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

7
 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):

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):

8
 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
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.

9
Tenth five-year plan (2002 to 2007):
Steel industry registers a growth of 9.9%. VSP has high regime targets.

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.

10
Sola Name of 2007- 2008- 2009- 2010- 2011- total
no the scheme 08 09 10 11 12
1 AMR 100 100 100 100 100 500
schemes
2 Coke oven 125.56 - - - - 125.56
battery#4
3 Expansion 2700.3 2966.8 1483.6 463.3 154.4 7768.62
to 6.3 Mt 0 9 7 2 4
4 Pulvarised 87 - - - - 87
coal
injection
5 Air 36 - - - - 36
separation
plant
6 Acquisitio - 600 - - - 600
n of mines-
coal &ore

7 R&D 10 10 10 10 10 50
8 BF1 27 - - - - 27
capital
repairs
9 Spl.capex 200 175 - - - 375
value
added
products
Total 3285.8 3851.8 1593.6 573.3 264.4 9569.18
6 9 7 2 4

Global Scenario:
As per IISI

11
 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.
 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.

12
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.

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.

13
  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:

 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:

14
PRODUCTION PERFORMANCE (In Million tons)
YEAR PIGIRON SPONGEIRO FINISHEDSTEEL
N
2000-01 3.39 5.44 29.27
2001-02 4.08 5.44 30.63
2002-03 5.28 6.44 33.67
2003-04 3.76 8.09 39.12
2004-05 3.18 9.93 41.15
2005-06 4.39 0.00 30.84
2006-07 3.52 0.00 31.40
2007-08 4.95 0.00 29.74
2008-09 4.95 0.00 29.74

45
40 2000-01
35 2001-02
30 2002-03
25 2003-04
20
2004-05
15
10 2005-06
5 2006-07
0 2007-08
PIGIRON SPONGEIRON FINISHED
2008-09
STEEL

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 20th 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

19
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),
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.

20
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
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 Blast furnace foundation (1st
mass concreting in the project)
To
lay.
26.02.1982
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

21
 commissioning metallurgical
unit starts.
22. 14.11.1989 Sinter plant (Machine-1)
commissioned.
23. 28.03.1990 “Godavari” the 1st blast furnace
commissioned.
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.4

38 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 Mt

22
 40 28.10.2005 Got of India approval ref.6 (1)
2005-vsp approval date
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.

 Create an inspiring work environment to unleash the creative energy of people.

 Achieve excellence in enterprise management.

23
 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 Year

Won the "GRAND FINALE" of VSP won this Quiz 2009
Alma’s 10th National Management successively for 3 years in a
Quiz – 2009 in December 2009. row (2007, 2008 & 2009)
achieving HAT-TRICK which
is a National Record.
Bagged third prize in ‘Public In the ‘Event Management’ 2009
Relations National Awards-2009’ category at the 31st All India
Public Relations conference
held in Chandigarh

Bagged the First Steel Minister’s For being the best integrated 2009
Trophy for the year 2006-07 steel plant in the country
(Runner Up)

Adjudged ‘Energy Efficient Unit’ For excellence in energy 2009

award by Confederation of Indian Management
Industry Godrej Green Business
Centre at the 10th National award.

Won the TATA-Crucible Corporate For the best performance in 2009

Quiz. the inter corporate business
quiz, TATA-Crucible
Corporate Quiz
QC teams won Gold & Bronze For Quality Circles 2009
medals at the International
Convention on Quality Control
Circles (ICQCC) convention at
Cuba, Philippines in October 2009.

Vishwakarma Rashtriya Puraskar For the best suggestions 2009

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

25
The ‘India Gandhi Rajabhasha’
Award
ISPAT RAJYA BHASHA
TROPHY.
RINL ranked No.2 globally for the Global survey by Steel guru 2009
popularity of website among the
global steel makers.
For the best performance in 2009
Hindi implementation during
the year 2007-08 in
September.
For popularizing the usage of 2009
Hindi.
for the most popular website
among steel makers all over
the world

The ‘Best Place to work for- 2009’ Award given by “The 2009
Economic Times-Great Place
to Work Institute” was won by
VSP in June .
ISPAT RAJYA BHASHA For popularizing the usage of 2009
TROPHY Hindi.
VSP bags ‘top assessed’ award For 2007-08 for paying 2009
highest central excise.
Ukkuvani, the bi-monthly In-house For Employee welfare in 2009
journal was adjudged the ‘Best ‘National Awards for House
House Journal Devoted to Welfare Journals’.
of Employees’

