Download doc - PROJECT REPORT ON REVENUE BUDGETING AND BUDGETARY CONTROL PROCESS

KARNATAKA STATE OPEN UNIVERSITY PROJECT EMBA -2013

PROJECT REPORT

ON

REVENUE BUDGETING AND BUDGETARY CONTROL PROCESS

Reports submitting In partial fulfillment of the requirement

For the award of

E Master of Business Administration (PROJECT)

By

KIRAN. HROLL NO: 12771FEMB0373

KARNATAKA STATE OPEN UNIVERSITYMYSORE

2012-2013

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DECLARATION

I, the undersigned, Mr. KIRAN. H hereby declare that the project report written and submitted by me under the guidance of Mr. S.RAMESH is my original work. The observations and suggestions made by me are based on the data information collected by me. I have not reproduced from any report submitted to KARNATAKA STATE OPEN UNIVERSITY, MYSORE this year or previous years I understood the any such copying is liable to punishment in a way the University authorities deem fit.

( KIRAN. H)

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ACKNOWLEDGEMENT

I feel great pleasure in extending my sincere thanks to Mr. S. RAMESH and

Mr. TIRUPAM REDDY to permit me to undertake this project entitled

“REVENUE BUDGETING AND BUDGETARY CONTROL PROCESS”

with reference to National mineral Development Corporation. I would like to

express my deep gratitude to Mr. S. RAMESH, Assistant Manager who

helped to get all the Information needed to fulfill this job.

I would like to express my deep gratitude to my project guide Mrs.Swathi

Mathur and Mr.Pitchai the guidance that they have given all through the

project.

My sincere thanks to my parents, sister and friends whose motivation always

helped me in completing this project work.

A word of appreciation to my sister who helped me in the completion of the

report.

Above all I would like to express my deep felt gratitude to my Mother,

Father and Lord for their support encouragement and blessings without

which this task would have been impossible.

Mr. KIRAN. H

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CONTENTs Page NoIntroduction to Budgets------------------------------------------ 5

Classification------------------------------------------------------ (7-10)

Uses of Budget---------------------------------------------------- 11

Facilitation and Coordination of Budgets--------------------- (12-14)

Characteristics of Good Budgeting----------------------------- (15-16)

Types of Budgeting----------------------------------------------- (17-20)

Performance and Essential of Budgeting---------------------- (21-22)

Advantages and Uses of Budgeting---------------------------- (23-24)

Limitations of Budgeting---------------------------------------- ( 25)

Importance of Budgeting and budgeting control------------- (28-29)

Budgetary control------------------------------------------------ (30-34)

Meaning and Nature------------------------------------- 30 Objectives ------------------------------------------------- 31 Requisites and Essential--------------------------------- 32 Steps in Budgeting process----------------------------- 33-34

Company profile-------------------------------------------------- (35-60)

Budget and budgetary control in NMDC---------------------- (61-70)

Suggestions-------------------------------------------------------- (71-72)

Annexure --------------------------------------------------------- (73-85)

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Bibliography------------------------------------------------------- 86

Introduction to revenue budgeting.

1 Budget.

Classification of budgets. Kinds of budget. Uses of budgets.

2 Budgeting

Characteristics of good budgeting.

Types of budgeting.

Process of settings budgets.

Uses of budgeting.

Limitations of budgeting.

Importance of budgeting and budgetary control in an organization.

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INTRODUCTION TO BUDGET

Budgeting as a tool of planning and control is broadly related to the broader system of planning and control in an organization. Planning involves the specification of the basic objectives that the organization will pursue and the fundamental policies that will guide it.

BUDGET

A budget is a plan expressed in quantitative, usually monetary terms covering the specified period of time, usually 1year. Practically all companies except some of the smallest, perparebudgets. Many companies prefer to their annual budget as a profit plan, since it shows the planned activities that the company expects to undertake in its responsibility centers in order to obtain its profit goal. Almost all non-profit organizations also prepare budgets.

PERIOD OF BUDGET

Most organizations prepare budgets once a year, covering the upcoming physical year. They usually make separate budget estimates for each month or each quarter with in the year. Some organizations initially estimate the data by months only for the next 3 months or the next six months, with the balance of the year being shown by quarters. With approach, a detail budget by months is prefared shortly before the beginning of each new quarter.

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CLASSIFICATION OF BUDGET

Budgets can be classified according to

1 The coverage of encompasses.2 The capacity to which they are related. 3 The conditions on which they are based.4 The periods, which they cove.

Every organization normally prepares the following types of budgets.

1. SALES BUDGET:

Sales Budget is the key step in the budgeting process, because sales budget sets the tone for all other budgets. The responsibility for preparing sales budget lies in with the sales manager. Sales budget is a forecast of the total sales during a given time period in future. It is expressed in money or sales during a given time period in future. It is expressed in money or quality. It also gives the break up of total sales volume product wise and area wise. It is prepared keeping in view the following factors:

a. Past sales figures and trends. b. Estimates of salesmen.c. Orders on hand. d. Degree of competition.e. Seasonal fluctuations.f. Governments control and policy.g. General economic conditions.

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2. PRODUCTION BUDGET

It is a forecast of the output for a future period showing breakup of the estimated output according to products, time periods and manufacturing department. It is based on the sales budget, as production has to be scheduled according to sales. Production manager prepares it by taking in to account the following factors.1. The sales budget2. Plant capacities.3. Inventory policy.4.Availability of raw material, power and labor.

3. MATERIAL BUDGET

It is an estimate of the quantity of direct materials for the budgeted output. Material requirement for one unit of output is determined and it is multiplied by the budgeted out put to calculate the total quantity of raw materials. Material budget is based on production budget it is helpful in scheduling the purchase of materials to produce the govern volume of output during a specified time period.

4. LABOUR BUDGET:

It contains the estimates of direct labour required for the budgeted output. Labour of different grades required for a job or product or process is determined in terms of man-hours and is multiplied by wage rate hour to calculate the total expenses on direct labour for the budgeted out put.

5. FACTORY OVERHEAD BUDGET:

It implies estimated expenditure on indirect materials, indirect labour and indirect factory expenses for the budgeted output. It can be classified into fixed, variable and semi variable expenses to facilitate preparation of

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overhead budget on departmental basis. Such classification and preparation enables effective control over costs.

6.DISTRUBUTION OVERHEAD BUDGET:

It contains estimated expenditure on promotion and distribution products. The various items of expenditure include sales office rent, salaries, advertisings, bad debts, traveling expenses etc. these expenses are estimated on the basis of past experience and sales budget.

7.ADMINISTRATIVE OVERHEAD BUDGET:

It is an estimate of administrative expenses like office rent, salary of office staff, office stationary, depreciation etc. Such expenses constitute a significant part of the total cost, preparation of the budget helps on controlling the administrative expenses.

8. CASH BUDGET

It contains detailed estimate of cash receipts and cash disbursements for the budget period. Cash receipts are estimated from cash sales, collection from debtors, interests, dividends etc. Cash budget helps to ensure that the cash is available in time for meeting the financial requirements. It is also helpful in making best possible users of the available cash.

9.CAPITAL EXPENDITURE BUDGET:

It contains detailed estimate of cash receipts and cash disbursements for the budget period. Cash receipts are estimated from cash sales, collection from debtors, interests, dividends etc. Cash budget helps to ensure that the cash is available in time for meeting the financial requirements. It is also helpful in making best possible users of the available cash.

10.COST OF GOODS SOLD BUDGET:

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After the budget for direct labour and factory overhead are determined the data are summarized in a cost of goods sold budget.

11.MASTER BUDGET:

It is a summary budget incorporating its component functional budgets, which are final approved, adopted and employed. It projects a comprehensive picture of the proposed activies and anticipated results during the budget period. The top management of the enterprise approves it.The above given are the various types of budgets which generally every company prepares. We can classify this all in two categories.They are: A. Revenue budget. B. Capital budget.

REVENUE BUDGET

To define “REVENUE BUDGET” in general terms, we can say, “The Company is going to estimate how much it has to spend on its operations”.The following budgets together form the revenue budget.

a. Sales budgetb. Material budgetc. Production budget d. Labour budget e. Factory overhead budgetf. Distribution overhead budgetg. Administrative budget.

With the combined details of the entire se budget, company prepares the budgeted income statement&budget cash flow statement.

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USES OF BUDGET

The budget serves as:

1. An aid in making and co-ordinating short-range plans2. Device for communicating these plans to various responsibility centers

Managers.3. A way of motivating managers to achieve the responsibility center

goals.4. A benchmark for controlling ongoing activities5. A basis for evaluating the performance of responsibility centers and

their managers.6. A means of educating managers.

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FACILITATION AND CO-ORDINATION OF BUDGETS:

It would be in fitness of things to devote some space to the description of budget manual, budget committee and budget control. These greatly facilitate the construction of budget.

