A STUDY ON THE BUDGET AND BUDGETARY CONTROL IN BHARAT HEAVY ELECTRICALS LIMITED-TRICHY

A project report submitted in partial fulfillment of the Degree of Master of Business Administration of Madurai Kamaraj University

By Aarthy.V Reg No ± A9410151 Under the guidance of Somasundaram Thiagarajar School of Management

Thiagarajar School of Management (Affiliated to Madurai Kamaraj University) Madurai ± 625 005 December-January 2011

DECLARATION BY THE CANDIDATE

AARTHY.V Reg No ± A9410151 II MBA THIAGARAJAR SCHOOL OF MANAGEMENT MADURAI ± 5

I hereby state that the project entitled, ³A STUDY ON THE BUDGET AND BUDGETARY CONTROL IN BHARAT HEAVY ELECTRICALS LIMITED, TRICHY´ was undertaken at, Bharat Heavy Electricals Limited-Trichy submitted to Madurai Kamaraj University in partial fulfillment of Master of Business Administration Degree is a record of original work done by me and no part of this project has been submitted for the award of any other Degree, Diploma, Fellowship or other similar studies.

Date:

Signature of the candidate

NAME: AGE: DATE OF BIRTH: EDUCATIONAL QUALIFICATION:

Aarthy.V 23 29 ± 09± 1987 

Pursuing M.B.A in THIAGARAJAR SCHOOL OF MANAGEMENT, specialization  BSc(BIOTECHNOLOGY) from S.P. COLLEGE MADURAI, with finance as

OF ARTS AND SCIENCE, MADURAI  Schooling in Capron hall Higher Secondary School, Madurai AREAS OF INTEREST: Finance and Marketing

4 Scope of the study 1. List of Tables List of Charts 1 Introduction CONTENTS CHAPTER NAME PAGE NO 1.3 Objective of the study 1.6 Review of literature 1.1 Introduction of the study 1.2 Introduction of the company 1.7 Research methodology 2 3 4 5 6 7 Budget Process Budget Control Data analysis and Interpretation Findings & Suggestions Conclusions Bibliography .5 Limitations of the study 1.Chapter No.

I am deeply indebted to Mr. Faculty. S. Finally. Manager BHEL Trichy) and Mr.N. I extend my heartfelt thanks to my friends and family members who have been a source of inspiration and support throughout the project. Thiagarajar School of Management for facilitating my value addition at the institution. Director. Thiagarajar School of Management for providing support guidance and valuable ideas which helped me to complete this project successfully. I sincerely thank Dr. .ACKNOWLEDGEMENTS I would like to express my sincere thanks to Prof. Sekar(Assistant Officer BHEL Trichy) for presenting me the opportunity to pursue a valuable project and facilitating me in successful completion of the project. I express my deep sense of gratitude to MR. Nagaraju. S. Wilford Simon(Sr.Venkiteswaran. Thiagarajar School of Management. M.Somasundaram. Principal. for his encouragement.

LIST OF TABLES Table DESCRIPTION No. 1 2 3 4 5 6 7 8 9 10 11 Financial turnover from 2004 ± 2005 to 2008 ± 2009 Profit before tax from 2004 ± 2005 to 2008 ± 2009 Working capital 2004 ± 2005 to 2008 ± 2009 Capital employed from 2004-2005 to 2008-2009 Value added from 2004 ± 05 to 2008 ± 09 Cash inflow operation from 2004 ± 2005 to 2008.2009 Highlight ± part 1 Highlight ± part 2 PAGE NO .2009 Cash outflow operation from 2004 ± 2005 to 2008 ± 2009 Yearend inventory from 2004 ± 2005 to 2008 ± 2009 Total sundry debtors 2004 ± 2005 to 2008.

LIST OF CHARTS Chart DESCRIPTION No.2009 Cash outflow operation from 2004 ± 2005 to 2008 ± 2009 Yearend inventory from 2004 ± 2005 to 2008 ± 2009 Total sundry debtors 2004 ± 2005 to 2008. 1 2 3 4 5 6 7 8 9 Financial turnover from 2004 ± 2005 to 2008 ± 2009 Profit before tax from 2004 ± 2005 to 2008 ± 2009 Working capital 2004 ± 2005 to 2008 ± 2009 Capital employed from 2004-2005 to 2008-2009 Value added from 2004 ± 05 to 2008 ± 09 Cash inflow operation from 2004 ± 2005 to 2008.2009 NO PAGE .

List of Tables: TABLES Table 1 Financial Turnover from 2005-2006 to 2009-2010 Table 2 Profit Before Tax from 2005-2006 to 2009-2010 Table 3 Working Capital from 2005-2006 to 2009-2010 Table 4 Capital Employed from 2005-2006 to 2009-2010 Table 5 Value Added from 2005-2006 to 2009-2010 Table 6 Cash Inflow Operation from 2005-2006 to 2009-2010 Table 7 Cash Outflow Operation from 2005-2006 to 2009-2010 Table 8 Year End Inventory from 2005-2006 to 2009-2010 Table 9 Total Sundry Debtors from 2005-2006 to 2009-2010 Page No 23 24 25 26 27 28 29 30 31 .

CHARTS Chart 1 Financial Turnover from 2005-2006 to 2009-2010 Chart 2 Profit Before Tax from 2005-2006 to 2009-2010 Chart 3 Working Capital from 2005-2006 to 2009-2010 Chart 4 Capital Employed from 2005-2006 to 2009-2010 Chart 5 Value Added from 2005-2006 to 2009-2010 Chart 6 Cash Inflow Operation from 2005-2006 to 2009-2010 Chart 7 Cash Outflow Operation from 2005-2006 to 2009-2010 Chart 8 Year End Inventory from 2005-2006 to 2009-2010 Chart 9 Total Sundry Debtors from 2005-2006 to 2009-2010 Page No 23 24 25 26 27 28 29 30 31 .

how much profit and profitability position.EXECUTIVE SUMMARY The project aims to study about the Budget and Budgetary Control in BHEL ± Trichy. The second data were collected from annual reports of the firm balance sheet. . Production Budget. The report includes with a list of suggestion based on the findings from the study. profit & loss a/c various magazine and newspaper. This was the primary objective of my study apart from the objective to find out sales Budget. Cash Budget of the Company.

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About the Industry PROFILE OF THE STUDY UNIT (BHEL TRICHY) Bharath Heavy electrical Limited (BHEL). is a name recognized across the industrial word. established in 1956. It is the engineering and manufacturing enterprise of its kind in India and of the leading international companies in the field of power plant equipment. Introduction of Company 1.1.1. BHEL offers a wide spectrum of products and services for the core sectors of .

