ACKNOWLEDGEMENT

As I am giving finishing touch to the present piece of work and look

back to catalogue my feelings towards all those who have helped me in
my endeavor, I first begin the acknowledgement with a “Pranam to God”,
as we must all say almighty be praised for he saw us through every crucial
task.

I am expressing my deep gratitude to Sukinda Chromite

Mine, Jajpur for giving an opportunity to do a project at and study under
them.

I would like to thank Mr. Mihir Mohapatra (Head Mine)

and Mr. Anil Kumar (Head HR) for giving me an opportunity to work in
his esteem company. I would like to thank Mr. Shantanu Panda (Head
Finance) for allowing me to finance department and Mr. S.B.Bhuyan
(Manager Finance) for giving me a golden chance to work under him.

I am also extremely grateful to my project guide Dr. Saroj

Kanta Biswal for assisting and guiding me throughout the project. I am
very grateful to IBCS for providing me the opportunity of taking up such a
practical project which gave me a fist hand useful experience.

Preparing a project of this nature is an arduous task and I

am fortunate enough to get support from large number of person to whom
I would always remain grateful.

Last but not the least; I also like to thank all the responders
for giving me their precious time and relevant information and experience
without which this project would have been a different story.
 P. Anil
Kumar Patro
DECLARATION

I P. Anil Kumar Patro hereby declare that the

projected titled “Budget and Budgetary Control” of Sukinda
Chromite Mine (TISCO), submitted in partial fulfillment of the
requirement of the Master in Business Administration Degree is
my original work.

The findings in the report are based on the data

collected by myself and not submitted for the award of any
other degree.

P.ANI
L KUMAR PATRO
 INTRODUCTION

Finance is the lifeblood of business. It needs to be managed

effectively. There are various devices or methods of financial analysis like
financial statement analysis, funds flow statement, cash flow statement,
net working capital analysis and ratio analysis etc. Every business needs
funds financing short term or current operation.

Finance encompasses a brand area of human activity and financial

considerations are an integral part of many decisions. As the success of
any business enterprise depends upon among various functions, budget
and budgetary control focus towards the foundation of all these activities.
Because of the complexity and ever growing business in the competitive
world, it is an important key factor of success by preplanning and design a
budget.

A budget is a summary of preplan structure of cost and capital

investment decision that is to be made in future. From our day to day life
to a large corporation, budget is the necessary aid to know the progress of
the operation. Several ways may arise to spend a one rupee, but the most
effective one is identify by the budget.

Budgetary control on the other hand is to check the diversify

application from the budget. It enables fulfillment of the entire budget.
Under changing business environment how the budgets perform
efficiently totally depends upon the application of the same or formulating
budgetary control.
 A budget is the monetary and quantitative expression of business
plans and policies to be pursued on the future period of time. In present
day where several public limited and private companies and other
business organizations operating on the market, different budgets are
essential according to their need prior to the accounting year beginning.
While public limited company prepare “zero based budget”, a factory or
plant generally prefer operation budget, a mine prepare production
budget etc. From time to time the actual work in progress is match with
the projected budget at the beginning, If any deviation seen, budgetary
control comes to existence.

Businesses need to plan for the future. In large businesses such

planning is very formal while, for smaller businesses, it will be less formal.
Planning for the future falls into three time scales:

• Long-term: from about three years up to, sometimes, as far as twenty

years ahead

• Medium-term: one to three years ahead

• Short-term: for the next year

Clearly, planning for these different time scales needs different

approaches: the further on in time, the less detailed are the plans. In the
medium and longer term, a business will establish broad business
Objectives. Such objectives do not have to be formally written down,
although in a large business they are likely to be. In smaller businesses,
objectives will certainly be considered and discussed by the owners or
managers. Planning takes note of these broader business objectives and
sets out how these are to be achieved in the form of detailed plans known
as budgets.
 Planning before proceeding:

Proper planning is the first assignment before completing any

objective. An objective is half completed, if it is well planned. Accordingly,
I had planned to do my summer internship programme in Sukinda
Chromite Mine (TISCO), Jajpur from 20th May to 18th July.

It was not easy to do the project in Sukinda Chromite Mine

(TISCO).Before me no one did project in Finance there ever because of
their confidential cost data. Then I convinced Mr. Mihir Mohapatra (Head
Mine), Mr. Shantanu Panda (Head Finance), Sukinda Chromite Mine to
allow me for doing the internship programme in his organization.

After getting the permission of honorable Mr. Shantanu Panda, I

planned to divide all the eight week project duration in four parts.

PLAN-1:-I had planned utilize first two weeks by the following manner.

➢ To know the organizational structure of S.C.M. (TISCO).

➢ To know the financial structure of S.C.M. (TISCO).
➢ To get the assistance and cooperation of my boss.
 ➢ To adjust myself with the organization.

PLAN-2:-I had planned to invest next four weeks on the following points.

➢ To know the preparation of financial budget.

➢ To know the analysis part of the budget.

PLAN-3:-This part was only for a week to survey the entire system of
S.C.M regarding budgetary effectiveness.

PLAN-4:-This is the last week of my project duration in S.C.M. In this week

I had planned to prepare the project report and submit it into the
company authority.

Experience

I had the plan to adjust with the organization where I will do my

summer internship. Then I got an excellent opportunity to do my two
months internship programme in Sukinda Chromite Mine (TISCO).Actually I
had the objective to utilize all the financial knowledge whatever I have
been acquiring till the end of my 1st year in practical field.
 RESEARCH DESIGN :

OBJECTIVE

 To ensure planning for future by setting up various budgets.

