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8/3/2019 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)
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What is Budget?
It usually covers one year & states the revenues
& expenses planned for that year.
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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
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Use of Budget
Fine-tuning the strategic plan
Coordination
Assigning responsibility
Basis for performance evolution
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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
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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
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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
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Behavioral AspectsBehavioral Aspects
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Participation in The BudgetaryParticipation in The Budgetary
ProcessProcess A budget process is either: A budget process is either:
Top downTop downoror
Bottom upBottom up
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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.
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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.
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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.
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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.
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QuantitativeQuantitativeTechniquesTechniques
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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.
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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.
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Budgeting atBudgeting at
Reliance Industries Ltd.Reliance Industries Ltd.
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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
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Types of BudgetTypes of Budget
Capital Budget Capital Budget
Revenue Budget Revenue Budget
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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
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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
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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.