Presentation on Budget Preparation By: Bhavik Makwana (1733) Jimmy Modi (1739) Jayraj Parmar (1744) Vijay Parmar

(1747)

What is Budget? It usually covers one year & states the revenues & expenses planned for that year.

Characteristics
Estimates the profit potential Stated in monetary terms though monetary amount may be backed up by non monetary amounts It is a management commitment; managers agree to accept responsibility for attaining budgeted objectives The budget proposal is reviewed & approved by higher authority Periodically actual financial performance is compared to budget, and variances are analyzed & explained

Use of Budget
Fine-tuning the strategic plan Coordination Assigning responsibility Basis for performance evolution

Operating Budget Categories

1. Revenue budgets 2. Budgeted production cost & cost of sales 3. Marketing expenses 4. General & administrative expenses 5. R&D expenses 6. Income taxes

Other Budgets
   

Capital budget Budgeted balance sheet Budgeted cash flow statement Management by objectives

Budget Preparation Process



 

   

Organization -Budget department -Budget committee Issuance of guidelines Initial budget proposal -change in external forces -change in internal policies and practices Negotiation Review and approval Budget revisions Contingency budgets

Behavioral Aspects

Participation in The Budgetary Process

A budget process is either:


Top down or Bottom up

Participation in The Budgetary Process cont

The effect of budget participation on managerial motivation are:


To be greater acceptance of budget goals if they are perceived as being under managers' personal control, rather than being imposed externally. For effective information exchanges.

Degree of Budget Target Difficulty

 

If the budgets target is too difficult. Achievable budget targets reduce the motivation for managers to engage in data manipulation to meet the budget. A profit budget that is very difficult to attain usually implies on overly optimistic sales targets. Business unit managers will not put satisfactory effort once the budget is met.

Senior Management Involvement



Must participate in the review and approval of the budgets, and the approval should not be a rubber stamp. Must follow up on budget results.

The Budget Department

 

Budget analysis The member of the budget department must have a reputation for impartiality and fairness.

Quantitative Techniques

Simulation


It is a method that constructs a model of a real situation and then manipulates this model in such a way as to draw some conclusion about the real situation. Preparation and review of a budget is a simulation process.

Probability Estimates


Each amount in a budget is a point estimatesestimates-that is, it is the single most likely amount. Point estimates are necessary for control purposes. In any event, probabilistic budgets are rarely found in practice.

Budgeting at Reliance Industries Ltd.

Budgeting Structure
Starting on either by end of December or Beginning of January

Completing on or before 31st March

Issued in three part

50 % on 1st April on financial year 25 % on 1st October of Financial year

25 % on 1st January of Financial year

Types of Budget
 

Capital Budget Revenue Budget

Techniques used for evaluating investment proposals are widely available.

    

Payback Accounting Rate of Return Internal Rate of Return Net Present Value method Profitability Index

Process Flow Chart of Capital Budget

Initiator/Owner Initiator/Owner giving all details of there needs and requirement on Capex Portal Proposal should have to approved by HOD of particular plant Different Divisions like Technical, Environmental, Health, Fire etc approved it. Site President has Final Authorization to approved the proposal Finalized the Budget Proposal as per requirement of Initiator on Capex Portal Budget Section And clarified the Fund Center to where they assign the Fund for the payment. Hear Initiator create PR for there requirement with the help of sources available at external market Purchase department negotiate the price of particular product with other source and finally create PO the

HOD (Head of Department

Different Division (L1, L2, L3)

Site President

Again, it comes to Initiator/Owner

Purchase Department

Purpose of Budgeting
       

Increase the Production Capacity Increase Revenue Cost saving or Deduction in cost Reducing the consumption of Raw material, Catalysts, and Chemicals. Reducing energy consumption. Enhancing the Reliability, Flexibility and ease of operation Renewal of Assets in terms of technology obsolescence. Enhancing the performance in the field of Health, Safety, and Environment.