QCFI-NMDC Trophy. For the ‘Best Quality Circle 2008

Implementing Organisation’
given by QCFI
CII Award for ‘5-S’ to WRM Dept. For Workplace Management. 2008
of VSP in November .
VSP is the 1st organization in
Steel Industry implementing
‘5-S’ at workplace
management.
Two QC teams, “Harmony” from Quality Circles 2008
WRM and “Vices” from RMHP
won EXCELLENT awards at
International Convention on
Quality Control Circles (ICQCC)
at Dhaka, Bangladesh

“Spat Suresh Pulaski Award” For ‘No fatal accident’ in 2007

2006 & 2007 given by JCSSI
(Joint Committee on Safety,
Health & Environment in
Steel industry)

26
“Enterprise Excellence Award
2007” conferred by Indian Institute
of Industrial Engineering (IIIE) in
May 2008.
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
Second Prize for Organisational
Excellence.
Best Organisation Award conferred
by QCFI, Visakhapatnam Chapter
Sri PK Bishnoi, CMD was
presented UDYOG RATAN award
by the Institute of Economic
studies, New Delhi
Sri PK Bishnoi, CMD was
presented “Excellence Award” by
the Delhi Telugu Academy
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.
Sri PK Bishop, CMD was awarded India Gandhi Memorial
the Best Chief Executive Gold National Awards
Award of “India Gandhi Memorial
National Awards-2007” by
Institution of Engineers (India)
Hyderabad.
National Award for e-Governance
Prime Minister's Trophy
Commendation prize for strong
commitment to Excellence – CII
Exam Bank Award for Business
Excellence 2006
Strong Commitment - CII HR
Excellence Award 2006
Excellence in overall 2008
performance
For his significant 2008
achievement for ‘Sustainable
Development’, ‘Improving the
quality of life in society’ and
‘Supporting the cause of
Science& Technology’.
Efficient suggestion scheme 2008
operation given by INSSAN
For promoting QCs in the 2008
organization
For achieving excellence in 2007
Productivity, Quality,
Innovation and Management.
For significant contribution to 2007
the industry.
Best Quality Circles 2007
2007
Exemplary usage of ICT by 2007-08
Public Sector Undertakings
Best integrated steel plant 2005-06
2006
Overall Excellence in all
activities of the company
Excellence in HR processes 2006
and practices
27
 1st - 2006

2nd - 2005

1st - 2004
Energy efficiency (First prize
for 3 consecutive years and 1st - 2003
National Energy Conservation Award also a special award for
achieving this). This is the 7th 1st - 2002
award in a row.
2nd - 2001

Merit
Certificate-
2000
Organizational Excellence Award Efficient suggestion scheme2006, 2004
operation given by INSSAN
Environmental Conservation 2005
& Pollution Control presented
Business Achievement Award for
by Confederation of Asia
Excellence
Pacific Chamber of
Commerce & Industry
CII -GBC National Award Excellence in Energy2005
management
Energy Conservation Award by AP Best organization in Energy2005
Productivity Council conservation initiatives
Certificate of Appreciation by Excellence in energy2005
Institution of Engineers, AP conservation
chapter
National Award for Excellence in Excellence in water2005, 2004
Water Management by CII management
Leadership & Excellence Award in Excellence in SHE by CII2004
SHE (Safety, Health & South Zone
Environment)
CACCI Business Achievement For environmental2004
Award conservation & pollution
control by FICCI
World Quality Commitment Performance excellence,2004
International Star Award quality management & quality
achievement, given by
Business Initiative Directions,
Paris in the Gold category.
ICWA National Award Good performance for2004
excellence in Cost
management
Best Enterprise Award For surpassing MOU Targets,2003-04
awarded by SCOPE

28
Rolling shield for "Environmental
Protection"
Prime Minister's Trophy
India Priyadarshini Vrikshmitra
Award
Best HR Practices
Environment Excellence Award
Best Enterprise Award, WIPS
Award for Best Turnaround
Best Management Award
Shield for "Best efforts in Rain
water Harvesting"
SAIL Chairman's Silver plaque
Paryavaran Parirakshak Award
To recognize efforts in 2002, 2003
environmental protection, by
Directorate of field publicity,
Ministry of Information &
Broadcasting
Best integrated steel plant 2002-03
For massive afforestation 2002-03
efforts. Given by Ministry of
Environment & Forests
Given by Indian Society for 2002
Training & Development
(ISTD)
for Energy conservation by 2002
Greentech Foundation, Delhi
Given by SCOPE 2001-02
Given by SCOPE 2000-01
for outstanding contribution in 2000-01
management of industrial
relations, labour welfare and
productivity given by Govt. of
AP
AP Pollution Control Board 2001
for no fatal accidents (for 2000
regular employees category)
in recognition of it's success in 2000
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 3020
International
29
Major Sources of Raw Materials:

Raw Materials Source

Iron Ore Lump & Fines Bachelor, Chattisgarh/Gua, Harland
BF Lime Stone Jaggayyapeta, AP
SMS Lime Stone UAE
BF Dolomite Ashram, AP
SMS Dolomite Ashram, AP
Manganese Ore Chipurupalli, AP
Boiler Coal Talcher, Orissa
Coking Coal Australia
Medium 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.
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:

30
 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):
Labour
Year Hot Liquid Saleable Productivity
Metal Steel Steel (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

4500

4000

3500

3000
Hot M etal
2500
Liquid Steel
2000
Saleable Steel
1500

Labour Produc
1000
(Tonnes/man y
500

1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

32
 Commercial Performance (Rs. Crs.):

Year Sales Domestic Sales Exports

Turnover
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

12,000

10,000

8,000

Sales Turnover
6,000
Domestic Sales
Exports
4,000

2,000

0
2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

33
 Main Products of vsp;

STEEL BY PRODUCTS
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

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,

34
 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 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

35
 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.

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.

36
Board of Directors:

BOARD OF DIRECTORS

CHAIRMAN-CUM-MANAGING Sri.P.K. Bishnoi

DIRECTOR
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
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.

37
Department chart- Finance (Budget):

38
 ED(F&A)

DGM(F&A) (Corporate A/cs, Budget &

Costing)

(Budget and Costing)

AGM(F&A)

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

AM(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

39
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:

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.

40
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
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.

41
 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
2008-2009 2356 2267 1336

4000

3500

3000

2500

2000 Gross Margin

1500
Cash Profit
Net Profit
1000

500

-500
2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-
2001 2002 2003 2004 2005 2006 2007 2008 2009

42
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:

 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.

43
 CHAPTER – 4

BUDGET AND BUDGETARY

CONTROL

44
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

45
 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.”

46
 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.

47
 It highlights upon the in efficiency in the business and thus helps the
Management to take remedial actions.

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

48
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.

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

49
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
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

50
 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:

51
  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.

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.

52
 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.

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.

53
 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.

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.

Managing Director

Chief Executive
Organization chart for budgetary control:

Budget Committee

Budget Officers

Productio
Sales Purchase Personnel Developme 54
Accounta
n
Manager Manager Manager nt Manager nt
Manager
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
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 Availability of supply

. ii) Restriction imposed by licenses,
quotas etc.,
2 LABOUR : I) General storage
. ii) Shortage of skilled labor
3 SALES : I) Consumer demand
. ii) Inadequate advertising and
warehousing facilities
iii Dearth of experience or
) successful salesman;
4 PLANT : I) Limited capacity due to lack of
. capital;
ii) Limited capacity due to lack of space
iii In sufficient capacity due to shortage
) of supply;

55
 Bottleneck incretion key processes;
iv)
5 MANAGEMENT : I) Shortage of efficient executive ness;
. ii) 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.

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.

56
57
 CHAPTER – 5

BUDGET AND BUDGETARY

CONTROL IN VSP

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.

58
 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.

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

59
 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)

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 :

60
 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.

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 :

61
 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.

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

62
 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.

Types Of Budgets Prepared By Visakhapatnam Steel Plant:

Visakhapatnam Steel Plant prepares two kindly of budgets

 Capital Budget

63
  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 :

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:

64
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/Section
1. Daily Flash Statement from by Product By Product sale
Section-Mktg Sections
2. Important Raw Materials Stock at Port T&S
3. Interest on RM Credit Rate Variance Material A/cs Section
4. Voucher data from operation bills accounts Operation bills A/cs
5. Voucher data from general A/cs General A/cs
6. Voucher data from works A/cs Works A/cs
7. Voucher data from stores A/cs Stores A/cs
8. Stores and Spares inventory from Stores A/cs Stores A/cs
9. NSR from by products Section Sales(finance)
10. Raw material Receipts Raw Material Deptt
11. Power details from DNW DNW
12. Production and Closing Balance of main PPM
product
13. Monthly Report from PPM PPM
14. Region wise, Branch wise sales a statement Mktg
15. Export sales and shipment plan Exports Sales Section
16. Cost of production for the month Costing Section
17. Interest Details From cash Section Cash Section
18. Raw Material Prices (Imported) for the month T&S
19. Dispatch money earned T&S
20. Raw Material Prices Variance for the Month MM Deptt
21. Fuel Rate for the Month MM Deptt
22. NSR for the month and up to the month Branch Sales A/cs
23. Wage Analysis Pay Section

