budget) will be prepared on the basis of sales forecasts and the production budget. All these budgets are combined and coordinated into a master budget. The budget may be revised in the course of the financial period if it becomes necessary to do so in view of the unexpected developments which have already taken place or are likely to take place. Choice between fixed and flexible budgets A budget may be fixed or flexible. A fixed budget is base on a fixed Volume of activity. It may lose it s effectiveness in planning and controlling if the actual capacity utilization is different from what was planned for any particular unit of time e.g., a month or a quarter. The flexible budget is more useful for changing levels of activity as it considers fixed and variable costs separately fixed costs as you are aware, remain unchanged over a certain range of output. Such costs change when there is a change in capacity level. The variable costs change in direct proportion to output. If flexible budgeting approach is adopted, the budget controller can analyses the variance between actual costs and budgeted costs depending upon the actual level of activity attained during a period of time. This will be explained in detail a little later. Sale Budget: Sales budget generally forms the fundamental basis on which all other Budgets are built. The budget is based on projected sales to be achieved in a budget period. The sales manager is directly responsible for the preparation and execution of this budget. Usually takes into consideration the following organizational and environmental factors while preparing the sales budget: Organizational Factors Past sales (figure and trends) Salesmen's estimates Plant capacity Order on hand Proposed expansion or discontinuation of products Availability of material of supplies Financial aspect Cost of distribution of goods Environmental factors General trade prospects Seasonal fluctuations Potential market Degree of competition

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Government controls, rules and regulations relating to the industry Political situation and its impact on market It is desirable to break up the entire sales budget on the basis of Different products, time periods and sales areas or territories. Description 1. Past sales figures and trend. The record of previous experience forms the most reliable guide as to future sales as the past performances related to actual business conditions. However, the other factors such as seasonal fluctuations, growth of market, trade cycles etc., should not be lost sight of. 2. Salesmen's estimates. Salesmen are in a position to estimate the potential demand of the customers more accurately because they come in direct contact with the customers. However, proper discount should be make for over-optimistic or to conservative estimates of the salesmen depending upon their temperament. 3. Plant capacity. It should be the endeavor of the business to ensure proper utilization of the plant facilitates and that the seal budget provides an economic and balanced production on the factory. 4. General trade prospects. The general trade prospects considerably affect the sales. Valuable information can be gathered in this connection from trade papers and magazines. 5. Orders on hand. In case of industries where production is quite a lengthy process, orders on hand also have a considerable influence in the amount of sales. 6. Proposed expansion of discontinuance of products. It is affects sales and therefore, it should also be considered. 7. Potential market. Market research should be carried out for ascertaining the potential market for the company's products. Such an estimate is made on the basis of expected population growth, purchasing power of consumers and buying habits of the people. 8. Availability of material and supply. Adequate supply of raw materials and other supplies must be ensured before drafting the sales program. 9. Financial aspects. Expansion of sales usually require increase in capital outlay also, therefore, sales budget must be kept within the bounds of financial capacity. 10. Other factors:

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a. The nature and degree of competition within the industry; b. Cost of distributing goods; c. Governments controls, rules and regulations related to the industry; d. Political situation : national and international as it may have an influence upon the market. Production Budget This budget provides an estimate of the total volume of production Distributed productwise with scheduling of operations by days, weeks and months, and a forecast of the inventory of finished products. Generally, the production budget is based on the sales budget. The responsibility for the overall production budget ties with works manager and that of with departmental works managers. Production budget may be expressed in physical or financial terms or both in relation to production. The production budgets attempt to answer questions like:(I) what is to be produced? (II) When it is to be produced? (III) How is to be produced? (IV) Where it is to be produced? The production budget envisages the production program for achieving the sales target. It serves as a basis for preparation of related cost budgets, e.g., materials cost budget, labor cost budget, etc. it also facilities the preparation of a cash budget. The production budget is prepared after taking into consideration several factors like - Inventory policies, sales requirements, production stability, plant capacity, availability of materials and labor, time taken in production process etc. 1. Inventory policies. Inventory standards should be predetermined as that neither there is a shortage nor over-stocking of goods. 2. Sales requirements. The quantity of goods to be sold would be decided to a great extent how much is to be produced. Therefore, this budget depends upon the sales budget. 3. Production stability. For reduction of costs, stability in employment and better utilization of plant facilities, the production should be evenly distributed throughout the year. In case of seasonal industries, since it is not possible to have stable levels of production or inventory, an effort should be made to have the optimum balance between the two. 4. Plant capacity. How much can be produced depends upon the available plant capacity. There must be sufficient capacity to proceed the annual requirements and also to meet seasonal high demands.