The requirements and expected performance of the enterprise
and anticipated.
 To co-ordinate the activities of different departments.
 To operate various cost centers and departments with
efficiency and economy.
 Elimination of wastes and increase in profitability.
 To anticipate capital expenditure for future.
 To centralized the control system.
SCOPE

The scope of the study is made on SUKINDA CHROMITE MINES a

subsidiary of TATA STEEL, JAJPUR. The study is limited to the “Budgeting
and Budgetary control”.

METHODOLOGY

The research involved extensive and intensive studies of SUKINDA

CHROMITE MINES a subsidiary of TATA STEEL. In this project report a
sincere effect has been made to study the Budgeting and Budgetary
control of the company. During the study, I analyze the financial position
and performance of the company. At last, I have given interpretations and
conclusions of the study.
DATA SOURCES

The data are collected from secondary sources like-: Annual Report,
Annual Audit Report, Balance Sheet, Development Action Plan, Profit and
Loss account of SUKINDA, TISCO.

For collecting information about organization profile data has been

collected from secondary sources like official written documents, files,
booklet etc.

LIMITATIONS

 The organization does not allow anyone to publish the actual

figures and data, because these are confidential.
 All the data and information are imaginary.
 Time is another major limitation.
TOOLS AND TECHNIQUES

Various statistical techniques are used for the study. Such as:

1. Pie chart
2. Bar diagram
3. Percentage analysis
4. Cross tabulation
 COMPANY PROFILE

The Sukinda Chromite Mine (SCM) is the largest open cast chromite
mine in India, comprising 3% of the country’s lease area. It is a
mechanized open cast mine which was the first mine in Asia to get ISO-
9002 certification for its quality and systems.

Prospecting for chromite in the Sukinda valley began way back in

1949 when Tata Steel’s Prospecting Division first bought the occurrence of
chromite to light, the Company, after discovering the property, took a
prospecting license over an area of 7 square miles (18 hectares) for a
period of 20 years from the then Raja of Sukinda. After the abolition of the
state, the mining lease area was vested with the State Government of
Orissa in 1953 that ratified the mining lease for a period of 20 years and
later, for another 20 years. The present lease holding of Tata Steel in
Sukinda covers 406 hectares.

Actual mining in SCM was started on a small scale in December

1960 to meet the requirements of refractory grade chrome ore using
manual open cast working. The mine produced 5000 to 13000 tps of
chromite till 1968. With increasing demand refractory grade chromite, the
production was stepped up to 36000 tpa in 1969. Thereafter, the
production from SCM was increased continuously and 93000 tones were
produced in 1975-76. With the introduction of mechanization the
production went up to 1.3 lakh tones in 1984-85 and became 5 lakh tones
in the year 1994-95. During the course of mining, a substantial quality of
low-grade one is generated. In order to conserve scarce chrome one, the
Steel Company set up the largest chrome one beneficiation plant in India
with a designed capacity of 1.08 lakh tpa, within its lease area in the year
1990. This plant has since also been ISO-9002 certified.
 SCM has received several National Safety Awards in the Annual
Regional Mines Safety Week celebration along with a National Award from
the President of India in 1996. SCM has been provided with a modern 30
bed hospital including an intensive care unit. The hospital provides
medical facilities not only to the employees, the other facilities that are
provided by Tata Steel SCM include:

 Free accommodation, free electricity and water for the

employees.
 School inside the lease area given financial aid as well as
scholarships for meritorious students.
 Parks and garden have been developed for recreation purpose
and free cinema shows are often arranged.
 A market complex, co-operative society and co-operative
credit society exists for the benefit of the employees.
 Each year, medical camps including family planning camp,
eye camp, etc. are arranged for the employees, their wards
and local villagers.

To take care of socio-economic development in the peripheral

villages on a continuous basis, the Steel Company has set up an
autonomous body called the Tata Steel Rural Development Society
(TSRDS) which functions in all areas where Tata Steel operates, and
Sukinda is no exception. TSRDS has extended health care to nearby by
providing a mobile clinic, which distributes free medicines through local
health workers trained by the Company’s doctors.

Besides, TSRDS has contributed in areas like installation of tube

wells, agriculture extension, animal husbandry, forestry programmers,
irrigation, sports and cultural activities, women’s development, etc. a
forestation is regularly done in and outside the mining lease area, which
not only contributes towards dust and noise suppression, but also
improves aesthetic as well. Income generation opportunities through
poultry farming, establishment of piggeries, duster making, mushroom
farming, etc. has also found a part of the work done by TSRDS in Sukinda.
 MINING OPERATION

For

CHROME ORE & PYROXENITE

1. One of the largest single opencast Chromite Mines in the world

(output 10% of the world Cr. Ore production.)
2. Highest excavation in any metal mine in Country 13.65
mil.ton/year (MMDC Bailadilla) (Iron Mine-12mil.ton excavation-
source IBM.)
3. First and only Cr.Mine in India to use surpac Software for Ore
body modeling and Mine planning.
4. Benchmark mine for scientific mining: (slope steepening
permission obtained from DGMS for 35 degree in Friable and 45
degree in lumpy quarry.)
5. Pyroxinite is another product produced from the 406 ha mine and
it is dispatched to Jamshedpur works and partly sold in the market.
 CHROME ORE BENEFICATION OPERATION

• Largest Chrome Ore Benefication Plant in the Country.

• State of art Technology for total benefication.
• Benchmark in production, yield, recovery.
• Chrome Ore i.e. both Friable grade and low grade are the input and
are faded to COB plant for producing the finished product i.e.
Chrome Concenrate.