66
 24. By Product Prices Mktg Deptt
The General Format of MWR:

S.No Particulars Previous Current Month Up to Month

Month
Actuals
Sus. Plan Actual Sus. Actual
Plan
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
the year 2003-04 & 2004-05
K Net Profit ( after tax) ( i-j)

67
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.

(viii) Raw Material Consumption: Consumption quantities of

various Raw material are valued at weighted average prices of the same

68
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 Actual Budget Actual
2002-03 2002-03 2003-04 2003-04
Income
Gross Sales 4417.82 5058.25 4727.60 6169.00
Net Sales 3668.85 4220.62 3948.93 5214.63
Stock Depletion -24.37 -281.09 -5.87 -25.61
Export Benefits 47.02 78.17 97.54 78.90
Miscellaneous 25.00 40.98 30.00 53.93
Income
Sale of Power 56.25 26.43 9.13 9.02
Total Income 3772.75 4085.11 4079.73 5330.87
Expenditure
Raw Material 1926.71 1805.65 1985.75 2050.43
Stores, Spares 300.00 322.82 328.00 347.73
&Consummates
Employees 398.31 405.99 428.78 481.15
Remuneration
Repair & 103.00 77.99 93.00 84.48
Maintenance
Power, Fuel & 216.84 200.99 195.17 220.04
Water
Other Expenses 185.03 216.67 198.21 209.95
Total Expenditure 3129.89 3030.11 3228.90 3393.78
Gross Margin (net) 642.86 1055.00 850.83 1937.09
Interest 227.50 123.19 164.37 49.05
Cash Profit 415.36 931.81 686.45 1888.04
Depreciation & 515.36 454.01 464.20 470.47
DRE
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 Actual Budget Actual
2004-05 2004-05 2005-06 2005-06
Income
Gross Sales 5424.83 8181.34 8793.32 8482.44
Net Sales 4528.63 6987.09 7657.20 6998.27
Stock Depletion -6.84 310.39 0.00 -65.85

Export Benefits 85.07 11.30 0.00 24.43

Miscellaneous Income 99.02 266.29 217.55 423.01
Sale of Power 10.46 9.10 0.00 8.44
Total Income 4716.34 7584.17 7874.75 7388.30
Expenditure
Raw Material 2043.70 3019.64 3884.78 3584.62
Stores, Spares 353.06 310.40 400.95 338.95
&Consummates
Employees 465.67 480.58 585.44 572.34
Remuneration
Repair & Maintenance 99.00 89.33 141.51 97.24
Power, Fuel & Water 311.56 224.22 328.03 235.10
Other Expenses 192.34 189.00 301.30 191.10
Total Expenditure 3465.33 4313.17 5642.01 5019.35
Gross Margin (net) 1251.01 3271 2232.74 2368.95
Interest 32.24 11.11 24.58 31.00
Cash Profit 1218.77 3259.89 2208.16 2337.95
Depreciation & DRE 464.51 1006.12 474.00 448.29

71
Net Profit 754.26 2253.77 1734.16 1889.66

VISAKHAPATNAM STEEL PLANT (RINL)

Projections of financials for the year 2006-2007, 2007-08

(Rs. In
Crores)

Particulars Budget Actuals Budget Actuals

2006-07 2006-07 2007-08 2007-08
Income
Gross Sales 8748.84 9150.57 9136.16 10433.07
Net Sales 7325.01 7593.85 7592.16 8669.99
Stock Depletion -5.75 23.760 -6.61 -343.17

Export Benefits 19.50 12.179 12.28 9.84

Miscellaneous Income 558.52 609.91 594.04 169.89
Sale of Power 21.04 19.44 3.13 4.65
Total Income 7918.32 8259.139 8195 9574.36
Expenditure
Raw Material 3998.34 3889.04 4103.31 4280.22
Stores, Spares 460.06 357.27 475.00 364.06
&Consummates
Employees 633.55 746.940 812.05 1030.72
Remuneration
Repair & Maintenance 137 109.70 129.23 125.79
Power, Fuel & Water 322.68 257.650 350.46 281.80
Other Expenses 266.07 243.580 373.25 321.51
Total Expenditure 5817.70 5604.18 6243.3 6060.93
Gross Margin (net) 2100.59 2654.959 1951.7 3513.43
Interest 35.60 48.94 24.84 31.57

