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INTRODUCTION TO PERFORMANCE BUDGETING

Performance budgeting is a system of planning, budgeting

and evaluation that emphasizes the relationship between money budgeted

and results expected.

Performance budgeting is based on the assumption that presenting

performance information alongside budget amounts will improve budget

decision-making by focusing funding choices on program results.

Performance budgeting shift the focus of attention from detailed items of

expensesuch as salaries and travel---to the allocation of allocation of

resources based on program goals and measured results. It continues the

presented set by other financial management programs initiated since the

1960s such as management by objective (MBO); zero-based budgeting

(ZBB) and the planning, programming. And budgeting system (PPBS).

Objective (1973) and zero-based budgeting (1977) surfaced in an

environment of increasing discretionary spending, while performance

budgeting emerged during a time of declining budgets. To justify

current program performance. To legislative staff, performance

information can be a valuable government tool to improves

PERFORMANCE BUDGETING:-

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 Focuses on results: Departments are held accountable to

certain performance standard. There is a greater awareness of what

services taxpayers are receiving for their tax dollars.

Is flexible: Money is often allocated in lump sums rather than

line-item budgets, giving managers, the flexibility to determine how best to

achieve results.

Is inclusive: It involves policymakers, managers, and often

citizens in the budget discussion through the development of strategic

plan, identification of spending priorities, and evaluation of performance.

Has a long term perspective: By recognizing the relationship

between strategic planning and resource and allocation, performance

budgeting focuses more attention on longer time horizons.

The present study focuses the performance budgeting practices

followed in a public sector company and the constraints in implementing to

achieve the goals with better management of the resources. The variances

between the budgetary estimates and the actual achievements in a

particular fiscal year are analyzed with reference to the controllable and

uncontrollable reasons or factors.

OBJECTIVES

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1. The Present study is essentially aimed at analyzing the performance budgeting decision

of BDL.
2. To evaluate the efficiency with which the firm manages.
3. To know the variance between the actual performances and revised estimates
4. To analyze the relation between the actual and the revised estimates.
5. To identify how the revised estimates are influencing the actual performances.
6. To analyze the relationship between the current year revised estimates and next year

budgeted estimates, in year 2007 and 2008.

SCOPE OF STUDY

1. The study covers performance budgeting of the company over the years 2002-2008
2. This study covers production, sales manpower, welfare and P&L Account Budget.
3. The study covers the performance of BDL Company alone

METHODOLOGY:

Secondary data:

Data is obtained from reports and statements provided by BDL. Relevant

information has been gathered from books.

LIMITATIONS OF THE STUDY

1. The study covers only historical data

2. The study covers only performance budgeting of the company.
3. The study covers only production, sales, manpower, welfare, and profit and loss

accounts, budgeting
4. Due to confidentiality of the company we cant interpret the analysis clearly

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 BUDGET

INTRODUCTION:
Modern management focuses more on the success of the concern and wants that all

operations should be forecasted and as far as possible planned ahead and the actual results

compared with the planned ones. Two new techniques are applied, namely budgetary control

and standard costing for these two functions of planning and control. Budget is very essential

aspect in every walk of life-national, domestic and business.

Budget is an instrument of management used as aid in the planning, programming and

control of business activity.

Budgeting is an art of budget making. Budgeting is a powerful tool to the management for

performing its functions efficiently. It is a forecast of programme of operation based on the

expected operating efficiency.

Budgetary control is applied to a system as management and accounting control by which

all operations and output are forecasted as far ahead possible and actual results when

known are compared with budget estimates. It attempts to show the plan in financial terms.

MEANING:

A financial and/or quantitative statement, prepared and approved prior to define of

time, of the policy to be pursued during that period for the purpose of attaining a given

objective

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 - The Chartered Institute of Management Accountants, England.

ESSENTIALS OF BUDGET:

A budget is prepared prior to a defined period of time.