BUDGET MANUAL:

When extensive and complex budgets are utilized, the budgeting tasks can be facilitated by the use of budget manuals budget manual is a rulebook or reference for implementation of the budget program. It sets out the responsibilities. For the persons engaged in the routine of the forms and records required for the purpose. When devising a system of budgetary control, it is desirable to prepare such a manual for the guidance of the executive involved in the process.

Such a manual, then has to be updated by including there in all the forms, routines and programs as checked and crosschecked from time to time. A copy of manual should be finished to the executive concerned, so that they operate in accordance with the given instructions and suggest improvements. Apart from the general instructions a budgeted manual should spell out the aims, objectives and the underlying philosophy in preparing the various functional budgets in the business.

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BUDGET COMITEE:

The budget committee serves as a consultative body to the budget officer. It functions in an advisory capacity. Needless to mention that regular sessions of the budget committee should be held each day or week but members of the committee should be available for the special meetings whenever, emergencies arise. Daily and weekly reports of operations and costs should be made available to the budget committees, so that a check can be made to determine variances from planned performance. Representing the senior members of the management team, the budget committee function like a budget-coordinating device. Rather than being handed down by some power on high, the departmental heads join the committee so the budgets are the result of joint efforts and collaborations uncle top management guidance and supervision the committee considers.

(a) The budgets, (b) The control information.

Generally the chief executive is the chairman of the business of the committee. However it consists of three persons. The executive’s heads as chairmen: an accounting official as the controller or chief accountant and as financial officials as treasurer. The functions of this group are, to decide upon matters of policy with regret it production and sales to deal with Accounting procedure and statistics to give proper considerations to financial requirements to supervise the final constructions of the budget. Review individual budget report that is its functions consists of reviving and budget estimates and suggesting revision.

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BUDGET OFFICER:

1) Some senior members of Accounting staff that looks after the budgeting process is designated as the budget officer. He does not prepare the budget himself instead he facilitates and coordinates the budgeting activity. He assists the individual departmental heads and the Budget Committee formulates a general programmed for the preparation of the Budget and then the Budget Officer is responsible for such information as

2) Issuing instructions to Various Departments.

3) Receiving a checking Budget estimates

4) Providing Historical Information to Departmental Manager 10 help them in they’re forecasting.

5) Suggesting Revisions.

6) Discussing difficulties with Managers.

7) Fussing that managers prepare their budget in time.

8) Preparing Budget summaries.

9) Submitting the Budgets to the Committee and Furnishing Explanation on particular points.

10) Coordinating all Budget Works.

BUDGET ADMINISTRATION:

It needs to be emphasized again that the budget preparation is a line function, while the organization and administration of budget is a staff function. The line executive has the responsibility of deciding what the plans are to be. It is not

The function of the staff organization to decide what the plans are to be for areas of responsibility other than its own. The primary responsibility of the staff organization is the assist line.

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BUDGETING

BUDGET:

“A plan quantified in monetary terms prepared and approved prior to a defined period of time. Usually showing planned income to be generated and or expenditure to be incurred during that period and the capital to be employed to a time a given objective.”

INTRUDUCTION:

With the world in state of quasi-permanent crisis, public and private institutions are looking for ways to stabilize their affairs. Business firms, in particular, require a semblance of order. Today’s plans became tomorrow’s sales, revenue, costs and profit centers. No matter how chaotic the conditions, companies must find more certain ways to improve the management functions of planning and control.

The current economic and political situation is one explanation for the growing interest in budgetary systems. Budgeting has been scorned buy some as an exercise in fertility because of its dependence upon the forecasting of further events, which cannot be foretold with precision. Yet most business executives are finding budgeting to be the best way to find a tranquil harbor in the harbor in the storm battered world economy.

Budgeting is primarily is primarily a process of planning and Control. A well-prepared budget provides recipient management with a planned programmed based on research the entire organization. In addition, a carefully planned budget provides a way to coordinate production, marketing and financial activities.

Effective Budgeting requires sound organization, proper accounting systems, records, adequate research and the enthusiastic support of all the employees. Executives who fully understand and essentials make effective use of budgetary planning and control.

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CHARACTERSITICS OF GOOD BUDGETTING:

A good budgeting system should involve persons at different levels while preparing the budgets; the subordinates should not feel any imposition on them.

There should be a proper fixation of authority and responsibility. The delegation of authority should be done in a proper way.

The targets of budget should be realistic, if the targets are difficult to be achieved then they will not enthuse the persons concern.

A good system of accounting is also essential to make the budgeting successful.

The budgeting should have a wholehearted support of the top management.

The employees should be imparted Budgeting education. There should be meetings and discussions and the target should be explained to the employees concerned.

A proper reporting system should be introduced the actual results should be meeting reported so that the performance appraisal is undertaken.

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TYPES OF BUDGETING

1. Zero Based Budgeting2. Traditional Budgeting3. Performance Budgeting

ZERO BASED BUDGEITNG:

Zero-based budgeting is a technique by which manager of each decision unit is to justify the entire budget request in complete detail with a zero base. The manager of the decision unit has to isolate each item of his budget in an order to analyze between separate decision packages, which are ranked in order of importance.

CIMA has defined it “As a method of BUDGETING where by all activities are revaluated each time a budget is set. Discrete levels have each activities are valued and a combination chosen to match funds available.

PETER.A.PHYRE HAS DEFINED IT “An operating and budgeting process which requires each manager to justify his entire budgets request in detail from the scratch and shift the burden of proof to each manager to justify why he should spend any money at all.”

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MAIN FEATURES OF ZERO BASED BUDGETING:

1. Manager of a decision unit has to completely justify why there should be at all any budgeting allotment for his decision unit. This justification is to be made a fresh without making any reference to previous level of spending in his department.

2. Activities are identified in decision packages.

3. Decision packages are ranked in order of priority. 4. Packages are evaluated by systematic analysis.

5. Under this approach there exits a frank relationship between superior and subordinates. Management agrees to fund for a specified service and manager of the decision unit clearly accepts to deliver the service.

6. Decision packages are linked with corporate objectives, which are clearly laid down.

7. Available resources are directed towards alternatives n order of priority to ensure optimum results.

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TRADITIONAL BUDGETINGTraditional Budgeting starts with previous year expenditure level as a base and then discussion is focused to determine ‘cuts’and ‘additions’ to be made in previous year spending. The top management finally accords its verdict after going into the argument for and against the ‘additions’ and ‘cuts’.

MAIN FEATURES OF TRADITIONAL BUDGETING

Traditional budgeting is accounting oriented. Main stress happens to be on previous expenditure.

In traditional budgeting, first reference is made to spending and then demand is made for inflation and new programmers.

Some managers deliberately inflate their budgetary requests so that after the cuts they still get what they want.

It is for the top management to decide why a particular amount should be spent on a particular decision unit.

The flow of decisions is different in traditional budgeting in the flow of budgetary decisions is primarily upward.

Traditional budgeting requires that emphasizing output categories such as salaries, materials, facilities should make budgetary decisions.

Traditional budgeting approach is retrospective measuring what was done with current means in estimating the next budget year.

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PERFORMANCE BUDGETING

Performance budgeting is a program of action for any given year with specific indications regarding the tasks, the means of achieving them cost of achieving them. In performance budgeting the following questions are answered.

What is to be achieved?Why is to be achieved?How is to be achieved?When is to be achieved?

Performance budgeting focus was work cost measurement and managerial efficiency. Cost and production goals are established and then compared to actual performance. The basic objective of performance budgeting is to provide output-oriented budget information with a long-range perspective to allocate resources more effectively.

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MAIN FEATURES OF PERFORMANCE BUDGETING

It is pointed out that performance is based on the past of prior experience.

Performance budget has drawn inspiration and mush of its from cost accounting and scientific management.

In performance budgeting literature, budgeting is described as a tool of mangagement and the budget as a work programmed.

He flow of decisions is different in performance budgeting the decision-making is primarily downward.

Performance budgeting requires that emphasizing output categories such as goals, purposes, objectives and products or services should make budgetary decisions.

Performance budgeting makes prospective budgeting approach with its focus on its future impacts of current major decisions or choices.

ESSENTIALS OF BUDGETING:

The following are the essential Requirements for an Efficient Operation of a Budgeting Control system:

a) Top Management Support: Top management must understand and actively support the Budget and the Budgetary Control System as a whole.

b) Clear and Realistic Goals: The Budget must set out clear and attainable Targets in Quantitative Terms.

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c) Goals for each sub Unit: Goals should be set out for each individual Accountable for a specific set of Activities. This requires proper synchronization Between the Budgetary System and the Organization Structure.

d) Full participation of Employees at all Levels: This entails employees commitment to the targets set out in the Budget management by objectives (MBO) Approach may be adopted to achieved participation under MBO a subordinate and his her superior jointly formulate. The subordinate set of Goals and Plans for attaining those Goals in a subsequent Period. These goals and plans are incorporated in the Budget. The budget facility coordinates only if all the managers and employee? Get involved in the budget preparation process and if disquisitions out across all the functional areas and level of employees. In the absence of such participation, the Budget fails to serve any use full.

e) Purpose. Management should encourage employees at all levels to participate in budgeting exercise.

f) Flexibility: Important ingredient of an efficient budgetary system. The system should be preventing a manager from taking a product action warranted under a given situation.