72
Cash Profit 2065.02 2606.019 1926.86 3481.86
Depreciation & DRE 374.34 361.600 317.87 486.50
Net Profit 1690.65 2244.40 1608.99 1942.74

VISAKHAPATNAM STEEL PLANT (RINL)

Projections of financials for the year 2008-09, 2009-10

(Rs. In
Crores)

Particulars Budget Actual Budget Actual

2008-09 2008-09 2009-10 (upto Dec ’09)

Income
Gross Sales 10500.46 10407.94 10353.82 7546.88
Net 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 0.00

Miscellaneous Income 35.00 71.97 35.80 57.67
Sale of Power 0.00 2.68 0.00 0.00
Total Income 9401.85 10734.83 9633.16 7205.12
Expenditure
Raw Material 4778.79 5858.19 5782.74 4163.51
Stores, Spares 513.00 501.23 498.30 324.40
&Consummates
Employees 957.00 1156.68 1168.20 963.37
Remuneration
Repair & Maintenance 140.00 149.81 152.00 92.36
Power, Fuel & Water 361.62 372.34 441.18 343.11

73
Other Expenses 351.44 341.07 414.58 260.40
Total Expenditure 7101.85 8379.32 8663.11 6243.68
Gross Margin (net) 2300.00 2355.51 970.05 961.44
Interest 35.00 88.14 84.50 58.71
Cash Profit 2264.50 2267.37 885.55 902.73
Depreciation & DRE 306.41 240.78 0.00 0.00
Net Profit 1958.09 2026.59 418.40 721.91

VARIANCE BETWEEN BUDGET AND ACTUALS FOR THE

YEAR 2002-2003
(Rs. In
Crores)

Particulars Budget Actual Variance Favorable Adverse

Income
Gross Sales 4417.082 5058.25 641.168 641.168
Net Sales 3668.85 4220.62 551.77 551.77
Stock 24.37 -281.09 256.77 256.77
Accretion &
Discretion
Export Benefits 47.02 78.17 31.15 31.15
Miscellaneous 25.00 40.98 15.98 15.98
Income
Sale of Power 56.25 26.43 29.82 29.82
Total Income 3821.49 4085.11 263.62 263.62
Expenditure
Raw Material 1826.71 1805.65 21.06 21.06
Stores, Spares 300.00 322.82 22.82 22.82
&
Consummates
Employees 398.31 405.99 7.68 7.68
Remuneration
Repair & 103.00 77.99 25.01 25.01
Maintenance

74
Power, Fuel & 226.84 200.99 25.85 25.85
Water
Other Expenses 185.03 216.67 31.64 31.64
Total 3039.89 3030.11 9.78 9.78
Expenditure
Gross Margin 781.60 1055.00 273.40 273.40
(net)
Interest 227.50 123.19 104.31 104.31
Cash Profit 554.10 931.81 459.94 459.94
Depreciation & 469.48 454.61 14.87 14.87
DRE
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 Adverse

Income
Gross Sales 4727.60 6169.09 1441.49 1441.49
Net Sales 3948.93 5214.63 1265.70 1265.70
Stock Accretion -5.87 -25.61 19.74 19.74
& Discretion
Export Benefits 97.54 78.90 18.64 18.64
Miscellaneous 30.00 53.93 23.93 23.93
Income
Sale of Power 9.13 9.02 0.11 0.11
Total Income 4079.73 5330.87 1251.14 1251.14
Expenditure
Raw Material 1985.75 2050.43 64.68 64.68
Stores, Spares & 328.00 347.73 19.73 19.73
Consummates
Employees 428.78 481.15 52.37 52.37
Remuneration

75
Repair & 93.00 84.48 8.52 8.52
Maintenance
Power, Fuel & 195.17 220.04 24.87 24.87
Water
Other Expenses 198.21 209.05 10.84 11.74
Total Expenditure 3228.91 3392.88 163.97 163.97
Gross Margin 850.82 1937.9 1087.08 1087.08
(net)
Interest 164.37 49.05 115.32 115.32
Cash Profit 686.45 1888.85 1202.4 1202.4
Depreciation & 464.20 476.47 12.27 12.27
DRE
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 Adverse