42 crores.2 About the company BHEL-TIRUCHIRAPPALLI-PLANTING POWER FOR PROSPERITY The Tiruchirappalli plant of Bharat Heavy Electrical Limited was set up in 1963 for the manufacture of high pressure Boilers. In order to meet the rapidly growing power requirements of the country. Industry. The additions have been the Auxiliaries plant at Ranipet.588 square meters.. Telecommunication. Oil &Gas. has resulted in its being chosen as one of the µNavertha¶ public sector Enterprises (PSE) that would enjoy support from the Government in their endeavors to become global player.. while the Seamless Street Tube plant has 37.920 square meters and Boiler Auxiliaries plant. BHEL. The wide network of BHEL¶S 14 manufacturing divisions. Trichy is the largest engineering and manufacturing complex in Tamil Nadu. spread over 2908 acres of land at Tiruchirappalli and 1. systems and services at competitive prices. The high pressure Boiler plant has a total covered area of 1.256 acres at Ranipet.64. BHEL. 8 service centers and 14 regional officers enable the company to be closer to its customer and provide them with suitable products. Tiruchirappalli augmented its capacity to the present level of 400 MW a year. BHEL is now well on its journey towards business excellence through Total Quality Management (TQM). four power sector regional centers. Transportation renewable energy.. 57. BHEL is truly India¶s industrial ambassador to the world. Defense. the Trichy Division has been a vast growth. Power Generation & Transmission. 24. Over the year. With export presence on more than 50 countries. the piping center is Chennai and industrial valves plant at Goindwal in Punjab.5 crores.280 square meters. with an initial investment of Rs. with an additional investment of Rs. Having obtained ISO 9000 certification. The plant was set up with technical assistance from Skoda export under an Indo-Czeck economic co-operation program. The plant reached its rated capacity of 750 MW in recent time and the first 60 MW boilers was commissioned at Ennore in 1971. in three successive phases of expansion.. etc.economy viz. The company¶s inherent potential coupled with its strong performance over the years. . 44. over 100 project sites. 1.

this is an MOU project between BHEL and the Government of India. 158. eco friendly. oil drilling.3 About the product PRODUCT RANGE The products manufactured by BHEL.7 crores spares and service worth Rs. BUSINESS EXCELLENCE (HPBP) OF BHEL. cement. And Rs. paper. An ERP (Enterprise Resource Planning) project has been initiated at BHEL. The external customer satisfaction survey carries out by and independent consultant has revealed a higher satisfaction level from BHEL¶s customers both in the public and private sectors. oriented toward acquired ISO 18001 certification. MISSION AND OBJECTIVES VISION .000 employees to be followed by different units for formation and implementation of occupational health and safety system. super critical higher rating thermal sets of 660 MW capacities for future mega power projects. 242 crores for boilers and auxiliaries supplied. Tiruchirappalli achieved a turnover of Rs. Petrochemicals. sugar. BHEL-VISION.1. refineries. steel. 79 crores has been achieved by commercializing product and systems through in house R&D technology development. aluminum. Tiruchirappalli find wide application in Thermal and Nuclear Power Stations and in industries such as fertilizers. 83 crores (conversion cost) placed on ancillaries and small industries. Tiruchirappalli for valves product group. coal. it is planned to introduce and integrate operations approach for all business processes using SAP ERP software.1675 crores and a profit before a tax of Rs. rubber. Under the project. Trichy has been awarded the CIF Exim Bank commendation certificate for ³strong commitment of Total quality management on the journey towards business excellence´ for the year 2003 HPBP has emerged has the only organization having more than 10. Over for Rs. mining etc« FINANCIAL PERFORMANCE High pressure Boiler plant. POSITIONING FOR THE FUTURE BHEL gears up to manufacture more efficient.

BHEL is world class. system and services in the field o energy. in existing business. GROWTH To ensure a steady growth by the unchanged competitive edge of BHEL. IMAGE . MISSION The BHEL¶s mission is to be the leader in Indian engineering enterprise providing quality products. innovative competitive and profitable engineering enterprise providing total business solutions. CUSTOMER FOCUS To build a high degree of customer confidence by providing increased value for its money through international standard products quality. OBJECTIVES 1. transportation industry and infrastructure. and provide a competitive advantages to the company. performance and superior customer service. 4. 5. efficient absorbs and adaptation imported technologies to suit needs and priorities. 2. PROFITABILITY The profitability is an objective of the BHEL is providing a reasonable and adequate return on capital employed primarily through improvement in operational efficiency. 3. TECHNOLOGY To achieve technology excellence in operations by development of indigenous technologies. Capital utilization and productivity and generate adequate resources to finance the company¶s growth to realize at least 30% returns (gross margin) employed. new areas and international operations.

SSTP. WRI have won the Tamil Nadu Government industrial safety awards 20 employees have won ³UYARNTHA UZHAILPALAR VIRUDRU´ . AWARDS HPBP. 6. which the holders like government as owner.To fulfill the expectation. customers and the country at large from BHEL. employees.

. Chapter 5 ± This chapter lists out the findings of the research undertaken and presents suggestions to improve the organization¶s effectiveness. Chapter 2 . Chapter 1 ± It gives an introduction about the industry.It deals with the methodology adopted in this study highlighting the research problem.1. etc.5 Organization of the report The following are the bird¶s eye view of the details included in the various Chapters of the study. scope. the organizations and the reason for choosing the project. sources of data. Chapter 6 ± This chapter summarizes and concludes the project. Chapter 3 ± This chapter presents various concepts of Budgeting and budgetary control. Chapter 4 ± This chapter analyses the data collected from secondary sources and represents them in the form of tables.

planning and using at budget reports.5 Method of data collection Secondary data have been collected from the respective unit though manuals and annual reports of the company . Budgetary control involves preparation of budgets and comparison of actual performance and taking corrective action to improve efficiency. Budgeting points out controlling based on a budget. Budgeting is done mainly by top management.3 OBJECTIVES OF THE STUDY: 1. 2. 2. actual against various heads 2. To make a comparative study of the past 5 years BHEL proposals vs. To critically see the parameters considered for BHEL budget proposals. To study the control mechanism of reporting in BHEL and the salient features in the budget process of BHEL as a profit making Public Sector Company. 3. To study the monitoring mechanism and control systems employees by BHEL from various departments.1 Statement of the problem 2. Budget serves as a planning and controlling mechanism.4 RESEARCH DESIGN A research design is the arrangement of conditions of conditions for collection and interpretation of data in manner that aims to combine relevance to the research purpose with economy in procedure.RESEARCH METHODOLOGY 2. Budgeting is a wide term and includes not only budgetary control but also budget preparation.2 Scope of the Study Budgets are regarded as the of control. 4. 2.

