CHAPTER –1

INTRODUCTION

1

SIGNIFICANCE OF STUDY:

The significance of choosing “Budget and budgetary

control” as a study is because of its importance i.e., Budgetary control is the

process of determining various budgeted figures for the enterprises for the

future period and then comparing the budgeted figures with the actual

performance for calculating variances, if any. And also to ensure planning

for future by setting up various budgets. The requirements and expected

performance of the enterprise are anticipated. To co-ordinate the activities

at different departments. Fixation of responsibility on various individuals in

the organization.

OBJECTIVES OF THE STUDY:

The study is based upon the part of financial performance that has been taken in to

consideration i.e., budgetary concepts.

To understand the importance of Budget and Budgetary control. To apply various theoretical aspects of budget and budgetary control.

To ascertain how budgetary control helps in planning and coordination of

various operations in an enterprise. To ascertain how budgetary control helps in controlling the all operations of

the business enterprise

To know whether there is influence of budgets in profit making or not.

To know the steps taken by RINL (Visakhapatnam Steel Plant) in preparation

of budgets.

2

METHODOLOGY:

The information for the study has been obtained from two sources namely.

1. Primary Data

2. Secondary Data

Primary data: The data for study has been collected from the management of the

company. The information about the industry profile and company profile was

gathered from HRD, VSP and the data about the budget and budgetary control was

gathered from Financial Department, VSP.

Secondary data: This is taken from the annual reports, websites, company journals,

magazines and other sources of information of steel plant.

LIMITATIONS:

1. The period of study that is 6 weeks was not enough to go into the detailed

aspects of the study.

2. The study is carried basing on the information and documents provided by the

organization and based on the interaction with the various employees of the

respective departments.

3. Most of the matters related to budgets were confidential. So it is not possible

to gather much information.

4. Budgeting process is very dynamic.

5. Budget that were prepared are only based upon trend at the time preparation.

6. Flexibility with in the budget is not possible.

3

CHAPTER - 2

PROFILE

OF

STEEL INDUSTRY

4

INDUSTRY PROFILE:

Steel is an alloy of iron usually containing less than 1% carbon is a versatile

material with multitude of useful properties used most frequently in the automotive

and construction industries. Steel can be cast into bars, strips, sheets, nails, spikes,

wire, rods or pipes as needed by the intended user. The consumption of steel is

regarded as the index of industrialization and the economic maturity any country has

attained.

Though the production of steel in significant quantity started only after 1900,

the growth of steel industry can be conveniently studied by dividing the time in to pre

and post independence period.

The major steel and related companies in India are:

1. Bharat Refractories Limited.

2. Hindustan Steel Works Construction Limited.

3. Jindal Steel and Power Limited

4. Kudremukh Iron Ore Company Limited

5. Manganese Ore (India) limited.

6. Metal Scrap Trade Corporation Limited.

7. Metallurgical and Engineering Consultants India Limited.

8. National Mineral Development Corporation (NMDC)

9. Rashtriya Ispat Nigam Limited.

10. Sponge Iron India Limited.

11. Steel Authority India Limited (SAIL).

12. Tate Iron And steel Company.

5

Pre-independence:

1830 Joshua Marshall Halting Came can be considered as a pioneer of

modern steel industry in India constructed the first

manufacturing plant at port nove in Madras presidency. But it

was a financial failure.

1874 James Erskin founded the Bengal iron works. It passed on to

M/S HOGNE Killer and to M/S Martin and co in 1885

1899 Jamshedji TATA initiated the scheme for integrated steel plant

(first in the country)

1906 Sakchi in Bihar was chosen as the site for the TATA iron and

steel co (TISCO)

1911 TISCO started production, initially 1000 tons of ingots / year

and in 2 years it reached 5000 tons / year by 1939 it reached

production of 15000 tons ingot steel per year.

1918 Initially Indian iron and steel co (IISCO) was founded and the

Bengal iron and steel co merged with it in 1926. To start with,

IISCO restricted it self for manufacturing of pig iron for export

to UK and JAP AN. It produced steel.

1940-50 Formation of the Mysore iron and steel Ltd. Presently known as

Visveswarayya Iron and Steel Ltd. (VISL) at Bhadravathi in

Karnataka owing to the pioneering efforts of Sri.

Visveswarayya. It started manufacturing Ferro alloys and Sp.

Steels.

6

Post-independence:

First five-year plan (1951 to 1956):No new steel plant came up, as the first plan was mainly agriculture oriented.

However, IISCO was allowed to expand form IMT/year to 2 MT/year of ingots, and

from 0.5 MT/year to 1.0 MT/year of steel. And, the first five-year plan contemplated a

new steel plant to be erected in public sector.

Thus the Hindustan Steel Limited (HSL) was born on 19th Jan 1954 with the

decision of setting up three steel plants each with one million tons ingot steel per year

at Rourkela, Bhilai and Durgapur. Though TISCO and IISCO were scheduled to

expand, TISCO started its expansion program.

Second five-year plan (1956 to 1961):During this period, additional steel producing capacity was added and a

decision was taken to increase the ingot steel output in India to 6 million tons per

year. The three one million ton steel plant one each at Rourkela, Bhilai and Durgapur

were completed during this period. They started production during the end of this

plan. The salient features are given below:

Plant capacity Location Collaboration Production

(tons)RSP Sundargarh, Orissa Germany 720,000

BSP Durg, M.P. U.S.S.R 770,000

DSP Burdwan, W.B. UK 800,000

In addition to the above BSP and DSP each were having the capacity to

produce 300,000 tons of pig iron for sale.

Third five-year plan (1961 to 1966):

7

During this period, the three steel plants under HSL, TISCO, and IISCO were

expanded as shown below. However, these could be completed only by 1968 - 1969.

STEEL PLANT ORIGINAL MT/YR EXPANDED TO

MT/YR

ROURKELA 1.0 1.8

BHILAI 1.1 2.5

DURGAPUR 1.0 1.6

TISCO 1.0 2.0

IISCO 0.5 1.0

Recession Period (1966 - 1969):The ambling expansion program taken up during the third five-year plan could

not be completed during that period. All the expansion programs were actively

executed during this period.

Fourth five-year plan (1969 - 1974):Balancing facilities were incorporated in all the steel plants. Salem steel plant

work was taken up during this period. Licenses were given for setting up of many

mini steel plants and rolling mills. Government accepted the idea of setting up two

more steel plants in the south one at Visakhapatnam and other at Hospet in Karnataka.

Both of them were envisaged to produce plain low carbon steel products initially with

a capacity of 2 MT/year of ingots. Steel authority of India ltd., was also formed during

this period on 24TH Jan 1973. Central Research and Development Organization was

set up in June 1973 to tackle the research and development problems of Iron and Steel

industry.

Fifth five-year plan (1974 to 1979):Work on Salem project progressed well. Bokaro with 1.7 MT capacities

started in Feb 1978. The expansions of Bhilai steel plant form 2.5 MT to 4 MT and

Bokaro from 1.7 MT to 4.0 MT picked up momentum. The idea of setting up the 5th

8

integrated steel plant at Visakhapatnam took a definite shape. By the end of fifth five-

year plan the total installed capacity from six integrated plants was 10.6 MT/year.

Annual plans 1979 to 1980: various plans named above were reviewed and the

progress on different plants consolidated. Soviet - Union has agreed to help in setting

up the Visakhapatnam steel plant.

Sixth five-year plan (1980 - 1985):Work in expansion of Bhilai and Bokaro plant was progressed. Boar’s

intermediate stage of 2.5 MT completed. Many of the units were commissioned e.g. a)

Salem steel plant was commissioned b) on 31.9.81 work on Visakhapatnam steel plant

started with a bang; and c) top priority was accorded to modernize the plant at TISCO.

Schemes for modernization of BSP, RSP, DSP, and IISCO were initiated at the end of

sixth five-year plan. The capacity from six integrated steel plants stood at 11.56 MT.

Seventh five-year plan (1985 to 1991):Almost all the units in the expansion work of Bhilai and Boar to 4 MT

completed. Progress of Visakhapatnam steel plant picked up and the rationalized

concept has been introduced to commission the plant with 3 MT liquid steel capacities

by 1990.

Eighth five-year plan (1991 to 1996):All units of Visakhapatnam steel plant were commissioned by July 1992.

Government of India has given permission to set up mini steel plants in private

sectors.

Ninth five-year plan (1997 to 2002):National development council under central Government has deposited Rs.

859.200 corers in ninth five year plan that targets an overall 6.5% growth gross

domestic production and will necessitate a 7% growth in the remaining years of plan.

Tenth five-year plan (2002 to 2007): Steel industry registers a growth of 9.9%. VSP has high regime targets.

9

Eleventh five year plan (2007-2012):

Details of plan expenditure during 11th five year plan

Cost of schemes/project original approved by Government of India is

Rs.9, 569.18 crores.

Sola

no

Name of

the scheme

2007-

08

2008-

09

2009-

10

2010-

11

2011-

12

total

1 AMR

schemes

100 100 100 100 100 500

2 Coke oven

battery#4

125.56 - - - - 125.56

3 Expansion

to 6.3 Mt

2700.30 2966.89 1483.67 463.32 154.44 7768.62

4 Pulvarised

coal

87 - - - - 87

10

injection

5 Air

separation

plant

36 - - - - 36

6 Acquisitio

n of mines-

coal &ore

- 600 - - - 600

7 R&D 10 10 10 10 10 50

8 BF1

capital

repairs

27 - - - - 27

9 Spl.capex

value

added

products

200 175 - - - 375

Total 3285.86 3851.89 1593.67 573.32 264.44 9569.18

Global Scenario: As per IISI

In March 2005 World Crude Steel output was 92.8MT when compared to

March 2004 (87.2 MT), the change in percentage was 6.5%.

China remained the world's largest Crude Steel producer in 2005 also

(27.5MT) followed by Japan (9.6MT) and USA (8.1MT). India occupied the

8th position (8.8MT)

USA remained the largest importer of semi-finished and finished steel

products in 2002 followed by China and Germany.

Japan remained the largest exporter of semi-finished and finished steel

products in 2002 followed by Russia and Ukraine.

11

Other significant recent developments in the global steel scenario have been

under the auspices of the OECD (Organization for Economic Co-operation &

Development) the negotiations among the major steel producing countries for

a Steel Subsidy Agreement (SSA) held in 2003 with the objective to agree on

a complete negotiating text for the SSA by the middle of 2004. It also set

subsidies for the Steel Industry of a ceiling of 0.5% of the value of production

to be used exclusively for Research & Development.

The global economy witnessed a gradual recovery from late 2003 onwards.

China has become one of the major factors currently driving the world

economy.

As a result of these economic developments IISI has projected an increase by

6.2% or 53 million metric tonnes in 2004 in the global consumption of

finished steel products. IISI has split the growth into two separate areas, China

and the Rest of the World (ROW). Steel consumption in China has been

estimated to increase by 13.1% or 31 mt in 2004.

USA has repealed the safeguard measures on import of steel as a result of a

ruling, by a WTO Dispute Resolution Panel, which held these measures to be

illegal under the WTO regime.