ADVANTAGES:

1.An overall well co-ordinate plan, provides by budgetary control system, shows what role each manager is expected to play in maximizing profits

2.methods and procedures become standardized.

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3.The management is able to assess the effect of their decisions. The deviation from budget arising from a decision to vary the output can be studied.

4.The areas of wasteful expenditure can be easily identified and eliminated.

5.It serves as a tool for controlling expenditure.

6.It outlines the capital development programme and estimated capital expenditure during the budget period.

7.It provides the amount of expenditure to be incorporated to the future budget summaries for calculation of estimated return on capital employed.

8.It is useful for planning changes in the level of output.

USES OF BUDGETING:

Budgetary system is of invaluable help and it offers Definite and tangible benefits related to the basic functions of management. It does

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assist good management to become better more objectives and be able to control a situation with greater effectiveness. Some uses of budgetary control deal with financing other with administrations sales management, production. Expenses control and cost accounting. These could be elaborated as below:

Defines objectives and policy Serves as communication links Aids in obtaining bank credit Stabilization of industry Tones up the business Decentralizes responsibility Cost Consciousness Coordination of all activities Management by exception Adoption of standard costing.

LIMITATIONS OF BUDGETING:

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The cost of operating, the system is very high and benefits derived from the same may not match with the cost unless it is used fully and efficiently.

The degree of sophistication should be decided by care full valuation of the information need to the firm.

Budgeting is not an exact science and there fore the system should have an in build mechanism of revision of target and plans. Where ever the situation so warrants.

PROCESS OF SETTING BUDGET

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Budget fixing involves a number of forecast or projections. It starts with sales forecasting, carries on with expense budgeting and ends with complication of budget.

THE FIRST STEP:

In preparation of a firms budget is customarily to establish a sales budget. The figure of sales is the page settler and the nucleus of the whole programmer of the budget. This entails the submission of the estimated sales volume by the sales manager and the remission there have by the budget committee in the light of information furnished by the firms statisticians. The past sales performance is no doubt the primary guide, but it can hardly be the primary guide. The sale forecast does require the survey of the business prospect for the industry in general.

THE SECOND STEP

In budgeting may well be the construction of the financial budgets. A functional budget is one, which relates to the function of the organizations. It is a summary of the budgets of the budget center, which are included in the function whose budget compiled. It includes both work and quantities and cost of the factors, which produce that work. E.g. distribution and cost budget, salaries, commissions, traveling expenses, advertising etc.

THE THIRD STEP:

It could be set to be the construction of the section dealing with cost to manufacture and the cost of goods sold and also of the inventories of finished and unfinished goods expected to be on hand at the beginning and the end of the period, the budgeted amount of direct materials can thus be worked out.Next is to estimate the requirements for direct labor and direct labor cost necessary to convert the materials into the goods that will remain in inventory at the end of the period. Such an estimation calls for a survey of manufacturing facilities to determine the available productive capacity of the plant. The number of workers of work his that will be required,

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probable wage conditions that will prevail and estimated direct labor cost of production. It is also necessary to consider what additional equipment, if any may be required and hence its installation will effect their production requirements such as plant layout, construction of new building and the like.

Indirect manufacturing cost is the next item for consideration in the preparation of the budget conditions in each producing and service department. Attention should also be given to fixed charges of each department, the amount of apportionment and direct departmental indirect cost and amount of cost to be distributed to the other departments.

It follows the construction of budget is in many respects similar. (Equivalent to the construction of an anticipatory to the profit and loss statement supported by detailed schedule. All are based on future transactions, which are considered both probable and reasonably certain to transpire).

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IMPORTANCE OF BUDGETING AND BUDGETING CONTROL IN AN ORGANISATION

Budgeting is an all-pervasive and dynamic process. It ties together goals plans decision-making and employee performance evaluation. It is a versatile manager tool in that it aims to anticipate change in an advantageous way. It allows a review of operations. In a formal programmed of profit planning and control in business budget comes to the forefront. It forms the heart of the planning function and every enlightened management deals with long and hart range budgets. They constitute the principle instrument for projecting the future costs and revenues, which are an essential aspect of management accounting and the foundation of the firm’s financial control. Budgeting undoubtedly offers immense potentialities for efficiently conducting the affairs of the business. Budgeting in common parlance is understood as planning for expenditure. Budgets were first used extensively in government, but business has since developed them to the point where they have become extremely valuable tools of management. In the most governmental agencies today budgets have languished and are employed primarily to restrict expenditure. In business budget emphasize revenues. A budget could be seen as a statement of intention. A statement of expected income and expense under certain anticipated operating conditions it is in the nature of an estimate, rather framework, of future transactions of a business as a whole. A budget is an accounting plan, a forecast of activities of an enterprise in a forthcoming period. It is a formal plan of action in monetary terms. A quantitative monetary expression of future activities. It is a management plans what it proposes to do in the next financial period usually a year. It is a quantified plan for future activities. Quantitative blue prints of action. A budget is effectively used for control purposes. Control involves the evaluation of performance through comparison of actual results with the plan and using the feed back either, to take corrective action or to modify the plan, A budget sets the targets for each functional area and thus provides a unique tool to managers for effectively carrying out their control function.

Truly speaking, budget is a standard, with which to measure the actual achievement of the departments and the business as a whole.

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Budgets have at least five characteristic features as below:

1. They consist of sets of forecasts or estimates of the outcome of the future events.

2. They are expressed in quantities terms money measurement for financial out comes, attribute measurements for physical outcomes.

3. They are prepared in an interactive sequence that permits communication and negotiation of inter related goals of each organization segments.

4. They are organized and combined to produce a coordinated pattern that results in each part of the enterprise performing consistently with over all objectives.

5. They are primarily planning tools, but also serve as a basis for performance evaluation and control analysis.

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BUDGETARY CONTROL

MEANING AND NATURE OF BUDGETARY CONTROL

OBJECTIVES OF BUDGETARY CONTROL REQUISITES OF GOOD BUDGETARY CONTROL

SYSTEM LIMITATIONS OF BUDGETARY CONTROL

BUDGETARY CONTROL…

Meaning and nature of budgetary control

Budgetary control is a process determining various budgeted figures for the enterprises for the future period and then comparing the budgeted figures with the actual performance for calculating variances, if any. First of all budgets are prepared and then actual results are recorded. The budgetary control is a continuous process. Which helps in planning and coordination. It provides a method of control tool. They budget is a means and budgetary control is the end result.

According to Brown and Howard, “ Budgetary control is a system of controlling costs which includes the preparation of budgets, coordinating the department and establishing responsibilities, comparing the actual performance with the budgeted and acting upon results to achieve maximum profitability.”

Wheldon characterizes budgetary control as “planning in advance of various functions of a business so that the business as a whole is controlled.” J. Batty defines it as the system, which uses budgets as a means of planning and controlling all aspects of producing and or selling commodities and services.

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The three cardinal features of budgetary control are

Planning Coordination Controlling

OBJECTIVES OF BUDGETARY CONTROL

Budgetary control is essential for policy planning and control. Also facts as an instrument of coordination. The main objectives of budgetary control are as follows:

To ensure planning for future by setting up various budgets. The requirements and expected performance of the enterprise are anticipated

To coordinate the activities of different departments.

To operate different cost centers and departments with efficiency and economy.

Elimination of wastes and increase in profitability

To anticipate capital expenditure for future

To centralize the control system.

Correction of deviations from the established for standards.

Fixation of responsibility of various individuals in the organization.

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REQUISITES FOR A SUCCESSFUL BUDGETARY CONTROL SYSTEM

Clarifying objective.

Proper delegation of authority and responsibility.I

Proper communication system. Budget education.

Participation of all employees.

Flexibility.

Motivation

ESSENTIALS OF BUDGETARY CONTROL

1. Organization for budgetary control

2. Budget Centers.

3. Budget Manual.

4. Budget Officer.

5. Budget period.

6. Determination of Key factor

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BUDGET, BUDGETING AND BUDGETARY CONTROL

A budget is a blue print of a plan expressed in quantitative terms. Budgeting is a technique for formulating budgets. Budgetary control, on the other hand refers to the principles, procedures and practices of achieving given objectives through budgets.

Rowland and William differentiated the three terms as: Budgets are the individual objectives of a department, etc whereas budgeting may be said to be the act of building budgets. Budgetary control embraces all and in addition includes the science of planning the budgets to affect an overall management tool for the business planning and control.

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STEPS IN BUDGETING PROCESS:

1. Issue of guidelines by corporate office2. Issue of circulars to departments on the basis of guidelines from

the corporate office. 3. Receipt of requisition from the department, along with necessary

justification, for the expenditure to be allocated to their department.

4. Discussion with the departments wherever necessary and finalizing the expenditure to be projected to the corporate office.

