BUDGET & BUDGETARY CONTROL

Salient Features of Budgeting

Budgeting
Includes

planning and preparation of both

physical & financial targets, appraisal and
reporting

A managerial

process not a basis for obtaining

funds or fixing ceiling for expenditure

Enables the management to review the actual

performance as compared with the promise and
intentions.

Budgeting contd.
For

commercial public undertakings a

comprehensive budget covering all

activities and the entire organisation
is needed

ZERO-BASE BUDGETING
Zero-Base Budgeting is a technique of planning and
decision-making. It reverses the working process of
traditional

budgeting.

In

traditional

incremental

budgeting, departmental managers need to justify only

increases over the previous year budget. This means
what

has

been

already

spent

is

automatically

sanctioned. In case of ZBB, no reference is made to

the previous level of expenditure.

ZERO-BASE BUDGETING
Every

department

function

is

reviewed

comprehensively and all expenditures rather than only

increases are approved. ZBB is a technique, by which
the budget request has to be justified in complete detail
by each division manager starting from the Zero-base.
The Zero-base is indifferent to whether the total budget
is increasing or decreasing.

ZERO-BASE BUDGETING IMPLEMENTATION

A Developing Decision Packages
The decision package is a term associated with ZBB, and
refers to an analysis of each discrete activity, according to
cost and purpose. The analysis should also extend to
considering the benefits of the activity, alternative courses of
action, how to measure performance, and the consequences of
not performing the activity. Decision packages should relate to
activities that are stand-alone; a good test is whether a decision
could be made to sub-contract, or to abandon the activity
altogether, without materially affecting the deliverability of another
activity. This is a could it be done question, rather than should it
be done.

ZERO-BASE BUDGETING IMPLEMENTATION

B Ranking the decision packages
The decision packages should be evaluated and ranked in order of
importance. Performance measurement tools including cost/benefit
analysis are clearly a very important component, but it is also
appropriate to apply a level of subjectivity.

C Allocating resources
The ranking list then results in a priority order for the allocation of
resources. The most important activities are funded, whether they are
existing ones, or new. The final budget will be made up of the
decision packages that have been approved for funding, reallocated
into the appropriate operational units.

ZERO-BASE BUDGETING MERITS &

DEMERITS
Advantages of Zero-Base Budgeting
Results in efficient allocation of resources as it is based on
needs and benefits
Drives managers to find out cost effective ways to improve
operations
Detects inflated budgets
Useful for service departments where the output is difficult
to identify
Increases staff motivation by providing greater initiative and
responsibility in decision-making
Increases communication and coordination within the
organization
Identifies and eliminates wastage and obsolete operations.
Identifies opportunities for outsourcing.
Forces cost centres to identify their mission and their

ZERO-BASE BUDGETING MERITS &

DEMERITS
Disadvantages of Zero-Base Budgeting
Difficult to define decision units and decision packages,
as it is very time-consuming and exhaustive.
Forced to justify every detail related to expenditure. The
R&D department is threatened whereas the production
department benefits.
Necessary to train managers. ZBB should be clearly
understood by managers at various levels otherwise they
cannot be successfully implemented.
In a large organization, the volume of forms may be so
large that no one person could read it all. Compressing
the information down to a usable size might remove
critically important details.
Honesty of the managers must be reliable and uniform.
Any manager that is prone to exaggeration might skew

Types of Budget
Revenue
Capital
Cash

Budget

expenditure budget

budget

Revenue Budget consists of:

Sales

and Income Budget

Production

budget showing separately:

Inventories

Materials requirements or purchases

Manpower requirements

Manufacturing expenses

Overheads estimates

Research

and development estimates

Revenue Budget contd.