Income
Gross Sales 5424.83 8181.34 2756.51 2756.51
Net Sales 4528.63 6987.09 2458.46 2458.46
Stock Accretion -6.84 310.39 317.23 317.23
& Discretion
Export Benefits 85.07 11.30 73.77 73.77
Miscellaneous 99.02 266.29 167.27 167.27
Income
Sale of Power 10.46 9.10 1.36 1.36
Total Income 4716.34 7584.17 2867.83 2867.83
Expenditure
Raw Material 2043.70 3019.64 975.94 975.94
Stores, Spares & 353.06 310.40 42.66 42.66
Consummates
Employees 465.67 480.58 14.91 14.91

76
Remuneration
Repair & 99.00 89.33 9.67 9.67
Maintenance
Power, Fuel & 311.56 224.22 87.34 87.34
Water
Other Expenses 192.34 189.00 3.34 3.34
Total 3465.33 4313.17 847.84 847.84
Expenditure
Gross Margin 1251.01 3271 2019.98 2019.98
(net)
Interest 32.24 11.11 21.13 21.13
Cash Profit 1218.77 3259.89 2041.12 2041.12
Depreciation & 464.51 1006.12 541.61 541.61
DRE
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 Adverse

Income
Gross Sales 8793.32 8482.44 310.88 310.88
Net Sales 7657.20 6998.27 658.93 658.93
Stock 0.00 -65.85 65.85 65.85
Accretion &
Discretion
Export Benefits 0.00 24.43 24.43 24.43
Miscellaneous 217.55 423.01 205.46 205.46
Income
Sale of Power 0.00 8.44 8.44 8.44
Total Income 7874.75 7388.30 486.45 486.45
Expenditure
Raw Material 3884.78 3584.62 300.16 300.16
Stores, Spares 400.95 338.95 62.00 62.00
&

77
Consummates
Employees 585.44 572.34 13.1 13.1
Remuneration
Repair & 141.51 97.24 44.27 44.27
Maintenance
Power, Fuel & 328.03 235.10 92.93 92.93
Water
Other Expenses 301.30 191.10 110.2 110.2
Total 5642.01 5019.35 622.66 622.66
Expenditure
Gross Margin 2232.74 2368.95 136.21 136.21
(net)
Interest 24.58 31.00 6.42 6.42
Cash Profit 2208.16 2337.95 129.79 129.79
Depreciation & 474.00 448.29 25.71 25.71
DRE
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 Adverse

Income
Gross Sales 8748.8 9150.570 401.73 401.73
4
Net Sales 7325.0 7593.85 268.84 268.84
1
Stock -5.75 23.760 29.51 29.51
Discretion
Export Benefits 19.50 12.179 -7.321 7.321
Miscellaneous 558.52 609.91 51.39 51.39
Income
Sale of Power 21.04 19.44 -1.6 1.6
Total Income 7918.3 8259.139 340.819 340.819
2
Expenditure
Raw Material 3998.3 3889.04 109.3 109.3
4

78
Stores, Spares 460.06 357.27 102.79 102.79
&
Consummates
Employees 633.55 746.940 113.39 113.39
Remuneration
Repair & 137 109.70 27.3 27.3
Maintenance
Power, Fuel & 322.68 257.650 65.03 65.03
Water
Other Expenses 266.07 243.580 22.49 22.49
Total 5817.8 5604.18 213.52 213.52
Expenditure 9
Gross Margin 2100.6 2654.95 554.33 554.33
(net) 2
Interest 35.60 48.94 13.34 13.34
Cash Profit 2065.0 2606.01 540.99 540.99
2
Depreciation & 374.34 361.600 12.74 12.74
DRE
Net Profit 1690.6 2244.41 553.73 553.73
8

VARIANCE BETWEEN BUDGET AND ACTUALS FOR THE

YEAR 2007-2008
(Rs. In
Crores)

Particulars Budget Actual Variance Favorable Adverse

Income
Gross Sales 9136.1 10433.07 1296.91 1296.91
6
Net Sales 7592.1 8669.99 1077.83 1077.83
6
Stock -6.61 -343.17 349.78 349.78
Discretion
Export Benefits 12.28 9.84 -2.44 2.44
Miscellaneous 594.04 169.89 424.15 424.15