5. Finalizing of turnover by p&D in consultation with various agencies like commercial, PPC, finance etc.

6. Finalizing of material consumption in consultation with MB&C, MPC, and finance etc.

7. Finalizing of operating results, cash budgets, inventory budget, outstanding, etc.

8. Presentation of budget to the corporate team.9. Approved by the corporate office for the budget proposal10.Preparation of monthly budgets.11.Allocation of expenditure to the departments.

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NATIONAL MINERAL DEVELOPMENT CORPORATION LIMITED

INTRODUCTION

NMDC AT GLANCE:

Incorporated in 1958, as Government of India fully owned public enterprise. Nmdc is under the administrative control of the Ministry of steel and Mines, Department of steel, Government of India.

Since inception involved in the exploration of wide range of minerals including iron ore, copper, rock phosphate, lime stone, dolomite, gypsum, bentonite, magnesite, diamond, tin, tungsten, graphite, beach sands etc.

India’s single largest iron ore producer and exporter, presently producing 20.74 million tons of iron ore from 3 fully mechanized mines viz., Baliadila deposit-14/11c, baliadila deposit-5, 10/11a (chhattisgarh state) and Aonimalai iron ore mines (Karnataka state which are awarded ISO 9001-2000 certification operating the only mechanized diamond mine in the country producing around 80,000 carats at panna (Madhya Pradesh state).

Strong back up of an ISO 9001 certified R&D centre, which has been declared as the “centre of excellence” in the field of mineral processing by the expert group of UNIDO. Consistent profit making and dividend paying company.

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NMDC has made valuable and substantial contribution to the national efforts in the mineral sector during the last four decades and has been recently been accorded the status of schedule-A public sector company. The company has been categorized by the department of public enterprises as “mini Ratna-1”public sector enterprise.

In the past NMDC had developed many mines like kiriburu, meghataburu iron ore mines in; Bihar, Khetri copper deposit in Rajasthan, Kundremukh iron ore mine in Karnataka, phosphate deposit in Mussorie, some of which were later handed over to other companies in public sector and other became independent companies.

NMDC is presently producing about 15.75 millions tons of iron ore from its Bailadila sector mines and 5.02 million tons from Donimalai sector mine and about 80,000 carats of diamonds from panna project.

The demand for steel will continue to grow in the years to come and this in turn would call for increased demand for iron ore. NMDC is gearing itself to meet the expected increase in demand by opening up new mines-Deposit-10&11Ain bailadila sector and Kumaraswamy in Donimali sector and this would add in allowing the production capability to reach around 23million tones per year.

NMDC is also diversifying into other raw materials for steel industry like Low silica Lime stone, production of Dead Burnt Magnesite and further value addition is under study through its subsidiary J K Mineral Development Corporation Limited.

NMDC has taken over a silica sand mining and beneficiation project from Uttar Pradesh state mineral development corporation ltd., the plant has been designed to produce high purity beneficiated silica sand of around 300,000 tones per year which is a raw material for production of float/sheet glass.

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With a view to capture the opportunities now available following the Mini Ratna recognition and its expertise in the field of mineral exploration and mining, NMDC, is venturing into development of high value minerals like gold, diamond etc. As joint ventures in some of the African countries. A memorandum of understanding has been signed between NMDC, Indian rare earths its. And Andhra Pradesh mineral development corporation to establish a joint venture for the development of bheemunipatnam beach sand. The project envisages mining of beach sands, setting up of mineral separation plant for limenite concentrate and a down stream value addition plant for conversion of limonite into synthetic Rutile/TiO2 slag/TiO2 pigment with pig iron as by-product.

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PROJECTS:

The different managed by the NMDC are as follows

Bailadila deposit-14/11C

Bailadila deposit-5, 10/11A

Donimalai Iron Ore Mine

Panna Diamond Mine

Chawandia Limestone Project

Bailadila Deposit-14/11C:

Commissioned : April 1968Present reserve : 13.69 million tones (April,

05)No. Of Employees : 1798

Bailadila-14 mine is the first large scale open at mechanized iron ore mine in India commissioned in April 1968, which DPR was prepared by NMDC. The mine has the distinction of having uniform down the hill conveyor system passing through a tunnel to transport iron ore for crushing plant to processing plant with the present reserve of 13.69million tones (April, 05).

BAILADILA DEPOSIT-11C: To supplement production of Bailadila-14 mine, NMDC has commissioned in June 19 a new mine at Deposit-11C with a reserve of 131 million tones close to Bailadila- the mineable reserves, as on April 2005 are 63.58 million tones. The mine has been developed to produce 5.0 million tones or ROM ore per annum. The

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entire concept design of the crushing plant, downhill conveyor system, Flow sheet etc. Has been by NMDC itself a crowning glory to the skill and efforts of NMDC in service to nation. ISO9002 certification awarded in February 2001.

BAILADILA DEPOSIT-5, 10/11A:

Commissioned : 1977Present reserve : 69.29 million tones (April,

05)No. Of employees: 1728

*DPR was prepared by NMDC

* Built with largely indigenous know-how and equipment

* Has the biggest indigenously built gyratory crusher (60*89)

* Longest conveyor system in mining in India with a single downhill conveyor of 2.5 km length passing through 2.2 km long tunnel with a gradient of 5 degree, which was, drove from both ends through difficult terrain and strata. *A highly mechanized wet screening plant and facilities for stacking, reclaiming and loading (2500t/hour) of lump ore into railway wagons.

In 1987 mechanized handling system of reclamation and wagon loading of fine ore with a capacity of 2.8 million tones per annum, was also added to meet the increasing demand of fines in the steel industry. ISO 9001:2000 certifications awarded in February 2001.

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BAILADILA DEPOSIT 10&11A :

Commissioned : February 2003Certification : ISO 9001:2000Present Reserve : Dep10 (NB) 41.9

Million tones Dep10 (SB)

170.07million tones Dep 11A 28.69 million

Tones

DONIMALAI IRON ORE MINE:

Commissioned : October, 1977 Present reserve : 31.69 million tones

(April, 05)

No. Of Employees : 1273 ISO9002

Certification Awarded February

1999The saga of NMDC includes the pioneering exploration activity carried out for developing iron ore mines in Karnataka in Various regions like Kudremukh, Donimalai mine in this area to export ore to Japan and South Korea.

PANNA DIAMOND MINE :

Capacity : 84,000 carats per yearNo of Employees : 458

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India was the only source of diamonds in the world for over 3000 years till diamond deposits were located in Brazil and South Africa. Today, NMDC is the only organized producer of diamond in India from its majhgawan mine at Panna, Madhya Pradesh and continues to carry on the legend and past glory through its untiring efforts.

CNAWANDIA LIMESTONED PROJECT :

Commissioned : 1992 Present reserve : 5.2 million

Tones (April 2001)

No of Employees : 2

As a part of diversification programme, NMDC ventured into mining of Limestone and opened its low silica limestone mine at Chawandia, Dist. Nagaur, and Rajas than.

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PRODUCT SPECIFICATIONS:

Ferric Oxide: NMDC has successfully developed Pigment Grade Ferric Oxide, High Grade Ferric Oxide and (UPFO) Ultra Pure ferric oxide utilizing high quality Blue Dust available in bailadila mines. The natural High Grade Ferric Oxide possesses all requisite properties for use in production of hard ferrites and magnets. Synthetically produced Ultra Pure Ferric Oxide from Blue Dust contains very low level of impurities and is one of the best for production of soft ferrites.

INVESTIGATION DIVISION AND DEPARTMENT:

Investigation refers to mineral exploration. The word “investigation” has historical significance.

In early sixties NMDC has the task to investigate the known mineral occurrences in the country which would be commercially exploited. And the name continues. In the process NMDC thus far, proved many mineral deposits in the country and abroad.

The investigation division can offer its services in the areas of

Topographic survey.

Identification of potential mineral deposits of interest.

Exploratory drilling.

Initial exploration of identified deposits.

Reserve, grade estimation, preparation of exploration reports.

Detailed investigation of deposits identified for preparation of TEFR, DPR or mine development.

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Consultancy works involving exploration, geological, drilling, Prefeasibility.

Survey for infrastructural facilities

Preparation of medium term and long term production programs

Technical support to operating mines.

Support to commercial activities with specification, quantity etc.

Up gradation of technology including computer application to ensure greater reliability, obtain sound and convenient database for planning, development and operation of mines.

Collaborative works in foreign countries.

THE DIFFERENT INVESTIGATION DEPARTMENT IN NMDC ARE

Resource planning division

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Engineering division

Technical services division

Centre for geostatistics

Central workshop

Research and development centre

RESOURCE PLANNING DIVISION :

During the last 40 years the company has developed various mining projects and in the course of development of these mines, the company gained enough practical experience in the fields of

Prospecting Mining.

