Management Accounting Assignment

Budgetary Control System

Details
PGP 2014-16

Group
Sayantan Dasgupta -

1401046

Section - A

Subburam S 1401047
Sumit Singh 1401048
Suresh Bhasin 1401049
Ramesh TVS 1401050
Varun Gampa 1401051

Company Etalin Hydro Project (Subsidiary of Jindal Steel & power

Limited)
Introduction:
Etalin Hydro Electric project is being developed by a joint venture of
Arunachal Pradesh Government and Jindal Power Limited, latter is a wholly
owned subsidiary of Jindal Steel & power Limited. It is a Hydro-electric
project with installed capacity of 3097 MW. The project was allotted to the
joint venture by Ministry of Power, Central Government and is still under
development phase. The construction of project is supposed to start from
October 2016 after development phase & after obtaining all the clearance
from respective ministries.
The budget which has been obtained is based on the procurement details of
the project for the financial year 2013-14 and actual expenditure incurred in
the financial year.
Q1: How is the budget made?
A1: The budget is prepared by focusing on mainly last year expenditure
details. As it is a procurement budget and the project is under construction,
last year details were sought from site about the work done and because of
some issues with the contractor to whom drilling works were allotted could
not be completed, but as contract has been allotted to a new contractor, the
work is supposed to be expedited in the current FY i.e. FY 2014-15.
Besides, Central Electricity Authority, Ministry of Power also sought
expenditure details of in construction phase in order to arrive at total cost of
Management Accounting Assignment Budgetary Control

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the project and for tariff calculation. These costs were provided by
engineering consultant, who provides erection & commissioning details and
based on that budget required for the total construction period is obtained,
which may not be exact but certainly based on pragmatic assumptions.

Q2: When does the exercise start?

A2: The exercise starts around November i.e. middle of third quarter of
financial year, so that managers can know have a better understanding of
the expenditure to be made in next financial year as the lesser the time the
more pragmatic the budget is supposed to be. It takes around 1 month for
discussion and fixation of the month wise tentative budget of the next
financial year from the respective departments, post that the budget is sent
for the approval of the CEO of the firm. It takes one week tentatively for his
approval. Once approved, it is being sent to the finance department for funds
allocation and financing arrangement. In January middle, it is being sent to
the Management of the firm, where the final decision is taken about the
expenditure.
Q3: Who are all participating?
A3: All the managers of various departments, department heads, Chief
Executive Officer, Finance Department and Management of the firms
participate actively over budget and a final meeting is called for the dept
heads with CEO. Later CEO justifies the forecasted expenditure to the
Management.
Q4: Is it top down or bottom up approach?
A4: It is a bottom up approach, the basic reason for this is that it is
procurement budget. If plant would have been constructed, it is believed that
approach would have been top down because Management would be
directing the managers to produce a certain amount of energy.
Q5: What elements/ costs/ expenditure are captured in the budget?
A5: Per unit costs of activities, quantity of the activities, contracts awarded
in the financial year are major elements while preparation of budget for the
financial year. Instead of these, the basis of fixation of the budget should be
activities which will be or could be executed in the financial year, which is
currently linked with the performance appraisal of the managers.
Q6: Is there a mid-term review of actual budget?

Management Accounting Assignment Budgetary Control

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A6: Yes, there is a process of mid-term review. The review is done in the
month of October, generally. The review is conducted by Management, which
tries to find out the variances from the actual budget.
All the departments usually dont spend the budget they provide.
Management tries, to find out the reason for the same, but in the current
financial year there have been unprecedented circumstances for which
managers cant be held responsible. So Management has to let it go because
clearance from ministries is not eve under their control.

Q7: At the end of the year how is the review done?

A7: At the end of the year each department is asked by CEO specifically to
specify the details of the expenditure they have made in the financial year,
along with the work details & rest of the targets to complete a certain task.
Then CEO present the consolidation of expenditure & work done to the
management as a part of annual review process of the departments
individually. In case the variance is very large which is in the given financial
year, apart from managers purview, managers or head of the department
are supposed to submit a report on the same stating the reasons for the
same.
Q8: How is the performance appraisal linked to the performance in
budgetary parameters?
A8: As far the managers are concerned there is no link between the
appraisal and the budgetary parameters, however, in terms of their annual
appraisal, the variable component of salary is linked in terms of overall
performance of business usually in the range of 10% to 30%.
Whereas in terms of top executives, it was not clear to junior level executives
how their performance is linked to the budgetary parameters. But in terms of
salaries, the variable completed is linked in the range of 40% to 60% of their
variable component.
Q9: What kind of variance analysis is done?
A9: The variance analysis adopted is of general approach. Main activities are
drilling, drifting, land acquisition, communication setup, acquiring chopper
services, out of which land acquisition and communication set up can be

Management Accounting Assignment Budgetary Control

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done only after clearance from the ministries, so could not be spend in the
given period.
Price per unit of activities like drilling & drifting do not change rapidly, hence
the variance analysis done is based on the quantity, which is material
quantity variance, where quantity are measured, how much quantity of
activities are being done.
Q10: What we learned?
A10: We learned that even in big companies like M/S Jindal Steel & Power
Limited, performance appraisal is not linked directly to the budgetary
parameters. Managers provide a significant large amount of activities to be
done in the financial year but they merely utilize 3% of the funds allocated to
the activities.
The main problem is with the finance department, because they have to
arrange finances/ funds for the activities to be executed, with a lot of
hardships, but for some reason managers are unable to execute the intended
activities.
Besides, currently company is not investing much in the hydro business
because of lack of funds, reason being cola block de-allocation & payment of
hefty charges to the government for the coal block mining. So, there can be
external factors which may hamper the funds or other parameters, which
effects your overall progress of the project.
Managers need to provide the budget after critical and logical discussions,
because as in the aforesaid firm, budget fixation might have been logical but
it was certainly was not pragmatic.