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5. Availability of materials and labor. Adequate and timely supply of raw materials and labor force should have an important effect on the planning of production. 6. Time taken in production process. The production should commence well in time keeping in view how much time it would take in the factor to translate the raw materials into finished goods. Production costs budgets Basically, there are three elements of costs, namely direct material, direct labor and overheads. Separate budgets for each of there elements have to be prepared. The direct materials budget has tow components, (I) Materials Requirement budget, (ii) Materials procurement or purchase budget. The former deals with the total quantity of materials required during the budget period, while the latter deals with the materials to be acquired from the market during the budget period. Materials to be acquired are estimated after taking into account the closing and the opening inventories and the materials from which orders have already been place.

Overhead budget: The overheads may relate to factory, general administration, selling and distribution function. Separate budgets may, therefore, be prepared for factory overheads, administrative overheads and selling and distribution overheads. Manufacturing overheads budget: Factory or manufacturing overheads includes the cost of indirect material, indirect labor and indirect expenses. Manufacturing overheads may be classified into i. Fixed overheads i.e., which tend to remain constant irrespective of change in the volume of output, j. Variable overheads i.e., which tend to vary with the output, k. Semi-variable overheads, i.e., which are partly variable and partly fixed. The manufacturing overhead budget will provide an estimate of these Overheads to be incurred during the budget period. Fixed manufacturing overhead can be estimated on the basis of past Information and knowledge of any changes which may occur during the ensuring budget period. Variable overheads are estimated after considering the scheduled production and operating conditions in the budget period. Administrative overheads budget

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This budget covers the administrative expenses including the salaries Of administrative expenses including the salaries of administrative the managerial staff. A careful analysis of the needs of all administrative departments of the enterprise is necessary. The minimum requirement for the efficient operation of each administrative department of the budget period. The budget of all administrative departments. Selling and distributing overhead budget: This budget includes all the expenses relating to selling, advertising, delivery of goods to customers etc. It is better if such costs are analyzed according to products, types of customers, territories and the sales departments. The responsibility of the preparation of this budget rests with the executives of the sales expected and an effort should be made to control the costs of distribution. The preparation of the budget would depend on analysis of the market situation by the management, advertising policies, research program, and the fixed and variable elements. Cash budget The cash budget is a summary of the firm's expected cash inflows and Outflows over a particular period of time. In other words, cash budget involves a projection of future cash receipts and cash disbursements over various time intervals. A cash budget helps the management in: Determining the future cash needs of the firm. Planning for financing of those needs. Exercising control over cash and liquidity of the firm. The overall cash budget can be prepared by any of the following methods: 1. Receipts and payments method 2. The adjusted profit and loss method 3. The balance sheet method Receipts and payments method: In case of this method the cash receipts from various sources and the cash payments to various agencies are estimated. In the opening balance of cash estimated cash receipts are added and from the total, the totals of estimated cash payments are deducted to find out the closing balance. The adjusted profit and loss method: In case of this method the cash Budget is prepared on the basis of opening cash and bank balances, projected profit and loss account and the balances of the various assets and liabilities. The balance sheet method: With the help of budgeted balances at the End except cash and bank balances, a budgeted balance sheet can be prepared and the balancing figure would be the estimated closing cash/bank balance.