LITERATURE REVIEW
BUDGET

A budget is a numerical plan for the allocation of resources to the

specific activities. These budgets are set as standards upon which
organizational spending are judged which is called the budgetary control.
This helps an organization in planning effectively for the next fiscal year
and also an organization in accountability of individuals as standard
matching acts as a guide for the organization for employee performances.

Budgetary Control
Budgets are simply exercises in calculation unless they are used.
When we use a budget, we do so as part of a system of budgetary control.
That is, we have some basic ideas of what we want to do, we prepare
budgets to help us achieve those ideas; and then once we have done
whatever it is that we wanted to do, we check to see if we kept to our
budget.

Budgetary control relates to the establishment of budgets relating

the responsibilities of budget holders the needs of a policy. Budgetary
control also relates to the continuous comparison of actual with budgeted
results: it does this to try to ensure that the objectives of that policy are
achieved; or to provide a basis for the change of those objectives.

In summary, a budget is a statement setting out the monetary,

numerical or non quantitative aspects of an organization’s plans for the
coming week or month or year. Budgetary control is the analysis of what
happened when those plans came to be put into practice, and what the
organization did or did not do to correct for any variations from these
plans.

The benefits of budgeting

 Many of us prepare budgets on a personal level: how much is my
income for the month? How much am I going to spend? And, most
importantly, is there anything left over? It seems true; however, that
many businessmen do not prepare budgets for their businesses. Thus,
even though managers prepare budgets for their relatively simple lives,
when it comes to the much more complex situation of their business, they
prefer to let cash inflows and outflows look after themselves. The purpose
of this part of the chapter is to demonstrate that budgets are useful,
informative and communicative. We will see that a budget is a necessity
not a luxury.

We will also see some of the problems underlying organizations: the

nature of the organization and the interactions of the people working in
them. By considering these problems, we will be considering ways in
which your budgeting system, or the organization itself, can be changed,
if necessary, to overcome them.

Applicability of Budgeting and Budgetary Control

Budgeting can be applied to virtually every situation. It does not
matter whether we work in the Public or Private Sector of the Economy.
We may work for a profit making business or a nonprofit making business.
Your company may be engaged in trading, manufacturing, or providing a
service. In all of these situations, budgeting and budgetary control is of
use to you.

As we will see, there are many issues underlying the use of a

budgeting system that need careful consideration. For example, we will
see that budgeting systems cannot just be imposed on an organization
nor do they run themselves. Managers at all levels often resent budgets
and budget targets for a variety of reasons.

The budgeting process

 It would be easy to dismiss the budgeting process as beginning
when the first budget is prepared, and as being complete when the
master budget is finalized. In reality, the budgeting process begins for
many organizations a long time before the budget period begins; and the
process ends once the budget period has ended. This means the
budgeting process is a very lengthy process: typically, for a large
organization, the pre budgeting phase can begin up to a year before the
budget period starts.

The budget period

The budget period is the period for which a set of budgets is
prepared: typically the budget period is of one year's duration, and will be
designed to coincide with an organization’s financial, or fiscal, year. There
is no reason why a budget period has to be one year, but typically it is.

On the other hand, if we are dealing with a project, then the

budget will clearly be linked to that project. A three month project will
have a budget covering the whole project and will thus be a three months
budget.

Most organizations will divide their budget period into calendar

months (or periods); whereas others have thirteen period years (all of an
equal four week period). In certain situations, the budget period will be
analyzed according some particular feature of the work in that situation:
for example, stockbrokers have their year divided into "accounts" of two
and three weeks' duration. These divisions of a budget period are control
periods.

Budget centres
 In a similar way to the way in which the financial year is divided,
the organization will be divided up into budget centres. A budget centre is
one part of an organization for which budgets are prepared. That is, a
budget centre, like a cost or profit centre, is a section of an organization
(division, department, building, individual) for which a separate budget is
prepared.

Whilst there is a lot of organizational work that is put into

budgeting and budgetary control, this page is concerned mainly with an
outline and understanding of the preparation aspects of budgets. A later
page may deal with the organizational and strategic aspects of budgetary
control.

Interrelationships of budgets
One of the key reasons why management accountants and other
planners are using spreadsheets more and more for budgeting purposes is
because of the many inter relationships that exist in budgeting and
budgetary control. If we are preparing budgets for our organization we will
quickly find that the sales budget has strong links with the stock budget
and it has strong links with the cash budget. When, then, the sales budget
is changed, the stock and cash budgets will also have to change. Similarly,
if the stock levels are changed, as a result of a revision of managerial
policy during the budgeting process, say, then that could impact on both
the sales and cash budgets.

The more complex the organization and the more complex the processes
within that organization, the greater the number and variety of
interrelationships that any budget for that organization is bound to
contain. The following diagram takes a general view of some of the
interrelationships found in organization. The diagram is relatively complex
but we will find that a study of it helps us to understand the examples that
follow.
 Not all organizations have all of these interrelationships; and, as we
saw above, some organizations prepare budgets only for part of the
organization so some aspects of the above diagram will apply to them and
others will not.

Whenever you come across a budgeting and budgetary control

situation, try to fit that situation to this diagram: make and not any
changes you feel are necessary to the diagram following on from what
you have found.

Budgetary control methods

a) Budget:
1. A formal statement of the financial resources set aside for carrying out
specific activities in a given period of time.

2. It helps to co-ordinate the activities of the organization.

b) Budgetary control:

1. A control technique whereby actual results are compared with budgets.

2. Any differences (variances) are made the responsibility of key

individuals who can either exercise control action or revise the original
budgets.

Budgetary control and responsibility centre’s:

These enable managers to monitor organizational functions.