Present Scenario of Indian Steel Industry:India is uniquely placed to become a very large producer and consumer of

finished steel products in the world. Substantial reserves of high grade iron ore, low

wage rates; technical and managerial skills of a high order have all enabled India to

gain this stature, by becoming 10th largest producer of steel in the world.

Unfortunately for the Indian steel industry, the price and distribution controls to

which it was subjected till about economic liberalization process began in the early

1990's did not permit the large integrated steel plants to modernize their steel

manufacturing facilities or to upgrade their technologies to the state of art levels from

time to time.

12

With the economic liberalization that was initiated in 1992, Indian steel

Industry has to accept the inevitable i.e. to appreciate the implications of low import

duty rated, face foreign competition and some how improve its strengths and

competitive edge to produce good quality products at lower prices and learn to

survive in the market place. Following liberalization, the steel Industry is well set on

the path of globalization. The dynamics of the world steel industry has a close relation

with Indian steel Industry. Presently in India, Steel products are being produced from

four different sources viz.

Integrated Steel Plants

Mini Steel Plants

Re-rolling Mills

Alloy & Special Steel Plants.

Integrated Steel Plants have larger capacity and produce Steel from basic raw

materials and the other three categories mentioned are characterized by low

investment and low break-even point. Characteristics of Integrated Steel Plants.

They have large capacities.

Highly capital intensive.

They have long gestation period.

Labour intensive. They would have all facilities including raw materials resources, water supply,

power supply, testing and inspection facilities, township facilities, medical,

educational and recreational etc.

Inter dependency of all the processing units on the proceeding and succeeding

units in the path of materials flow.

A potential source for earning foreign exchange through exports.

They serve as centers for the development of ancillary industries.

They are major consumer of refractory materials.

The integrated Steel Plants in India are:

13

Rourkela Steel Plant

Bhilai Steel Plant

Bokaro Steel Plant

Durgapur Steel Plant

Indian Iron and Steel Company (IISCO)

Tata Iron and Steel Company (TISCO)

Visakhapatnam Steel Plant (VSP)

Production:

Steel industry was de-licensed and decontrolled in 1991 and 1992

respectively.

India is the 8th largest producer of steel in the world.

In 2003-04, finished steel production was 36.193 million tonnes.

Pig iron production in 2003-04 was 5.221 million tonnes.

Sponge iron production was 80.85 million tonnes during 2003-04.

The annual growth rate of crude steel production in 2002-03 was 8% and in

2003-04 was 6%. Last 4 years production performance is as under:

PRODUCTION PERFORMANCE (In Million tons)

YEAR PIGIRON SPONGEIRON

FINISHEDSTEEL

2000-01 3.39 5.44 29.272001-02 4.08 5.44 30.632002-03 5.28 6.44 33.672003-04 3.76 8.09 39.122004-05 3.18 9.93 41.152005-06 4.39 0.00 30.842006-07 3.52 0.00 31.402007-08 4.95 0.00 29.74

14

2008-09 4.95 0.00 29.74

15

CHAPTER -3

PROFILE

OF

VISAKHAPATNAM STEEL

PLANT

16

PROFILE OF VISAKHAPATNAM STEEL PLANT

Introduction

Origin- History of VSP

Milestones of VSP

Vision

Mission

Objectives

Core Values

Achievements & Awards

Raw Materials & Sources

Major Units of VSP

Production Performance

Product Mix

Process

Board of Directors

Organization Chart

Department Chart: Finance(Budget)

Description of Various Departments

Recent Trends

Financial Performance.

17

INTRODUCTION

Steel is such a versatile commodity that every object we seen in our

day to day life have used steels either directly or indirectly in its products. To

mention a few it is used for such a small items as nails, pins, needles etc. Steel

comprises one of the most important inputs in all sectors of economy. Steel

industry is both a basic and a core industry. The economy of any nation depends

on a strong base of iron and steel industry in that nation. Today Steel occupies the

foremost place amongst the materials in use today and pervades all walks of life.

All the key discoveries the human genius – for instance, steam engine, railway,

means of communication and connection, automobile, aero place and computers

are in one way or other, fastened together with steel and with its sagacious and

multifarious application.

Steel is versatile material with multitude of useful properties making it

indispensable fro furthering and achieving the continual growth of the economy –

Be it construction, manufacturing, infrastructure or consumables. The level of

steel consumption has been regarded as an index industrialization and economic

maturity attained by a country. Keeping in view the importance of steel, the

following integrated steel plants with foreign collaborations were set up in the

public sector in the post – independence era:

S. NO. STEEL PLANT COLLABORATED BY

1. DURGAPUR STEEL PLANT BRITAIN

2. BHILAI STEEL PLANT ERSTWHILE USSR

3. BOKARO STEEL PLANT ERSTWHILE USSR

4. ROURKELA STEEL PLANT GERMANY

18

Origin and History of the organization

To meet the growing domestic needs of steel, the decision of the

Government of India to set up an Integrated Steel Plant at Visakhapatnam under

Steel Authority of India Ltd. (SAIL) was announced by the Prime Minister Smt.

Indira Gandhi in parliament on 17th April 1970. The Selection Committee chose

the site near Balacheruvu creek at Visakhapatnam. The Prime Minister of India

did the formal inauguration and laid the foundation stone on 20 th January 1971.

The consultant, M/s M.N. Dastur and Company Ltd., submitted a techno-

economic feasibility report for the plant, with an annual capacity of about 3.4

million tones of liquid Steel, in October 1977.

The erstwhile USSR Government examined the detailed project report

prepared by Dastur & Company and offered Technical and Economic co-

operation for the same. The Govt.of India and erstwhile USSR signed an

agreement on June 12th 1979, for co-operation in setting up a 3.4 million tones

integrated steel plant at Visakhapatnam. The USSR agreed to provide financial

assistance of 3.4 million Rouble credit to GOI specifically for setting up the steel

plant. In terms of this agreement, Soviets and Indian design organization revised

the earlier detailed project report of Dastur Co., jointly and a comprehensive

revised detailed project report for VSP was submitted in November 1980. A new

company i.e. Rashtriya Spat Enigma Ltd. (RINL) was incorporated for faster

implementation of the project.

The construction of the project commenced in 1982 with a schedule of 4 and 6

years for the first and second stage respectively. During construction due to

inadequate fund availability, the project schedule could not be adhered to,

resulting in huge cost and time overruns. The project cost escalated to around

Rs.8500 cars. In a bid to reduce the capital investment, Rationalized concept was

adopted in 1985. As per this one Steel Melt Shop and one Rolling Mill i.e. the

universal beam mill were dropped. The other steel melt shop of 2.2 MTPA of

liquid steel was up rated to 3 MTPA without any additional facilities. Further the

capacities of Rolling Mills i.e. Light and Medium Merchant Mill (LMMM),

19

Medium merchant and structural mill (MMSM) and Wire Rod Mill (WRM) were

also up rated without any modification to make the project economically viable.

The project cost with all these modifications was brought down to about

Rs.6281 cars. However during implementation further cost escalations took place

and finally the project was implemented at a capital cost of around Rs.8500 cars.

Various operating units were commissioned one after another from 1989 onwards

and entire project was completed by July 1992. The then Honorable Prime

Minister Sri. P.V. Narasimha Rio dedicated the plant to the Nation on 1 st August

1992. Unlike other integrated steel plants in the country, new technology, large-

scale computerization and automation etc. were incorporated in the plant. To

operate the plant at international levels and attain such labor productivity, the total

manning of the organization was frozen to 17,500 employees. The plant has a

capacity of producing 3.0 MT of liquid Steel and 2.656 MT saleable steel.

Milestones of Viskhapatnam steel plant:

SL NO. DATE MILESTONE

1. 17.04.1970 Prime Minister of India announces in the parliament to construct a new steel plant at Viskhapatnam.

2. June 1970 Site selection committee appointed.

3. 30.11.1970 Committee’s report approved for site.

4. 20.01.1971 Foundation stone laid by P.M.

5. 27.02.1971 Consultant appointed. Feasibility reports submitted in 1972 and other investigation carried out.

6. 07.04.1974 First block of land taken over for

VSP.

7. 15.10.1977 Detailed project report submitted by consultant.

9. 12.06.1979 Inter government agreement signed between India and Erstwhile U.S.S.R at MOSCOW for the cooperation in the

20

construction of VSP.10. 19.10.1979 Government approved setting up

of VSP. Soviet side carries out the revision of detailed project report.

11. Jan. 1980 Site leveling work started.

12. 30.11.1980 M.N. Disturb & Co., principal consultant submits the comprehensive revised detailed project report.

13. 01.01.1981 Export committee submits recommendation for approval of comprehensive revised detailed project report with certain modification.

14. 05.02.1981 Contract singed with Erstwhile soviet union for preparation of working drawings for coke ovens. Blast furnace and sinter plant.

15. 23.02.1981 Comprehensive revised detailed project report along with expert committee recommendations approved.

16. 10.07.1981 Protocol signed with Erstwhile soviet union for supply of equipments and specialists.

17. 23.01.1982

To

26.02.1982

Blast furnace foundation (1st

mass concreting in the project) lay.

18. 01.02.1982 Zero date of the construction of the project.

19. 18.02.1982 Rashtriya Spat Enigma Ltd. (RINL) formed.

20 29.01.1987 Commissioning of structural shop. With this commissioning of various auxiliary units commenced.

21. 06.09.1989 Coke oven Battery no.1 starts pushing of cake. With this the commissioning metallurgical unit starts.

22. 14.11.1989 Sinter plant (Machine-1) commissioned.

23. 28.03.1990 “Godavari” the 1st blast furnace commissioned.

21

24. 03.05.1990 PM dedicates “Godavari” to the nation.

25. 06.09.1990 The 1st converter and the 1st

continuous casting machine of the steel Melt shop starts production.

26. 28.08.1990 Billet production in the light and medium Merchant mil started.

27. 21.11.1990 Wire Rod Mill commissioned.

28. 04.03.1991 The 2nd converter commissioned.

29. 30.06.1991 Yeller Water supply scheme made ready for supply of water to VSP.

30. 28.10.1991 Trial production commences in the bar mill of light and Medium Merchant Mill.

31. 31.10.1991 Coke oven Battery No.2 commissioned.

32. 27.12.1991 Sinter Machine-2 commissioned.

33. 20.03.1992 Medium Merchant and structural Mill commissioned.

34. 21.03.1992 “Krishna” Blast furnace-2 commissioned.

35. July 1992 Coke Oven Battery No.3 commissioned.

36. July 1992 Converter no.3of steel milt shop

commissioned. This marks the

completion of commissioning

units of the no.3 million tones

plant.

37. Aug. 1992 Dedication of the plant to the

Nation by the Prime Minister.

Coke oven battery no.438 10.12.2003 Data of approval

39 10.12.2006 Schedule date of commissioning

(36 months from date of approval)

Expansion proposal for 6.3 Mt40 28.10.2005 Got of India approval ref.6 (1)

2005-vsp approval date

22

41 28.10.2005 Commencement date

Highlights of Expansion to 6.3 MT Liquid Steel Capacities.

