ANALYTICAL STUDY OF BUDGETARY PROCEDURES AND POLICIES AT IOCL

By Kapil Goyal 201057 Fmg-20

INDIAN OIL CORPORATION

Indias flagship oil company with workforce of over 34,000.

It has refining capacity of 65.7 MMTPA and throughput of 68.5 million tones.

India's largest company by sales with a turnover of Rs. 3,28,744 crore and profit of Rs. 7445 crore.

It serves every nook and corner of the country

COMPANY PROFILE
Organizational Structure Organizational Structure
IOCL Refiner y

Pipeline s

Marketing
Western
Region Office

R&D
Souther n Region
office

AOD

Easter n Region
Office

Norther n Region
Office

DSO

PSO

RSO

UPSO 1

UPSO 2

PROJECTS UNDERTAKEN

Kutch district of Gujarat

Orissa and PAN India underway

States of Chattisgarh and Maharashtra

OBJECTIVE OF PROJECT
To understand the principles and procedures involved in the preparation of the budget.

Learn about the different types of Budgets and importance of each.

Compare actual vis--vis Budget norms and analyze the reasons for the variation.

DATA COLLECTION

FINANCIAL STATEMENTS

SAP INFORMATION

BUDGET

It is a plan prepared in advance and is expressed in financial terms. It shows the financial and operating resources of the firm. Process of budgetary control that aims at comparing the actual performance with the budgeted one and to provide basis for its revision. It always has a time dimension.

OPERATING
CAPITAL

FINANC IAL

COMPONENTS OF BUDGET

BUDGETING AT IOCL

RBE (Revised Budgeted estimate) for the current yearIncorporates the actual expenses in the current year.
Actual of immediate previous year - Extraneous/ one-time actual expenses included in the above year expenses Budgetary Cut Imposed by HO previous

+ Inflation / Escalation is added as per normal inflation rate. + New activity / onetime expenses proposed during the year

OBE (Original Budgeted estimate) for the next year. OBE are initial estimates for the next financial year on the basis of last financial years actual expenditure.

= Revised Budget Estimates (RBE)

BUDGET HIERARCHY

STAGES OF PLANNING
Perspective plan covering a period of 10 years based on demand, alternative sources of energy. Five year plan prepared to synchronize with govts 5 year plan.

5 year plan divided into annual plans which indicates annual cash outgo.

CAPITAL BUDGET

Capital budget at IOCL is prepared in the month of May and is completed by the end of June. Budget is approved by the Board of Directors. Evaluation of the project is done by two methods

1. Net present value method (NPV)

2. Internal rate of return method (IRR)

REVENUE BUDGETING

4.5 Budgeting Units

4.5.3 Functions

4.5 Budgeting Units

4.5.4 Offices

Installations Depots DOs (Divisional Offices) Aviation Fuelling Stations (AFS) Lube Plants Administration other than LPG LPG Bottling Plants LPG Admin LPG AOs Retail

NRO (1000) DSO (1100) PSO (1200) RSO (1300) UPSO 1 (1400) UPSO 2 (1500)

REVENUE BUDGET HEADS

CONTROLLABLE NON-CONTROLLABLE

Overtime Travelling & Conveyance Lunch/Conveyance Allowance Repairs & Maintenance - LPG Repairs & Maintenance - Others Consumable Stores - LPG Consumable Stores - Others Electricity, Water & Fuel Handling Expenses - Casual Labour Handling Expenses - Others Printing & Stationery Communication Expenses Publicity and PRS Sales Promotion Miscellaneous Expenses EDP Expenses Books & Periodicals

Salaries & Wages Bonus Contribution to PF/FPF Medical Expenses Leave Travel Concession Other Welfare Expenses Contribution to Gratuity Fund Uniforms & Clothing Rates & Taxes Exchange Fluctuation Audit Fees Bad debts/Advances/Claims W/off Expenses Transferred from Other Div. Provision for Doubtful debts VRS Compensation Maintenance paid to Employees Terminalling Charges Inventory Carrying Cost