y Time was insufficient to carry out the research and hence its depth INTERPRETATION could not be made.6 Nature of Data The study is based on secondary data. 2. 2.2. y Further. the objectives of study.9 Limitations of study y The study covers only a period of five years.7 Source of data Secondary data have been collected from the respective unit though manuals and annual reports of the company. the study is based on secondary data.8 Tools for analysis Data has been collected. 2. y The results of the study will about be applicable to all the public sector organizations. The sources of the data are budgeted fixed and actual attained by the concern under the period of the study. . y The results may be different under new environment with changes in the management policy. analyzed and tabulated keeping in view.

either to secure by individual action the objectives of that policy. . or to provide a basis for its revision´.REVIEW OF LITERATURE REVIEW OF LITERATURE Budgetary control and defined by the Institute of cost and Management Accountants (CIMA) as:³The establishment of budgets relating the responsibilities executives to the requirements of a policy and the continuous comparison of actual with budgeted results.

Budgeting is a management tool is used for planning and control. budgeting serves two very different purposes in most organizations. Concepts . Traditionally budgets have been employed as devices to limit expenditure. but a much more useful and constructive view is to treat the budgeting process as a means for obtaining the most effective and profitable use of the company¶s resources through planning and control. to make sure that the organization is keeping to plan and that necessary action can be taken to put it back on track when needed. The first function is that of financial and cost and the second that of management control.Managers need to be able to exercise control over the organizations they manage ± i. system managers need to take control tools to make sure that financial plans and targets are being achieved. In the same way that a thermostat will regulate and control the temperature of you central heating.e. the task of ensuing those diverse activities are co-ordinates in to coherent packages. Thus.

to anticipate and give the organization purpose and direction. requires managers of budget centers to be made responsible for the achievement of budget targets for the operation sunder their personal control. operation and (ideally) each manager. Advantages of budgeting and budgetary control: There are a number of advantages to Budgeting and budgetary control: 1) Compels management to think about the future. 4) Provides a basis for performance appraisal (variance analysis). 5) Enables remedial action to be taken as variances emerge. Forces management to look ahead. has defined budget as ³A financial and or quantitative statement´ prepared prior to a defined at time of the policy to be pursued during that period for the purpose of attaining a given objective´. to set up detailed plans for achieving the targets for each department. which is probably the most important feature of a budgetary planning and control system. 6) Motivates employees by participating in the setting of budgets. London.General Introduction of Budgeting Definition of budget Chartered institute of Management Accountants. Departures from budget can then be investigated and the reasons for the differences can be divided into controllable and non-controllable factors. A budget is basically a yardstick against which actual performance is measured and assessed. . 3) Clearly defines area of responsibility. 2) Promotes coordination and communication. Control is provided by comparisons of actual results against budget plan.

7) Improves the allocation of scarce resources.  Waste may arise as managers adopt the view ³empire building´ in order to enhance the prestige of a department. status and career growth with regard to personal income. power costs. Because failure to achieve budget can be viewed very negatively.  Responsibility versus controlling. Budgetary slack provides for some margin of error. status and career path.  Budgets can be seen as pressure devices imposed by management. some costs are under the influence of more than one person. thus resulting in : a) Bad labor relations b) Inaccurate record-keeping  Departmental conflict arises due to: a) Disputes over resource allocation b) Departments blaming each other if targets are not attained.. BUDGETARY SLACK Because performance objectives are set during the budgeting process. In some companies.g. Managers have personal goals with regard to personal income. managers are tempted to build in slack. or a cushion. It typically involves some discretionary fixed expenses that can be cut back quickly if business conditions or . particularly in perception terms. e. 8) Economizes management time by using the management by exception principle. management bonus or incentive systems are linked in some way to the attainment of the budget. Managers tend to formulate budgets that can be achieved readily and that meet top management¶s expectations. Problems in budgeting: While budgets may be an essential part of nay marketing activity they do have a number of disadvantages.  It is difficult to reconcile personal individual and corporate goals. conflicts between personal and organizational goals can arise.  Managers may overestimate costs so that they will not be blamed in the future should they overspend.

for instance. it is to some extent voluntarily reduced. They are an invaluable component of a company¶s planning and control efforts. Budgets may be divided into two basic classes: 1. for example. making some repairs and replacements that could have been postponed for a few years new roofing on all buildings. For the managers. The system Forces managers to plan and promotes coordination. The main characteristics of a budget are: 1. however.performance is worse than planned. a budget represents an estimate of future costs and revenues. managers would have them patched. Too much pressure to cut slack. Instead of having the roofs replaced. In other words a budget is a systematic plan for the utilization of manpower and material resources. In a business organization. in bad times. When performance is better than budget. The master budget. It is prepared In advance and is derived from the long-term strategy of the organization. Because division profits are over budget. covering a specific period of time. Capital Budgets 2. In bad times. A good example is maintenance. accompanied by detailed plans. however. Effective budgeting systems facilitate the value creation process. Linking the master budget to the company¶s longrange and strategic planning enhances the overall planning effort. documents the company¶s goals and objectives. usually one year. The operating budgets are directed towards achieving short-term operational goals of the organization. are never inclined to reduce slack. Operating budgets may be sub-divided into various departmental functional budgets. can result in conflict and can damage the budgetary process for years. Some division managers. production or profit goals in a business firm. A budget is a plan expressed in quantitative. top management might embark on a cost-cutting campaign to encourage slack reduction. the division manager may overspend on maintenance. Slack within the company tends to grow in good years. usually monetary term. much attention probably will not be paid to over budget maintenance expenses. The system supports responsibility accounting and reporting. Operating Budgets Capital budgets are directed towards proposed expenditures for a new project and often require special financing. . the maintenance would be deferred.

including the issue of a manual. Departmental heads and executives (with the managing director as chairman). production marketing and so on. Every part of organist ion should be represented on the committee. 2) Comprehensiveness: embrace the whole organization. Production Budget. 2) Issuing of timetables for preparation of budgets.. which represents an overall plan of the organization Characteristics of a budget A good budget is characterized by the following: 1) Participation: involve as many people as possible in drawing up a budget. It is expressed in quantitative form. b) Budget committee: This may consist of senior members of the organization.2. 3) Standards: base it on established standards of performance. Function of budget committee include: 1) Coordinating of the preparation of budgets. or both. A budget centre may encompass several cost centers. 4) Flexibility: allow for changing circumstances. physical or monetary units. 6) INTERPRETATION of costs and revenues: this can be done on the basis of product lines. Different types of budgets are prepared for different purposes e/g/ Sales Budget. It relates to future period for which objectives or goals have already been laid down. e. Budget organization and administration: In organizing and administering a budget system the following characteristics may apply: a) Budget centers: Units responsible for the preparation of budgets. so there should be a representative from sales. . 5) Feedback: constantly monitor performance.g. Raw-material Budget etc. departments or cost centers. All these Sectional budgets are afterwards integrated into a master budget. Administrative Budget.