ENGINEERING DIVISION:

NMDC has established a well-organized engineering department with experienced engineers in the disciplines of the civil, mechanical, electrical, mineral dressing and mining. The engineering department has developed good expertise in the following areas

Project management Basic engineering involving plant lay out, equipment selection, sizing

and preparation of specifications for equipment as well as works. Plant detailed engineering Development of infrastructure like township, power, water and

telecommunication systems Construction management The department is capable of providing the above services in the areas

of mining projects] Mineral beneficiation plants Material handling plants Water and slurry pumping schemes

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Factories and work shops producing mineral based value addition products

The department is equipped with latest CAD facilities with various design software in the fields of civil, mechanical, electrical, automation instrumentation and mineral processing.

TECHNICAL SERVICES DIVISION:

NMDC has built up comprehensive and fully coordinated specialized consultancy services covering all aspects from exploration to commissioning of a mining project.NMDC is ready to serve as a consultant in the following areas:

Survey and exploration Computerized data processing and analysis

R&D servicesMining consultancyEngineering servicesEnvironment managementIndustrial engineeringMaterials management

CENTRE FOR GEOSTATISTICS:

It was established in 1994 with the co-operation of center de geostatistique, enclose des mines. The objective in opening of the center is to give training in the field of Geostatistics to the Geologists, mining engineers and computer engineers and to take up consultancy assignments for Geostatistical ore reserve estimation.

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The center can provide consultancy in

Determination of optimum drilling

Pit optimization

Conditional simulations for knowing the variability of the deposit.

CENTRAL WORKSHOP:

It was set up in bailadila sector in 1994with the objective of carrying out the following activities:

* Capital repairs to mining equipment such as dumpers dozers motor graders, shovels drills etc.

*Over hauling of equipment assembly such as engine, transmission, fuel pumps etc. Including calibrated injectors and fuel pumps.

*Reconditioning of track chain assemblies’

* Reconditioning of belt conveyor pulleys.

Rewinding of LT&HT motors and repair overhaul of all types of motors. Central workshop so manned by trained and skilled workers. In addition to the catering to the NMDC projects requirement, spare capacity exists to undertake the above jobs from outside agencies.

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RESEARCH AND DEVELOPMENT CENTRE:

Mining and mineral development in the present age requires a strong base of suitable research and development effort. Realizing this, way back in 1970 a nucleus R&D cell was created in NMDC.

The cell has now grown into a highly sophisticated R&D centre at Hyderabad, which is one of the best-equipped laboratories of its kind capable of taking up any assignment in the field of ore beneficiation and mineral processing.

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CUSTOMERS OF NMDC

Minerals and Metals trading corporation

Rashtriya ispat Nigam Ltd

ESSAR Steels Ltd. Ispat industries

Vikram, ispat GSAL India ltd.

Sun flag Iron and steel CO Sponge iron India ltd.

Hindustan Electro Graphite’s Limited

Midwest iron and steel Ltd

Kumar metallurgical Raipur alloys

Lloyds metals Jaiswal Neco ltd

Lanco industries Southern Iron & steel CO

Arcadia Vishveshwariah iron and steel ltd

Bhilai steel plant Usha Ispat

Sjk steel corporation Ispat metallicas

GAO carbon Jindal vijayanagar steel Ltd

Kirlostar Ferrous industries Ltd Sabnife power systems Ltd.

HobNobElectronics Pvt Ltd DGPHinoday Industries Ltd

Cosmos Ferrites Ltd. Magnets Manufacturing XO.

Saran Ferros pvt. Ltd. International Ferrites ltd.

Great Harvest (holdings) Ltd Honkong.

Pioneer Metals Co Ltd Honkong.

FremeryResources Ltd Hong Kong. Mitsubishi Corporation, Japan.

Maruberi Corporation, Japan. Kawasho Corporation, Japan.

V.R.W Refractories Ltd. Gujarat Schultz Carbon Electrodes Pvt Ltd, Gujarat.

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Nibsho Lwai Corporation, Japan Indian Iron And Steel Co.(IISCO)

CORPORATE SOCIAL RESOPNSIBILITY

ENVIRONMENTAL MANAGEMENT

Corporate policy

Objectives

Sub goals

Responsibilities

A forestation

Corporate policy:

Create sound and eco friendly environment for sustainable development at all production projects.

Plan new projects with environment friendly considerations.

Plan regulative, ameliorative and mitigate measures to protect environment.

Lend support to projects on environmental matters.

Objectives:

Create a work environment which enhances/motivates production and productivity. Create a residing environment for the enjoyment and peace of

employee.

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Encourage safe and scientific mining and other engineering practices.

Establishing eco label for its finished products so as to promote domestic and international markets.

Sub goals :

Judicious and scientific planning of direct excavation, waste dumping and sitting infrastructural areas.

Restricting use of forestlands to the barest minimum level.

Regular water sprinkling and grading of haul brads, scientific a forestation for abating air pollution.

Training employees for environmental consciousness.

Provide safe drinking water to the township dwellers and extending water supply to pollution of neighboring villages.

Responsibilities:

Maintaining ecological balance by adequate environmental protection and environment improvement works is entrusted to the chief executive of the respective project.

The general manager (IE&TS) and the DGM (Env) at corporate office should monitor the environmental performances and guide the projects for maintaining good environmental practices and to adopt newer, safe and cleaner technologies.

Afforest ration:

NMDC started a forestation on a planned pattern in consultation with divisional forest officer of concerned areas with the objectives such as increasing the density around the project and township, stabilization of

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degraded lands and waste dumps for preventing soil erosion, rehabilitated of mined out areas, improving the condition of the catchments areas and stream courses and aesthetic look of the township areas.

Community management

NMDC HAS UNIQUE PROVILEGE OF BRINGING REMOTE AREAS TO THE MAIN STREAM OF CIVILIZATION. Besides being top foreign exchange earner of the country and joint top ranking company under the MOU system earning considerable profit year after year.

Some of the peripheral community development programmes initiated by NMDC include

Free educational facilities for the children of the local advise in the project schools.

Construction of new school buildings and additional class rooms besides undertaking repair and renovation to a number of school buildings of the state Government in the area including electrification work.

A number of open well/tube wells, hand pumps and water tanks have been provided for supplying drinking water to the nearby villages

Construction of a number of all weather roads connecting neighboring villages besides providing street lighting and electrification of the areas.

Free medical treatment provided.

Frequent visit of project doctors to the neighboring villages for providing medical assistance.

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AWARDS

NMDC or its employees have received many awards from various forums during the last couple of years

Details of some of the awards are given below

Corporate performance awards

Management excellence Awards

Productivity Awards

Pollution Control Awards

Marketing awards

R&D Awards

Others

Corporate performance awards

Under the MOU system of evaluation of the performance of public enterprise by the Govt of India

Excellent rating and jingo top position for these consecutive years.

Excellent rating for three consecutive years.

Top ranking performance Aware from the Indian institution of the industrial engineering.

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Rajiv Gandhi memorial national award for excellence in Indian industries.

Management excellence award

Manager of year award by Hyderabad management association to the CMD during bailadila deposit

Best chief executive Gold award by the international green land society to the CMD during year 97-98.

John Dunn medal by mining, Geological and metallurgical institute of India for 2001-2002.

Productivity Awards:

Coal India productivity award by the Indian institution of industrial engineering for the year1995-96, 1999-2000, 2001-02.

Pollution control awards:

Environment award from the federation of Indian mineral industry to donimalai iron ore project during the year 1996-97, 2000-01.

Abheraj baladota environment award to bailadila-14/11Cfor the year 02-03.

Marketing awards:

CAPAXIIL award for outstanding export performance in iron ore group during the year1997-98, 1998-99.

Special export award in iron ore group by CAPAXIL for the year 1996-97.

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R&D or Technology up gradation awards:

National mineral award to R&D scientists by ministry of coal and mines, Govt of India for the year 2001.

Others:

Indira Gandhi Raj Bhasha Puraskar as a second prize in region “v” PSU during the year 1998-99.

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1.Budgets & Budgetary control:

Preparation of budgets is the first step towards the cost control.“Budget is a physical and or financial statement prepared to a certain period of the management policies to be pursued during the said period to achieve the desired objective.”

From the definition it can be seen that:

1. It is a written document of the course of action both in physical terms (like production and sales plans) and in financial terms expenses to be incurred on various counts which is to be followed by the total enterprise during a certain period

2. And this of course is to be prepared before that period and communicated to all the persons concerned for execution of the plan.

However the ultimate objective of the budget is not mere preparation but continuous review of actual execution with the set norms so that corrective action can be taken in case of deviations. This setup is called budgetary control.

Budgets are therefore often described as the complete exercise of total management process.

For any operation to be successful, the stress is on organization, planning communication, coordination and control.

Budgeting is required to streamline these management processes to achieve the ultimate objective of the management.

In NMDC also, the budgets are prepared annually for both capital as well as revenue requirements.

A. Capital budget:

In NMDC, the capital budgets are prepared to implement its investment decisions in different ventures of its own and also its participation in joint venture. However the capital budgets of NMDC mainly deals with the investment patterns of the projects it has taken up or going to take up besides

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negligible part in respect of investment in joint ventures. Further for additions, modifications and replacement of existing equipment also forms part of capital budget.