A responsibility centre can be defined as any functional unit headed by

a manager who is responsible for the activities of that unit.

There are four types of responsibility centres:

a) Revenue centres

Organizational units in which outputs are measured in monetary terms but

are not directly compared to input costs.

b) Expense centres

Units where inputs are measured in monetary terms but outputs are not.

c) Profit centres

Where performance is measured by the difference between revenues

(outputs) and expenditure (inputs). Inter-departmental sales are often
made using "transfer prices".

d) Investment centres

Where outputs are compared with the assets employed in producing

them, i.e. ROI.

ORGANISATION CHART FOR BUDGETARY CONTROL

Chief Executive
Budget Officer
 Budget Committee

Production Sales Finance Accounts Personnel

Research
Manager Manager Manager Manager Manager
&Development

-Production -Sales Budget -Receipts Cost Labour

Research
Budget Budget Budget Budget &
-Plant utilization -Advertisement -Payment
Development
Budget Cost Budget Budget
Budget

Advantages of budgeting and budgetary control

There are a number of advantages to budgeting and budgetary control:

 Compels management to think about the future, which is probably

the most important feature of a budgetary planning and control
system. Forces management to look ahead, to set out detailed plans
for achieving the targets for each department, operation and
(ideally) each manager, to anticipate and give the organization
purpose and direction.

 Promotes coordination and communication.

 Clearly defines areas of responsibility. Requires managers of budget

centres to be made responsible for the achievement of budget
targets for the operations under their personal control.

 Provides a basis for performance appraisal (variance analysis). A

budget is basically a yardstick against which actual performance is
measured and assessed. Control is provided by comparisons of
actual results against budget plan. Departures from budget can then
be investigated and the reasons for the differences can be divided
into controllable and non-controllable factors.
Characteristics of a budget
A good budget is characterized by the following:

 Participation: involve as many people as possible in drawing

up a budget.
 Comprehensiveness: embrace the whole organization.
 Standards: base it on established standards of performance.
 Flexibility: allow for changing circumstances.
 Feedback: constantly monitor performance.
 Analysis of costs and revenues: this can be done on the basis
of product lines, departments or cost centres.

Problems in budgeting
Whilst budgets may be an essential part of any marketing activity they do
have a number of disadvantages, particularly in perception terms.

• Budgets can be seen as pressure devices imposed by

management, thus resulting in:
a) Bad labour relations.
b) inaccurate record-keeping.

• Departmental conflict arises due to:

a) Disputes over resource allocation.

b) Departments blaming each other if targets are not attained.

• It is difficult to reconcile personal/individual and corporate goals.

 • Waste may arise as managers adopt the view, "we had better
spend it or we will lose it". This is often coupled with "empire building" in
order to enhance the prestige of a department.

Responsibility versus controlling, i.e. some costs are under the

influence of more than one person, e.g. power costs.

• Managers may overestimate costs so that they will not be blamed

in the future should they overspend.

Budget preparation
Firstly, determine the principal budget factor. This is also known as the
key budget factor or limiting budget factor and is the factor which will
limit the activities of an undertaking. This limits output, e.g. sales,
material or labour.

a) Sales budget: this involves a realistic sales forecast. This is prepared in

units of each product and also in sales value. Methods of sales forecasting
include:

• Sales force opinions

• market research
• statistical methods (correlation analysis and examination of trends)
• mathematical models.

In using these techniques consider:

• company's pricing policy

• general economic and political conditions
• changes in the population
• competition
• consumers' income and tastes
• advertising and other sales promotion techniques
• after sales service
• credit terms offered.
b) Production budget: expressed in quantitative terms only and is geared
to the sales budget. The production manager's duties include:

• Analysis of plant utilization.

• work-in-progress budgets.

If requirements exceed capacity he may:

1.Subcontract
2.Plan for overtime
3.Introduce shift work
4.Hire or buy additional machinery
5.The materials purchases budget's both quantitative and financial.

c) Raw materials and purchasing budget:

1. The materials usage budget is in quantities.

2. The materials purchases budget is both quantitative and financial.

Factors influencing a) and b) include:

1. Production requirements.
2. Planning stock levels.
3. Storage space.
4. Trends of material prices.

d) Labour budget: is both quantitative and financial. This is influenced by:

1. Production requirements.
2. Man-hours available.
3. Grades of labour required.
4. Wage rates (union agreements).
5. The need for incentives.

e) Cash budget: a cash plan for a defined period of time. It summarizes

monthly receipts and payments. Hence, it highlights monthly surpluses
and deficits of actual cash. Its main uses are:

1. To maintain control over a firm's cash requirements, e.g. stock and

debtors
2. To enable a firm to take precautionary measures and arrange in
advance for investment and loan facilities whenever cash surpluses or
deficits arises

3. To show the feasibility of management's plans in cash terms

4. To illustrate the financial impact of changes in management policy, e.g.

change of credit terms offered to customers.

Receipts of cash may come from one of the following:

1. Cash sales.
2. Payments by debtor’s.
3. The sale of fixed assets.
4. The issue of new shares.
5. The receipt of interest and dividends from investments.

Payments of cash may be for one or more of the following:

1. Purchase of stocks.
2. Payments of wages or other expenses.
3. Purchase of capital items.
4. Payment of interest, dividends or taxation.

BUDGETARY PLANNING

Many large businesses take a highly formal view of planning the

budget and make use of:

• A budget manual, which provides a set of guidelines as to who is

involved with the budgetary planning and control process, and how the
process is to be conducted.
• A budget committee, which organizes the process of budgetary
planning and control; this committee brings together representatives from
the main functions of the business – e.g. production, sales, administration
– and is headed by a budget co-ordinates whose job is to administer and
oversee the activities of the committee.
In smaller businesses, the process of planning the budget may be
rather more informal, with the owner or manager overseeing and
budgeting for all the business functions.