3) Provision of information to assist budget preparations 4) Comparison of actual results with budget and investigation of variances. Methods of sales forecasting include: 1) Sales force opinions 2) Market research . Budget preparation: Firstly. This is prepared in units of each product and also in sales value. a) Sales budget: This involves a realistic sales forecast. determine the principal budget factor. 4) Timetables the process 5) Clearly defines the responsibility of persons involved in the budgeting system. material or labor. 3) Contains account codes for items of expenditure and revenue. This is also known as the key budget factor or limiting budget factor which will limit the activities of an undertaking. c) Budget offer: Controls the budget administration. The job involves: 1) Liaising between the budget committee and managers responsible for budget preparation. d) Budget manual: This document: 1) Charts the organization 2) Details the budget procedures. 2) Dealing with budgetary control problems. 3) Ensuring that deadlines are met. 4) Educating people about budgetary control. e/g/ sales. This limits output.

c) Raw material and purchasing budget:  The material usage budget is in quantities  The materials purchases budget is both quantitative and financial/ . 3) Changes in the population 4) Competition 5) Consumers income and tastes 6) Advertising and other sales promotion techniques 7) After sales service 8) Credit terms offered.3) Statistical methods ( correlation INTERPRETATION and examination of trends) 4) Mathematical methods In using these techniques consider: 1) Company¶s pricing policy. 2) Economic and political conditions. b) Production budget: It is expressed in quantitative terms only and is geared to the sales budget. The production manager¶s duties include:  INTERPRETATION of plant utilization  Work-in-progress If requirements exceed capacity he may:  Subcontract  Plan for overtime  Introduce shift work  Hire or buy additional machinery  The materials purchases budget¶s both quantitative and financial.

 Wage rates( union agreement  The need for incentives e) Cash budget: Cash plan for a defined period of time. Hence.Factors influencing a) and b) include:  Production requirements  Planning stock levels  Storage space  Trends of material prices d) Labor budget is both quantitative and financial: This is influenced by:  Production requirements  Man-hours available  Grades of labor required. it highlights monthly surpluses and deficits of actual cash. Its main uses are:  To maintain control over a firms of cash requirements.  To enable a firm to take precautionary measures and arrange I advance for investment and loan facilities whenever cash surpluses or deficits arises. e/g change of credit terms offered to customers.  To illustrate the financial impact of changes in management policy.  To show the feasibility of management¶s plans in cash terms. It summarizes monthly receipts and payments. e/g/ stock and debtors. Receipts of cash may come from one of the following: 1) Cash sales 2) Payments by debtors .

say. dividends or taxation Other budgets: These include budgets for:  Administration  Research and development  Selling and distribution expenses  Capital expenditures  Working capital(debtors and creditors) Having identified cost centers.3) The sale of fixed assets 4) The issue of new shares 5) The receipt of interest and dividend Payments of cash may be for one or more of the following: 1) Purchase of stocks 2) Payments of wages or other expenses 3) Purchase of capital items 4) Payment of interest. n month or three months. the next step will be to make a quantitative calculation of the resources to be used. and to further break this down to shorter periods. The length of period chosen is important in that the shorter it is. the greater the control that can be exercised by the budget but the greater the expense in preparation of the budget and reporting of any variances .

does this manager have significant influence over this cost? It the answer is no. then largely reflects the organizational structure of the company. the expenditures incurred by a manager and the organizational unit under his or her control I pursuing a performance objective need to be recorded. Final judgment should not be made until the effect of the plans can be estimated by the CEO in terms of their impact on company resources and profits. Chart of accounts The charter of accounts represents a standardized classification of all accounting data. The addition of responsibility accounting arose from the need for budgeting in terms that could be related to the managers responsible for the expenditures. The question can be asked. The focus is on accounts related to expenditures. This dimension. Accounting classifications for expenditures such as salaries. Accordingly. someone at the same level or at a higher level should be charged. execution and control. Initially. Instead. secondly by the organizational unit responsible for the action permits management to pinpoint responsibilities for the rupee consequences of planning. he or she should not be charged. Responsibility Reporting Responsibility reporting requires that all expenditures be traceable to some manager must be able to authorize or veto each expenditure. For more complex businesses. In practice. Reporting transactions in two dimensions-firstly by the nature of the expenditure. the controller receives the operating plans of the line managers and other department heads and translates these plans into a comprehensive projection of financial condition and operating results. a one-dimensional description of expenditures is adequate. Controllability is a matter of degree. When businesses are relatively small and simple. additional coding is needed to implement responsibility reporting. liabilities and stockholder equity. judgment is used. including account for every component of assets. Budgets and actual performance against the budgets can be reflected in separate . rents and taxes are very familiar. Responsibility reporting parallels the requirement that all performance objectives be traceable to some manager in the organization.BUDGET PROCESS BUDGETING FUNDAMENTALS Looking at how a budget is fabricated in a medium-size business organization will give you some insight into the fundamental aspects of budgeting. fringe benefits.

the vice president of engineering must also prepare a program for operating the . A flexible budget is defined as a budget whose amount depends on the actual activity level achieved. Computerized sales order processing systems generally have the capability to provide reports of sales by customer. In months with high planned activity. shipping is a variable expense driven by sales volume. Usually. Conversely. including proprieties for the projects recommended. Flexible Budgeting Flexibility is an essential component of an effective budget program. and the flexible budget amount is a fixed amount. Some costs. These are discretionary fixed expenses. This step is important because the decision as to how much can be spent on research must await the financial budget review procedure. Flexible budgets make sense because most companies have costs that fluctuate with activity. Preparation of operating programs The vice president of engineering prepares a recommended program of research and development. shipments decrease and fewer supplies are used. the master budget amount is higher than in months with low activity. Coding can be added to enable management to gain additional insight into how the business works. Each of these managers prepares an operating plan for the next year and submits it to the budget director. Like all other line managers. They can change in a supervisory position is added or dropped or if a salary is raised or cut. a more important question is which customers are sources of high profits and which customers may be generating losses. the research budget contains more proposed projects than as expected to the funded. Today¶s information technology enables management to perform expense INTERPRETATION at a reasonable cost. coding revenue and expense data on customers allows and INTERPRETATION of customer profitability. such as advertising expense costs. However.statements for each block on the organizational chart. are budgeted as a fixed amount based on management¶s Decisions. With a flexible budget. As sales decrease. This requires data on expenses by customer. supervisory salaries are an indirect fixed expense and are not expected to fluctuate directly with sale volume. THE PHASES OF BUDGETING The receipt of the budget planning report from the CEO by the various line managers initiates the budget preparation phase. For example. which permits the CEO to select projects that best meet the company¶s operating and profit objectives. thus permitting business people to make budget process and integral part of the management function.