Administrative overheads showing separately:

Selling

Interest on loan & working capital

Township and welfare expenditure

Establishment expenses

General Office & miscellaneous expenses

& distribution expenses:

Publicity expenses

Selling costs

Capital Budget
Detailed

feasibility reports containing technical

assessment & economic viability are made

Overall

capital budget made on the basis of

feasibility report giving overall financial estimates
and time-table of project execution

Annual

budget for capital expenditure prepared

within the framework of overall capital budget

Actual

capital expenditure compared periodically

Cash Budget
Forecasts

for cash receipts

Forecasts for cash disbursements

Appraisal and Reporting

Budgetary

process two-way process

submission upwards of estimates for different

units and the transmission downwards of
approved estimates for monitoring actuals.
Actuals

to be compared with estimates

monthly and reasons for variations analysed.

Revision

of budget estimates annually.

Budget Manual BPE circular

Forms for compiling basic information

Time schedule & procedure for preparation

Responsibility centres, cost centres

Forms & procedures for periodical reviews

Reporting procedures & communication channels between

management levels

Integration between budget heads, financial & cost

accounting heads

Revenue (O & M) Budget of NTPC

Physical Parameters Unit I Unit II ..
1.
2.

Gross Generation(MU)
Auxiliary Consumption
a)
b)

3.
4.
5.
6.
7.

Percentage(%)
No. of Units(MU)

Internal Consumption(MU)
Energy Sent Out(MU)
Heat Rate(Kcal/KWh)
Specific Coal Consumption(Kg/KWh)
Specific Oil Consumption(Ml/KWh)

Total

Revenue (O & M) Budget of NTPCcontd.

Physical Parameters Unit I Unit II ..
8.
9.
10.

Total

GCV of Coal(Kcal/Kg)
GCV of Oil(KCal/KL)
Make-up Water (%)

Financial
A. Income:
a)
b)

Sales Revenue
Other Income
Total A

Unit I

Unit II ..

Total

Revenue (O & M) Budget of NTPCcontd.

Financial
B.

Unit I

Unit II ..

Total

Expenditure:
1. Operating Cost
a) Coal
b) Oil HFO, LDO, HSD, LSHS
c) Gas
d) Chemicals
e) Water
f) Consumables
g) Employee Cost
Sub-total

Revenue (O & M) Budget of NTPCcontd.

Financial
B. Expenditure:
2.

Unit I

Unit II ..

Repairs & Maintenance Cost:

a) Material Costi)annual overhaul
ii)preventive maintenance
iii)breakdown maintenance
b) Employee Cost
c) Maintenance Jobs
Sub-total

Total

Revenue (O & M) Budget of NTPCcontd.

Financial
B. Expenditure:
3.
a)
b)
c)
d)
e)
f)

Unit I

Unit II ..

Station and General Overheads:

Security Expenses
Travelling expenses
Insurance Premium
Telecommunication Expenses
Books & Periodicals

Sub-total

Total

Revenue (O & M) Budget of NTPCcontd.

Financial
B. Expenditure:
4.
5.
6.
7.

8.

Unit I

Unit II ..

Depreciation
Interest on Loans
Interest on Working Capital
Deferred revenue expenditure
written off
Other Expenses
Total B

Total

Revenue (O & M) Budget of NTPCcontd.

Financial

Unit I

C. Project Profit(+)/Loss(-)
D. Share of CC & Regional
Expenses
E. Net Profit(+)/Loss(-)

Unit II ..

Total

Capital (Construction) Budget of

NTPC
Components of Construction Budget:
1.
Direct Capital Outlay
2.
Commissioning Expenses
3.
Construction Materials
4.
Technical Consultancy
5.
Training and Recruitment
6.
Incidental Expenditure during Construction (IEDC)
7.
Miscellaneous Bought-out Assets (MBOA)
8.
Interest during Construction (IDC)
9.
Working Capital Margin

Capital (Construction) Budget of

NTPC-contd.
Components of Construction Budget:
10. Capital Expenditure not represented by Assets
11. Township and Social Overheads

Budget Format
Item
Description

BE
Actuals
2008- for April
2009 to Jun
2008

Estimated
for July
2008 to
March
2009

Total
RE
20082009

BE
20092010