The schemes projects for which investments decisions are already taken are identified and the requirement of funds is projected based on the progress of the work in respect of each project scheme and its construction period involved.

The schemes projects for which investment decision is already taken are identified and the requirement of funds is projected based on the progress of the work in respect of each project scheme and its construction period involved.

The business of NMDC is mainly excavation, production and sale of iron ore diamonds and limestone. So, investigation activity i.e. identifying different areas of mineral resources, its quality quantity available and marketing etc are the main activities of the investigation before construction activity of the project is taken up. When the deposits are identified as financially viable, construction of the project will be taken up after preparation of detailed project report for each scheme project the DPR is presented to board ministry for investment decision. Then comes the activity of allocating sufficient funds for construction of the project.

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The projects of NMDC are fully mechanized with at least technology. NMDC was developing the mines, which are having substantial ore reserves, and the life of the mine lasts many years. For example, production in the major mines like Baliadila Deposits 14 mine and Bailadila deposit 5 mine developed by NMDC is continuing for more than 2 decades. When the reserves of any mine is about to exhaust, NMDC develops ore deposits in the neighborhood to utilize existing infrastructure facilities so that with minimum investment possible, production level can be maintained. Similar is the case with Donamalai project in Karnataka.

Since the project life runs in decades, investment for these projects also will be heavy and requires utmost care while taking decision. The construction period also stretches 3to4 years and hence, utmost care is to be taken in phasing the funds requirement.

FINANCIAL RESOURCES:

For construction of any project, financial sources are one of the main criteria. The sources of financing may be through different ways like:

Internal resources Financing from GovernmentExternal financing from banks, financial institutions, public borrowing etc.Equity participation from public/financial institutionsOthers

As far as NMDC is concerned, for earlier projects like Bailadila 14, Bailadila5 and Donimalai etc, Central Govt. financed the projects by way of loans. However, after commencement of production of these projects, NMDC could repay the loans borrowed and at present there are no loans outstanding. At present, Govt is not financing any project in any manner and hence, NMDC is financing the new projects entirely through its internal resources.

ANNUAL PLAN

Since Central Govt is the principal investor of NMDC the yearly budgets are prepared as per the norms prescribed by Govt. The capital and revenue budgets to be presented to Central Govt, forms Annual plan of the

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corporation. The Annual plan consists of revised Estimates for current year and budget estimates for coming year.

Capital Budgets of NMDC is prepared every year for submission to Govt. through annual Plan. The Annual plan is the be submitted to Govt in its prescribed formats. The schemes are classified in the following main categories

a) Continuing Schemesb) New Schemesc) AMR (Additions, Modifications and Replacements)d) Townshipe) Research and developmentf) Feasibility studies Investmentsg) Investments

The capital budget for each scheme taken up by NMDC is classified under the above classifications for presentation to Govt.

(a) CONTINUING SCHEMES:

These are the schemes which the corporation has taken up in earlier years and construction activity is continuing and hence, budget for the schemes are required. The requirement of the finds is estimated based on the construction work to be taken up, orders to be place and payments to be released against them. In some cases, the payments are made after completion of the guarantee period as stipulated in the agreement/ supply orders. Hence the phasing of funds requirement will stretch for 3to 4 years. Accordingly, the requirement is projected.

(b) NEW SCHEMES:

These are the schemes, which the corporation is planning to take up in current year or in coming years to meet the market demand of its products. Based on the likely works to be taken up, requirement of funs is projected for current year as well as for next year.

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(c) ADDITIONS/MODIFICATIONS AND REPLACEMENTS

In production projects, some equipment is needed as additions due to latest developments in different activities or modifications to the existing assets. Further introduction of latest technology etc may require replacement of some of the existing assets beside poor performance due to aging of the asset. For all these purposes, AMR budget is estimated based on the detailed requirement from all the production units. The requirements of different units are reviewed based on which AMR budget is projected.

(d) TOWNSHIP

The operating mines of NMDC are situated in the remote areas where transport and communication facilities are not at required level. Further to accommodate the employees and their families near the mining area, townships are developed at the mine areas. In addition to residential accommodation, health, school, entertainment and social welfare facilities are provided in the townships. For construction of residential and other required buildings and other facilities, budget for Township is made in the corporate budgets.

(e) RESEARCH AND DEVELOPMENT

NMDC established a research Center at Hyderabad with the aim to develop value adds products from the iron ore available at its iron ore mines. The center employs experts in metallurgy and chemical fiends with vast experience. The capital budget is estimated for procurement of equipment for research purpose and for import of technology etc.

(f) FEASIBILITY STUDIES

Investigation activity i.e. identifying the mineral deposits for commercial exploitation is the main activity of feasibility study. NMDC is having expert geologists drilling team which forms investigating team. Its activities are to find the prospective mineral deposits, study the geological features identifying the quality and quantity of ore reserves available etc. Based on its positive reports, detailed project reports are prepared for investment decisions subject to financial viability.

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The feasibility studies are taken up in India and also at abroad. The activity is mainly for iron ore and diamonds. Normally, the feasibility study cannot be completed within a year or two. Hence, based on the progress of the work and estimated activity, budgets are projected for each feasibility wise.

(g) INVESTMENTS

Besides developing the mines for its business activity, NMDC is also investing in other joint ventures either as diversification activity or equity participation in subsidiaries. At the instance of Ministry, NMDC floated J&K mineral development corporation in Jammu as a joint venture company with J&K Government for development of Magnetite project through equity participation. NMDC SARL at Madagascar, South Africa and NAM INDIA at Namibia are the other two subsidiaries floated by NMDC at abroad for gold and diamond mining activity at respective countries. For all the investments as above and other ventures, budgets provision for investment in other ventures is estimated.

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BUDGET PROCESS

The budgets, consisting of revised estimated for current year and budget estimated coming year are prepared based on the reports from the executing departments and projects heads. The estimates received from the respective units officials are scrutinized and discussed about the extent of requirement.

Every year, a circular from Ministry is received calling for the capital budgets of the corporation. The consolidated budgets is summarized in the prescribed format of ministry. Then the budgets are submitted to Ministry with the approval of head of the corporation. The formats of ministry mainly consists of the information:

1. Scheme wise approved cost, revised cost and anticipated cost.2. Actual expenditure during previous year and cumulative expenditure3. Approved budget as per budget estimates4. Revised budget provision for current year5. Budget provision for following year6. Foreign exchange requirement7. Financing by external agencies8. Employment generation due to implementation of the scheme 9. Budget for welfare of tribal women etc. in total outlay.

The ministry in turn consolidates the budgets received from all the PSU”s under its control for submission to finance ministry, which in turn consolidates the budgets of all ministries to put up to planning commission.

The budgets submitted by the PSU are discussed with the CMD/ Directors of the respective PSU and the same are modified if necessary before discussion with finance ministry. After discussion with finance Ministry, the combined ministries will have discussion with planning commission where the CMD of the respective PSU will also be present. Finally the approved budgets (as approved by planning commission) are communicated to the respective PSU by the concerned Ministry for adherence.

However, immediately after submission of its budgets, NMDC submits the same to Board of Directors. The Board approves the same subject to changes if any proposed by Ministry. The budgets as approved by Board will be

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communicated to respective projects/units for strict adherence and compliance since approval by planning commission may be delayed.

MIDTERM REVIEWS:

Every month, the corporation sends the progress of actual expenditure incurred against approved capital outlay to Govt in its prescribed formats. While sending the information, scheme wise details are also being furnished. In addition, ministry undertakes Mid Term Review of the plan expenditure for every quarter. The progress of the projects and the expenditure there on against the targets etc are discussed.

At the end of each financial year, the actual are compared with approved budgets and reasons for variance are analyzed for corrective measures in the following year.

REVENUE BUDGETS:

The primary object of any organization is to enhance the financial strength of the organization from its operations. The bottom line result should be higher than what the shareholder will get if he invests else where without any effort. Hence, the management would focus its attention primarily for better end results. For this purpose, proper planning of its operations and its implementations is highly necessary. The planning should be proper in all fronts and fields and should have updated mechanism to implement the same during course of given period.

The operations of any organization can be classified mainly in 4 categories i.e.

PlanningProductionAdministrationDistribution/Marketing

The production plan should be such that the operations should be at maximum level of its installed capacity at economical cost. For this purpose, the operations are to be divided into different cost centers to monitor the actual with the budgets.

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The production would be maximum by utilizing minimum factors of production like men material and machines etc, to minimize the fixed cost.

The administrative process is the one, which coordinates the production plan with that of marketing plan. It involves what to produce, how to produce and other managerial aspects

The marketing distribution process involves selling the products at competitive prices and capturing the new markets.

The main products of NMDC are the production of Iron ore, diamonds and limestone from its mechanized mines. NMDC also set up plant for production of Ultra Ferric Oxide Plant at Vizag. However, more than 95% of turnover of NMDC consist of iron ore only.

The main product of NMDC i.e. iron ore consist of 3 products Lump oreCalibrated lump ore andFine ore.From the excavation process, lump ore and fine ore are produced. Calibrated lump ore is the value added product of lump ore.