1. Got of India approval ref: 6 (1) 2005-VSP dated 28th October 2005.

2. Commencement Date 28th October 2005

3. Main Units in Expansion

Raw Material Handling Plant

One Sinter Plant

One Blast Furnace 3.25 Mt / year Sinter

One Blast Furnace (BF-3800 C.2.50 Mt/ year Hot Metal

Claiming and Refractory Materials 12x500 t / day

One Steel Melt Shop 2.60 Mt / year Liquid Steel

Rolling Mills

Wire Rod Mill 600,000 t/ year

Light Structural Mill ( LSM) (in stage –II) 700,000 t/ year

Augmentation of existing TPP 1X67.5 MVV turbo – generator with TB

Power Plant (BOO Basis) 2x67.5 MVV capacity with all necessary facilities

Air Separation Plant (BOO basis) 2x1200 t / day Oxygen

Captive Mines Augmentation of capacities at Ashram. Jaggayyapeta

And Garb ham Mines.

Vision:

To be a continuously growing world class company We shall

Harness our growth potential and sustain profitable growth.

Deliver high quality and cost competitive products and be the first choice

of customers.

23

Create an inspiring work environment to unleash the creative energy of

people.

Achieve excellence in enterprise management.

Be a respected corporate citizen, ensure clean and green environment

and develop vibrant communities around us.

Mission:

To attain 16 million ton liquid steel capacity through technological up

gradation, operational efficiency and expansion; to produce steel at international

standards of cost and quality and to meet the aspirations of the stakeholders.

Objectives:

The objectives of the company are as follows:

Expand plant capacity to 6.3 million ton by 2011-12 with the Mission to expand further in subsequent phases as per the corporate plan.

Revamping existing Blast Furnaces to make them energy efficient to contemporary levels and in the process increase their capacity by 1 Mt, thus total hot metal capacity to 7.5 Mt.

Be amongst top five lowest cost steel producers in world by 2009-10.

Achieve higher levels of customer satisfaction.

Vibrant work culture in the organization.

Be proactive in conserving environment, maintaining high levels of safety And addressing social concerns.

Core Values:

The core values of the company are:

Commitment

Customer satisfaction

Continuous improvement

Concern for environment

Creativity and innovation.

24

AWARDS WON BY VSP

Award Purpose YearWon the "GRAND FINALE" of Alma’s 10th National Management Quiz – 2009 in December 2009.

VSP won this Quiz successively for 3 years in a row (2007, 2008 & 2009) achieving HAT-TRICK which is a National Record.

2009

Bagged third prize in ‘Public Relations National Awards-2009’

In the ‘Event Management’ category at the 31st All India Public Relations conference held in Chandigarh

2009

Bagged the First Steel Minister’s Trophy for the year 2006-07

For being the best integrated steel plant in the country (Runner Up)

2009

Adjudged ‘Energy Efficient Unit’ award by Confederation of Indian Industry Godrej Green Business Centre at the 10th National award.

For excellence in energy Management

2009

Won the TATA-Crucible Corporate Quiz.

For the best performance in the inter corporate business quiz, TATA-Crucible Corporate Quiz

2009

QC teams won Gold & Bronze medals at the International Convention on Quality Control Circles (ICQCC) convention at Cuba, Philippines in October 2009.

For Quality Circles 2009

Vishwakarma Rashtriya Puraskar Awards for the performance year 2007 5TH Time in a row.

For the best suggestions 2009

The ‘India Gandhi Rajabhasha’ Award

For the best performance in Hindi implementation during the year 2007-08 in

2009

25

September.ISPAT RAJYA BHASHA TROPHY.

 For popularizing the usage of Hindi.

2009

RINL ranked No.2 globally for the popularity of website among the global steel makers.

Global survey by Steel guru for the most popular website among steel makers all over the world

2009

The ‘Best Place to work for- 2009’ Award given by “The Economic Times-Great Place to Work Institute” was won by VSP in June .

2009

ISPAT RAJYA BHASHA TROPHY

For popularizing the usage of Hindi.

2009

VSP bags ‘top assessed’ award For 2007-08 for paying highest central excise.

2009

Ukkuvani, the bi-monthly In-house journal was adjudged the ‘Best House Journal Devoted to Welfare of Employees’

For Employee welfare in  ‘National Awards for House Journals’.

2009

QCFI-NMDC Trophy. For the ‘Best Quality Circle Implementing Organisation’ given by QCFI

2008

CII Award for ‘5-S’ to WRM Dept. of VSP in November .

For Workplace Management.

VSP is the 1st organization in Steel Industry implementing ‘5-S’ at workplace management.

2008

Two QC teams, “Harmony” from WRM and “Vices” from RMHP won EXCELLENT awards at International Convention on Quality Control Circles (ICQCC)  at Dhaka, Bangladesh

Quality Circles 2008

 “Spat Suresh Pulaski Award” For ‘No fatal accident’ in 2006 & 2007 given by JCSSI (Joint Committee on Safety, Health & Environment in Steel industry)

2007

“Enterprise Excellence Award 2007” conferred by Indian Institute of Industrial Engineering (IIIE) in May 2008.

Excellence in overall performance

2008

26

Sri PK Bishop, CMD was awarded a Gold medal by the Hon’ble Prime Minister, Dr.Manmmohan Singh at the 95th Indian Science Congress at Andhra University, Visakhapatnam

For his significant achievement for ‘Sustainable Development’, ‘Improving the quality of life in society’ and ‘Supporting the cause of Science& Technology’.

2008

Second Prize for Organisational Excellence.

Efficient suggestion scheme operation given by INSSAN

2008

Best Organisation Award conferred by QCFI, Visakhapatnam Chapter

For promoting QCs in the organization

2008

Sri PK Bishnoi, CMD was presented UDYOG RATAN award by the Institute of Economic studies, New Delhi

For achieving excellence in Productivity, Quality, Innovation and Management.

2007

Sri PK Bishnoi, CMD was presented “Excellence Award” by the Delhi Telugu Academy

For significant contribution to the industry.

2007

Two QC teams, “Samruddhi” from SMS and “Trishakti” from LMMM won GOLD Medals at International Convention on Quality Control Circles (ICQCC) 2008 at Beijing, China in October 2007.

Best Quality Circles 2007

Sri PK Bishop, CMD was awarded the Best Chief Executive Gold Award of “India Gandhi Memorial National Awards-2007” by Institution of Engineers (India) Hyderabad.

India Gandhi Memorial National Awards

2007

National Award for e-GovernanceExemplary usage of ICT by Public Sector Undertakings

2007-08

Prime Minister's TrophyBest integrated steel plant 2005-06

Commendation prize for strong commitment to Excellence – CII Exam Bank Award for Business Excellence 2006

Overall Excellence in all activities of the company

2006

Strong Commitment - CII HR Excellence  Award 2006

Excellence in HR processes and practices

2006

National Energy Conservation Award Energy efficiency (First prize 1st - 2006

27

for 3 consecutive years and also a special award for achieving this). This is the 7th award in a row.

2nd - 2005

1st  - 2004

1st  - 2003

1st - 2002

2nd - 2001

Merit Certificate- 2000

Organizational Excellence Award Efficient suggestion scheme operation given by INSSAN

2006, 2004

Business Achievement Award for Excellence

Environmental Conservation & Pollution Control  presented by Confederation of Asia Pacific Chamber of  Commerce & Industry

2005

CII -GBC National Award Excellence in Energy management

2005

Energy Conservation Award by AP Productivity Council

Best organization in Energy conservation initiatives

2005

Certificate of Appreciation by Institution of Engineers, AP chapter

Excellence in energy conservation

2005

National Award for Excellence in Water Management by CII

Excellence in water management

2005, 2004

Leadership & Excellence Award in SHE (Safety, Health & Environment)

Excellence in SHE by CII South Zone

2004

CACCI Business Achievement Award

For environmental conservation & pollution control by FICCI

2004

World Quality Commitment International Star Award

Performance excellence, quality management & quality achievement, given by Business Initiative

2004

28

Directions, Paris in the Gold category.

ICWA National Award Good performance  for excellence in Cost management

2004

Best Enterprise Award For surpassing MOU Targets, awarded by SCOPE

2003-04

Rolling shield for "Environmental Protection"

To recognize efforts in environmental protection, by Directorate of field publicity, Ministry of Information & Broadcasting

2002, 2003

Prime Minister's Trophy Best integrated steel plant 2002-03

India Priyadarshini Vrikshmitra Award

For massive afforestation efforts. Given by Ministry of Environment & Forests

2002-03

Best HR Practices Given by Indian Society for Training & Development (ISTD)

2002

Environment Excellence Award for Energy conservation by Greentech Foundation, Delhi

2002

Best Enterprise Award, WIPS Given by SCOPE 2001-02Award for Best Turnaround Given by SCOPE 2000-01Best Management Award for outstanding contribution

in management of industrial relations, labour welfare and productivity given by Govt. of AP

2000-01

Shield for "Best efforts in Rain water Harvesting"

AP Pollution Control Board 2001

SAIL Chairman's Silver plaque for no fatal accidents (for regular employees category)

2000

Paryavaran Parirakshak Award in recognition of it's success in prevention of industrial pollution and preservation of ecological balance by reducing pollution to the minimum by installing sophisticated equipment and machinery in the factory. Given by Rotary District

2000

29

3020 International

Major Sources of Raw Materials :

Raw Materials SourceIron Ore Lump & Fines Bachelor, Chattisgarh/Gua, HarlandBF Lime Stone Jaggayyapeta, APSMS Lime Stone UAEBF Dolomite Ashram, APSMS Dolomite Ashram, APManganese Ore Chipurupalli, APBoiler Coal Talcher, OrissaCoking Coal AustraliaMedium Coking Coal (MCC) Gidi/Swang/Rajarappa/Kargali

Major Units of VSP:

Department Annual capacity (‘000 T) Units (3.0MT stage)

Coke ovens 2261 3 batteries of 67 ovens

&7Mtrs.haght

Sinter plant 5256 2 sinter machines of 312

sq.Mtr.grate area

Blast furnace 3400 2 furnaces of 3200Cu .Mr.

30

volume each

Steel melt shop 3000 3 LD convertors each of

133cu.Mtr.volume and six

4 strand bloom casters

LMMM 710 4 stand finishing mill

WRM 850 2x10 stand finishing mill

MMSM 850 6 stand finishing mill

VSP is one of the most modern steel plants in India incorporating State-of-the-

Art technology. Following are some of the modern technologies adopted:

7 meter tall Coke Oven Batteries with coke dry quenching.

Biggest Blast Furnaces in the country

Bell-less top charging system in Blast Furnace

100% slag granulation at the BF Cast House

Suppressed combustion- Ld gas recovery system

100% continuous casting of liquid steel

“Temporal” and “steamer” cooling process in LMMM &WRM respectively

Extensive waste heat recovery systems and pollution control methods

31

Production Performance (‘000 Tonnes):

Year Hot

Metal

Liquid

Steel

Saleable

Steel

Labour

Productivity

(Tonnes/man year)

1999-2000 2,943 2,656 2,382 192

2000-2001 3,165 2,909 2,507 211

2001-2002 3,485 3,083 2,757 228

2002-2003 3,941 3,356 3,056 253

2003-2004 4,055 3,508 3,169 262

2004-2005 3,920 3,560 3,173 398

2005-2006 4,153 3,603 3,237 414

2006-2007 4,046 3,606 3,290 413

2007-2008 3,913 3,322 3,074 389

2008-2009 3,546 3,145 2,701 359

32

Commercial Performance ( Rs. Crs. ):

Year Sales

Turnover

Domestic Sales Exports

2002-2003 5,059 4,433 626

2003-2004 6,174 5,406 768

2004-2005 8,181 7,933 248

2005-2006 8,469 8,026 443

2006-2007 9,131 8,487 424

2007-2008 10,433 9,878 555

2008-2009 10,411 10,333 78

33

Main Products of vsp;

STEEL

PRODUCTS

BY PRODUCTS

Angles Nut Coke Granulated Slag

Billets Coke Dust Lime Fines

Channels Coal Tar Ammonium Sulphate

Beams Anthracene oil

Squares HP Naphthalene

Flats Benzene

Rounds Toluene

Re-bars Byline

Wire Rods Wash Oil

34

Process:Following are the details of processes of main production units of VSP.

