budeget preparation

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PresentationPresentationonon

Budget PreparationBudget Preparation

By:By:

Bhavik Makwana (1733)Bhavik Makwana (1733)

Jimmy Modi (1739)Jimmy Modi (1739)Jayraj Parmar (1744)Jayraj Parmar (1744)

Vijay Parmar (1747) Vijay Parmar (1747)



What is Budget?

It usually covers one year & states the revenues

& expenses planned for that year.



Characteristics

Estimates the profit potential

Stated in monetary terms though monetary amount may be

backed up by non monetary amounts

It is a management commitment; managers agree to accept

responsibility for attaining budgeted objectives

The budget proposal is reviewed & approved by higher authority

Periodically actual financial performance is compared to

budget, and variances are analyzed & explained



Use of Budget

Fine-tuning the strategic plan

Coordination

Assigning responsibility

Basis for performance evolution



O perating Budget Categories

1. Revenue budgets

2. Budgeted production cost & cost of sales

3. Marketing expenses

4. General & administrative expenses

5. R&D expenses

6. Income taxes



Other BudgetsOther Budgets

Capital budget Capital budget

Budgeted balance sheet Budgeted balance sheet

Budgeted cash flow statement Budgeted cash flow statement Management by objectivesManagement by objectives



Budget Preparation ProcessBudget Preparation Process

OrganizationOrganization

--Budget department Budget department

--Budget committeeBudget committee

Issuance of guidelinesIssuance of guidelines Initial budget proposalInitial budget proposal

--change in external forceschange in external forces

--change in internal policies and practiceschange in internal policies and practices

NegotiationNegotiation Review and approvalReview and approval

Budget revisionsBudget revisions

Contingency budgetsContingency budgets



Behavioral AspectsBehavioral Aspects



Participation in The BudgetaryParticipation in The Budgetary

ProcessProcess A budget process is either: A budget process is either:

Top downTop downoror

Bottom upBottom up



Participation in The BudgetaryParticipation in The Budgetary

Process cont«Process cont«The effect of budget participation onThe effect of budget participation onmanagerial motivation are:managerial motivation are:

To be greater acceptance of budget goalsTo be greater acceptance of budget goalsif they are perceived as being underif they are perceived as being undermanagers' personal control, rather thanmanagers' personal control, rather thanbeing imposed externally.being imposed externally.

For effective information exchanges.For effective information exchanges.



Degree of Budget TargetDegree of Budget Target

Difficulty

Difficulty

If the budgets target is too difficult.If the budgets target is too difficult.

Achievable budget targets reduce the Achievable budget targets reduce the

motivation for managers to engage in datamotivation for managers to engage in datamanipulation to meet the budget.manipulation to meet the budget.

A profit budget that is very difficult to A profit budget that is very difficult toattain usually implies on overly optimisticattain usually implies on overly optimisticsales targets.sales targets.

Business unit managers will not put Business unit managers will not put satisfactory effort once the budget is met.satisfactory effort once the budget is met.



Senior ManagementSenior Management

InvolvementInvolvement

Must participate in the review andMust participate in the review and

approval of the budgets, and the approvalapproval of the budgets, and the approvalshould not be a rubber stamp.should not be a rubber stamp.

Must follow up on budget results.Must follow up on budget results.



The Budget DepartmentThe Budget Department

Budget analysisBudget analysis

The member of the budget department The member of the budget department

must have a reputation for impartialitymust have a reputation for impartialityand fairness.and fairness.



QuantitativeQuantitativeTechniquesTechniques



SimulationSimulation

It is a method that constructs a model of aIt is a method that constructs a model of areal situation and then manipulates thisreal situation and then manipulates thismodel in such a way as to draw somemodel in such a way as to draw someconclusion about the real situation.conclusion about the real situation.

Preparation and review of a budget is aPreparation and review of a budget is asimulation process.simulation process.



Probability EstimatesProbability Estimates

Each amount in a budget is a point Each amount in a budget is a point estimatesestimates--that is, it is the single most that is, it is the single most likely amount.likely amount.

Point estimates are necessary for controlPoint estimates are necessary for controlpurposes.purposes.

In any event, probabilistic budgets areIn any event, probabilistic budgets arerarely found in practice.rarely found in practice.



Budgeting atBudgeting at

Reliance Industries Ltd.Reliance Industries Ltd.



Budgeting StructureBudgeting Structure

Starting on either by end of December or Beginning

of January

Completing on or before 31st March

Issued in three part

25 % on 1st October of

Financial year

50 % on 1st April on financial

year

25 % on 1st January of

Financial year



Types of BudgetTypes of Budget

Capital Budget Capital Budget

Revenue Budget Revenue Budget



Techniques used for evaluating investmentTechniques used for evaluating investment

proposals are widely available.proposals are widely available.

PaybackPayback

Accounting Rate of Return Accounting Rate of Return Internal Rate of ReturnInternal Rate of Return

Net Present Value methodNet Present Value method

Profitability IndexProfitability Index



Process Flow Chart of Capital BudgetProcess Flow Chart of Capital Budget

Initiator/Owner

Again, it comes to

Initiator/Owner

Budget Section

Site President

Different Division (L1, L2, L3)

HOD (Head of Department

Initiator/Owner giving all details of there needs

and requirement on Capex Portal

Proposal should have to approved by HOD of

particular plant

Site President has Final Authorization to approvedthe proposal

Different Divisions like Technical, Environmental,

Health, Fire etc approved it.

Finalized the Budget Proposal as per the

requirement of Initiator on Capex Portal

And clarified the Fund Center to where they

assign the Fund for the payment.

Purchase Department

Hear Initiator create PR for there requirement

with the help of sources available at external

market

Purchase department negotiate the price of

particular product with other source and finallycreate PO



Pur pose of BudgetingPur pose of Budgeting

Increase the Production CapacityIncrease the Production Capacity Increase RevenueIncrease Revenue Cost saving or Deduction in cost Cost saving or Deduction in cost Reducing the consumption of Raw material, Catalysts,Reducing the consumption of Raw material, Catalysts,

and Chemicals.and Chemicals. Reducing energy consumption.Reducing energy consumption. Enhancing the Reliability, Flexibility and ease of Enhancing the Reliability, Flexibility and ease of

operationoperation Renewal of Assets in terms of technology obsolescence.Renewal of Assets in terms of technology obsolescence. Enhancing the performance in the field of Health, Safety,Enhancing the performance in the field of Health, Safety,

and Environment.and Environment.

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