NMDC prepares revenue budgets for each production units separately and independently. The revenue budgets of each unit depend upon the installed capacity, production targets and sales targets.

Before commencement of the financial year, commercial department estimates the sales quantity of iron ore (exports as well as domestic sales) depending upon the export contracts/domestic contracts. In case, the contract with any export/domestic parties is not finalized estimated quantity depending upon the previous year trend of purchases by the party is considered. In this way, the sales quantities are finalized.

Keeping in view the demand for the products and type of product, production targets for each unit is finalized in consultation with the in charge of the unit by production department at HO. The management of the unit in turn will frame monthly production plan. This will help to monitor the production with the targets and also to cover shortfall if any. Each production unit is having departments to monitor the production plan and also production cost.

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The main sources of income and expenditure are summarized below:

Income

Sales revenue of iron ore, diamonds, limestone& other productsConsultancy contract incomeInterest on surplus fundsMisc. income

Expenditure

Consumption of stores and sparesSalaries and wages to employeesPower and electricityRepairs& maintenanceRoyaltyRailway freightSelling expensesOther expensesDepreciation

Preparation of revenue budgets consists of forecasting the income and expenditure based on production sales plan for given period. The process of forecasting estimating for preparation of budgets for each item of income expenditure is detailed as below:

1. SALES REVENUE This is the main source of income to NMDC. The market for the products of NMDC is all over India as well as abroad. The export turnover of NMDC at present consists of about 55% while domestic turnover is about 45%.

NMDC is exporting its product to Japan, China, Korea and other countries. As the policy of the government, NMDC was exporting its product only through MMTC, which is canalizing agency. However, due to persuasion with govt. NMDC could manage to get license to export a specified quantity of its product directly to specific foreign countries. NMDC is trying to increase the same year to year so that its entire product can be directly

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exported. In addition to export, domestic buyers include VSP, ESSAR, SIIL, Vikram Is pat, Sponge Iron India and other sponge iron manufacturers.The quantity meant for export is transported to the nearest ports i.e. Vizag and Chennai by Railways and then loaded into the ships.

The supply to VSP is also transported through Railways. However, domestic buyers are transporting themselves form the mine.

On the basis of quantity supplied to each party, invoice is raised with agreed price for arriving the total sales revenue.

The diamonds are sold in open auctions, at different places like Bombay, Surat, Ahmadabad and Jaipur etc. Quotations are invited from the prospecting buyers for different quality of diamonds. The highest bidder will be permitted to take delivery of the diamonds against depositing the bid amount with the bank. Based on the likely quantity of diamonds sales, sales revenue is estimated.

NMDC also executes consultancy/contract works for outside parties through the experts in its roll. Further NMDC is having a screening plant at Vizag to supply screened ore to Essar, which is also one of the sources of income.

NMDC is making substantial profits continuously since a decade. The surplus funds after meeting its capital requirements are invested in financial institutions/banks. This is generating reasonable amount of revenue to NMDC. Considering the surplus funds in the beginning of the year, anticipated net generation of funds during the year, interest income is estimated considering the latest interest rates prevailing.

Besides above, NMDC revenue includes misc. Income like rents recovered from its employees/outsiders, sale of scrap material and other misc income. This income is estimated depending upon the previous year trend.

B. EXPENDITURE

Physical targets of excavation, ROM, and actual production i.e. Lump, CLO and fines are set by the top management after considering the available capacity of the mines and the market demand for each production unit. These targets are communicated to the projects. The bases of projecting the expenditure under major heads are summarized below:

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1) Raising& transporting charges:

Fine ore is the bi product of lump ore during production process. The production of fine ore cannot be avoided. While the lump is having market, fine ore was not having market initially. Hence, the quantity of fine ore produced was dumped in the valley nearest to the mine. However, recently, the market for fine ore has been picket up. To utilize the opportunity the fine ore dumped in earlier years is being retrieved and sold to the extent of demand. Engaging contractors do the retrieval process manually. The expenses are paid for retrieved quantity to the contractor at an agreed rate. The expenditure incurred for this purpose is classified under this.

The expenditure is projected for likely retrieval quantity from each mine and the expenditure to be incurred.

2) Consumption of stores & spares:

In its process of production, it requires various kinds of inputs for operating the machines and heavy earth moving equipment besides excavation process. Physical norms are fixed for each type of material for monitoring the actual consumption. The main items of stores & spares, which are required in the operations of NMDC, are classifies under the main categories:

1. Explosives2. Drill Bits3. Tyres & Tubes4. P.O.L (petrol, oil and Lubricants)5. Conveyor Belt6. General spares7. General stores

I. Explosives: This is the store required for blasting process at the mine. The area to be blasted depends upon the target excavation quantity. Bore holes are drilled with the help of drills and then the blasting material is filled of blasting. The blasting material required will depend upon the formation of blasting area. The expenditure is estimated for the required quantity at the latest t landed cost per unit. This exercise differs from mine to mine.

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II. Drill bits: These are the items required to make blast hoes with the help of drills for blasting operations. The drill bits are costly items. Depending upon the need indigenous imported drill bits are utilized. The life of the drill bit depends upon the rock formation and the type of the drill bit. Considering these factors. On of drills bits fore each type so assessed and the expenditure is projected at the latest t landed cost per unit.

III. Tyres & Tubes: These are required of heavy earth moving equipment to transport the excavation quantity from mining area to crushing plant. The requirement of tyres depends upon the quantity of material to be transported and distance to be covered. Further these are required for its trucks, jeeps and other light vehicles during course of the production operations. Considering the distance from mining is to crushing plant area, equipment wise tur4es tubes required is assessed and the expenditure is arrives at taking the latest landed cost into account.

IV. Petrol, Oil and Lubricants: This consists of mainly diesel and lubricants which are required for earth moving equipment like dumpers, dozers, trucks and jeeps etc. The consumption of diesel depends upon the excavation quantity to be transported and the distance to be covered in case of heavy earth moving equipment. In case of other vehicles like trucks and jeeps, the consumption generally is of fixed nature. Hence, the expenditure for this is estimated considering the necessary factors.

V. Conveyor Belt. The excavated material transported from mining area is transported to crushing plant for crushing the ore into small size. After crushing the ore, the same is transported mechanically to screening plant where the ore screened according to required size. Then the screened ore transported to loading plant area for loading the same into railway wagons. The transportation process from crushing plant to lading plant is done through conveyor belt. For this purpose, conveyor belt length required for replacement during the years is estimated and cost is arrived at anticipated actual landed cost.

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VI. Spares: This is the general spare required for operation of the main plant replacing the assemblies to mobile equipment and for other overhauling operations and also for servicing the vehicles etc. Generally the expenditure is assessed based on the previous year trend of expenditure.

VII. Stores: This is general store required of operation repairing of the main plant and other mobile equipment. Further these include the maintenance store required for township. Generally the expenditure is assessed based on the previous years trend of expenditure.

3) Salaries and Wages to employees

In case of NMDC this is fixed nature of expenditure, as there is no contract labor engaged. The salaries and wages include regular salaries, incentives paid and the welfare expenses to the employees. The expenditure under this head is estimated for each unit based on its no of employees, likely additions deletion, average salary paid to each employee during previous year with provision for increments and increase in DA etc.

4)Power & Electricity

While power is incurred for production process, electricity is the expenditure incurred for township and employees.

Power is required for operation of plant like Crushing screening and loading plants which operated on owner. This is variable expenditure. The power consumption norms for each ton of excavationproduction are fixed. Based on the norm production quantity and prevailing unit rate, expenditure for power is estimated. Based on township consumption per employee during previous year and unit rate prevailing.

5)Repairs & Maintenance

This is the expense incurred to upkeep the plant machinery, vehicles and other assets in working condition. Besides regular maintenance, periodical overhauling of heavy earth moving equipment also incurred. This also includes maintenance of township residential non-residential buildings in the township also. Generally, the expenditure is estimated based on the

68


percentage of expenses to its gross block in previous years for major category of asset with suitable escalation for current year. In addition, expenditure likely to be incurred for major overhauling of machinery, vehicles also will be taken into account.

NMDC started central workshop for major maintenance of its equipment and assemblies in Bailadila mines. This facility has the effect of reducing the repair expenses. Before establishing this unit, Major repairs are got done from outside parties, which escalated the expenditure. Now, NMDC is having full-fledged workshop for taking up major repair works.

6)Royalty

Royalty is the amount per ton of iron ore produced to respective state Govts. The state Governments publishes the rates of royalty payable of different products. Based on the rates for estimated production quantity, the royalty expenditure is estimates. In case of diamonds, royalty is payable at 10% of sales value. Hence, this is estimated based on estimated sales revenue from sale of diamonds.

7)Railway Freight

NMDC has railway sidings connecting the production units to the nearest ports. The export quantity from Bailadila mines is shipped through Vizag port and that of Donimalai from Chennai/Goa port. The export quantity is transported from mine to the nearest port by railways. The expenditure on this account is estimated for likely quantity of iron ore to be transported from each mine to the port at prevailing freight rate.