Whatever the size of the business it is important, though, that the

planning process begins well before the start of the budget period; this
then gives time for budgets to be prepared, reviewed, redrafted, and
reviewed again before being finally agreed and submitted to the directors
or owners for approval.

For example, the planning process for a budget which is to start on

1 January might commence in the previous June, as follows:

• June Budget committee meets to plan next year’s budgets

• July First draft of budgets prepared

• August Review of draft budgets

• September Draft budgets amended in light of review

• October Further review and redrafting to final version

• November Budgets submitted to directors or owners for approval

• December Budgets for next year circulated to managers

• January Budget period commences

 WHY COMPARE ACTUAL AND BUDGET?

One of the objectives of budgeting is to providing a base

against which actual performance can be measured. This is only worth
doing if action will be taken as a result. In too many organizations the
production of results compare to budget is seen as the end of the process.
If no action is taken on the basis of management accounts then there is
little point in producing them and even less point in wasting management
time discussing them.

PLAN MONITER
EVALUATE

FEEDBACK LOOP

By identifying progress from a preceding position we are

better informed regarding the effects of our actions and have a clearer
understanding of the effect of any future action we take. Knowing how
much is being spent each month enables a manager to consider whether
action needs to be taken to spend more or less in the future.

THIS PROCESS IS ONLY WORTHWHILE IF THE BUDGET IS REALISTIC.

ANALYSING VARIANCE AGAINST AN UNREALISTIC BUDGET IS

POINTLESS.
 However, in a well runs organization the comparison between
actual and budget is used to maximum effect. The process is really a part
of the normal process.

WHAT CAUSES BUDGET VARIANCE?

Differences, because the action required is may be completely

different in each case. The four reasons are:

➢ Faulty Arithmetic in the budget. There are four key reasons and it is
important that good managers recognize the budget figures.
➢ Error in Arithmetic of the actual results.
➢ Reality is wrong.
➢ Differences between budget assumptions and actual outcome. Each
of these will be examined in turn.

Faulty Arithmetic in the budget figures

It is perfectly possible to have an error in the budget. This

includes errors of commission or duplication as well as pure arithmetic.
One action is to make a note to ensure it does not happen again when the
next budget is being done. Other action depends on the error. Assume the
budget stated no overdraft would necessary and it now appears one is
required because the sales forecast was used to predict cash flows rather
than the debtor payments. There are two options: Go to the bank and ask
for an overdraft, or take some other actions to improve cash flow to stay
within the budget cash figure. The original budget numbers will need to be
changed to reflect the circumstances and the future reporting should be
against the revised budget (often called a reforecast or latest estimation).
Action is required but it may not be within the area where the error was
made.

AVOID:”There’s a hole in the roof but we can’t fix it because we have not
got a budget for repairs!!!”

Errors in the Arithmetic of the actual results

It is perfectly possible for the actual results to be reported

wrongly. This includes the use of the wrong category, omission of costs,
double counting of income etc. One well known way of staying within
budget is to throw away any invoices received from suppliers, or charge
them to someone else’s account code. This sort of deliberate action
makes nonsense of budgetary control and must be avoided. The
corrective action once discovered, it is prevent to happening again.
Improvements in management education and/or control procedures are
recommended.

One extra consideration is that in order to correct the error

the cumulative results will need to be corrected. This means either putting
through a correction in the next period, which will then also be wrong, or
adjusting the past results to correct the error. Failing to note that the
correction can cause misleading results can lead to wrong decisions being
made.

AVOID:”The accounts figures are always different from ours so we ignore

them and keep our own records.”

Reality is wrong
 Sometimes the actual results are useless as an indicator. A
strike or natural disaster will have an impact on results. This does not
mean that the budget process in future should include an allowance for
this happening again. (However in large organizations it is normal to allow
for the impact of a disaster centrally as a contingency even if it is not
budgeted at operating unit level.)If necessary, insurance should be taken
out. If business is disrupted for two weeks, then it is pointless to compare
the remaining two weeks of the month against a full month’s budget.
Produce a realistic budget for only two weeks and compare against that to
establish true performance under normal circumstances.

Differences between Budget Assumption and Actual

Outcome

This is the key issue and the one which involves the use of
variance analysis techniques. Remember that all budgets contain errors in
the assumptions. No one knows the future outcome for certain. The
important is not to apportion blame by looking backwards, but to look
forwards and take action to improve the future in the light of experience.
The action to be taken depends on the circumstances. However, punishing
deviation from budget is the best way of destroying the budget process.
Managers will spend up to budget, conceal data, and make on actual fit
the budget in order to avoid blame. This is particular true in large multi-
national organizations. The emphasis must be on what can we do about it,
rather than why the results are different.

AVOID:”We are under budget, who can we blame?”

VARIANCE ANALYSIS:

The monthly management accounts will highlight variances

between the projected expected expenditure (the phased budget) and
actual expenditure. Budget Holders will be asked to provide information
for these variances, monthly. The following percentages will be used as a
guide:

Budget Heads are to monitor the bottom-line of each of the

cost centers within their area that have a Budget Holder assigned to
them; they will need to investigate further each bottom-line
variance>15%.

Budget Holders will monitor their budget on a line-by-line

basis for both the current period and the year to date position. They will
need to investigate further variances>15%.

