IMPORTANCE OF

BUDGETING
&

BUDGETING
PROCDURES
 Introduction

 1.Budgeting is the procedure which help to know the future financial requirements, the
plan when presented in written form is called budget. It includes budget plan and
budgetary control and other related techniques.

 2.It provides a tool to the management for controlling the activities of the employees.

 3.In the words of W. J. Valter, “Budgeting is a kind of future accounting in which the
problems of future are met on paper before the transaction actually occur.”
 Types of Budgeting

1. 1. Plan Expenditure
Budgeting (CAPEX)
is the process of creating a plan to spend your money. This
spending
SURVEY plan is called a budget.
EXPLORATORY DRILLING DEVELOPMENT DRILLING

2. Creating this spending plan allows you to determine in advance whether you will
have enough money to do the things you need to do or would like to do.
R&D CAP. PROCUREMENT

2. Non-Plan Expenditure (OPEX)

COST INCURRED IN PROD.OF PETROLEUM PRODUCTS

&
MAINT. OF FACILITIES
 IMPORTANCE
OBJECTIVE OF
OFBUDGETING
BUDGETING

 Induces stakeholders to think systematically and plan ahead about the future activities and fin
 Budget process consists of processes and activities that incorporate the creation, implementatio
 Incorporates a futuristic perspective
 Medium for communicating the financial goals.
 Establishes linkages to the strategic organizational goals
 Stresses budget decisions on results and outcomes
 Device for synchronizing the complex operations of the business
 Involves and stimulates effective communication
 Fosters collaboration amongst various stakeholders by providing incentives and flexibility that ca
 Driving factors of budgeting

 Cost: The unit cost of an activities like drilling, production, survey etc., estimated by
the actual cost of the past three years, is used as a standard for preparing the
budget. The physical targets are multiplied to the unit cost and thus a benchmark
budget estimates is obtained.

 Inventory: Inventory management is essential to optimize inventory carrying cost as it

directly leads to rise non performing assets. Thus before preparing the budget for stores
and spares, the available item in stock is kept in view.

 Profitability: The principal focus of any organization is to make profit, thus

 cost effectiveness and efficiency are two prime factors which needs to be emphasised.
 BUDGETING PROCESS
Executive
Assets/Basins/ Plants
Director Corporate Committee
(Preparation of physical
targets) approval Budget Section (Approval of
physical targets)

Physical targets
Line item wise Local Budget
preparation of Head of Fund Center Coordinator
financial budget (Review) (Allocation of service
at Cost center 6 cost)

Financial
targets
Head of Finance &
Board of Directors key executives Corporate Budget
EC review
(Final approval) Asset/Basin/ Plant Section
(Moderation) (Compilation,
review, moderation)

SAP Upload
As Is Financial Concurrence Process

Budget Requirement Proposal PR

Approved generated Prepared prepared

Financial Review by Material

Concurrence Resource Planning
process (MRP) controller

Examination of
proposal

Verification of
PR in SAP SAP
Procurement
Release
process start
Cost benefit (PR)
analysis
Fund
availability PO release
7
 CHALLENGES UNDER PRESENT
SCENARIO

Budgetary planning is prepared based on natural heads, due to which there is lack
of correlation between the activities and outcomes at work centers
Financial Concurrence is not linked to any defined outcomes or physical targets
The objectivity of concurrence is not attained since each item cannot be justified
economically
Maturing fields,volatility of crude oil prices
Absence of performance tracking of the project as per the agreed delivery targets.
Finance teams at work centres need to be strengthened for carrying out detailed
due diligence of projects and proposals
 CHANGES IN BUDGETING PROCESS

ONGC has recently taken a strategic decision to interlink outcomes with physical
activities, concurrence, budget and procurement process for better control

Schemes will be envisaged at each work centre

Financial concurrence is accorded for
indent of each line item belonging to
various categories (natural heads) like
Capital, Spares & Stores, Manpower,
Contractual and Others.
and approved by competent authority
POST SCHEMES Financial concurrence & sanction will be provided
FORMATION Scheme wise
Expected annual outflow under individual Scheme
would be compiled to prepare final budget
proposal for RE & BE
Benefits of New Budgeting & Planning Process

Efficient • Accuracy in planning and financial prudence during

Planning budget preparation
• Improved accountability of budgeting process

Outcome • New process of schematization is linked with business

Alignment outcomes which in turn aligns with ONGC’s strategic
objectives

Execution • Faster and smooth process leads to improved project

Efficiency efficiency
• Judicious deployment of resources and services

• Increases control and helps monitor utilization of

Control &
Monitoring resources between budgeted and actual
implementation requirements

10
 SHIFT OF BUDGETING
BDP 2009 – Based
on 6 Natural Heads
BDP 2015 – Schemes
account for all costs

Basin
Assets Plants
s

Corporate Institutes Services

 Qualification of schemes
Level for Schemes formation
Economic Functional
Schemes Basin Asset Corporate Plant Institute Service
Activity Groups

Preferably
Survey Scheme No NA NA NA NA NA Basin
Block

Exploratory Preferably
No NA NA NA NA NA Basin
Drilling Scheme Block

Development Preferably
Yes NA NA NA NA NA Asset
Drilling Field
Preferably Preferably
Facilities Yes NA NA NA NA Asset, Plant
Field Plant
Operating Preferably Preferably Asset, Plant,
NO NA NA Institute NA
expenses Field Plant Institute