It is prepared for the definite future period.
The policy to be followed to attain the give objectives must be laid before the budget is

prepared.
The budget is monetary and /or quantitative statement of policy
It should specify units to be produced, broken down into size and styles, as well as cost of

production.
It should analyze all the factors affecting the section/departments and the business as a

whole.
It should help in planning future income and expenses.
It should harmonize departmental programmes.
It should serve as a medium of propagating policies throughout the business enterprise.
It should help stabilizing production and harmonize production and sale programmes.

NEED FOR BUDGET:

Budgets are helpful in coordinating the various activities of the organization with the results

that all the activities proceeding to the objective.

Budgets are means of communication. Ideas of the top management are given the shape of a

budget and are passed on to the sub-ordinates that have to give them the practical shape.
It is helpful in developing a teamwork, which is very much needed for the very success of

an organization
Budget is necessary to plan for the future, to motivate the staff associated, to co-ordinate the

activities of the different departments and to control the performance of various persons

operating at different levels.

ESSENTIAL CONDITIONS FOR APPLYING BUDGETARY CONTROL:

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 Focus on objectives: Budget must be done in terms of objectives and polices of the concern.

Consistent delegation: Fixed duties and obligations are required to be allocated to individual

managers at different levels of organization for framing and executing budget. To secure

necessary co-ordination, departmental budgets are integrated and woven into a master-budget

for the concern as a whole

Proper targets: There should be adequate checks and safeguards against the adoption of too

high or too low estimates while setting budget targets.

Appropriate period: Every business requires some short-term budgets as well as long-term

budgets.
1. short-term budgets: sales budget, operating expenditure budget, the revenue and expense

budget and the cash budget.

2. Long-term budgets: capital expenditure budget, research budget, research budget and the

management training and development budget.

Budgeting is a continuous process and requires perfect harmonization between long-term and

short-term budgets.

Communication of planning promises: The communication of planning promises assumes

importance while preparing and interpreting departmental and subsidiary budgets.

Provisions for flexibility: flexibility is one of the essential attributes of budgeting. Any

alteration in budget figures must always be done at the highest level of management after

through scrutiny.

ADVANTAGES OF BUDGETARY CONTROL:

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 Budgetary control has many advantages in the working of an industrial

undertaking. Some of the important advantages are

It clearly defines the goals of the business concern.

It helps in making plan to attain these goals.
It determines the policies of the concern.
It controls expenditure.
It provides complete information regarding amount of capital needed for the budget

period.
It helps the management in controlling the causes of inefficiency.
It acts as a tool for administration.
It centralizes management control.

It aids in measuring the performance of each department of the concer

BUDGET CLASSIFICATION:

1. Fixed budget
2. Variable budget
3. Main budget
4. Master budget
5. Subsidiary budget
6. Functional budget
7. Sales budget
8. Production budget
9. Capital budget
10. Materials & purchase
11. Labour budget

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 12. Cash budget
13. Zero based budget
14. Performance budget
1. FIXED BUDGET:

According to ICMA, London a fixed budget is a budget which is designed

to remain unchanged irrespective of the level of activity actually attained It is based on a

fixed volume of activity and shows only one volume of output and related cost. It is not

adjusted according to the actual level of activity attained. Thus, if it is forecast that the

organization will operate at 60% of its capacity. A budget is drawn that reflects the costs at

60% capacity. There is no provision to adjust the budget if the actual operations are at 75% or

50% of capacity.

A fixed budget is useful only when the actual level of activity corresponds with the budgeted

level of activity. But this, generally does not happen, as such, a fixed budget is not useful for

managerial purposes

2. VARIABLE BUDGET:

According to ICMA, LONDAN, a variable budget is a budget which

is designed to change in accordance with the level of activity actually attained. Thus, it

provides the budgeted costs at any level of activity.

Business activities cannot be accurately on account of uncertainties of business environment. It

contains several estimates for different assumed circumstances instead of just one estimate, and

provides for automatic adjustments with change in the volume of activity. Variable budget is

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useful tool in controlling operations in real business situations operating in an unpredictable

environment.