1. Coke ovens & Coal chemicals plant:

Coking coal after selective crushing and proper blending is subjected to

destructive distillation (heating in the absence of air) in the Coke Ovens. After

heating for nearly a period of 16-18 hours at a temperature of about 1100 Degree

Delicious, coke is obtained and is used as a fuel as well as reducing agent in the

Blast Furnace. The Coke Ovens of VSP are engineering feats by themselves.

They are the tallest ovens of 7 meter tall constructed in the country. The Plant has

3 batteries of 67 ovens each. Another feature is the dry cooling of coke carried

out by the inert gas nitrogen thus, reducing pollution considerably. In the process

considerable quantity of gas is generated which carries large number of coal

chemicals and heat value. A by-product plant is provided for each battery to

extract the coal chemicals and make the resulting gas useful for heating various

furnaces. By-products like benzene, toluene, xylem, naphthalene, coal tar,

creosote oil, pitch, and ammonium gas.

2. Sinter Plant

Iron ore fines, coke breeze, limestone and dolomite along with recycled

metallurgical wastes are converted into agglomerated mass at the Sinter Plant,

which forms 80 % of iron bearing charge in the Blast Furnace. The Sinter Plant

comprises of two sinter machines each having 312 square meters of grate area

with a total production capacity of 5.256 million tones per annum.

3. Blast Furnace

VSP has two Blast Furnaces with an effective volume of 3200cu.m. Each,

Which are the largest in the country? Blast Furnace is charged with coke, iron

ore, sinter and fluxes such as lime stone from the top. Hot air at very high pressure

is blown from the bottom. The iron ore and sinter charged from the top gets

reduced to hot metal by the time it reaches the hearth. Metal is tapped from the

hearth of the furnace at regular intervals. Its novel circular cast house with four

tap holes ensures continuous tapping of hot metal. Each furnace produces about

35

5000 tones of molten iron per day. The annual Production capacity of these Blast

Furnaces is 3.4 million tones of liquid iron. The furnace is operating at about

125% of their capacity at present.

In addition to hot metal the gang material present in the iron ore and sinter

also comes out in the form of molten slag while tapping. This molten slag is

converted to granulated slag in the slag processing plant. Granulated BF slag is

used for cement making and various other construction purposes. The hot metal

produced is carried to steel melt shop for further processing. The surplus hot metal

is taken to Pig Casting machines and cast into pig iron. The pig iron is sold to

foundries and exported to various other countries. Some pig iron is consumed in

steel melt shop also as coolant.

4. Steel Melt Shop & Continuous Casting:

Three Top blown converters, each of 133 cum. Volume, produce a total of

2.7 million tones of liquid steel per annum. The hot metal from blast furnace is

charged into the converters from the top. Along with hot metal steel scrap

(coolant), lime (flux) and other additives for making special steel if required are

also added. Oxygen is blown from the top for about 50min by which time the hot

metal gets converted to steel. The liquid steel thus produced is casted in six-4

strand bloom casters. A special feature in energy conservation is the collection of

Converter gas to be used as a fuel in the plant. The entire molten steel cast at the

radial type continuous casting machines result in significant energy conservation

and better quality steel. 100% Continuous casting on such a large scale has been

conceived for the first time in India.

5. Rolling Mills:

The cast blooms from continuous casting department are heated and rolled

in the three high speed and fully automated rolling mills namely Light & Medium

Merchant Mill, Wire Rod Mill and Medium Merchant & Structural Mill, to

produce various long products like Reinforcement bars, rounds, squares, flats,

angles, channels, billets, wire rods etc. Rolling Mills adopt steamer cooling

process to get high quality products. VSP

Enjoys very high reputation for the quality of their products both in the domestic

and export markets.

36

6. Thermal power plant and blower house:

VSP has a separate thermal power plant to meet substantial part of its

power requirement. The power plant also includes blower house for blowing hot

air to the blast furnaces. The power plant utilizes surplus coke oven and blast

furnace gasses for heating boilers. To meet the balance requirement of the boilers

thermal coal is procured. Thus the power plant helps in reducing cost of

production of VSP.

Board of Directors:

BOARD OF DIRECTORS

CHAIRMAN-CUM-MANAGING

DIRECTOR

Sri.P.K. Bishnoi

DIRECTOR (PERSONNEL) Sri.Y.Manohar

DIRECTOR (COMMERCIAL) SriC.G.Patil

DIRECTOR (OPERATIONS) Sri.Umesh Chandra

DIRECTOR (FINANCE) Sri Madhusudhan

DIRECTOR (PROJECTS) Sri AP Chowdhary

CVO Sri.K Vida Sager

37

GOVT. DIRECTORS Sri B S Meena

Dr Dalip Singh

DGM (CA) & COMPANY SECRETARY Scrip. Mohan Rao

OFFICE Administrative Building

Visakhapatnam Steel Plant,

Visakhapatnam-530 031.

38

Department chart- Finance (Budget):

(Corporate A/cs, Budget & Costing)

(Budget and Costing)

(Budget)

39

ED(F&A)

DGM(F&A)

AGM(F&A)

Mgr (F&A) (F&A(F&A)

(Budget)

Major departments of VSP:

To carry out the major functions of Visakhapatnam steel plant following core

departments exist:

1) Marketing Department

2) Works Department

3) Materials Management Department

4) Finance and Accounts Department

5) Personal and Administration Department

6) Corporate strategic Management Department

7) Management services Department

8) Mines Department

Recent Trends:

VSP Becomes Mini ratna Company:

Considering the Turn Around and the excellent physical and financial

performance in the last 4 years VSP has been awarded MINIRATHNA STATUS

by the GOI in the month of May 2006. This confers more DOP and AUTONOMY

to VSP Management in financial and policy matters. The BOD also will be

strengthened with more independent non-executive DIRECTORS.

VSP Expanding Its Capacity:

40

AM(F&A)

VSP has undertaken expansion of capacity from 3-million tone liquid steel

to 6.3 million tone liquid steel at a cost of Rs.8692cr. Their entire expansion work

is to be completed within a period of 4 years from October 2006. The honorable

Prime Minister Of India has inaugurated the expansion project by laying

foundation stone on 20th May 2006. VSP will be producing special grade long

products required for automobile, railways and other special applications in the

new mills which are going to be installed. Further VSP will be producing

Seamless tubes of 3 lakh tones which are presently imported.

Joint Ventures:

VSP does not own any mines for extracting much required iron ore and

low ash metallurgical coal for its production. VSP depends on M/S.NATIONAL

MINERAL DEVELOPMENT CORPORATION for meeting its iron ore

requirements and import sources (Australia) for low ash metallurgical coal. These

sources have been increasing their prices disproportionately in recent times due to

very high demand because of capacity additions taking place in large scale. In

order to have raw material security and control over prices VSP has embarked

upon acquiring interest in coal mines and iron ore mines through joint ventures in

India and abroad.

VSP Has Been Allotted Mining Rights In Mahal Coal Block:

GOI has allotted mining rites in Mahal Coal Block for VSP after

continuous persuasion relentless efforts. VSP has started exploratory work in

Mahal coal block to ascertain the feasibility and project cost for opening up a

mining unit in this place.

Implementation of Addition Modification and Replacement:

In order to improve productivity, constantly upgrade the technology and

reduce the cost of production to become one of the worlds lowest cost producers

VSP is implementing number of AMR schemes on a continuous basis since last 5

41

years. VSP is spending substantial amount of funds in the AMR schemes which

are yielding incremental benefits year after year.

Utilization of Renewable energy:

In order to meet its ever growing power requirement, to conserve the

natural resources and reduce the cost of energy VSP has taken up implementation

of power generation through renewable energy sources like wind, sunlight etc. A

policy in this regard has been unveiled on 29th May 2006 by the CMD of VSP.

Conservation of Water:

VSP has taken up a number of projects for conservation of precious water.

This is carried out in three methods.

Reduce the consumption of water in the process.

Treat the drainage and sewerage water and reuse where ever possible.

To construct check dams for diverting rainwater to underground.

FINANCIAL PERFORMANCE (Rs.Crs)

Year Gross Margin Cash Profit Net Profit

2000-2001 504 153 (-)291

2001-2002 690 400 (-)75

2002-2003 1162 975 521

2003-2004 2073 2024 1547

2004-2005 3271 3260 2254

2005-2006 2369 2338 1890

2006-2007 2633 2584 2222

2007-2008 3515 3483 1943

42

2008-2009 2356 2267 1336

Demand - Availability Projection:

Demand- Availability of iron and steel in the country is projected by Ministry

of Steel annually.

Gaps in Availability are met mostly through imports.

Interface with consumers by way of Steel Consumer Council exists, which is

conducted on regular basis.

Interface helps in redressing availability problems, complaints related to

quality.

Pricing & Distribution:

43

Price regulation of iron & steel was abolished on 16.1.1992. ~ Distribution

controls on iron & steel removed except 5 priority sectors, viz. Defence,

Railways, Small Scale Industries Corporations, Exporters of Engineering

Goods and I North Eastern region.

Allocation to priority sectors is made by Ministry of Steel.

Government has no control over prices of Iron & Steel.

Open market prices are generally on rise.

Price increases of late have taken place mostly in long products than flat

products.

Location: The plant is located on the coast of Bay of Bengal, 16Kms to the

southwest of the Visakhapatnam Port. It lies between the northern boundary of the

national highway No.5 from Chennai to Kolkata, and 7Kms to the southwest of

Howrah Chennai Railway line. The decision of Govt. of India to setup an integrated

steel plant with an annual capacity of 3 MT of liquid steel and 2.656 MT of saleable

steel at Visakhapatnam in AP is yet another step towards the country’s steel

production redefining steel imports and removing the regional imbalances in the

development.

CHAPTER – 4

44

BUDGET AND BUDGETARY

CONTROL

45

BUDGET:

Introduction

Definition

Need of budget

Essentials of budget

Advantages of budget

Limitation of budget

Types of budget

BUDGETARY CONTROL:

Nature of budgetary control

Objectives of budgetary control

Advantages of budgetary control

Limitation of budgetary control

Characteristics of good budgeting

Requisites for successful budgetary control system

Organization chart for budgetary control

Key factor

Difference between budget and budgetary control

46

BUDGET

Introduction:

Planning is the basic managerial function. It helps in determining the course of

action to be followed for achieving organizational goals. It is a decision in

advance, what to do, how to do and who will do a particular task? Plans are

framed to achieve better results. Control is the process of checking whether the

plans are being adhered to or not, keeping a record of progress, comparing it with

the plans, and then taking corrective measures for future if there is any deviation.