REVENUE BUDGETING Budgeting Units 1. Cost Centre

Each separate unit for which cost need to be captured is allotted a COST CENTRE All expenses in SAP are booked in for that location against that COST CENTRE Cost Centre is Mandatory Field in SAP for booking Expenses
LOCATION MRN - Administration & Welfare MRN - Personnel MRN - Training

Cost Centre

Commitm ent Item

Functional Expenditure

COST CENTRE M01002 M01004 M01005

REVENUE BUDGETING

Budgeting Units
2. Commitment item

Each Expense Code is assigned a COMMITMENT ITEM COMMITMENT ITEMS represents the type of Expense Broadly two type of Commitment Items Controllable & Non Controllable Controllable : C_* Non Controllable : N_*

Cost Centre Commit ment Item Functional Expenditure

COMMITMENT ITEMS
TYPE COMMITMENT ITEM C_COMMEXP COST HEAD Communication Exp - Control

C_CONVEY
CONTROLLABLE C_ELECTRIC C_HOLIDAY C_LTOUR C_MISC C_OVERTIME N_CANTEEN N_GRATUITY N_INCBONUS N_LTC N_MEDICAL NON-CONTROLLABLE N_PERBONUS N_PF

Local Conveyance Control

Electric & Water Charge - Control Holiday/Extended Hrs Exp - Control Tours Local Control Miscellaneous Exp - Control Overtime (Controllable) Canteen Expenses Non Control Contribution to Gratuity Non Control Bonus Incentive Non Control Leave Travel Concession Non Control Medical Expenses Non Control Performance Bonus Non Control Contribution to PF and FPS Non Control

N_R&MOFF
N_R&MOTCON N_REIMBCAR N_RENT N_SABF N_SALARY

Rep&Maint-Off - Non Control

NON CONTROL CONTRACTOR R&M OTHERS

Officers Reimb Car NonControl Rent Expenses - NonControl Contribution to SABF NonControl Salary Wages & Allowance Non Control

DATA ANALYSIS(ADMINISTRATION)
ADMINISTRATION EXPENDITURE HEAD Overtime Travelling & Conveyance Total Lunch & Conveyance for officers Repairs and Maintenance Others Consumable Stores - Others Electricity, Water & Fuel Handling - Others Printing & Stationary Communication Publicity & PR Sales Promotion Miscellaneous expenses EDP Expenses Books and Periodicals 2010-11 Budget Estimate 23.37 107.84 9.61 2010-11 Actual 11.07 27.57 25.20 52.66 74.43 -162.21 Deviation

67.20 38.64 12.67 14.28 10.39 78.89 6.65 416.89 24.15 3.17 0.57

53.84 12.11 15.68 20.07 7.24 42.88 0.68 0.59 21.53 0.34 0.37

19.88 68.66 -23.70 -40.54 30.31 45.64 89.72 99.86 10.84 89.26 34.28

Under overtime legacy head deviation is due to merger of IBP wit IOC Repair and Maintenance Projects like painting of buildings, cleaning of windows are due for approval from the board/Head Office. Expenditure head of Miscellaneous Expenses is attributed to the addition of the expenses of the guest house in this head. Merger lead to establishment of 3 more guest houses.

Controllable Items for Installation

INSTALLATION EXPENDITURE HEAD Overtime Travelling & Conveyance Total Lunch & Conveyance for officers Repairs and Maintenance Others Consumable Stores - Others Electricity, Water & Fuel Handling - Others Printing & Stationary Communication Sales Promotion Miscellaneous expenses EDP Expenses Books and Periodicals 2010-11 Budget Estimate 485.98 199.55 57.11 1077.49 382.37 361.60 117.72 32.92 34.25 238.96 39.79 0.17 0.11 2010-11 Actual 385.11 88.92 25.20 53.84 22.60 375.78 189.63 13.39 36.28 1.00 28.09 0.34 0.03 20.76 55.44 55.87 95.00 94.09 -3.92 -61.08 59.32 -5.93 99.58 29.41 -95.80 73.49 Deviation

Under communication head there is a very slight deviation due to the budget control exercised during this year by the company. While on the contrary during the year 2010-11 the actual budget exceeded the revised budget by around 300%.