In reviewing it is variances it is important to consider

whether the assumptions made at the time of the budget preparation are
still valid or if they have been superseded. This information will be used to
help determine the likely year-end position (forecast position as at the end
of year) and also can be used in development of the following year’s
evidence-based budgets.

It is important that significant variances are investigated

and their causes identified. Budget Holders should be able to analyze
variances by comparing the details of actual expenditure to the original
plan (budget).The notes on assumptions underlying the budget estimates
will be useful to help Budget Holders analyze the financial information. It
is important to recognize the cause so that appropriate action can be
taken if necessary. Possible reasons for variances include:

Activity volume variances-an example would be where 3

training events were planned in the current month but only 2 took place;

Price variances-an example would be where the standard

unit cost for a day delegate rate was more or less than the actual rate;

Timing differences (planning variances)-an example would be

where an event was expected to take place in one month but was
deferred and took place in a later month;
Different method of delivery for events/activities has been decided upon
(operational variances)-an example would be where one large event was
planned but it turned out to be more practical to a number of smaller
events.

ANALYSIS AND INTERPRETATION

FINANCIAL PROCESS IN SCM

FINANCE AND ACCOUNTS process operates in a integrated ERP platform.
The ERP package is “EBIZ FRAME” which operates in SAP platform. The
package is owned and maintained by M/s Eastern Software System
Limited. After necessary customization to suit our business need, the
system was implemented in Sukinda in the month of November 2003. The
following modules are currently in operation.

1. FINANCE
(For Cash and Bank Transaction, Other transaction under
Purchase/Sales/Inventory/Purchase Bills without vouchers and
regular/provisional Transaction, Dr/Cr Note and GI. Ledger, trial
Balance.)
2. PURCHASE
(For Suppliers Bills/Service Bills and)
3. SALES
(For Customer Invoice Rising)
4. INVENTORY
 (For Raw Material Inventory & Stores Inventor unpaid GRN)

The Finance and Accounts model is an integrated accounting with both

Finance and Cost Accounts and ultimately providing the Operating Cost,
Operating Margin, Actual Sales and Actual Profit/Loss for a particular
month.

All transactions under Finance and Cost are identified under the following
Coding Structure and which covers all Income & Expenditure and Assets &
Liabilities.

• Charge Accounts – Means indicate the nature of expenses in details

linked to F code.
• Cost Codes - Indicate the Cost Centre linked to Cost
elements.
• Financial Codes - Codes which identifies the income and expenditure
under Revenue Heads and items under Assets and Balance Sheets.

Objectives of Opening above Codes serially are as under:

1. To link the charge Accounts with the Financial Codes, which are
mainly being used by the departments, other than accounts.

2. To allocate the expenditures under each cost centre which help in

determining the cost of each product.

3. To convert each business transaction through Financial Codes in

Accounting entry, Sub-Ledger, Ledger, Trial etc.

While classifying the codes, the nature of production, dispatches,

stock of Chrome Ore, Chrome Concentrate and Pyroxenite and various
method of Cost Control & Financial Control of all transaction are
considered so that the accumulation and classification as per
requirements of business from time to time can be met.
 All the Financial transaction of the key activities of the Accounts
Office are after being classified and accumulated/allocated under all the
three types of codes mentioned below and are systematically followed the
accounting principles (i) of creation of liability and (ii) payment while
operating (iii) ultimately generating accounting report and final published
accounts. Numbers of MIS are also submitted to the management for
information and control. At the same compliance of legal mainly indirect
and direct taxation are also handled along with h accounting and
payment.

- Sukinda Chromite Mine is a production unit of TATA STEEL, since

1960. This is the largest open cast Chrome Mine in Asia. Generally in
Sukinda, three types of Chrome ore, according to the presence of Chrome
in the raw material. These categories of Chrome ore are Lumpy, Friable,
and Concentrate.

LUMPY ORE:
Lumpy ore constitutes less than 40% Chrome presence. The ore
looks brownish in color and extract as rocks from the earth. These rocks
are very hard to break because of their hardness in nature. These ores are
laid on the immediate next to the earth’s upper surface. Hence, to
excavation high grade ore, first the lumpy ore are to be extracted from
earth. Years back, these ore are considered to be useless, because these
ore contain very low level of Chrome material and due to poor engineering
equipment at that time, lesser heavy earth moving vehicle etc. the
extraction cost of the lumpy ore is larger than the market price of the
lumpy ore. So, these ore are dump at separate place on earth to dig
further and extract the large grade raw material.

In the present scenario of the company’s production process, these

low grades Lumpy ore is also converted to useful finished material by
increasing into grade under a process of Chrome ore beneficiation. For the
same, the company set up the largest Chrome ore beneficiation plant in
India with a designed capacity of 1.08 lakh tpa, within its lease area in the
year 1990. Since then, the Lumpy ore is refined their and converted to the
larger grade material.

From 1990 onwards, the extraction and beneficiation of the dumped

Lumpy ore before 1990 were made and hence again charged some
amount to the production process.

Extraction of Lumpy ore prior to 1990, the process constitutes

several heavy engineering equipment working hours, their maintenance
and fuel and wages to the workers concerned with the extraction. The
company also charged with royalty, taxes etc. to the king of Sukinda and
after then to the Government of Orissa. These paid amounts were extra
burden for the company at that period of time. But after conversion of
Lumpy ore, the amount invested at that period is charged in the current
accounting period.

The extracted Lumpy ore processed on OB-II of Chrome ore

beneficiation (COB) plant. In the present time the sale of Lumpy ore is
totally stop. The beneficiated high grade Chrome ore are sending to the
subsidiary company of TATA STEEL.