3. MASTER BUDGET:

The master budget is the summary budget incorporating its functional budgets.

All the operational budget and financial budgets are integrated into master budget. This budget

is prepared by the budget officer for the benefit of the top-level management. This Budget is

used is to coordinate the activities of various functional departments. It is also used as an

effective control device.

4. FINANCIAL BUDGET:

Financial budgets are concerned with cash receipts and disbursements,

working capital expenditure, financial position and results of business operations. The

commonly used financial budgets include cash budget, working capital budget, capital

expenditure budget, budgeted balance sheet, etc.

4.1 SALES BUDGET:

A sales budget is an estimate of expected sales during a budget period. It is

the starting point on which other budgets are also based. sales manager is made responsible

for preparing sales budget. He all uses all possible information available from internal and

external sources.
Sales budget must be prepared area wise for each product. The budgeting must be done in

terms of sales of sales figure for each month, so that all operating budgets can also be

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 prepared. The degree of accuracy with which sales are estimated determines the success of

budgeting exercise.
4.2 PRODUCTION BUDGET:
It is forecast of the number of units produced during the budget period.

This budget answers the question as what is to be produced and when should it produced. It

is prepared in relation to the sales budget. The production budget is the responsibility of the

factory manager. If a factory has more than one production department, the production

budget may be split and it can be prepared by each department

The following factors are:

1. Sales budget
2. Plant capacity
3. Lag time
4. Stock quantity to be held
5. Availability of key factors
6. Production planning.

4.3CAPITAL EXPENDITURE BUDGET:

The budget lays down the amount of estimated expenditure to be incurred on

fixed assets that are required to achieve the production targets stated in the production budget.

As the amount involved in the capital expenditure is high, requires careful attention for

top management. The budget is based on the annual forecasts of capital expenditure of various

divisions.

4.4 MATERIAL & PURCHASE BUDGET:

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 This budget is prepared as a follow up to the production budget. It will

enable the purchase department to plan the purchase of raw materials at different times. It is

concerned with determining the quantity of direct materials required for production. The period

for material budget is relatively shorter than that of the sales and production budgets.

The stock of materials in hand at any time added to the materials required for

production. The time lag between the order for purchase and the actual receipt of material,

availability of material due to seasonality, price trend in the market, should be considered in

estimating the desired stock to be held at any point of time.

4.5 LABOUR COST BUDGET:

Labour is classified as direct and indirect labour. Direct labour cost represents

the wages paid to the workers employed directly in the manufacturing activity. Indirect

labour costs represents all other labour costs such as supervisor salary, wages paid to

the store- keepers etc.

4.6 CASH BUDGET:

A cash budget is a forecast of expected cash in take and outlay. It is an estimate of cash

receipts and disbursements during a future period of time. It is prepared by the management

Accountant himself. The excess of receipts over disbursements is called cash surplus. The

excess of disbursement over receipts is called Cash deficit. The surplus or deficit is adjusted for

the cash balance at the beginning of the period. Preparation of cash budget involves forecasting

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 all possible sources from which will be received and the channels in which payments are to be

made so that a consolidated cash positions is determined

4.7 ZERO BASED BUDGET:

It implies that all activities of the organization should be viewed. The basic future of

the zero-based budget is that while preparing their budgets, the department should not take any

thing for granted and. The budget making for ensuring year should not be started from ground

zero instead of treating the current budget as the base.

4.8 SELLING AND DISTRIBUTION COST BUDGET:

The budget includes all expenses relating to selling and distribution of goods.

These expenses may be analyzed according to products, territories, salesman, etc. the fixe

under this category may be estimated on the basis of past experience and anticipated changes.

The responsibility for preparing this budget lies with the executives of sales departments.

2. BUDGETING:
DEFINITION OF BUDGETING:

Budgeting can be defined as forecasting and pre-planning for the next

period using past experience, market trends and present position

OBJECTIVES:

TO make periodical evaluation of management polices.

To provide basis for examining the achievements of the industry.
To provide check over expenditure in various departments.
To make a programme for systematic developments
To decide basis for the expenditure of funds.