79
Income
Sale of Power 3.13
Total Income 8195 9574.36 1379.36 1379.36
Expenditure
Raw Material 4103.3 4280.22 176.91 176.91
1
Stores, Spares 475.00 364.06 110.94 110.94
&
Consummates
Employees 812.05 1030.72 218.74 218.74
Remuneration
Repair & 129.23 125.79 3.44 3.44
Maintenance
Power, Fuel & 350.46 281.80 68.66 68.66
Water
Other Expenses 373.25 321.51 51.74 51.74
Total 6243.3 6060.93 182.37 182.37
Expenditure
Gross Margin 1951.7 3513.43 1561.73 1561.73
(net)
Interest 24.84 31.57 6.73 6.73
Cash Profit 1926.8 3481.86 1555 1555
6
Depreciation & 317.87 486.50 168.63 168.63
DRE
Net Profit 1608.9 1942.74 333.75 333.75
9

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

80
 2006-2007 8748.84 9150.57 401.73 401.73

2007-2008 9136.16 10433.07 1296.91 1296.91

2008-2009 10500.46 10407.94 -92.52 -92.52

GROSS SALES
12000
10000 Series1
8000
Series2
6000
4000 Series3
2000 Series4
0 Series5
-2000

NET SALES

BUDGET ACTUALS VARIANCE FAVOURABLE ADVERSE

81
2004-2005 4528.63 6987.09 2458.46 2458.46

2005-2006 7657.20 6998.27 -658.93 -658.93

2006-2007 7325.01 7593.85 268.84 268.84

2007-2008 7592.16 8669.99 1077.83 1077.83

2008-2009 8801.88 8839.16 37.28 37.28

TOTAL INCOME

BUDGET ACTUALS VARIANCE FAVOURABLE ADVERSE

82
2004-2005 4716.34 7584.17 2867.83 2867.83

2005-2006 7874.75 7388.3 -486.45 -486.48

2006-2007 7918.32 8259.13 340.81 340.81
2007-2008 8195 9574.36 1379.36 1379.36

2008-2009 9401.85 10734.83 1332.98 1332.98

TOTAL INCOME

TOTAL INCOME
12000 BUDGET
10000
8000 TOTAL INCOME
ACTUALS
6000
4000 TOTAL INCOME
2000 VARIANCE
0 TOTAL INCOME
-2000 FAVOURABLE

TOTAL INCOME
ADVERSE

TOTAL EXPENDITURE

BUDGET ACTUALS VARIANCE FAVOURABLE ADVERSE

2004-2005 3465.33 4313.17 -847.84 -847.84

83
2005-2006 5642.01 5019.35 622.66 622.66
2006-2007 5817.79 5604.18 213.52 213.52
2007-2008 6243.03 6066.93 176.37 176.37

2008-2009 7101.85 8379.32 1277.47 1277.47

TOTAL EXPENDITURE

10000
TOTAL EXPENDITURE
8000 BUDGET
TOTAL EXPENDITURE
6000
ACTUALS
4000 TOTAL EXPENDITURE
VARIANCE
2000 TOTAL EXPENDITURE
FAVOURABLE
0 TOTAL EXPENDITURE
ADVERSE
-2000

GROSS MARGIN

BUDGET ACTUALS VARIANCE FAVOURABLE ADVERSE

2004-2005 1251.01 3271 2019.98 2019.98

84
2005-2006 2232.74 2368.95 136.21 136.21
2006-2007 2100.62 2654.95 554.33 554.33
2007-2008 1951.7 3513.43 1561.73 1561.73

2008-2009 2300.00 2355.51 55.51 55.51

GROSS MARGIN

GROSS MARGIN
4000 BUDGET
3500
3000 GROSS MARGIN
2500 ACTUALS
2000 GROSS MARGIN
1500 VARIANCE
1000
500 GROSS MARGIN
FAVOURABLE
0
GROSS MARGIN
ADVERSE

INTEREST

85
 BUDGET ACTUALS VARIANCE FAVOURABLE ADVERSE

2004-2005 32.24 11.11 -21.13 -21.13

2005-2006 24.58 31 6.42 6.42

2006-2007 35.60 48.94 13.34 13.34
2007-2008 24.84 31.57 6.73 6.73

2008-2009 35.00 88.14 53.14 53.14

INTEREST

100 BUDGET
80
60 ACTUALS

40
VARIANCE
20
0
FAVOURABLE
-20
-40 ADVERSE

CASH PROFIT

86
 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

2006-2007 2065.02 2606.01 540.99 540.99
2007-2008 1926.86 3481.86 1555 1555

2008-2009 2264.50 2267.37 2.87 2.87

CASH PROFIT

4000
3500
3000
CASH PROFIT
2500 BUDGET
2000
CASH PROFIT
1500 ACTUALS
1000
CASH PROFIT
500 VARIANCE
0
CASH PROFIT
FAVOURABLE

CASH PROFIT
ADVERSE

0.