the budget director must be furnished with details of the financial programs for the year. and indicate sources of additional financing if required. Preparation of financial programs In addition to the operating plans of the various heads. Consolidation Having completed the preparation of the individual department budgets. The capital investment programs required by the various line managers to accomplish their operation programs also must be furnished to budget director for the capital expenditures budget. The manufacturing vice president prepares the inventory and manufacturing plans. A good budget director has the ability to point out why the projected result is or is not satisfactory and when the CEO can do to change the situation if he or she so derides. it has a product that looks exactly like the monthly operating and financial reports often business. As a result of the work involved in the preparation of these summaries. except that the figures represent budgets for the next year instead of actual results for a completed period. the budget director has had an opportunity to gain a real insight into the operating plans of the various managers and has determined the consequences in financial terms. preferably in the form of cash flow statements. Normally. the budget director consolidates them into operating and financial budget summaries I a form identical to that normally used when reporting operating and financial results. when the budget department has completed its work. but other balance sheet items may be shown on only a quarterly or semiannual projected basis. director submits the budget summaries to the CEO with comments and recommendations. to management In other words. cash flow statements are also presented for such month of the year. The treasurer must prepare projection of cash requirements. The sales vice president prepares the sales projections and the operating plans for the various sales activities and advertising campaign. which the CEO may now review in a comprehensive way. The treasurer and controller also complete programs for the operations of their departments.engineering and the research and development departments. These budget summaries usually show operating results for each month of the budget year. . The effective budget directors helps the CEO analyze the plan and develop possible alternatives if he projected results appear unsatisfactory. Management Review At this point. a program that will become the basis for those departments operating cost and expense budgets. The budget director sets as an analyst and a catalyst but does not make operating decision or plans.

cycle-down. If the company¶s strategy is growth. In effect. the desired profit level and return on investment level are commonly established planning goals. the programs are resubmitted to the budget director who then makes the corresponding financial adjustments and resubmits consolidated operating and financial budget summaries to the CEO for final approval and publication. the CEO again performs the management review process. This process is sometimes called cycle-up. If the company¶s strategy were to be lowest-cost producer. profits must provide a sound and continuing basic for growth.Adjustments When the financial consequences of the initial plans are not satisfactory. In addition. Further adjustments of programs and corresponding budget summaries may be required before eh CEO feels that the company¶s operating plan has been stated adequately in the form of a master budget. an alternative set of measurements would be required. increased attention is being given to better planning and control techniques. the CEO or budget director asks the line managers and department heads to adjust their programs in specifies ways to accomplish the desired profit and return on investment goals. The resulting master badger will be used in planning and controlling the company PERFORMANCE MEASURES As stated earlier. percent return on the total assets employed. the operating and financial programs included in the budget requests are returned to the originating line managers with specific suggestions for change. the use of sound budgeting techniques is becoming more prevalent. Some widely accepted measures of performance are the following: Profitability: Percent return on the net sales. Growth Percent increase in sales. percent increase in earnings per share. After the line managers have made the suggested changes. the programs are resubmitted to the budget director who then makes changes. Consequently. percent increase in market share. The profit earned must provide a sufficient return on the capital employed to satisfy shareholders. The basic economic mission is to earn an acceptable return on investment over the long run. Approval and publication Final approval and publication may not be immediately forthcoming realizing the importance of the budget. corporate restructuring has . EFFECTIVE BUDGETING Due to the growing complexity of business and business problems not because of t his movement toward decentralization in large enterprises. percent return on owner¶s equity. Value creation: Percent increase in common stock value per share.

Productive labor costs are measured against standards. An effective budgeting system facilitates control. and manufacturing overhead expenses. labor cost. The company use budget committees. the budget committee can perform the very useful role of encompassing and reconciling the many diverse interests that make up a modern business. Measurements of sales and selling expenses result in the effective control of income. Sales and profit contribution are compared with precious plans thus lower or higher than planned results are readily determined. If properly administered. today it is not uncommon to have the budget function report to levels of management above the controller. the trend toward reporting to a higher level is recognition of The need to have the budget function broadly based I all operating areas of the business. Manufacturing overhead expenses are controlled by reporting actual expenditures compared with variable or fixed budgets in terms of the individual who participated in planning the budgets and who had report ability for the expenditures made. Costs incurred for materials are controlled through standards. and reporting personnel are responsible for the expenses. accounting.resulted in a trend toward placing the responsibility for budgeting at higher levels in the organization. Control over service of auxiliary departments. Selling expenses are controlled by the budgeting. Although it is still useful for the budget director to report to the corporate controller. price variations are segregated. In earlier days it was customary to find the budget function buried deeply in the accounting operation. EFFECTIVE BUDGETING SYSTEMTS IN PRACTICE Top executives are able to control every part of the organization through a system of budgetary planning and control reporting by responsibility area. and results of operations are accumulated and reported in terms of these yardstick at all supervisory levels. This composition promotes coordination. The budget committee typically is composed of representatives from most operating areas. Yardsticks of performance are provided for all productive and service areas. and materials utilization is measured by charging excess issues of productive materials to the departments responsible for spoilage and comparing the charges with variable budget allowances. Production costs are measures by appropriate controls over material costs. and variances are reported in terms of department forepersons responsible for the variances. The budgeting system must form the company¶s operational control needs. . over general overhead expenses is affected by comparing just costs (in terms of departments and of individuals incurring the costs) with expenditures previously land and approved levels or required service or for programs adopted.

Responsibility in budget preparation and in cost control is a major feature of BHEL¶s control system. from the operating forepersons and service department supervisors to the CEO. The reporting system is designed as a tool for all levels of supervision to control their operations and their costs. . It emphasizes information that is useful to the individual manager. Reports are prepared for all levels of management. The system pinpoints responsibility for all controllable costs by individual integrates standard cost reported what the company¶s budgetary control.

BUDGET CONTROL .