Every business enterprise needs the use to control techniques for surveying in the

highly competitive and changing economic world. There are various control

devices in use. Budgets are the most important tool of profit planning and control.

They also act as an instrument of co-ordination.

Definition:

Budget is defined as a kind of future accounting in which problems of future are

met on the paper before transactions actually occur.

According to CIMA, Official Terminology, “A Budget is a financial and/or

quantitative statement prepared prior to a defined period of time, of the

policy to be pursed during that period for the purpose of attaining a give

objective”.

According to Crown and Howard, “A budget is a predetermined statement

of management policy during a given period, which provided a standard for

comparison with the results actually achieved.”

47

Need of budget:

To forecast and to plan for the future to avoid losses and maximize profits i.e.

to help in planning.

To bring about coordination’s between different function of an enterprise i.e.,

to

help in co-ordination.

To control actual actions by ensuring that actual are in tune with target i.e., to

help in controlling.

Essentials of budget:

Budget is prepared on future course of action and is prepare in advance.

Budget is based on objectives to be achieved during a definite future period.

Budget is a tool for developing the co-operation, co-ordination and control

among employees.

Advantages of budget:

It formulates basic policies necessary to achieve organizational objectives.

It forces all levels of management to participate in the process of setting and

Fulfillment of targets.

It creates the feeling of co-operation and understanding between different

Departments of the business

It ensure optimum utilization of resources with a view to maximize returns.

It highlights upon the in efficiency in the business and thus helps the

Management to take remedial actions.

48

Types of budget:

The Budgets are usually classified according to their nature. The following are the

types of budgets, which are commonly used.

a) Classification According to Time:

1. Long-term budgets

2. Short-term budgets

3. Current budget

b) Classification on the basis of function:

1. Operation Budgets

2. Financial Budgets

3. Master Budgets

c) Classification on the basis of Flexibility:

1. Fixed budget

2. Flexible budget

d) Classification on the basis of nature of business:

1. Capital Expenditure

2. Revenue Expenditure

A) Classification According to Time: -

1) Long Term Budgets — The Budgets are prepared to depict long term planning

of the business. The period of long term budgets various between five to ten years.

The long term planning is done by the top-level management it is not generally

known to lower levels of management's. Long-term time budgets are prepared for

some sectors of the concern such as capital expenditure research and development.

Long term finances etc these budgets are useful for those industries where

gestation period is long i.e. machinery, electricity, and organization.

49

2) Short Term Budgets -These budgets are generally for one or five Years and

are in the form of monetary terms. The consumer’s goods industries like sugar,

cotton, textiles, etc. use short-term budget.

3) Current Budget — The Period of current budget is generally of one to twelve

months. The budgets relate to the current activities of the business. According to

I.C.W.A. London. "Current budget is a budget which is established for use over a

short period of time and is related to current conditions.

B) Classification on the basis of function: -

1. Operating Budgets: These budgets relate to the different activities of

operations of a firm. The number of such budget upon the size and nature of

business. The commonly used operating budgets are;

A. Sales Budget

B. Production Budget

C. Production cost Budget

D. Purchase Budget

E. Raw Material Budget

F. Labour Budget

(2) Financial Budget: - Financial Budget are concerned with cash receipts and

disbursements, working capital. Expenditure, financial position and result of

business operations. The commonly used financial budgets are:

a. Cash Budget

b. Working Capital Budget

c. Capital Expenditure Budget

d. Income Statement Budget

e. Statement of Retained Earnings Budget

f. Budget Balance sheet or position statement Budget

(3) Master Budget: - Various functional budgets are integrated into master

budget. This budget is prepared by the ultimate integration of separate function

budgets. According to I.C.W.A. London. "The master budget is the summary

budget in corpora-ting its functional budgets". Master budget is prepared by the

50

budget officers remained with the top-level management. This budget is used to

co-ordinate the activities of various departments and also to help as a control

device.

(c) Classification on the basis of Flexibility:-

(1) Fixed budget: - The fixed budgets are prepared for a given level of activity,

the budget is prepared before the beginning of the financial year, if the financial

year starts in January then the budget will be prepared a month or two earlier, i.e.

November or December. The charge in expenditure arising out of the anticipated

changes will not be adjusted in the budget. There is a difference of about twelve

months in the budgeted and a actual figures. According to I.C.W.A. London,

"Fixed budget is a which is designed to remain unchanged irrespective of the level

of activity actually attained".

(2) Flexible Budget: - A flexible budget consists of a series of budgets for

different level of activity. It therefore, various with the level of activity attained. A

flexible budget is prepared after taking into consideration unforeseen changes in

the conditions of the Business. A flexible budget is defined as a budget, which by

recognizing the difference between fixed, semi fixed and variable cost is designed

to change in relation to the level of activity.

(d)Classification of on the basis of nature of business:-

(1)Capital expenditure budget:- Budget which are related to the creation of

manufacturing facilities are knows as capital expenditure budgets

(2)Revenue expenditure budget:- Budget which are prepared for routine

activities or operations are called revenue budget

51

BUDGETARY CONTROL

Introduction:- Budget is formal plan of future course of action. When the budget is use to

evaluate the actual performance it is known as budgetary control.

“Budgetary control is the planning in advance of various functions of

business so that the business as whole can be controlled.”

Objectives of budgetary of control:

To control departmental activities.

To help in systematic planning of protection and formulation of policies.

To control direct and indirect expenses by limiting the chances of wastages.

To control income and expenditure of production functions.

To compare the pre-determined targets with the amount of actual expenses.

Advantages of budgetary control:The budgetary control system has got some advantages of its own. Some of them

are:

It acts as yardstick with which actual are compared and necessary

corrections can be made so that it promotes efficiency and there by helps the

management for taking future courses of action.

Co-ordination is established among the different departments and

individuals through planning policy and control.

Limiting factors can be utilized properly by the application of this system.

Otherwise less important factors can pay the most significant role without,

however, utilizing the scarce sectors, which should have been used in view of

their importance. As a result, there may be loss instead of profit.

52

Limitations of budgetary control:

The budgetary control systems are however not free from short coming which

are as follows;

This system proves useless in that firm where policies, processes, techniques,

etc., are frequently changing since it does not take into account such changes.

It is very costly in case of small firm and serves no purpose in the event of

abnormal situations, such as strikes, lockouts etc.

There are many factors over which the management has no control but the

budgetary control depends on them. In that case, if its is prepared, it may be

inaccurate and fails to serve the purpose for which it is meant.

Characteristics of good budgeting:

A good Budgeting system should involve persons at different levels while

preparing the budgets. The subordinates should not feel any imposition of

them.

There should be a proper fixation of authority and responsibility. The

delegation of authority should be done in a proper way.

The targets of the budgets should be realistic; if the targets are difficult to be

achieved then they will not ensure the persons concerned.

A good system of accounting is also essential to move the budgetary

successful.

The budgeting system should have a whole-hearted support of the top

management.

53

Requisites for successful budgetary control system:

1. Clarifying Objectives:

The budgets are used to realize objectives of the business. The objectives must

be clearly spelt out so that budgets are properly prepared. In the absence of

clear goals, the budgets will also be unrealistic.

2. Proper Delegation of Authority and Responsibility:

Budget preparation and control is done at every level of management. Even

though budgets are finalized at top level but involvement of persons from lower,

levels of management are essential for their success. This necessities proper

delegation of authority and responsibility.

3. Proper Communication System :

An effective system of communication is required for a successful budgetary

control. The flow of information regarding budgets should be quick so that these

are implemented. The upward communication will help in knowing the

difficulties in implementation of budgets.

4. Budget Education :

The employees should be properly educated about the benefits at budgetary

system. They should be educated about their role in the success of this system.

The employees may not take budgetary control only as a control device but it

should be used as a tool to improve their efficiency.

5. Participation of all Employees :-

Budgeting is done by every segment of the business. It will also require the

active participation and involvement of all employees. In practice the budgets

are to be executed at lower levels of Management. Those for whom the budgets

are framed should be actively associated with their preparation and execution.

The employees, on the basis of their past experience, may give more practical

and useful suggestions.

54

6. Flexibility :-

Flexbility in budgets is required to make them suitable under changed

circumstances – Budgets are prepared for the future, which is always

uncertain. Even though budgets are prepared by considering the future

possibilities but still some occurrences late on may necessitate more

appropriate and realistic.

Organization chart for budgetary control:

Key fa

The factor that sets a limit to the total activity is known as key factor

which influence budgets. It is also called limiting factor or governing factor

principal budget factor. For example, there may be a high demand for a particular

55

Managing Director

Chief Executive

Budget Committee

Budget Officers

Sales Manager

Production

Manager

PurchaseManager

Personnel Manager

Development Manager

Accountant

product but due to non-availability of the supply of raw materials, production may

have to be destructed and this factor is known as key factor.

The following are examples of key factor.

1. MATERIALS : I

ii)

Availability of supply

Restriction imposed by licenses,

quotas etc.,

2. LABOUR : I)

ii)

General storage

Shortage of skilled labor

3. SALES : I)

ii)

iii)

Consumer demand

Inadequate advertising and

warehousing facilities

Dearth of experience or

successful salesman;

4. PLANT : I)

ii)

iii)

iv)

Limited capacity due to lack of

capital;

Limited capacity due to lack of space

In sufficient capacity due to shortage

of supply;

Bottleneck incretion key processes;

5. MANAGEMENT : I)

ii)

Shortage of efficient executive ness;

Insufficient capital

The key factor does not create any permanent problem in the business

operations since it is possible to solve any problem with proper management

action in figure.

56

Difference between budget and budgetary control:

The budget is an act of planning whereas budgetary control is an act of

controlling.

The budget concerns itself with the future. Budgetary control, is however,

concerned with the present activities although it is prepared on the basis of

data collected from the past budget. But the activities that the budgetary

control involves are not limited to that budget only. It is also related to the

questions as to how far the budget can effectively

Utilized in future

The budget fixes the target and budgetary control helps to arrive at that target.

The actual performance is measured not by the budget by budgetary control.

But this is not performed by budgets of course;nthey are extremely useful at

the time of preparing a revised budget.

57

CHAPTER – 5

BUDGET AND BUDGETARY

CONTROL IN VSP

58

BUDGETARY PROCESS IN VIASAKHAPATNAM STEEL PLANT:

Every organization prepares budgets so that it can plan for its future and meet

any unforeseen contingencies and Visakhapatnam. Steel plant is no exception to

this rule. In many organizations, the budgetary process is taken up by any senior

executive of finance department. Since Visakhapatnam Steel Plant is a large

organization it has a separate budget section in the finance department, which

takes care of the budgetary process.

Objectives of preparing budget in Visakhapatnam Steel Plant:

The following are the objectives at preparing Budget in Visakhapatnam Steel

Plant :

To generate profits and formulate the policies to achieve the goal.

To perform integration and co-ordination among the various departments like

construction department, works department, raw material handling

department, finance department, etc.

To motivate the closely related departments and the persons for attaining the

desired goal.