This is attributed to the reimbursement scheme for the mobile bills of the employees introduced by company.

Controllable Items for Aviation

AVIATION EXPENDITURE HEAD Overtime Travelling & Conveyance Total Lunch & Conveyance for officers Repairs and Maintenance - Others Consumable Stores - Others Electricity, Water & Fuel Handling - Others Printing & Stationary Communication 2010-11 Budget Estimate 534.45 52.58 20.42 68.15 44.54 89.67 17.97 3.67 11.95 0.01 Sales Promotion Miscellaneous expenses 6.44 2010-11 Actual 329.68 14.71 25.19 63.18 36.04 81.27 14.86 4.81 7.31 0.25 21.53 Deviation 38.31 72.02 -23.36 7.29 19.09 9.36 17.32 -31.10 38.84 -2595.19 -234.49

Increase in Consumable Stores attributed to an increase in expenditure in the states of DSO, PSO and RSO

Controllable Items for Area Office

AREA OFFICE 2010-11 2010-11 Deviation EXPENDITURE HEAD Budget Estimate Actual

Travelling & Conveyance Total

25.09

30.84

-22.91

Lunch & Conveyance for officers

1.84

28.84

-1,470.35

Repairs and Maintenance Others Handling - Others Printing & Stationary Communication Sales Promotion

26.84 6.26 3.40 6.96 850.17

23.17 7.71 21.40 9.21 108.62

13.69 -23.20 -529.90 -32.36 87.22

Miscellaneous expenses EDP Expenses

3.37 0.68

5.38 0.67

-59.53 1.19

Books and Periodicals

0.04

0.04

0.88

In the year 2010-11 the actual budget has exceeded the revised budget because of the IBPS merger Increase in lunch and conveyance because they have been reimbursed with their canteen and travelling expenses. Under Installation Department, in the expenditure head of Electricity, Water and Fuels, there has been an increase in this function by a large amount which has been majorly contributed by DSO.

Reappropriation Scheme

Locations must ensure that necessary budget is available before placement of any work order or incurrence of any revenue expenditure. In case of extreme emergencies, re appropriation of revenue budget could be resorted to as per the scheme provided

S.No.
1.

Expenses
Within the same expense head e.g.-Consumption of stores, Traveling, etc. Within the same expense head

Reappropriation

Approving Authority

From one depot to another depot under Divisional Manager Controlling the jurisdiction of a particular Divisional the Depots Office One location to another location (other State Office head than depots) within the same function under the control of a particular State Office From one location to another location from State Office head different functions within the controlling State Office Eg. From Bottling Plant to Terminal From one AFS to another AFS Aviation in-charge of Regional Office

2.

3.

Within the same expense head

4. 5.

Within the same expense head Within the same expense head

From one location to another (under the ED Region same function or from different function) falling under different State Offices

6.

Within the same expense head

7. 8. 9.

Within the same expense head Within the same expense head

From one cost centre to another cost State Office head centre - At State Offices From one cost centre to another cost ED - Region centre - At Region
From one cost centre to another cost Respective EDs centre - At HO

From one expense head to another expense Within the same location and ED Region head also from one location to another location Respective functional E.g. From Traveling to within the same function or from different ED at HO. Consumption of stores functions falling within the same State Office or different State Offices

CONCLUSION REASONS FOR DEVIATION BETWEEN ACTUAL & BUDGETED

Changes in the economy
Change in the preference of people Change in Government policies Unexpected incidents

No involvement of people from the operations

Unpredictable future New schemes Unplanned Actions Others

RECOMMENDATIONS
Budget controller Involvement of people from operations More appropriate assumptions`` Proper division of work Specialization Reduction of unplanned activities Achievable targets Budget centre Determination of key factors Decentralization of activities

LIMITATIONS

Time constraint

Unable to Extract Figures of Variances and some other Financial Data

Analysis of only DSO region

THANK YOU