 It helps to co-ordinate the activities of the organization. b) Budgetary control:  A control technique whereby results are compared with budgets. Inter-departmental sales are often made using ³transfer prices´. Types: There are four types of responsibility centers: a) Revenue centers Organizational units in which outputs are measured in monetary terms but are not directly compared to input costs.BUDGERARY CONTROL METHODS a) Budget:  A formal statement of the financial resources set aside for carrying out specific activities in a given period of time. c) Profit centers: Where performance is measured by the difference between revenues (outputs) band expenditure (inputs). b) Expense centers: Units where inputs are measured in monetary terms but outputs are not. ROI. . Budgetary control and responsibility centers: These enable managers to monitor organizational functions: A responsibility centre can be defined as any functional unit headed by a manager who is responsible for the activities of that unit.  Any differences (variances) are made the responsibility of key individuals who can either exercise control action or revise the original budgets.e. i. d) Investment centers: Where outputs are compared with the assets employed in producing them.

These . the actual work of budgetary control begins. It differs from budget. production. Physical quantities as well as monetary values are estimated separately 3.Budget procedure: After the establishment of budget organization and fixation of the budget period. Production budget will be prepared on the basis of the sales budget and also age taking in to consideration the available productive capacities. Making of forecasts Forecasts mean an estimate about the probabilities for a given period of time. Budget is an operating and financial plan of a business enterprise. Determination of key factor: Key factor is that the extent of whose influence must first be accessed in order to ensure that functional budgets (relating to different functions of a business. production cost and the financial requirements of the business. the usual pattern is as follows: 1. Are reasonably capable of fulfillment/ this is also termed in µPrincipal Budget¶ or µLimiting´ or µGoverning¶ Factor. Financial budget will be prepared on the basis of sales forecast and production budget. Preparation of budgets On finalization of the forecasts the budgets will be prepared. When the largest combination of forecasts is selected. However. Consideration of alternatives combinations of forecasts Alternative combinations of forecasts are considered with a view to obtain the most effect overall plan so as to maximize profits. e/g. The procedure followed in designing and operating a budgetary control system largely depends upon the nature of the business. All these budgets will be combined and coordinated into one master budget. Different costs of production budgets will also be prepared on the basis of the production budget. It is a sort of commitment or a target which the management seeks to attain on the basis of the forecasts made. the forecasts should be regarded as being finalized 4. purchases cash. sales. 2. Forecasts are made regarding sales.

CLASSIFICATION OF BUDGETS: Budgets can be classified into different categories form different points of view. According to function 3.budgets may be revised from time to time taking into account the current developments. d) Rolling Budgets Some companies follow the practice of preparing a rolling or progressive budget/ In case of such companies there will always be a budget for a year in advance. They are generally prepared in physical as well as in monetary units. the budgets can broadly be classified into three categories. They are generally prepared in terms of physical quantities. c) Current Budget These budgets cover a very short period say month or a quarter. a) Long term Budget: A budget designed for a long period (generally for a period of 5 to 10 years) is termed as a long term budget/ this budget s are Concerned with planning of the operations of a firm over a considerably long period of time. According to flexibility Classification According to Time: In terms of time. A new budget is prepared after the end of each month/quarter for a . They are essentially short term budgets adjusted to current conditions or prevailing circumstances. The following are the most common basis of classification: 1. According to time 2. b) Short term Budget These budgets are designed for a period generally not exceeding 5years.

c) Cost of Production Budget The budget forecasts the cost of production. etc b) Production Budget The budget is based on sales budget. etc.full year ahead/ the figures for the month or quarter which has rolled down are dropped and the figures for the next month or quarter are added. areas. . areas. It gives quantity wise. Separate budgets are prepared for different elements of costs such as direct materials budget. factor overheads budget. office overheads budget. value. items. it forecasts quantity of production in terms of items. Classification According To Function: Budgets can be classified on the basis of functions they are meant to perform. direct labout budget. following are the usual functional budgets a) Sales Budget The budget forecasts total sales in terms of quantity. selling and distribution overheads budget etc. period. d) Purchase Budget: The budget forecasts the quantity and value of purchases required for production. f) Research BudgetThe budget related to the research work to be done the improvement in quality of the products or research for new products. The Their number depends on the size and the nature of the business. money wise and period wise information about the materials to be purchased e) Personnel Budget The budget anticipates the quantity of personnel required during a period for production activity. This may be further split up between direct and indirect personnel budgets. periods. These budgets are therefore also termed as function al budgets.

Fixed budget A budget prepared on the basis of a standard or a fixed level of activity is called a fixed budget. Classification according to flexibility On the basis of flexibility budgets can be divided into two categories 1. It does not change with the change in the level of activity 2. Fixed budget 2. Flexible budget A budget designed in a manner so as to give the budgeted cost of any level of activity is termed as a flexible budget . Flexible budge 1. Ti interprets different functional budgets and covers within its range the preparation of projected income statement and perfected balance sheet. i) Master budget It is a summary budget incorporating all functional budgets in a capsule form. It states the estimated amounts of cash receipts and cash payments and the likely balance of cash in hand at the end of different periods.g) Capital Budget The budget is a forecast of the cash position by time period by time period for a specific duration of time. h) Capital expenditure Budget The budget provides a guidance regarding the amount of capital that may be required for procurement of capital assets during the budget period.

Data ANALYSIS AND INTERPRETATION .

2008 2008 . 1 2 3 4 5 Years 2005 .2007 2007 .No.1 Budget Actual Rs. When such production is measured in monetary terms is called as financial turnover.FINANCIAL TURNOVER FROM 2005 ± 2006 TO 2009 ± 2010 This system refers to sales.  Variation in expected and actual level contracts execution (for first two years). (in lakhs) Rs. (in lakhs) 363271 353589 455092 460656 540106 555399 720207 746031 950228 1000853 Variances in Rs. which actually implies the production.  Inability to meet the dispatch target (for first two years).2009 2009-2010 TABLE . .2006 2006 . (in lakhs) -9682 5564 15293 25824 50625 INTERPRETATION The variation in financial turnover programme between budgeted and actual is due to  Non materialization of anticipated order (for first two years).  Remaining three years are in opposite trend. S.

1 FINANCIAL TURNOVER FROM 2005 ± 2006 TO 2009 ± 2010 1200000 1000000 800000 600000 400000 200000 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 BUDGET ACTUAL .CHART .