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Thus, under this method, closing balances other than cash/bank will have to be found out first to be put in the budgeted balance sheet. This can be done by adjusting the anticipated transactions of the year in the opening balances. CONCLUSION: Preparation of budgets is the first step in the budgetary control system. Implementation of budgets is the second phase. But preparation and implementation of budgets alone will not achieve much unless a comparison is made regularly between the actual performance and the budgeted performance. Continuous and proper reporting makes this possible. To ensure the success of budgetary control system, proper follow up action has to be taken immediately for the reports submitted.

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CASE STUDY GREYTRIX CONSULTING PRIVATE LIMITED (GCPL) BUDGETING AND STRATEGY INTRODUCTION Greytrix Consulting Private Limited (GCPL) is an SBU of Greytrix India Private Limited(GIPL) set up to cater to the increasing demand for a world class organization which can provide consulting and implementation of business applications to small and medium enterprises in the Indian market. GIPL has been on forefront of providing back office and front office solutions to small and medium enterprises since 1997 working with almost all the world class products and vendors like Sage, Microsoft and Sage Partners. It has been a techno functional driven organization catering to providing business solutions and development of products in the SME ERP and CRM world since the very inception and its core and only business till now remains in this area of specialty only.GIPL has been a Sage partner since 1998 and it carries all Sage products in its portfolio and is a Sage Gold Development Partner. It is also a Microsoft Gold development partner and SAP Business One partner. Greytrix has won various awards for its innovative solutions and it’s a pioneer in the field of ERP and CRM migrations under its trademark GUMU™ and is a preferred choice for Sage worldwide for its migration and integration efforts. GIPL also has 50+ add-on and products for verticals and horizontals to add value to the ERP and CRM products. GIPL has a special relationship with Sage worldwide and it is one of the largest and most experienced development partners working on diverse product lines like Sage Accpac ERP, Sage Pro ERP, Sage Saleslogix CRM, Sage CRM, ACT! by Sage, Sage MAS 90, Sage MAS 500, Sage Line 200, Sage Line 50, Peachtree by Sage, Sage PFW and has won global awards for the best development partner out of hundreds of partners of Sage worldwide. GCPL was started as an off shoot to GIPL to bring the world wide standards and processes and the experience earned to the benefit of Indian industries. India has started growing into a global super power and organizations have started understanding the power of automation even in the small and medium segment. What was earlier a domain of only large organization has become a necessity for smaller organization to survive in this hyper competitive global scenario. From a small organization with turnover of a few crores to a large organization with turnover of hundreds of crores are banking on instilling global practices and processes through systems in their workplace to control costs, improve productivity and up to date business intelligence. GCPL with its team of experienced developers, implementers and consultants have been on forefront of this

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ideological revolution being brought by leaders with vision of the future and providing them with world class systems and talent to achieve their goal of a successful enterprise. GCPL can claim to be only one of those organizations which has metamorphosed from a “development” organization to a “reselling” organization and we have not left our base ethos of a solution provider rather than a "sales oriented" organization. We understand a business need and provide strong solutions to your needs. We are not interested in making “sales” because we believe that providing solution will help us make sales automatically. Historically, GCPL since its inception has been India’s one of the most respected Sage ERP and CRM providers with its client list including such large organizations like Religare Enterprise, Thomson Reuters, Adobe Systems, Prime Focus, Proline and its strong implementation, consulting and development team can take care of your unique needs. GCPL past is our strength and with Greytrix’s300+ customers worldwide in 50+ industries only portends well for all our customers future. Key Historical Dates 1997 – GIPL Formed 1998 – GIPL becomes Sage Partners to carry Sage Pro ERP (SBT) in India 2000 – Becomes Sage Accpac partners (CA) 2001 – Opens offices in US and UK 2002 – Becomes Sage CRM partners 2004 – Awarded Sage CRM Development Partner of the year 2006 – Awarded Sage Accpac Partner of the Year 2007 – Greytrix starts India operations 2008 – Accredited as First Gold Development Partner of Sage Software 2009 – Greytrix becomes one of the top Sage Partner in India What is a Budget? A budget is a financial plan that sets out, using figures; an organization’s expected future results. For planning purposes, organizations can use many different types of budgets. For example: • Income and expenditure budgets. These show how much an organization expects to receive and to spend in future periods. • Production budgets. These set out how much an organization must produce in coming periods of time in order to meet demand. • Profit budgets. These bring together planned sales, costs, and profit figures. By creating budgets, managers can:

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• • • • • Set out a clear plan, involving target figures for defined periods of time Communicate their targets clearly Motivate employees to achieve these targets Control performance by monitoring actual outcomes against planned targets Meet the organization’s objectives.