Corporate Asset, Basin, Plant,

No NA NA Corporate Unit NA NA NA
Overhead Institute, Corporate

Asset, Basin, Plant,

CSR Scheme No NA NA Corporate Unit NA NA NA
Institute, Corporate

Asset, Basin, Plant,

Preferably Preferably Preferably Service
Capital Yes Corporate Unit Institute Institute, Services,
Block Field Plant unit
Corporate

R&D No NA NA NA NA Institute NA Institute

 Governance Mechanism for Scheme formation (iRAID)

Approved Schemes to the CBS for inclusion into

Accountable
Annual Budget Proposal
Accountable for Decide
Scheme
performance Competent authority Approved as per the competent authority

Concurred Schemes
Agree/Concur
Checking Scheme
viability and Financial Concurrence: Other
Multi disciplinary team
providing concurrence Support Departments
comprising of finance
financial (if required)
& other technical
concurrence members
Responsible

Creating viable Recommend

Schemes which
User group: Field & Development Survey Exploratory
assist respective
Block manager or Scheme Scheme Drilling
asset / basin
other key executives
meet physical
targets
Inputs provided to Inputs
user group for Drilling HR, User/
Technical, Service Logistics 13Etc.
Scheme services Finance Tech.
& Support groups
 ASSET SCHEMES

ASSET MANAGER OPERATION MANAGER

SURFACE MANAGER

SUB-SURFACE SUPPORT
MANAGER MANAGER

PHYSICAL TARGETS

CAPITAL
DEVELOPMENT SCHEME PRODUCTION SCHEME

ACTIVITIES THAT
INVOLVE
1.DEVELOPMENT OPERATING EXPENSES PROCUREMENT OF
DRILLING CAPITAL EQUIPMENT
TO
2.FACILITIES MAINTAIN DAILY
EXPENSES
 PLANT SCHEMES

PLANT MANAGER SUPPORT MANAGER

HEAD OPERATIONS

PHYSICAL TARGETS
DEVELOPMENT SCHEME
CAPITAL

PRODUCTION SCHEME

ACTIVITIES THAT
INVOLVE
FACILITIES PROCUREMENT OF
OPERATING EXPENSES
CAPITAL EQUIPMENT
TO
MAINTAIN DAILY
EXPENSES
 INSTITUTE SCHEMES

HOI SUPPORT MANAGER

R&D HEAD

PHYSICAL TARGETS

R&D/ TRAINING
SCHEME CAPITAL SCHEMES

ACTIVITIES THAT
INVOLVE
PROCUREMENT OF
ACTIVITIES THAT CAPITAL EQUIPMENT
INVOLVE DAILY FOR INSTITUTE
EXPENSES ACTIVITIES
OF
INSTITUTE
 BASIN SCHEMES

BASIN MANAGER
SUPPORT
SERVICES MANAGER
MANGER
BLOCK MANAGER

PHYSICAL TARGETS

EXPLORATORY DRILLING CAPITAL

SURVEY

1.PREPARATORY ACTIVITIES THAT

1.CONSUMABLE
MATERIAL INVOLVE
2.DRILLING PROCUREMENT OF
2.MANPOWER CAPITAL EQUIPMENT
3. WELL FOR
MATERIALS 3.CONTRACTUAL SERVICES SURVEY & EXPL.
DRILLING
4.SERVICES OTHER EXPENSES
 Re-appropriation Guidelines

 Transfer of funds from one primary unit of

appropriation to another and can be sanctioned only
under formal instructions of the competent
authority.
 As the Schemes are based on consumption, there will
be revised sanction and not re-appropriation in their
case.
 Re-appropriations have been primarily provided to
account for business uncertainty and peculiarities.

18
 PROBLEMS IN CONVENTIONAL BUDGETING

The budget is often looked at as that “project” the

The budget targets set are often finance and
accounting teams Lastdoyear’s
everyexpensesTheforms
year. unattainable
CFO andbasis for staff are in
finance
mid-level and lower level management team
charge and issue establishing
instructions.
budget
the
was
expense
Instead,
a topthe side of the
budget
down should be looked
approach
members are not in budget.
agreement with the
at as the tool that sets thenot
goals for the
a bottom entire
upno company.
approach Various
approved budget, and there is
levels of the employee base and management must be involved. The
ownership of the budget throughout the
CFO should be the cheerleader of the budget, and share ownership of
organization. This leads to a cultural
it with multiple stakeholders.
problem and accountability issue.
Ron Rael identified 4 critical elements of budgeting.

The Environment: The environment is your culture, and

your culture has a huge impact on your budget.
The Mechanism for Change: This is probably the most
Leadership actions and attitudes should support a
overlooked element of a flawed budget process. Budgeting is
realistic budget, and the Culture must incorporate
no longer just a one-time annual event. Budgeting has
accountability, controllability, communications,
become a 365 day per year management process. The budget
continuous improvement, empowerment,
must be designed with agility in mind training and
trust.

The Overall System: This is your budgeting process. Does your system
The Mechanics: Make realistic assumptions and build realistic
produce cooperation, communication, honest and realistic budgets that
models. This means detailing relationships among revenues
allow people to make decisions?
and expenses, performing “what if” calculations and inputting
the most realistic figures into the final product.
 suggestions……..

CLOSING THE LOOP

We live in a capital intensive industry
so the following budgets are necessary:
1The profit and loss budget
2The balance sheet budget
3The capital budget
4The cash flow budget

Adapting Wisely – Refining a Reliable Budget

Upside of Modelling Accurately from the Wellhead

 NOT ONLY FOR INDUSTRY

BUDGETING
 NOT ONLY FOR INDUSTRY

BUDGETING
THANK YOU!

Aditya Suman
Rabi S Saikia
Dilip Sharma
Anas Feroz
Rajat Bansal