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 To provide basis for checking of working of the concern by seeing their efficiency and

econom

ADVANTAGES OF BUDGETING:

It provides check over shifting the responsibility.

By budgeting financial position of the concern is made clear.
A check on the performance and efficiency of the industry is provided
It is essential to show budgets while taking loan banks.
It helps in making the polices for the coming period.

BUDGETARY CONTROL:

The established of the budgets relating to the responsibilities of executives to the

requirements of a policy and the continuous comparison of actual with budgeted result either to

secure by individual action the objectives of that policy or to provide a firm basis for its

revision.

--IMA, London

ADVANTAGES OF BUDGETARY CONTROL:

Budgetary control has many advantages in the working of an industrial undertaking.

Some of the important advantages are:

It clearly defines the goals of the business concern.

It helps in making plans to attain these goals.
It determines the policies of the concern.
It controls expenditure.
Provides complete information regarding amount of capital needed for the budget

period
It helps the management in controlling the causes of inefficiency
It acts as a tool for administration.

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 It centralizes management control.
It aids in measuring the performance of each department of the concern
CAPITAL BUDGET:
INTRODUCTION:
Capital budgeting or capital expenditure budgeting is concerned with planning and

control of capital expenditure. Capital expenditure is defined as one, which involves the current

outlay of cash in return for an anticipated flow of future benefits are available in the long run.

Capital budgeting decision may be defined as the decision of the firm to invest

its current finances most efficiently in long term productive activities, with expectations of

flow of future benefits over a long period

The crux (vital part) of the capital budgeting problems is the allocation of available

resources of the firm to the various investment proposals. As the demand on resources

is almost higher than the availability of resources. Capital budgeting covers issues like

decisions, which are broadly classified

PERFORMANCE BUDGETING:

Performance budgeting is a system of presentation of public expenditure in terms

of functions, programmes, activities and projects. It is a financial and work plan conceived in

terms of function programmes, activities and projects with their financial and physical aspects

closely interwoven in one document. It is on-going annual process of management planning

and control, which enables an organization to accomplish its corporate goals by involving

people from top to bottom for formulating and implementing a time-bound and realistic action

plan.

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 The Hoover commission in U.S.A. first used the term performance budgeting, in

1949. United Nation highlighted the importance of programme and performance budgeting for

developing countries in 1955 and 1947. The Indian administrative Reforms budgeting both in

government of India and the states. This recommendation was accepted by some leading

organizations in public and private sectors too.

The performance budget outlines the programme both in financial and physical

terms. The budget has been framed and prepared in a systematic way, which will be used as the

sole medium for authorization of expenditure. The submission of the performance budget to

the government in accordance with Article 103(b)(v) of the articles of association of the

company.

Prior sanction of the competent authority as per the schedule of delegation of power is obtained

for making commitments. No expenditure in excess of the ceilings stipulated in the budget to

unforeseen reasons, bords approval will be obtained at an appropriate time.

The money concept was given more prominence in conventional system of budgeting i.e.,

estimating or projecting rupee value for the various accounting heads or classification of

revenue and cost. Such system of budgeting was more popularly used in government

department and many business enterprises. But in such budgeting system control of

performance in terms of physical unites or the related costs cannot be achieved.

The budgets are established in such a way so that each item of expenditure is

related to a specific responsibility centre and is closely linked with the performance of that

standard. Developing.

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 Work programmer and performance expectation by assigned responsibility is the main issue

involved in the goals and objectives of the enterprise.

Bharat dynamics limited prepares performance Budget which can be called as master budget

because it is a consolidated summary of the functional budgets in capsule from available in one

report. The accuracy of all the functional budgets is checked and it gives an overall estimated

profit position of the organization for the budget period. This budget is very useful for the top

management because it is usually interested in the summarized meaningful information

provided by this budget.