Hence in our study of budget and budgetary control, while budget is

to be preparing for the extracted Lumpy ore every financial year,
budgetary control is also regulates when cost relating to extraction of
Lumpy ore prior to 1990 is considered. As a part of production process,
the Lumpy ore also focuses towards budget preparation and control of the
cost that are incurred over the concerned budgeted cost.

The subsidiary holding companies of TISCO are:-

 Raw met ferrous industries, Athagada.

  FACOR, Randia.
 Tirumal Balaji Alloy.
 Shree vasavi Industry Limited (SVIL), Bishnupur.
 Bamnipal.
 Ferrochrome, J.K.Road.

These holding companies of TISCO are the conversion agents, where

purified Lumpy ore are send for captive consumption and in exchange the
company receives charge Chrome from these plants in Bamnipal, a fully
electric furnish and in J.K.Road (Ferrochrome) a semi electric furnish is
functioning for the purpose of charge Chrome conversion.

All the above processes include transportation cost, labour cost,

supervision cost, COB plant cost etc. These costs are shown and maintain
on the budget.

FRIABLE ORE:

The friable ore lie in between Lumpy ore and Concentrate ore in the
earth surface. The black/dark brown ore constitutes 40% - 52% of Chrome
ingredients. The ore is easily breakable small stones. The Friable ore is
processed in another unit of Sukinda COB plant i.e. OB-X. All the
impurities are extracted from the ore and market demand fulfills by
exporting qualitative Friable ore to the foreign countries.

CONCENTRATE ORE:
 The black shiny powdered material soft in nature and contains
above 52% of Chrome ore ingredients. The raw material after extraction
from earth surface purify by separate impure materials. The Concentrate
is higher in rate with increase in grade or presence of Chrome ore in the
raw material and higher demand in the International market. The ore is
export quality in nature and China is its ultimate customer.

PYROXINITE:

Pyroxinite is one of the material excavations from Sukinda in recent

year after its discovery from five years back. This material used as flux in
Jamshedpur Steel Plant of TATA STEEL, which acts as a catalyst to
increase the temperature of raw iron material during its processing in the
plant. The Pyroxinite ore increases the inside temperature of the furnish,
so that the iron totally melt and required shape given to the iron. The
Jamshedpur Steel Plant is its only user and hence this ore converted to the
plant after excavation.

All these above four ore are extracted from Sukinda. Separate
budget and budget control regulates for each of the material while Lumpy
ore carried to the subsidiary holding company of TATA STEEL, Friable and
Concentrate ore are exported to the foreign countries and the Pyroxinite
ore is used in Jamshedpur Steel Plant of TATA STEEL. The budget for each
product is prepared on the basis of quantity produce for each ore and on
the basis of other related costs. On determining the cost per metric ton of
ore Indian Bureau of Mines (IBM) also plays a lead role. The budget price
of ore should be in accordance of IBM price for the ore.

The process of budget involves participation of all levels of people

from management and production. Individual set their goals in terms of
budgetary requirement for the days, week’s months on for the entire year.
 In case of Sukinda Chromite Mine, a systematic budgetary plan
functioning at every management and production level. The marketing
department of the head of TATA STEEL located at Kolkata gives a detailed
structure of budget regarding production and cost. The budgeted cost of
raw material that to be extracted should be in accordance with the price
given by Indian Beauro of MINE (IBM), which decides the market price of
minerals and ores each year. The setting of budget for each year is in
accordance with the budgeted cots and production of previous year. In
consecutive years, the costs differentiate in smaller amount and thus
usually recent years budgeted figures are referred. A detailed structure of
budget which includes amount of ore to be extracted, processing of ore in
COB Plant, budget export quantity of ore, approximate cost incurred for
the year etc.

Before study the SCM’s budgetary process, we should understand its

organizational structure and how the budget implemented in the
organization.

Various departments with a view to achieve different goals are

functioning in Sukinda Chromite Mine. For the case in operation and
smooth production process, each department availed with specific work.
The combine effort of all the departments leads to an effective budgetary
control.

In Sukinda, three variety of chrome are i.e. Lumpy, Friable and

Concentrate Ore are extract and another material i.e. Pyroxenite is also
derive from the earth. The Lumpy and Concentrated Ore are processed
and their grade can be increase by separate impurities from the ore and
the process is done in COB (Chrome Ore Benefication) Plant. Hence for
each product, a separate budget is to be prepared. The entire workforce
of Sukinda also divided for each of the material.

The statistical department maintains the projection of production.

HR, Finance, Stores, Maintenance, COB Plant, Mining, Electrical etc...
Various departments are assigned with specific jobs within a particular
time period and budgeted cost.
 A diagrammatic representation of department wise classification will
help us to understand the budget in the organizationEvery department
apportioned by some amount to attain its operational costs. In the budget,
the expected costs that are to be incurred is assign and hence allocate to
the respondent departments. Each department analyses the budget and
accordingly plan for the future course of action. The head of the
department is responsible for all the activities incurred by the
department. In a department division of work takes place. Expected
working days and extent of work done is visualized at the beginning of the
month. All the activities go according to the plan and at the end of the
month the work done by the department is evaluated in a meeting. The
actual work done is match with the budget and the reasons for any
variance are mentioned. Effective evaluation of budget leads to
strengthen the budgetary control process.