To act as a guide to management decision so that management can know how

successfully the objectives being attained.

59

STEPS IN BUDGETARY CONTROL IN VISAKHAPATNAM

STEEL PLANT:

Before a well establishment budget comes into being, a number of

things have been done so that there is a strong foundation for budgetary some

of them are:

1. Preparation of organization chart :-

In Visakhapatnam Steel Plant, the Chairman-cum-Managing Director

(CMD) is the head of the organization. The head of the departments (usually

G.M. or D.G.M.) of each department at Visakhapatnam Steel Plant prepare a

budget for their department and put up to C.M.D. Budget Section of Finance

Department will consolidate the department projection and prepare over all

company budget which indicate the Company projected Financial. The

budgets after being approved by the C.M.D. are placed before the Board of

directors (which includes C.M.D.). It is the board of directors, who approves

the budget for Budget Period (usually coming financial year).

Board of directors

Chairman-cum-managing Director

Budget Committee

(Comprising heads of department of various departments and senior officials

of finance department)

60

Establishing budget Centers :

A budget center is a section of the organization of an undertaking and

is defined as such from the point of view at budgetary control. Visakhapatnam

Steel Plant has a number of well is on the basis at collection of closely related

works into one budget center.

a) Corporate planning Department :

This department is headed by the General Manger (Corporate Planning) and is

responsible for drawing up the policy to be followed by the company.

b) Medical Department:

Headed by the chief medical officer, this department is responsible for

maintaining the health of the employees of the company and their department.

c) Marketing Department:

Headed by General Manager (Marketing) this department is responsible for

procuring orders for the company and selling the goods produced by

Visakhapatnam Steel Plant

d) Works Department:

Headed by Director (Operation), this is the life and flood of the company as

this department is responsible for manufacturing the various items.

e) G.M. (Maintenance) Department :

Heads by General Manager, this department is entrusted with the

responsibility of maintaining the various machines and keeping the break

down to a minimum level.

f) Information Technology Department :

This department is responsible for maintaining the various computer facilities

in the company and improving the efficiency of production.

61

h) Ancillary Development Department :

Headed by General Manager (Ancillary Development) this department is

responsible for over seeing the development at ancillary industries in and

around the plant.

i) Town and Administration Department :

Headed by the Chief Town Administrator, this department is responsible for

maintaining the Steel Plant township and meeting its requirements.

j) Personnel Department :

Headed by Director (Personnel), this department is responsible for maintaining

employee records.

k) Commercial Department:

Headed by Director (Commercial), this department is responsible for material

management in the company.

l) Project Division :

Headed by Director (Operation) this division is responsible for the

construction activity in the plant.

m) Human Resource Development:

This department is responsible for developing the skills of the employees by conducting various personality development programme.

n) Training Department :

This department is responsible for providing on the job training and off the job training for fresh recruits.

o) Finance Department :

Headed by Director (Finance) this department is responsible for per forming

the various financial activities at the company. It also prepares the pay rolls.

62

Budget Manual :

A budget manual is defined as a document which sets out the responsibilities

of the persons engaged in the routine of and the forms and records required for

budgetary control Visakhapatnam Steel Plant also has a well laid out budget

manual which enlists the responsibilities of different managers and Headed of

Department of various budget centers.

Budget Committee :

A budget committee is a group of executives at various major functions eg.

Managing director, Works Manager, Production Manager, Sales Manager,

Accountant etc., in Visakhapatnam Steel Plant, the budget committee consists

of the Board at Directors, Chairman-cum-Managing Director of

Visakhapatnam Steel Plant acts as the chairman of the committee.

Budget Period :

It refers to the period for which the budget is prepared and employed. There is

no fixed time for budget period. The length of the period depends on.

The nature of the production.

The native of the demand & supply of the product.

Extent of control.

Key Factor :

The factor, which sets a limit to the total activity, is known as the key factor

due to difficult and the high costs involved in the procurement of raw

materials and also due to less demand for the product.

63

Types Of Budgets Prepared By Visakhapatnam Steel Plant:

Visakhapatnam Steel Plant prepares two kindly of budgets

Capital Budget

Operation Budget

A) Capital Budget :

Capital Budget deals with the new schemes to be implemented during the

current year and also with the completion of schemes already implemented. It

is prepared and approved by Visakhapatnam Steel Plant and sent to ministry of

Finance to incorporate the projected capital expenditure in the over all Planned

expenditure of GOI.

The capital Budget consists of :

1. Continuing Schemes be divided into :

Land & Site Development

Civil Works

Structural Steel Works

Plant and Equipment

Repayment of Loans and credit

Additional/Modification and replacement schemes.

Research and development schemes.

2. New Schemes can be Divided into:

Expansion to 6.3MT Stage

Land acquisition for mines

COB-4

B) Operations Budgets :

64

This is the main budget prepared by Visakhapatnam Steel Plant. This budget

deals with the cash from operations of various items produced by the steel

plant. Operations budget is a short term budget and is prepared for a period of

one year. It is fixed budget there is periodic review of the budget to check

whether the actual figures match the budgeted figures. It may be as follows:

Step – I The Chairman-cum-Managing Director at Visakhapatnam Steel

Plant in consultation with the board at Directors decides the

production schedule for a particular year.

Step – II The production schedule as approved by to board of Directors

is then circulated to all departments.

Step – III The need of each of the 19 budget centers then presents the

budget for his center to CMD’s approval.

Step – IV After discussions with the head of each center with some

modification if necessary is approved.

Step – V After receiving all the budgets, the board of Directors

formulates the master budget for the particular year.

Step –VI The master budget is then circulated to all the department.

Step – VII The budget at each budget center and the master budget are

reviewed frequently, some times even daily, using a

computerized monitoring system in case Administrative

Expenditure.

65

PROCESS FOR PREPRATION OF MONTHLY WORKING

RESULTS IN RINL(VSP):

Introduction:

Monthly Working Result (MWR) is Management Information Report (MIS)

report compiled by the budget section of the F&A Department.. Every month

based on information obtained from Production Department, Marketing

Department, Cash section, Raw Materials Account, General Account, Work

accounts, Operation bills, Pay section etc. The compilation is done at gross level.

It is rough estimation of monthly profit based on monthly production and sales.

These estimates are purely on volume basis and not based on accounting

transaction data.

Details of Data Collected: The following are details of data collected from

various Deptt/Section:

S.No Details of Data Deptt/Section1. Daily Flash Statement from by Product

Section-MktgBy Product sale Sections

2. Important Raw Materials Stock at Port T&S3. Interest on RM Credit Rate Variance Material A/cs Section4. Voucher data from operation bills accounts Operation bills A/cs5. Voucher data from general A/cs General A/cs6. Voucher data from works A/cs Works A/cs7. Voucher data from stores A/cs Stores A/cs8. Stores and Spares inventory from Stores A/cs Stores A/cs9. NSR from by products Section Sales(finance)10. Raw material Receipts Raw Material Deptt11. Power details from DNW DNW12. Production and Closing Balance of main

product PPM

13. Monthly Report from PPM PPM14. Region wise, Branch wise sales a statement Mktg15. Export sales and shipment plan Exports Sales Section16. Cost of production for the month Costing Section17. Interest Details From cash Section Cash Section18. Raw Material Prices (Imported) for the month T&S

66

19. Dispatch money earned T&S20. Raw Material Prices Variance for the Month MM Deptt21. Fuel Rate for the Month MM Deptt22. NSR for the month and up to the month Branch Sales A/cs23. Wage Analysis Pay Section24. By Product Prices Mktg Deptt

The General Format of MWR:

S.No Particulars Previous Month Actuals

Current Month Up to Month

Sus. Plan Actual Sus. Plan

Actual

A Income 1 Gross Sales 2 Net Sales 3. Export Benefits 4 Sale of Power 5 Interest of Term Deposits 6. Miscellaneous income

Total (1 to 6) B Expenditure 7 Stock accretion (-) decretion 8 Raw Material Consumptions 9 Stores & Consumables 10 Employees Remn. Benefits 11 Power, Fuel & Water 12 Repairs & Maintenance 13 Other Expenses

Total (7 to 12)C Gross Margin D Interest charges E Cash Profit F Depreciation & DRE written

off G Net Profit ( Before Tax) (E-F)H Provision for income Tax incl.

FBT, Deferred Tax Provision for income Tax Provision for FBT Provision for Deferred Tax Liability

I Net Profit ( after tax) for the year (G-H)

J Addl. Income Tax Liability of

67

the year 2003-04 & 2004-05K Net Profit ( after tax) ( i-j)

Computation of Items in MWR:

(i) Gross Sales: This item is derived directly from the data fed from monthly

NSR report given by the Branch sales A/cs.

(ii) Net Sales: This item also derived from the Data fed from Monthly NSR

report given by the branch Sales A/cs

(iii) Export Benefits; This item is derived based on the Export benefits per ton

and Export Quantities given by Export Sales Section. (Export Benefit =

Export benefit per ton X Qty Exported)

(iv) Interest on Term Deposit: This item is derived directly from data given

by the cash Section.

(v) Interest Others: This item is estimated based on previous year actuals,

However current year actuals to be compared and necessary adjustments to

be incorporated.

(vi) Miscellaneous Income: This item is estimated based on previous year.

However current year actuals to be compared and necessary adjustments to

be incorporated.

(vii) Stock accretion /depletion; Excess production over sales Qty is accretion.

If it is other wise it is stock depletion. Accretion /depletion quantities are

valued at cost or NSR which ever is low.

68

(viii) Raw Material Consumption: Consumption quantities of various Raw

material are valued at weighted average prices of the same consumption

quantities includes Handling loss, Transit losses, Moisture loss etc.

(ix) Stores & Consumables; This item is derived based on stores JV details

obtained from stores accounts. And also from General accounts voucher

details.

(x) Employees Remuneration & Benefits: This item is derived based on

Salary JV generated by pay section and some items under this grouping are

based on estimates based on previous year actual.

(xi) Power, Fuel &Water: This item is derived based on consumption

quantities given by DNW and PPM and pricing information given by MM

Department.

(xii) Repairs & Maintenance: This item is based on voucher data obtained

from General Accounts, Operation Bills, Works bills, Stores Accounts etc.

Some are estimated at previous year level.

(xiii) Other Expenses: This item is based on estimated contractual rates for

scrap processing quantities and some are on the basis of estimations at

previous year actual level.

(xiv) Adjustments: All the above items are subjective to

revision or adjustments based on realities and likely provision that may

arise.