8)Selling expenses

This is the expense incurred mainly for amount payable to port authorities for loading the ore into ships. The expenditure is estimated for targeted shipment quantity at the prevailing port rates.

Besides shipment expenditure, other expenses incidental to sales like LC charges, bank charges, wagon leveling charges and other incidentals paid to Railways are also estimated and total selling expenses are estimated.

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9) Other expenses:

The administrative expenses like rent, rates, taxes insurance; audit fee, TA expenses, advertisement, environmental expenditure, security expenses and other misc. expenses are categorized under this head. The expenditure is estimated unit wise based on previous years trend also considering likely expenses of special nature id any.

10 Depreciation:

Depreciation is the provision made every year on assets for wear and tear of the equipment plant based on the life of each asset. This is the creation of fund for equipment plant based on the life of each asset. This is the creation of fund for future replacement of the asset. The life of each asset depends upon its nature. The plant life building life is restricted to the life of the main mainly. The technical experts assess the life of other machinery earth moving equipment etc. and depreciation is calculated accordingly. Any likely additions to the existing assets are also considered while projecting the expenditure in budgets.

While assessing the variable cost of production, physical norms are fixed for arriving the quantity of material required based on which the expenditure is projected. The actual physical quantity consumed is compared with standard norms fixed periodically. A cost review meeting is conducted every month at project level where heads of different departments will participate. In the meeting, actual consumption pattern of different material, power, POL etc. is reviewed with reference to previous year actual and norms fixed and the reasons for variance are analyzed. Any corrective action if required is taken.

At head office also, the cost of production at each unit is calculated and submitted for information of the management.

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SUGGESTIONS AND CONCLUSION

1. The cost can be bifurcated into controllable and uncontrollable cost.

2. All controllable Costs are to be identified to agencies and fix the responsibility for achieving the targets, so the costs can be really controllable thus improving the overall operation of the company.

3. Budgets are to be made on realistic basis so the responsibility fixation can be made

4. Responsibility fixation can be made at individual level, so that the individual may be more alert on achieving the targets fixed on him.

5. There is a lot of variation between budgets vs. actual exception reports may be generated for the personal of top management.

6. Budgeting in NMDC is mainly a performance-based id based on the performance

7. There should be effective coordination between the different departments like production sales, purchase finance marketing etc. this will enhance the efficiency of the organization.

8. There should be a proper budgeting control system.

9. To reduce the cash crunch it is necessary for NMDC to revamp the existing credit and budgeting policies.

10.ABC analysis of inventing control should be adopted in NMDC.

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11.A through review of operation on frequent intervals is required. These reviews should be made with the request of changing environment.

12.Orders received should be dispatched at proper time.

13.Job sequencing should be predetermined and should follow up the sequential process, until the end of the job thus the lead-time can be reduced.

14.There should be a proper communication between various departments and responsibility centers.

15.There should be well-organized manpower planning especially with regard to production.

16.Education about the importance of budgeting should be communicated to all concerned authorities, involved directly or indirectly to work according for the growth of the company.

17.Miscellaneous expenses have to be reduced mainly the collaboration charges.

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73


TEN YEARS PERFORMANCE(Rs. In Crore)

2004-05 2003-04 2002-03

2001-02

2000-01

99-2000

98-99 97-98 96-97 95-96

Operating statistics:Production @

1. Iron ore 2. Diamonds (Carats)

20.7478217

17.9671163

16.9784348

15.6381.21

15.0556955

13.5740230

11.6534201

14.7030591

13.3631561

13.7729463

Sales1. Iron ore (WMT) In

million2. Diamonds (carats)

23.2286257

20.6684097

19.5170787

17.4676944

18.1544154

15.1543322

13.0934133

15.6343322

14.1826829

14.3631454

Financial Statistics:INCOME

1. Sales iron ore 2.Sales Diamonds 3. Sales others 4. Income from services 5. Other income 6. Stock Adjustments

2180.5843.822.153.44

105.28-3.75

2331.52

1411.3936.191.274.8477.071.941532.70

1177.31.171.134.6597.1517.951294

109233.780.322.9799.8738.191269

98624.480.652.9659.9512.861087

76520.170.864.3349.115.18845

70223.130.322.9648.732.66844.78

73918.100.122.6144.322.63807

62919.320.132.1279.081.28731.73

57017.950.300.8330.301.55621

PROFIT 1. Profit before Depreciation, interest And taxes2. Depreciation3. Interest4. Profit before tax5. Taxes6. Profit/Loss after Depreciation interest and Taxes7. Dividend

1287.49

63.84-

1223.65468.21

755.44

151.32

670.00

53.98-616.02183.39

432.63

46.25

462.46

42.28-420107

312

39.65

388

39.925.07343.987.39

256.55

33.04

352

36.10-316.081.06

234.9

33.04

241

33.36-

20747.72

160

33.04

202

30.18-171.9931.59

140

33.04

253

35.69

216.41.66

175.0

33.04

208

38.230.04169

39.79

129

33.04

189

38.900.08150.4654.93

95.53

26.43

FINANCIAL POSITIONEquityReserves& surplusLong term loans from GovtShort term loans from banks Gross fixed assetsNet fixed assetsOther assetsCapital work in progress

132.162471.36

--

1176537.4434.3731.75

2804.78

132.161893.20

--

1148.15574.2758.4966.241923.10

132.1512

--

80728553.17374.31457

1321245

--

75727245.273491148

1321017

--

74229325.31306986

132818

--

68927421.70272863

132695

--

64526133217757

132591

--

5952416.63127439

132452

--

5662465.1448.15404

132359

-4.75

5102275.3642.27319

74


Current liabilities Deferred tax assetCapital employed*Net Worth Book value per shareEarnings per share

866.64-12.13

2475.582568.77194.37

57.16

675.686.671821.691966.87148.83

32.74

57213.6411801591120.4

23.60

4549.919661332101

19.38

496

783112385.05

17.87

522

61592970.30

12.30

480

53879460

11.03

174

50671754

13.24

152

50257944

9.84

131.26

415.1248636.78

7.23

* Excludes Investments@Production figures as per Balance Sheet

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The expenditure of the company is distributed in the following way for the development of the workers and their health and the education for their children. It is also taking care of the transport and the township for the people near by the company. The distribution is shown with the help of PIE diagram.

Town ship 16.94Health care 13.98Education 7.14Transport 3.42Recreation 1.48

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Sales of iron ore 2180.58

77


Sales of diamonds 43.82Interest dividend income 87.85

Other income 19.27

Stores and spares 127.78

78


Power 42.99Payment to employees 190.96Repairs other expenditure 183.08Depreciation 63.84Dividend 151.32Taxation 488.95Freight selling 488.17royalty & cess 51.05Retained in business 583.38

PROFIT BEFORE TAX316.04

79


343.94420.18616.02

1223.65

80


DIVIDEND PAYMENT

81


33.0433.0439.6546.25151.32

SALES OF DIAMONDS

82


4451476944707878419786257

Balance sheet as at 31 st march, 2005

83


PARTICULARS SCHEDULE AS at 31st MARCH, 2005

AS at 31st MARCH, 2004

SOURCES OF FUNDS

Shareholders funds:

Share CapitalReserves & surplus

Grants-in-aidDeferred Tax LiabilityTotalAPPLICATION OF FUNDSFixed AssetsGross blockLess: DepreciationNet BlockCapital Work in Progress

INVESTMENTSDeferred Tax Asset

Current Assets, Loans& Advances:InventoriesSundry DebtorsCash & Bank balOther Current AssetLoans & Advances

Less: Current Liabilities& ProvisionsCurrent LiabilitiesProvisions

Net Current AssetsMiscellaneous Exp(To the extent not written off or adjusted

12

3

4

5

6

7891011

1213

14

132.162471.36

1176.78639.34537.4431.47

117.11184.74

1904.820.52

597.592804.78

242.82623.82866.64

2603.520.17

12.13

2615.82

568.9174.020.00

1938.1434.75

132.161893.20

1148.15573.88574.2766.24

118.38185.60

1091.610.52

526.991923.10

173.69501.99675.68

2025.361.950.00

2027.31

640.5174.026.87

1247.4258.49

84


TOTAL2615.82

2027.31

BIBLOGRAPHY

85


ADVANCE MANAGEMENT ACCOUNTING: By R.P. TRIVEDI

ADVANCE MANAGEMENT ACCOUNTING: By MANOJ TRIVEDI

FINAICIAL MANAGEMENT : By I.M PANDEY

FINANCIAL MANAGEMENT : By S.C KUCCHAL

FINANCIAL MANAGEMENT : By M.Y. KHAN

DECLARATION

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I here by declare that this project report entitled Budgeting control with

reference to NMDC has been prepared by me and is my original work under

the supervision of Mrs. T. Sirisha faculty of the MBA dept (S.V. PG.

College secbad) and has not been submitted earlier to any university /

institutions of the award of any degree/ diploma.

87