The cost incurred for each ore charged to the different departments.
Each department accordingly gets budget for cost accumulation. Each
elements of cost are categories as a whole to different cost units viz.
wages, stores, other expenses etc. A specimen of the above is given
under:
 PARTICULARS WAG STOR OTHER TOTA Rs/M
ES ES EXPEN L T
SES COST
Raw material feed 75000 63000 300000 168000 112
0 0 0
Benefication circuit 25000 30000 35000 90000 6
Civil Repair 10000 15000 5000 30000 2
Electrical Maintenance 20000 15000 10000 45000 3
Expense on new
product
Feed preparation circuit 17500 85000 115000 375000 25
0
General stores 25000 15000 5000 45000 3
General supervision 6500 3000 5500 15000 1
Grinding media
Hexa treatment system 22500 15000 7500 45000 3
Lubricants 7000 6000 2000 15000 1
Maintenance for COB 11500 10000 1000 22500 1.5
plant
Mechanical
maintenance
Misc contract labour 7000 4800 3200 15000 1
jobs
Ore 55000 45000 35000 135000 9
Transport(Feeding+Mat
erial shifting)
Power Generation-
electrical
Power Generation-
Mechanical
Product Handling
Purchase of power 12500 10500 85000 315000 21
0 0
Quality Monitoring 9000 4500 1500 15000 1
Tailing Disposal circuit 15500 12000 10000 37500 2.5
Water Recovery system 15000 12000 3000 30000 2
TPM 0
Transportation(Concent 45000 25000 20000 90000 6
ration Shifting)
Stacyard Operation 0
Direct Wages 13500 12500 115000 375000 25
0 0
Trailing Evaculation 17500 15500 12000 45000 3
Total Direct cost
Indirect Wages incl 33000 29000 13000 75000 5
Bonus 20000 6000 4000 30000 2
Superannuation
Services & overheads 65000 55000 45000 165000 11
Depriciation 62000 58000 30000 150000 10
Total cost before 342000 256
ABP COST
FY 10
PRODUCT:Y ORE
200000
PARTICULARS STORES OTHERS
OPRN. MAINT. OPRN. MAIN TOT Rs/
T. AL MT

GENL SUPERVISION
BLASTING
DEWATERING
STACKYARD OPERATION
PIT LIGHTING & POWER
ROCK BREAKER
OPERATION
DIRECT WAGES
MINING GENERAL
TOTAL DIRECT
COSTS
WAGES OVERHEAD
OTHERS OVERHEAD
DEPRECIATION
COST BEFORE ROYALTY
ROYALTY
TOTAL COST
 ABP FOR X ORE(FY 10_Apr’09)
ABP(PRODUCTION IN MT)
6000
EXPENDITURE HEAD OPERATION OTHER TOTAL EXP Rate/MT
EXPENSES (Rs)
WAG STORE
ES S
GENL SUPERVISION 8600 79000 73000 228000 38
0
BLASTING 5600 46000 36000 138000 23
0
DEWATERING 9600 58000 38000 192000 32
0
STACKYARD 2500 28000 19000 72000 12
OPERATION 0
PIT LIGHTING & 4200 32000 22000 96000 16
POWER 0
ROCK BREAKER 6900 65000 40000 174000 29
OPERATION 0
DIRECT WAGES 8000 75000 55000 210000 35
0
MINING GENERAL 5600 46000 36000 138000 23
0
TOTAL DIRECT 5040 42500 319000 1248000 208
COSTS 00 0
WAGES OVERHEAD 6800 48000 28000 144000 24
0
OTHERS OVERHEAD 6400 54000 44000 162000 27
0
DEPRECIATION 3500 33000 34000 102000 17
0
COST BEFORE 6000 50000 40000 150000 25
ROYALTY 0
ROYALTY 6200 54000 40000 156000 26
0
TOTAL COST 7930 66400 505000 1962000 327
00 0
CONCENTRATE PLAN Prodn
.
25000
0
TOTAL
WAG STORE OTHER Rs./M
PARTICULARS COST
ES S EXPENSES T
(RS.)
RS. RS. RS. RS.

2750000
Ram Material Feed 27500000 0 110
85000
Benefication Circuit 0 650000 1500000 7
Civil Repair 250000 250000 1
40000
Electrical Maintainence 0 350000 750000 3
Expence on new product
64000
Feed Preparation Circuit 00 100000 6500000 26
75000
Genaral Stores 0 750000 3
18500
General Supervision 0 65000 250000 1
Grinding Media
71000
Hexa Treatment System 0 40000 750000 3
25000
Lubricants 0 250000 1
Maintenance for COB Plant 250000 250000 1
Mechanical Maintenance
Misc Contract Labour jobs 250000 250000 1
Ore Transportation (Feeding+Material
Shifting) 2250000 2250000 9
Power Genration- electrical
Power Genration- Mechanical
Product Handling
Purchase of Power 5500000 5500000 22
25000
Quality Monitoring 0 250000 1
25000
Tailing Disposal Circuit 0 250000 500000 2
43000
Water Recovery System 0 70000 500000 2
TPM 0
55000
Transportation(Concentrate Shifting) 0 950000 1500000 6
Stackyard Operation 0
60000
Direct Wages 00 6000000 24
12500
Tailing Evacuation 0 625000 750000 3
60000 11150 5625000
TOTAL DIRECT COST 00 000 39100000 0 226
CONCLUSION
From our above study we found many key points about the organization.

➢ The organization follows all the terms and conditions of Industrial

Act and Company Act, 1956.
➢ Effective budgeting and budgetary control systems takes place in
the company.
➢ Monthly, quarterly and annually interpretation of budget with actual
data are done in the company.
➢ Proper supervision of budgeting system is formulates by the
superiors.
➢ Each responsible center communicates to the higher authority or
their departmental heads regarding progress of the control system.
➢ Performance appraisal is done at the end of each month in presence
of all department heads.