This Case Study illustrates how Greytrix Consulting Private Limited (GCPL) uses budgets to enable it to meet business objectives related to financial performance with a view to achieving its vision to fulfill the gap in the small and medium enterprise market for quality enterprise software consultants and solution providers. GCPL has several important objectives related to its vision. These include: • • • • • • To help small and medium enterprises to add value to the organization through software automation To enhance and distribute best global software, practices and processes in Indian region To strive for providing one of the lowest TCO for any business application. To always meet the promised date of delivery and strive for quickest turnarounds To stick to highest level of quality while providing solutions to its customers even at the low cost. To bring the best in the technology to enhance productivity for all its stakeholders.

Budgets help Greytrix Consulting Private Limited (GCPL) to meet these objectives in a planned forward-thinking way. Budgets are created through consultation with all areas of the business, to achieve a shared understanding about objectives for the future visions of their teams. The Finance team supports and contributes to the work generated by other business functions to build and secure their support for the budget. To be effective GCPL recognizes that a budget must be challenging but also realistic, so that people feel it can be achieved and is worth working towards. One important element is to identify cost savings that can be re-invested to continue to grow GCPL power brands and to develop its people. Reducing costs by eliminating waste is vital in the software industry which is driven by price competition and consolidation in this sector. GCPL income and expenses budget A typical budget: • relates to a defined time period (usually twelve months) • is designed and approved well in advance of the period to which it relates • shows expected income and expenditure

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• Includes all capital expenses likely to be incurred in furthering the organization’s objectives.

Income is the amount of money a business receives from its sales. Expenses are the costs incurred in order to make those sales. To help control expenditure the Finance team collates the costs of the business in relevant groups called cost centers, so that analysis can be meaningful and also well controlled by those directly responsible for authorizing the spend. Many companies, including GCPL, use cost centers that relate to particular factories or production units. Within GCPL each manager is assigned clear responsibility for governing the costs which are allocated to his/her cost centre. The budgeting process enables GCPL to make clear plans for individual cost centers, which build the budget for the whole organization. The whole purpose of this exercise is to quantify the likely future costs of the whole operation, whilst always maintaining focus on the future plans for the company. GCPL sells its wide portfolio of products to a variety of different customers / organizations; in doing so, it incurs: • • • • Software development costs and production costs to manufacture the products to sell Marketing expenses associated with any promotional activity including media advertising Selling expenses involved in selling its goods into supermarkets and other customers Distribution expenses when transporting the products from worldwide to the customer.

The starting point for building a budget is to forecast the likely sales based on historical information in conjunction with GCPL and third party understanding of the business environment. This indicates what quantities of products need to be produced and the timing of development. With these figures in place, budgets can then be allocated for costs relating to sales, marketing and administration, and figures established for the likely costs of storing and transporting (i.e. distribution). These details provide data for relevant departments (e.g. sales, administration etc). Figures can then be inserted for likely capital expenses. The final stage is to construct a budgeted profit and loss account and balance sheet. Once the budget has been set and agreed by the management teams within GCPL, it becomes the mechanism through which managers monitor progress on a particular business component (for example, a brand, or factory) or on total company performance.