OBJECTIVES OF PERFORMANCE BUDGETING:

The main purposes to be achieved by Performance Budgeting system are:

To correlate the physical and financial aspects of every function, Programme and activity.
Improve budget formulation, revenue and decision making at all levels of operations.
Facilitates better appreciation review.
Enables a more effective performance audit.
Measures progress towards accomplishment of long-term as well as short-term goals.

STEPS IN PERFORMANCE BUDGETING SYSTEM:

The steps involved in the establishment of a successful system of performance

budgeting are:

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 Establishment of well responsibility centre or action points where operations are performed

and financial transactions in terms of money takes place.

Establishment of well responsibility centre and a programme of expected performance in

physical units of hat centre.

To forecast the amount of expenditure under the various classification heads to meet the

physical plan.
Performance reporting indicating the result of analysis of the variance from the budget is

done like that of variance reporting.

BENEFITS OF PERFORMANCE BUDGETING SYSTEM:

Performance budgeting system has the following benefits:

Improves communication between levels of organization.

Improves involvement of different levels of management of the organization in setting up

targets and evaluating performance.

Enables the sectional managers to gain competence in planning and monitoring of the

performance of the activities of sub-units which they are in charge.

Enables an organization to prepare realistic business plan from root level upward and work

out its financial, manpower and other resources implications, thereby ensuring a

satisfactory growth.
Enables to controlling department to exercise effective control on the performance of

section for identifying strength and weakness and initiating corrective actions.
Helps to assess the effect of decision making at various levels of administration from the

level of administration to the level of supervisor, middle and top managers.

LIMITATIONS OF PERFORMANCE BUDGETING SYSTEM:

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 Though the technique of performance budgeting system offers great potentialities for

management; its introduction must be approved with caution. The following are limitations of

system:

a) It requires greater financial discipline, trained manpower, a regular and efficient system

of recording and reporting financial and physical data, and effective coordination among

various departments and budget authorities.

b) There is a problem of measurement of performance both physical and financial.

Its usefulness is somewhat limited in respect of most of the government department

activities where it is impossible to have a common yardstick to measure physical

performance.

c) It calls for suitable modification in the accounting structure to be in alignment

with the functions, progress and activities of the department.

d) If performance budgeting system is to be utilized a control tool in the hands of

management, it needs some rational method to control actual physical progress of work and

projects.

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 Industry Profile
Introduction:-
The Government of India is responsible for ensuring the defence of India and

every part thereof. The Supreme Command of the Armed Forces vests in the

President. The responsibility for national defence rests with the Cabinet. This is

discharged through the Ministry of Defence, which provides the policy framework and

wherewithal to the Armed Forces to discharge their responsibilities in the context of

the defence of the country. The Raksha Mantri (Defence Minister) is the head of the

Ministry of Defence. The principal task of the Defence Ministry is to obtain policy

directions of the Government on all defence and security related matters and

communicate them for implementation to the Services Headquarters, Inter-Services

Organisations, Production Establishments and Research and Development

Organisations. It is also required to ensure effective implementation of the

Government's policy directions and the execution of approved programmes within the

allocated resources. Ministry of Defence comprises of four Departments viz.

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Department of Defence (DOD), Department of Defence Production (DDP),

Department of Defence Research & Development (DDR&D) and Department of Ex-

Servicemen Welfare and also Finance Division

Historical Background

A Military Department was created in the Supreme Government of the East

India Company at Kolkata into the year 1776, having the main function to sift

and record orders relating to the Army issued by various Departments of the

Govt of East India Co. The Military Department initially functioned as a branch of the

Public Department and maintained a list of Army personnel.

With the Charter Act of 1833 the Secretariat of the Government of East India

Company was reorganized into four Departments, including a Military Department,

each headed by a Secretary to the Government. The Army in the Presidencies of

Bengal, Bombay & Madras functioned as respective Presidency Army till April 1895,

when the Presidency Armies were unified into a single Indian Army. For administrative

convenience, it was divided into four Commands viz. Punjab (including the North West

Frontier), Bengal, Madras (including Burma) and Bombay (including Sind, Quetta and

Aden).