Slight fall in PBT for the year 2008.2007 45854 87228 41374 3 2007 . (in lakhs) 1 2005 . on account of increase in miscellaneous expenses.TABLE ± 2 PROFIT BEFORE TAX FROM 2005 ± 2006 TO 2009 ± 2010 Budget Actual Variances in S. 2006-07. due to increase in value of production. . on account of favorable exchange rate variation.09 is due to on account of increase in personal payments. (in lakhs) Rs.2008 110106 151226 41120 4 2008 . Years Rs. It is favorable trend. (in lakhs) Rs.No. decrease in materials and fabrication cost. 2007-08 Profit before tax actual figure is more than budgeted figure.2009 190174 165311 -24863 5 2009-2010 245896 281319 35423 INTERPRETATION In the year.2006 27762 39684 11922 2 2006 .

2 PROFIT BEFORE TAX FROM 2005± 2006 TO 2009 ± 2010 300000 250000 200000 150000 100000 50000 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 BUDGET ACTUAL .CHART .

.2009 2009-2010 Budget Rs.TABLE .2008 2008 .2007 2007 .2006 2006 .3 WORKING CAPITAL 2005 ± 2006 TO 2009 ± 2010 S. (in lakhs) 49288 51760 1000 -77725 11225 Actual Rs. (in lakhs) 5676 -10719 -34176 -87502 19280 Variances in Rs. y Advance payment are received from the customer y It will be done after 5 years only so variances are goes down. 1 2 3 4 5 Years 2005 .No. (in lakhs) -43612 -62479 -35176 -9777 -8055 INTERPRETATION The large variation between budgeted and actual in the year 2005 ± 2010 and a negative result in 2006-07 and 2008 ± 09 is due to y Increase in provision for doubtful debts y Increase in current liabilities.

CHART .3 WORKING CAPITAL 2005 ± 2006 TO 2009 ± 2010 60000 40000 20000 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 -20000 ACTUAL budget -40000 -60000 -80000 -100000 .

(in lakhs) 19066 1083 -22373 -64596 66144 Variances in Rs.2008 2008 . 2006-07.TABLE .2006 2006 .4 CAPITAL EMPLOYED FROM 2005-2006 TO 2009-2010 S.2008-2009 and 2009-10.2009 2009-2010 Budget Rs. (in lakhs) -22698 -66373 -65805 -51433 -24797 INTERPRETATION The decrease was Significance during the year 2005-06. This because of investment in fixed asset was minimum.No. . 2007-08. 1 2 3 4 5 Years 2005 .2007 2007 . (in lakhs) 41764 67456 43432 -13163 41347 Actual Rs. there is a dip in working capital leading to unfavorable variance.

4 CAPITAL EMPLOYED FROM 2005-2006 TO 2009-2010 80000 60000 40000 20000 BUDGET 0 ACTUAL 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 -20000 -40000 -60000 -80000 .CHART .

(in lakhs) 97143 139233 203474 299268 453505 Actual Rs. In the year 2005-06.TABLE .2007 2007 . \ . (in lakhs) 103779 173498 241348 285062 430082 Variances in Rs.5 VALUE ADDED FROM 2005± 06 TO 2009 ± 10. Slight fall in the value added for the year 2008-09 is due to  Material cost exceeding budgeted figures (it means cost was increases so the profit is less).2009 2009-2010 Budget Rs. due to increase in sub contracts payments.No. This because of change in work in progress and finished goods. 2006-07 and 2007-08 shows unfavorable trend. S.2006 2006 . 1 2 3 4 5 Years 2005 .  Material procurement for anticipated order. (in lakhs) 6636 34265 37874 -14206 23423 INTERPRETATION Comparing the budget with actual the value added of HPBP shows a favorable or unfavorable trend.2008 2008 .

CHART-5 VALUE ADDED FROM 2005± 06 TO 2009 ± 10. 500000 450000 400000 350000 300000 250000 200000 150000 100000 50000 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 BUDGET ACTUAL .

2008 2008 . (in lakhs) 380312 454932 567489 821849 895856 Actual Rs.2007 2007 .2006 2006 .TABLE .No. y Increase in business y Advance received against new order.2010 S. . (in lakhs) 9993 51604 88460 42430 33498 INTERPRETATION In the year 2005-2010 the actual exceeds the budgeted.2009 2009-2010 Budget Rs.6 CASH INFLOW OPERATION FROM 2005 ± 2006 TO 2009. (in lakhs) 390305 506536 655949 864279 929354 Variances in Rs. 1 2 3 4 5 Years 2005 .

CHART - 6 CASH INFLOW OPERATION FROM 2005 ± 2006 TO 2009- 2010 in years

1200000 1000000 800000 600000 400000 200000 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

BUDGET ACTUAL

TABLE- 7 CASH OUTFLOW OPERATION FROM 2005 ± 2006 TO 2009 ± 2010 S.No. 1 2 3 4 5 Years 2005 - 2006 2006 - 2007 2007 - 2008 2008 - 2009 2009-2010 Budget Rs. (in lakhs) 340150 399046 460597 600419 691104 Actual Rs. (in lakhs) 341936 397896 504030 656460 715117 Variances in Rs. (in lakhs) 1786 -1150 43433 56041 24013

INTERPRETATION In the year 2005 ± 10 the actual outflow is more than budgeted figure. This was mainly because of y Increase in business volume. y Increase imports y Increase personal payments. y Increase in power and fuel and other industry expenses.

CHART- 7 CASH OUTFLOW OPERATION FROM 2005± 2006 TO 2009 ± 2010

900000 800000 700000 600000 500000
BUDGET

400000
ACTUAL

300000 200000 100000 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

 Procurement to meet the short term delivery commitment. (in lakhs) 93905 100734 148335 191397 225000 Actual Rs.2008 2008 .2006 2006 . .TABLE .2009 2009-2010 Budget Rs. 1 2 3 4 5 Years 2005 . hence the variance is high.  Increased buffer stock level to meet fresh order. (in lakhs) 116732 138509 231209 305672 303080 Variances in Rs.2007 2007 . (in lakhs) 22827 37775 82874 114275 -78080 INTERPRETATION The variation in budgeted and actual is due to  Material procurement for anticipated order.8 YEAR END INVENTORY FROM 2005 ± 2006 TO 2009 ± 2010 S.No.

CHART--8 YEAR END INVENTORY FROM 2005 ± 2006 TO 2009 ± 2010 350000 300000 250000 200000 BUDGET 150000 ACTUAL 100000 50000 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 .

1 2 3 4 5 Years 2005 .TABLE .2009 2009-2010 Budget Rs.No. (in lakhs) 180822 230500 316792 455944 629869 Variances in Rs. (in lakhs) 112701 168251 237642 291090 362795 Actual Rs.2007 2007 .2008 2008 .2010 S.9 TOTAL SUNDRY DEBTORS 2005 ± 2006 TO 2009. . (in lakhs) 68121 62249 79150 164854 267074 INTERPRETATION The major reason for such variances is shortfall of cash collections from which was forecasted.2006 2006 .