NET PROFIT

87
 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

2006-2007 1690.68 2244.41 553.73 553.73
2007-2008 1608.99 1942.74 333.75 333.75

2008-2009 1958.09 2026.59 68.5 68.5

NET PROFIT
2500

2000
NET PROFIT
BUDGET
1500
NET PROFIT
ACTUALS
1000 NET PROFIT
VARIANCE

500 NET PROFIT

FAVOURABLE

NET PROFIT
0 ADVERSE

88
 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 8748.84 9150.57 401.73 401.73

2007-2008 9136.16 10433.07 1296.91 1296.91

2008-2009 10500.46 10407.94 -92.52 -92.52

GROSS SALES

12000 Series1
10000 Series2
8000 Series3
6000 Series4
4000 Series5
2000
0
-2000
5

9
00
00

00

00

00
-2
-2

-2

-2

-2
04

05

06

07

08
20

20

20

20

20

89
 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

2006-2007 7325.01 7593.85 268.84 268.84

2007-2008 7592.16 8669.99 1077.83 1077.83

2008-2009 8801.88 8839.16 37.28 37.28

90
 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 -486.48

2006-2007 7918.32 8259.13 340.81 340.81
2007-2008 8195 9574.36 1379.36 1379.36

2008-2009 9401.85 10734.83 1332.98 1332.98

TOTAL INCOME

TOTAL INCOME
12000 BUDGET
10000
8000 TOTAL INCOME
ACTUALS
6000
4000 TOTAL INCOME
2000 VARIANCE
0 TOTAL INCOME
-2000 FAVOURABLE

TOTAL INCOME
ADVERSE

91
 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

2006-2007 5817.79 5604.18 213.52 213.52
2007-2008 6243.03 6066.93 176.37 176.37

2008-2009 7101.85 8379.32 1277.47 1277.47

TOTAL EXPENDITURE

10000
TOTAL EXPEN
8000 BUDGET
TOTAL EXPEN
6000
ACTUALS
4000 TOTAL EXPEN
VARIANCE
2000 TOTAL EXPEN
FAVOURABLE
0 TOTAL EXPEN
ADVERSE
-2000

92
 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

2006-2007 2100.62 2654.95 554.33 554.33
2007-2008 1951.7 3513.43 1561.73 1561.73

2008-2009 2300.00 2355.51 55.51 55.51

GROSS MARGIN

GROSS MARGIN
4000 BUDGET
3500
3000 GROSS MARGIN
2500 ACTUALS
2000 GROSS MARGIN
1500 VARIANCE
1000
500 GROSS MARGIN
FAVOURABLE
0
GROSS MARGIN
ADVERSE

93
 INTEREST

BUDGET ACTUALS VARIANCE FAVOURABLE ADVERSE

2004-2005 32.24 11.11 -21.13 -21.13

2005-2006 24.58 31 6.42 6.42

2006-2007 35.60 48.94 13.34 13.34
2007-2008 24.84 31.57 6.73 6.73

2008-2009 35.00 88.14 53.14 53.14

INTEREST

100 BUDGET
80
60 ACTUALS

40
VARIANC
20
0
FAVOURA
-20
-40 ADVERSE

94
 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

2006-2007 2065.02 2606.01 540.99 540.99
2007-2008 1926.86 3481.86 1555 1555

2008-2009 2264.50 2267.37 2.87 2.87

95
 CASH PROFIT

4000
3500
3000
CASH PROFIT
2500 BUDGET
2000
CASH PROFIT
1500 ACTUALS
1000
CASH PROFIT
500 VARIANCE
0
CASH PROFIT
FAVOURABLE

CASH PROFIT
ADVERSE

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

2006-2007 1690.68 2244.41 553.73 553.73
2007-2008 1608.99 1942.74 333.75 333.75

2008-2009 1958.09 2026.59 68.5 68.5

96
 NET PROFIT
2500

2000
NET PROFIT
BUDGET
1500
NET PROFIT
ACTUALS
1000 NET PROFIT
VARIANCE

500 NET PROFIT

FAVOURABLE

NET PROFIT
0 ADVERSE

97
 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