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The importance of feedback The budgeting process is a cycle of ongoing review and monitoring. Every month, GCPL uses variance analysis to identify deviations within the monthly result. A variance is the difference between the budgeted figure and the actual figure. Variances can be favorable or adverse. For example, if actual sales income was greater than budget, this would be a favorable variance. On the other hand, if actual expenses were greater than budget, this would be an adverse variance. By monitoring performance monthly, it is possible to alert cost centre managers to variances so that they can take appropriate corrective action or justify the new level of spend. At all stages the Senior Management team of GCPL is fully aware of any material variances that are derived from comparing actual spend vs. budgeted figures. Periodic reviews which are organized by the Budget Accountant, allow there to be a forum within which any feedback can be given on current actual spend vs. plan, ensure that it is possible to reforecast the plan or alter current activity. Single loop feedback involves making correction to current activities in order to ‘get back on course’. Double loop feedback involves amending the original plans so that they more accurately reflect current business reality. In a company like GCPL, this ability to amend the budget is an important aspect of management. GCPL operating environment is subject to rapid change. So GCPL has to remain flexible and ready to respond to any challenges that it faces. Any one budget may be altered a number of times during a year, although there would always be a considered reason for doing so. Constructing an expense budget Each cost centre budget is seen as part of an overall plan designed to meet company objectives. Constructing cost centers’ individual budgets involves detailed consultation about company objectives, marketing objectives and relevant income and expense projections. These can be brought into line and match changes in the external business environment. Using this as a basis it is a reasonably straightforward exercise to calculate other expenses, including the number of people (and their remuneration packages, such as pension expenses, national insurance, travel costs) required to run a particular part of the business.

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In the modern business world the rate of change is such that it is impossible to have a clear picture of the future. Inevitably it takes time to build the ‘big picture’ from lots of small, shifting scenarios relating to individual cost centre budgets. Budgeting may be difficult, but it is essential for a business to stay in control and ‘ahead of the game’.

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Advantages and disadvantages of expense budgeting Budgeting provides organizations with detailed analysis of future and current proposed spending patterns, enabling much better control (by responding to variances). Performance can be analyzed quantitatively (in numbers), making it possible to measure financial success. Measurement of results can serve as a motivational tool for many employees. Budget analysis also makes it possible to identify unnecessary costs that can be removed so as to focus funds on value adding activities. GCPL uses budgetary control to remain focused on the soft (qualitative) benefits of re-distributing spend. However, it is important to keep sight of the organization’s long term goals to avoid the risk that budgeting might lead to short-term focus on financial results. This could foster cost cutting exercises at the expense of strategy. In the worst case, individual managers may pursue exclusively their own narrow goals rather than business wide ones. If individual managers are not happy with the budget they may co-operate poorly, so it is important to have detailed discussions to achieve collective agreement. This is why GCPL as an organization retains a consultative approach to constructing budgets. Alternative types of budgeting There are a number of budgeting types to choose from. GCPL uses a mix of the following: i. Zero based budgeting In a dynamic business it often makes sense to ‘start afresh’ when developing a budget rather than basing ideas too much on past performance. This is appropriate to GCPL because the organization is continually seeking to innovate. Each budget is therefore constructed without much reference to previous budgets. In this way, change is built into budget thinking. ii. Strategic budgeting This involves identifying new, emerging opportunities, and then building plans to take full advantage of them. This is closely related to zero based budgeting and helps GCPL to concentrate on gaining competitive advantage. iii. Rolling budgets Given the speed of change and general uncertainty in the external environment, shareholders seek quick results. Rolling budgets involve evaluating the previous twelve months’ performance on an ongoing basis, and forecasting the next three months’ performance. iv. Activity based budgeting

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This examines individual activities and assesses the strength of their contribution to company success. They can then be ranked and prioritized, and be assigned appropriate budgets. CONCLUSION The GCPL is dynamic and highly competitive. To succeed, GCPL recognizes the need to build in flexibility that enables it to seize appropriate opportunities into its planning activities. GCPL budgeting process is based on consensus, and shared understandings. By using rigorous but flexible budgeting arrangements the various components of GCPL are best able to contribute in a coordinated way to delivering strategic objectives. BIBLIOGRAPHY http://www.greytrix.in/home/default.aspx

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