9 TOTAL SUNDRY DEBTORS 2005 ± 2006 TO 2009.CHART .2010 700000 600000 500000 400000 BUDGET 300000 ACTUAL 200000 100000 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 .

2006-07 815423 37098 BE 2007-08 667930 32247 1241284 237642 71398 111566 18988 35700 148335 135706 Actu.non -bhel Total debtors Collectible debtors Defferred debtors Special deferred debtors Unbilled dispatches Valn. 2007-08 1019561 6625 1810431 316792 144915 138717 20850 12310 231209 120086 R.HIGHLIGHT . Adj & others Inventory Inventory held under AMA Imports (CIF) Capital expenditure non planned Economic value added Man power 2004 . 2007-08 997526 3995 1708201 285612 104886 135217 16509 29000 169017 119668 B 200 91 678406 133253 55868 56166 21219 752559 200871 83258 80126 37487 879711 185361 68585 99182 17594 1189279 253613 115930 111214 18556 7913 197 29 10 13 1 4 82718 116732 100734 1375 138509 65947 19 39643 74417 88238 19 62 2694 9099 755 16304 8966 910 23219 9677 4704 53639 8819 16596 62607 8996 15649 96962 8855 19068 87605 8743 5 12 .05 366648 2005-06 349246 BE 2006-07 463900 Actu.part I Order receipts .non -bhel Order outstanding (bhel) Order o/s .E.

00% 11.00% 18.6% 73.9% 2.86 19.60% - 20.05 1.00% 102.30% 44.60% 60.90% 75.39 1.20% Actu.00% 20.50% 2.50% 4.00 % 0.00% 95.0% 2.90% 5.9 64.81 11.00% 64.00% 68.7% 17.0% 208.7% 61.20% 80.49 27.5 53.9 68.matls+fb+trans in GTO-ED Imports(CIF) as % of GTO-ED Cost of purchase resold turnover (%) VA-as % of GTO less ED VA-per rupee of personal payments VA .90% 70.4% 63.00% 24.80% 6.80% 7.0% 6.00% 85.00 % 109.00% 21.70% 79.00% 26.3 57.20% 2728% 2863.BE HIGHLIGHT .2% -646% -676% 112% 89% 27. 2006-07 30.end) Power & fuel /GTO-ED PBIT/Capital employed PBT/capital employed Gross billing/turnover (non-bhel) Net billing/g.00% 8054.43 14.20% 120 198 207 89. 2007-08 R.60% BE 2008-09 28.10% 81 114 149 -444% 109.per employee (yr.00% 112.E.6 53.billing (non-bhel) PBT/turnover Inventory(days) Inventory(days of shop turnover) Book debts (days) 2004 .8 54.2% 8.5% 71.00% 7777.4% 32.70% 7.00% 10.30% 22.4 57.2% 152 214 213 4.40% 97 128 150 .9% 76.62 1.9% 3.15 33.3% 137 122 221 84. 2007-08 21.05 2005-06 13.45 22.50% 34.9% 8.5% 29.00% 105.30% 77.part II Growth in turnover (net fo BAP) Growth in turnover Shop turnover to total turnover% Turnover per rupee of gross block D.8% 64.40% 100 136 170 -1403% 108.90% 82.84 1.60% - Actu.0% 122.26 1.90% 6.60% 3.50% BE 2007-08 18.0% 9.20% 71.00% 3.67 1.00% 247.2% 76.00% 60.60% 5.70% 110 154 190 5.20% 70.2 27.0% 200.00% 30.20% 6.00% 69.90% 110 164 206 89.57 1.00% 85.7% 45.00% 66.00% 27.10% 21.00% 254.40% 2006-07 45.70% 4.

Collectible debts(days) Networking 93 11 86 6 55 42 92 -8 51 9 97 -22 20 -16 52 -39 FINDINGS AND SUGGESTIONS .

so that the total efforts for all employees¶ . manpower planning. 5. physical turnover.Findings. order book. 6. suggestions & recommendations After a thorough study and INTERPRETATION of the budgetary control system of BHEL. order booking division and BHEL. 2. The yearly budget is further divided into monthly budget and the monthly targets are accumulated to the down level. productivity improvement. Further possible savings due to large scale economy in material requirement. Trichy following observation are made: 1. customer satisfaction are taken into account while preparing the budget. The corporate is giving suitable guidelines in setting up parameters for achieving goals in the budget year especially the areas of financial turnover. services requirement and also the tax benefits are given due importance while making the budget. There is a well defined product oriented division in the organization in each product group functioning under a product manager. Tricky. the importance of which is understood by all levels of management and workers in BHEL. There is a well defined budgetary control system. and cash management. 3. The order book position. global competition and also the quantity improvement. inventory management. 4. There is a close co-ordination between the corporate office. This ensures healthy competition between various production groups which enables the unit management to achieve the objectives. technological growth. sundry debtor¶s management.

9. 8. timely action is taken in the course of various services meetings at the unit level management. Periodic reviews are taking place at appropriate levels. To achieve the desired production and budget and to solve problems. 11. the unit level management has derived many incentive schemes by which the employee are rewarded for increased performance. PBT. faced by the product areas. However the increase in debtors is a cause for concern. Variation is seen between targets and actual in key parameters like inventory. setting up of unrealistic targets and issues beyond the control of the unit management. 7. . The success of the organization depends on the effective budgetary control system. This may be due to. 10. debtors. While each one of the employee know their well defined role in achieving the targets. Cash budget is made meticulously and most of the budget parameters are split into product level targets with monthly break-up.organization are coordinated and put in the right direction towards achieving the organizational goals. The process needs to be strengthened in such a way that the variance is the lowest minimum.

CONCLUSION .

The guidelines should be framed aiming to minimize cost at each level. target and actual. Inventory variance should be reduced. The customer satisfaction measures should also be ensured properly. delivery. 5. Profitability parameters at a product level are not transparent. Such as timely. This management should try to secure full cooperation of the workers for making budgetary control more effective.Conclusion 1. The works committee may be constituted consisting of representative of workers to get help for developing cordial relationship. 6. a committed tartest is better than a forced target. 2. Although soft targets are to be avoided. Involvement of everyone in the budgeting process is not evident. and reasonable price. 3. quality. 4. . Commitment from individuals needs to be built up. Display boards may be thought of to slow each product manager as to the past performance.

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

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