Management Accounting Assignment Budgetary Control

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Annex I
Budget Provision for Etalin HEP (3097 MW) in Arunachal Pradesh
14
(Rs. In Lacs)
WBS
element

Name

Budget
kept for
FY 13-14

Budget
for 9
months
FY 201314
(April Dec)

Expen
ses
incurre
d for
April'1
3Nov'13

345.02

258.77

104.18

60%

357.03

267.77

13.44

95%

36.00

27.00

3.64

87%

230.00

172.50

100%

120.00

90.00

100%
100%

60.00

45.00

Lev
el
A
A
A
A
A
A

A - PRELIMINARY
EHP-30001PRE-AB-01
Drilling
EHP-30001PRE-AB-02
Drifting
EHP-30001Explosives &
PRE-AB-03
Detonators
EHP-30001PRE-AB-04
Insitu- Tests
EHP-30001PRE-AB-05
Lab. Tests
EHP-30001Misc. (Any other
PRE-AB-07
investigations
suggested by

FY 2013-

Management Accounting Assignment Budgetary Control

Mate
rial
Quant
ity
Varia
nce

5 | Page

concerned authorities)
A
A
A
A

EHP-30001PRE-AC
EHP-30001PRE-AD
EHP-30001PRE-AE
EHP-30001PRE-AF

EHP-30001PRE-AG
EHP-30001PRE-AI
EHP-30001PRE-AJ
EHP-30001PRE-AK
EHP-30001PRE-AL
EHP-30001PRE-AM-01
EHP-30001PRE-AM-02
EHP-30001PRE-AM-03

EHP-30001PRE-AM-04

A
A
A
A
A
A
A

A
A
A

EHP-30001PRE-AM-07
EHP-30001PRE-AM-08
EHP-30001PRE-AM-10

Project Foot path / Foot

Track
Survey (SOI or any
other Agency)
Computer &
telecommunication
facilities
Preparation and
printing of project repo
Meteorological
Instrument & their
Maintenance
Camp Equipment
Photogeological study
Survey & Investigation
for Tender works
Hydraulic model
testing
DPR Consultancy (SNC
Lavalin)

B
B
B

B - LAND
EHP-30001LAD-AA
EHP-30001LAD-AB
EHP-30001-

167.47

58.50

125.60

77%

15.89

87%

12.00

9.00

100%

10.00

7.50

100%

8.00

6.00

100%

50.00

37.50

100%

200.00

150.00

100%

355.45

266.59
-

Seismic Study

EIA/ EMP studies

Consultancy for Tender
documents & Detailed
Engineering
For Detailed
Engineering
Misc. (other
consultancy charges
which are not covered
above)

13.23

CDM Consultancy

TOTAL
B

78.00

19.67

14.75

1,300.00

975.00

101.73

62%

100%
100%

586.55

439.91

3,935.19

2,951.39

100%
252.11

91%

Land Acquisition For

Project
Rehabilitation &
Resettlement/LAD
Land Acquisition for

8,000.00

6,000.00

100%

800.00

600.00

100%

Management Accounting Assignment Budgetary Control

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LAD-AC

Logistics

TOTAL
K
K

K - BUILDING
EHP-30001BLD-AA
Residential Buildings

TOTAL

MPLANTATIO
N
EHP-30001PLT

O
O
O

Plantation

O - MISCELLANEOUS
EHP-30001MSC-AA
Capital cost
EHP-30001Maintenance and
MSC-AB
Services
EHP-30001MSC-AC
Other Items

TOTAL
O
X
X

Q - SPECIAL T & P
EHP-30001STP
Special T & P
EHP-30001STP-AA
Vehicle

R
R
R
R
R
R
R

100%

668.11

501.08

100%

668.11

501.08

100%

5.00

3.75

5.00

3.75

100%
-

100%

100%

45.00

33.75

20.00

15.00

65.00

48.75

25.28

-69%

25.28

48%

TOTAL
R

6,600.00

TOTAL
O

8,800.00

R - COMMUNICATION
EHP-30001Logistics Roads,
COM-AA
Bridges
EHP-30001COM-AA-01
BRO/PWD Roads
EHP-30001COM-AA-02
Bridges
EHP-30001COM-AA-03
Equipments
EHP-30001COM-AB
Project Roads
EHP-30001COM-AC
Bridges for Project
EHP-30001Miscellaneous

50.00

37.50

50.00

37.50

100%
-

100%

490.00

Management Accounting Assignment Budgetary Control

367.50

100%
100%
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COM-AE

TOTAL
III

EHP-30001T&P
Tools & Plant

TOTAL

IV

X- Enviornment & Ecology

EHP-30001E&E
Enviornment & Ecology
EHPSuspense
30001-SUS (Contingency)
MISCELLANEOUS WORKS
EHP-30001MIS-AA
Helicopter service

TOTAL
Total of Project
Budget

1,250.00

937.50

1,740.00

1,305.00

100%

221.86

166.40

100%

221.86

166.40

100%

120.00

90.00

100%

5,500.00

4,125.00

5,500.00

4,125.00

21,105.1
6

15,828.87 277.39

Management Accounting Assignment Budgetary Control

100%
-

100%
98%

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