69

VISAKHAPATNAM STEEL PLANT (RINL)

Projections of financials for the year 2002-2003, 2003-2004 (Rs. In

Crores)Particulars Budget

2002-03Actual

2002-03Budget 2003-04

Actual 2003-04

Income Gross Sales 4417.82 5058.25 4727.60 6169.00Net Sales 3668.85 4220.62 3948.93 5214.63Stock Depletion -24.37 -281.09 -5.87 -25.61Export Benefits 47.02 78.17 97.54 78.90Miscellaneous Income

25.00 40.98 30.00 53.93

Sale of Power 56.25 26.43 9.13 9.02Total Income 3772.75 4085.11 4079.73 5330.87ExpenditureRaw Material 1926.71 1805.65 1985.75 2050.43Stores, Spares &Consummates

300.00 322.82 328.00 347.73

Employees Remuneration

398.31 405.99 428.78 481.15

Repair & Maintenance

103.00 77.99 93.00 84.48

Power, Fuel & Water

216.84 200.99 195.17 220.04

Other Expenses 185.03 216.67 198.21 209.95Total Expenditure 3129.89 3030.11 3228.90 3393.78Gross Margin (net) 642.86 1055.00 850.83 1937.09Interest 227.50 123.19 164.37 49.05Cash Profit 415.36 931.81 686.45 1888.04Depreciation & DRE

515.36 454.01 464.20 470.47

Net Profit -100.00 477.8 222.25 1417.57

70

VISAKHAPATNAM STEEL PLANT (RINL)

Projections of financials for the year 2004-2005, 2005-2006 (Rs. In

Crores)Particulars Budget

2004-05Actual

2004-05Budget2005-06

Actual2005-06

Income Gross Sales 5424.83 8181.34 8793.32 8482.44Net Sales 4528.63 6987.09 7657.20 6998.27Stock Depletion -6.84 310.39 0.00 -65.85

Export Benefits 85.07 11.30 0.00 24.43Miscellaneous Income 99.02 266.29 217.55 423.01Sale of Power 10.46 9.10 0.00 8.44Total Income 4716.34 7584.17 7874.75 7388.30ExpenditureRaw Material 2043.70 3019.64 3884.78 3584.62Stores, Spares &Consummates

353.06 310.40 400.95 338.95

Employees Remuneration

465.67 480.58 585.44 572.34

Repair & Maintenance 99.00 89.33 141.51 97.24Power, Fuel & Water 311.56 224.22 328.03 235.10Other Expenses 192.34 189.00 301.30 191.10Total Expenditure 3465.33 4313.17 5642.01 5019.35Gross Margin (net) 1251.01 3271 2232.74 2368.95Interest 32.24 11.11 24.58 31.00Cash Profit 1218.77 3259.89 2208.16 2337.95Depreciation & DRE 464.51 1006.12 474.00 448.29Net Profit 754.26 2253.77 1734.16 1889.66

71

VISAKHAPATNAM STEEL PLANT (RINL)

Projections of financials for the year 2006-2007, 2007-08 (Rs. In

Crores)

Particulars Budget 2006-07

Actuals 2006-07

Budget 2007-08

Actuals 2007-08

Income Gross Sales 8748.84 9150.57 9136.16 10433.07Net Sales 7325.01 7593.85 7592.16 8669.99Stock Depletion -5.75 23.760 -6.61 -343.17

Export Benefits 19.50 12.179 12.28 9.84Miscellaneous Income 558.52 609.91 594.04 169.89Sale of Power 21.04 19.44 3.13 4.65Total Income 7918.32 8259.139 8195 9574.36ExpenditureRaw Material 3998.34 3889.04 4103.31 4280.22Stores, Spares &Consummates

460.06 357.27 475.00 364.06

Employees Remuneration

633.55 746.940 812.05 1030.72

Repair & Maintenance 137 109.70 129.23 125.79Power, Fuel & Water 322.68 257.650 350.46 281.80Other Expenses 266.07 243.580 373.25 321.51Total Expenditure 5817.70 5604.18 6243.3 6060.93Gross Margin (net) 2100.59 2654.959 1951.7 3513.43Interest 35.60 48.94 24.84 31.57Cash Profit 2065.02 2606.019 1926.86 3481.86Depreciation & DRE 374.34 361.600 317.87 486.50Net Profit 1690.65 2244.40 1608.99 1942.74

72

VISAKHAPATNAM STEEL PLANT (RINL)

Projections of financials for the year 2008-09, 2009-10 (Rs. In

Crores)

Particulars Budget 2008-09

Actual 2008-09

Budget 2009-10

Actual (upto Dec ’09)

Income Gross Sales 10500.46 10407.94 10353.82 7546.88Net Sales 8801.88 8839.16 9254.83 6701.29

Stock Depletion 6.71 916.65 206.11 96.53

Export Benefits 34.85 3.05 0.00 0.00Miscellaneous Income 35.00 71.97 35.80 57.67Sale of Power 0.00 2.68 0.00 0.00Total Income 9401.85 10734.83 9633.16 7205.12ExpenditureRaw Material 4778.79 5858.19 5782.74 4163.51Stores, Spares &Consummates

513.00 501.23 498.30 324.40

Employees Remuneration

957.00 1156.68 1168.20 963.37

Repair & Maintenance 140.00 149.81 152.00 92.36Power, Fuel & Water 361.62 372.34 441.18 343.11Other Expenses 351.44 341.07 414.58 260.40Total Expenditure 7101.85 8379.32 8663.11 6243.68Gross Margin (net) 2300.00 2355.51 970.05 961.44Interest 35.00 88.14 84.50 58.71Cash Profit 2264.50 2267.37 885.55 902.73Depreciation & DRE 306.41 240.78 0.00 0.00Net Profit 1958.09 2026.59 418.40 721.91

73

VARIANCE BETWEEN BUDGET AND ACTUALS FOR THE YEAR 2002-2003

(Rs. In Crores)

Particulars Budget Actual Variance Favorable AdverseIncome Gross Sales 4417.082 5058.25 641.168 641.168Net Sales 3668.85 4220.62 551.77 551.77Stock Accretion & Discretion

24.37 -281.09 256.77 256.77

Export Benefits 47.02 78.17 31.15 31.15Miscellaneous Income

25.00 40.98 15.98 15.98

Sale of Power 56.25 26.43 29.82 29.82Total Income 3821.49 4085.11 263.62 263.62ExpenditureRaw Material 1826.71 1805.65 21.06 21.06Stores, Spares & Consummates

300.00 322.82 22.82 22.82

Employees Remuneration

398.31 405.99 7.68 7.68

Repair & Maintenance

103.00 77.99 25.01 25.01

Power, Fuel & Water

226.84 200.99 25.85 25.85

Other Expenses 185.03 216.67 31.64 31.64Total Expenditure

3039.89 3030.11 9.78 9.78

Gross Margin (net)

781.60 1055.00 273.40 273.40

Interest 227.50 123.19 104.31 104.31

74

Cash Profit 554.10 931.81 459.94 459.94Depreciation & DRE

469.48 454.61 14.87 14.87

Net Profit 84.62 477.20 392.58 392.58

VARIANCE BETWEEN BUDGET AND ACTUALS FOR THE YEAR 2003-2004

(Rs. In Crores)

Particulars Budget Actual Variance Favorable AdverseIncome Gross Sales 4727.60 6169.09 1441.49 1441.49Net Sales 3948.93 5214.63 1265.70 1265.70Stock Accretion & Discretion

-5.87 -25.61 19.74 19.74

Export Benefits 97.54 78.90 18.64 18.64Miscellaneous Income

30.00 53.93 23.93 23.93

Sale of Power 9.13 9.02 0.11 0.11Total Income 4079.73 5330.87 1251.14 1251.14 ExpenditureRaw Material 1985.75 2050.43 64.68 64.68Stores, Spares & Consummates

328.00 347.73 19.73 19.73

Employees Remuneration

428.78 481.15 52.37 52.37

Repair & Maintenance

93.00 84.48 8.52 8.52

Power, Fuel & Water

195.17 220.04 24.87 24.87

Other Expenses 198.21 209.05 10.84 11.74Total Expenditure 3228.91 3392.88 163.97 163.97Gross Margin (net)

850.82 1937.9 1087.08 1087.08

Interest 164.37 49.05 115.32 115.32Cash Profit 686.45 1888.85 1202.4 1202.4

75

Depreciation & DRE

464.20 476.47 12.27 12.27

Net Profit 222.25 1412.38 1190.13 1190.13

VARIANCE BETWEEN BUDGET AND ACTUALS FOR THE YEAR 2004-2005

(Rs. In Crores)

Particulars Budget Actual Variance Favorable AdverseIncome Gross Sales 5424.83 8181.34 2756.51 2756.51Net Sales 4528.63 6987.09 2458.46 2458.46Stock Accretion & Discretion

-6.84 310.39 317.23 317.23

Export Benefits 85.07 11.30 73.77 73.77Miscellaneous Income

99.02 266.29 167.27 167.27

Sale of Power 10.46 9.10 1.36 1.36Total Income 4716.34 7584.17 2867.83 2867.83ExpenditureRaw Material 2043.70 3019.64 975.94 975.94Stores, Spares & Consummates

353.06 310.40 42.66 42.66

Employees Remuneration

465.67 480.58 14.91 14.91

Repair & Maintenance

99.00 89.33 9.67 9.67

Power, Fuel & Water

311.56 224.22 87.34 87.34

Other Expenses 192.34 189.00 3.34 3.34Total Expenditure

3465.33 4313.17 847.84 847.84

Gross Margin (net)

1251.01 3271 2019.98 2019.98

Interest 32.24 11.11 21.13 21.13Cash Profit 1218.77 3259.89 2041.12 2041.12

76

Depreciation & DRE

464.51 1006.12 541.61 541.61

Net Profit 754.26 2253.77 1499.51 1499.51

VARIANCE BETWEEN BUDGET AND ACTUALS FOR THE YEAR 2005-2006

(Rs. In Crores)

Particulars Budget Actual Variance Favorable AdverseIncome Gross Sales 8793.32 8482.44 310.88 310.88Net Sales 7657.20 6998.27 658.93 658.93Stock Accretion & Discretion

0.00 -65.85 65.85 65.85

Export Benefits 0.00 24.43 24.43 24.43Miscellaneous Income

217.55 423.01 205.46 205.46

Sale of Power 0.00 8.44 8.44 8.44Total Income 7874.75 7388.30 486.45 486.45ExpenditureRaw Material 3884.78 3584.62 300.16 300.16Stores, Spares & Consummates

400.95 338.95 62.00 62.00

Employees Remuneration

585.44 572.34 13.1 13.1

Repair & Maintenance

141.51 97.24 44.27 44.27

Power, Fuel & Water

328.03 235.10 92.93 92.93

Other Expenses 301.30 191.10 110.2 110.2Total Expenditure

5642.01 5019.35 622.66 622.66

Gross Margin (net)

2232.74 2368.95 136.21 136.21

Interest 24.58 31.00 6.42 6.42

77

Cash Profit 2208.16 2337.95 129.79 129.79Depreciation & DRE

474.00 448.29 25.71 25.71

Net Profit 1734.16 1889.66 155.15 155.15

VARIANCE BETWEEN BUDGET AND ACTUALS FOR THE YEAR 2006-2007

(Rs. In Crores)

Particulars Budget Actual Variance Favorable AdverseIncome Gross Sales 8748.84 9150.570 401.73 401.73Net Sales 7325.01 7593.85 268.84 268.84Stock Discretion

-5.75 23.760 29.51 29.51

Export Benefits 19.50 12.179 -7.321 7.321Miscellaneous Income

558.52 609.91 51.39 51.39

Sale of Power 21.04 19.44 -1.6 1.6Total Income 7918.32 8259.139 340.819 340.819ExpenditureRaw Material 3998.34 3889.04 109.3 109.3Stores, Spares & Consummates

460.06 357.27 102.79 102.79

Employees Remuneration

633.55 746.940 113.39 113.39

Repair & Maintenance

137 109.70 27.3 27.3

Power, Fuel & Water

322.68 257.650 65.03 65.03

Other Expenses 266.07 243.580 22.49 22.49Total Expenditure

5817.89 5604.18 213.52 213.52

Gross Margin (net)

2100.62 2654.95 554.33 554.33

Interest 35.60 48.94 13.34 13.34Cash Profit 2065.02 2606.01 540.99 540.99Depreciation & DRE

374.34 361.600 12.74 12.74

78

Net Profit 1690.68 2244.41 553.73 553.73

VARIANCE BETWEEN BUDGET AND ACTUALS FOR THE YEAR 2007-2008

(Rs. In Crores)

Particulars Budget Actual Variance Favorable AdverseIncome Gross Sales 9136.16 10433.07 1296.91 1296.91Net Sales 7592.16 8669.99 1077.83 1077.83Stock Discretion

-6.61 -343.17 349.78 349.78

Export Benefits 12.28 9.84 -2.44 2.44Miscellaneous Income

594.04 169.89 424.15 424.15

Sale of Power 3.13Total Income 8195 9574.36 1379.36 1379.36ExpenditureRaw Material 4103.31 4280.22 176.91 176.91Stores, Spares & Consummates

475.00 364.06 110.94 110.94

Employees Remuneration

812.05 1030.72 218.74 218.74

Repair & Maintenance

129.23 125.79 3.44 3.44

Power, Fuel & Water

350.46 281.80 68.66 68.66

Other Expenses 373.25 321.51 51.74 51.74Total Expenditure

6243.3 6060.93 182.37 182.37

Gross Margin (net)

1951.7 3513.43 1561.73 1561.73

Interest 24.84 31.57 6.73 6.73Cash Profit 1926.86 3481.86 1555 1555Depreciation & DRE

317.87 486.50 168.63 168.63

79

Net Profit 1608.99 1942.74 333.75 333.75

GROSS SALES

BUDGET ACTUALS VARIANCE FAVOURABLE ADVERSE

2004-2005 5424.83 8181.34 2756.51 2756.51

2005-2006 8793.32 8482.44 -310.88 -310.88

2006-2007

2007-2008

8748.84

9136.16

9150.57

10433.07

401.73

1296.91

401.73

1296.91

2008-2009 10500.46 10407.94 -92.52 -92.52

80

NET SALES

BUDGET ACTUALS VARIANCE FAVOURABLE ADVERSE

2004-2005 4528.63 6987.09 2458.46 2458.46

2005-2006 7657.20 6998.27 -658.93 -658.93

2006-20072007-2008

7325.017592.16

7593.858669.99

268.841077.83

268.841077.83

2008-2009 8801.88 8839.16 37.28 37.28

81

TOTAL INCOME

BUDGET ACTUALS VARIANCE FAVOURABLE ADVERSE

2004-2005 4716.34 7584.17 2867.83 2867.83

2005-2006 7874.75 7388.3 -486.45 -486.482006-20072007-2008

7918.328195

8259.139574.36

340.811379.36

340.811379.36

2008-2009 9401.85 10734.83 1332.98 1332.98

82

TOTAL EXPENDITURE

BUDGET ACTUALS VARIANCE FAVOURABLE ADVERSE

2004-2005 3465.33 4313.17 -847.84 -847.84

2005-2006 5642.01 5019.35 622.66 622.66

2006-20072007-2008

5817.796243.03

5604.186066.93

213.52176.37

213.52176.37

2008-2009 7101.85 8379.32 1277.47 1277.47

83

GROSS MARGIN

BUDGET ACTUALS VARIANCE FAVOURABLE ADVERSE

2004-2005 1251.01 3271 2019.98 2019.98

2005-2006 2232.74 2368.95 136.21 136.21

2006-20072007-2008

2100.621951.7

2654.953513.43

554.331561.73

554.331561.73

2008-2009 2300.00 2355.51 55.51 55.51

84

INTEREST

BUDGET ACTUALS VARIANCE FAVOURABLE ADVERSE

2004-2005 32.24 11.11 -21.13 -21.13

2005-2006 24.58 31 6.42 6.422006-20072007-2008

35.6024.84

48.9431.57

13.346.73

13.346.73

2008-2009 35.00 88.14 53.14 53.14

85

CASH PROFIT

BUDGET ACTUALS VARIANCE FAVOURABLE ADVERSE

2004-2005 1218.77 3259.89 2041.12 2041.12

2005-2006 2208.16 2337.95 129.79 129.79

2006-20072007-2008

2065.021926.86

2606.013481.86

540.991555

540.991555

2008-2009 2264.50 2267.37 2.87 2.87

86

0.

NET PROFIT

BUDGET ACTUALS VARIANCE FAVOURABLE ADVERSE

2004-2005 754.26 2253.77 1499.51 1499.51

2005-2006 1734.0 1889.67 155.15 155.15

2006-20072007-2008

1690.681608.99

2244.411942.74

553.73333.75

553.73333.75

2008-2009 1958.09 2026.59 68.5 68.5

87

GROSS SALES

BUDGET ACTUALS VARIANCE FAVOURABLE ADVERSE

2004-2005 5424.83 8181.34 2756.51 2756.51

2005-2006 8793.32 8482.44 -310.88 -310.88

2006-2007

2007-2008

8748.84

9136.16

9150.57

10433.07

401.73

1296.91

401.73

1296.91

2008-2009 10500.46 10407.94 -92.52 -92.52

88

NET SALES

BUDGET ACTUALS VARIANCE FAVOURABLE ADVERSE

2004-2005 4528.63 6987.09 2458.46 2458.46

2005-2006 7657.20 6998.27 -658.93 -658.93

2006-20072007-2008

7325.017592.16

7593.858669.99

268.841077.83

268.841077.83

2008-2009 8801.88 8839.16 37.28 37.28

89

TOTAL INCOME

BUDGET ACTUALS VARIANCE FAVOURABLE ADVERSE

2004-2005 4716.34 7584.17 2867.83 2867.83

2005-2006 7874.75 7388.3 -486.45 -486.482006-20072007-2008

7918.328195

8259.139574.36

340.811379.36

340.811379.36

2008-2009 9401.85 10734.83 1332.98 1332.98

90

TOTAL EXPENDITURE

BUDGET ACTUALS VARIANCE FAVOURABLE ADVERSE

2004-2005 3465.33 4313.17 -847.84 -847.84

2005-2006 5642.01 5019.35 622.66 622.66

2006-20072007-2008

5817.796243.03

5604.186066.93

213.52176.37

213.52176.37

2008-2009 7101.85 8379.32 1277.47 1277.47

91

GROSS MARGIN

BUDGET ACTUALS VARIANCE FAVOURABLE ADVERSE

2004-2005 1251.01 3271 2019.98 2019.98

2005-2006 2232.74 2368.95 136.21 136.21

2006-20072007-2008

2100.621951.7

2654.953513.43

554.331561.73

554.331561.73

2008-2009 2300.00 2355.51 55.51 55.51

92

INTEREST

BUDGET ACTUALS VARIANCE FAVOURABLE ADVERSE

2004-2005 32.24 11.11 -21.13 -21.13

2005-2006 24.58 31 6.42 6.422006-20072007-2008

35.6024.84

48.9431.57

13.346.73

13.346.73

2008-2009 35.00 88.14 53.14 53.14

93

CASH PROFIT

BUDGET ACTUALS VARIANCE FAVOURABLE ADVERSE

2004-2005 1218.77 3259.89 2041.12 2041.12

2005-2006 2208.16 2337.95 129.79 129.79

2006-20072007-2008

2065.021926.86

2606.013481.86

540.991555

540.991555

2008-2009 2264.50 2267.37 2.87 2.87

94

NET PROFIT

BUDGET ACTUALS VARIANCE FAVOURABLE ADVERSE

2004-2005 754.26 2253.77 1499.51 1499.51

2005-2006 1734.0 1889.67 155.15 155.15

2006-20072007-2008

1690.681608.99

2244.411942.74

553.73333.75

553.73333.75

2008-2009 1958.09 2026.59 68.5 68.5

95

96

CHAPTER- 6

SUMMARY & SUGGESTIONS

SUMMARY:

Introduction part of the report portrays to importance of steel Industry, Iron

& Steel Industry scenario. Giving brief account on, world and Indian Steel scenario,

this explains about the demand & Production capacities of steel. It also explains

about the Birth, Growth and development of steel in India.

The report gives brief introduction of budget and budgetary control and the

few definitions about budget and budgetary control, the study explain the need,

essentials, advantages and types of budget and budgetary control. It also explains

about the type of budgeting method is followed by Viskhapatnam steel plant.

SUGGESTIONS:

If we can observe the overall management performance of the

Visakhapatnam steel plant, we find some favorable & adverse impacts on the

organizations profitability. Therefore I would like to recommend some suggestions,

which may useful to maximize the profits.

If we look at the Stores, R&M, Power & Other expenses it was increased.

Continuously.

While look at the financial results about employee remuneration expenditure was

observed that the total employee remuneration expenditure was increased.

Continuously from 2004-2005. Therefore the HRD department should concentrate

on this issue although the employee satisfaction is important but employee

performance must be increased to increase the production and reduce the cost of

production. In the recent years the demand for the steel is rapidly increasing. Even if the market

survey has been done properly, it is only valid for some period and it is hard to

estimate for whole year. Assuming the market changes budgets should therefore be

revised each and every time there is a change.

Port is situated at 18 kms from the plant and transportation cost, which is paid, is as

some as 50 kms distance. Talks should be initiated to downstream the costs.

The power export variance also informed that the actual were less than the budgets

from last two years therefore the top management should take care about the

misuses of power and should motivate the employees at all levels for proper use of

power.

Conclusion:

The Visakhapatnam Steel Plant has been dedicated to nation in 1992 and

it is one of the major steel plants in the Asia and having much more capital

investment. We know that the Visakhapatnam Steel Plant as a large organization

might have long gestation period and while establishing the Visakhapatnam Steel

Plant so much of lands were taken from the local people and provided the jobs to

them in VSP thought they may not skillful. But the top management of VSP

conducts so many training and development programs to improve their

performance, not only this but also frequent technological changes due to the above

factors in the initial stage. The VSP incurred some losses but with the remedial

measures taken by the top management the past scenario was changed and the

organization was stepped towards the profits and recorded 449.66 crores as a profit

for the year 2002. However the top management must take care to improve the

profitability and must try to reduce / remove the accumulated losses, which is

important for the wealth of the organization.

BIBILIOGRAPHY

REFERENCE:

FINANCIAL MANAGEMENT: I M PANDEY

ADVANCED ACCOUNTING: R.L, GUPTA,

M.RADHA SWANIY

BUDGETRY CONTROL & STANDARD COST: J.A. SCOTT

PROJECT MANAGEMENT & Prof. PRASANNA CHANRA CONTROL AND REVIEW:

JOURNALS

SOURCE:

ANNUAL REPORT OF VSP 2008-09.

VSP PUBLISHED JOURNALS AND MAGAZINES

THE MANAGEMENT ACCOUNTS JOURNALS

WEBSITES:

www.vizagsteel.com

www.jpcindiansteel.org