The supreme authority over the Indian Army vested in the Governor

General-in-Council, subject to the Control of the Crown, which was exercised by the

Secretary of State for India. Two Members in the Council were responsible for military

affairs, one of whom was the Military Member, who supervised all administrative and

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financial matters, while the other was the Commander-in-Chief who was responsible

for all operational matters. The Military Department was abolished in March 1906 and

it was replaced by two separate Departments, the Army Department and the Military

Supply Department. In April 1909 the Military Supply Department was abolished and

its functions were taken over by the Army Department. The Army Department was

redesignated as the Defence Department in January 1938. The Department of

Defence became the Ministry of Defence under a Cabinet Minister in August 1947.

Organizational Set-Up and Functions:-

After independence Ministry of Defence was created under the charge of a

Cabinet Minister, and, each Service was placed under its own Commander-in-Chief.

In 1955, the Commanders-in-Chief were renamed as the Chief of the Army Staff, the

Chief of the Naval Staff and the Chief of the Air Staff. In November 1962, a

Department of Defence Production was set up to deal with research, development

and production of defence equipment. In November 1965, the Department of Defence

Supplies was created for planning and execution of schemes for import substitution of

defence requirements. These two Departments were later merged to form the

Department of Defence Production and Supplies. In 2004, the name of Department of

Defence Production and Supplies was changed to Department of Defence Production.

In 1980, the Department of Defence Research and Development was created. In

2004, the Department of Ex-Servicemen Welfare was created..

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The Defence Secretary functions as head of the Department of Defence and is

additionally responsible for co-ordinating the activities of the four Departments in the

Ministry.

INDIAN ARMY

The basic responsibility of the Army is to safeguard the territorial integrity of the nation

against external aggression. Due to the countrys long borders encompassing different

geographical and climatic conditions such as desert terrain on the west, snow-covered

mountains in the north and thick rainfed mountainous jungles in the east, the Army

has to constantly prepare itself for diverse challenges. In addition, the Army is often

required to assist the civil administration during internal security disturbances and in

the maintenance of law and order, in organising relief operations during natural

calamities like floods, earthquakes and cyclones and in the maintenance of essential

services. Demands on the Army have increased manifold due to continuous

deployment of its forces in intense counter insurgency operations in

Jammu & Kashmir and the North East parts of the country. To achieve these

objectives, the Army has to be constantly modernised, suitably structured, equipped

and trained.

The Indian Army is organised into five regional commands

HQ Central Command, Lucknow;

HQ Eastern Command, Calcutta;

HQ Northern Command, Udhampur;

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 HQ Western Command, Chandimandir; and

HQ Southern Command, Pune.

HQ, South Western Command, Jaipur

HQ, Army Training Command, Shimla

The Indian Army is divided into two broad categories: Arms and Services.

Indian Navy:-

India is a maritime nation strategically straddling the Indian Ocean with or substantive

seaborne trade. The countrys economic well being is thus very closely linked to our

ability to keep our sea-lanes free and open at all times. Besides, India has other

maritime interests as well. Our island territories situated on our Western and Eastern

seaboards are at considerable distances away from the mainland. To ensure their

sustained development, umbilical linkages with the mainland and maritime security

protection are essential pre-requisites of our maritime security. Our offshore assets

within the Exclusive Economic Zone (EEZ) of 2.02 million sq. kms, fisheries and deep

sea interests, major and minor harbours and the overall seaward security of long

coastline and island territories are other vital aspects of our maritime dimension and

Navys responsibilities.

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Indian Navy has consciously taken the difficult route of indigenisation in consonance

with the national endeavour towards self-reliance. The Navy embarked upon a

programme for indigenous construction of ships and development of major sub

systems, sensors and weapon systems with the help of Defence Research and

Development Organisation (DRDO) and Defence Public Sector Undertakings (PSUs).

The Indian Navy is organised into three regional commands

HQ Eastern Naval Command, Visakhapatnam

HQ Western Naval Command, Mumbai; and

HQ Southern Naval Command, Kochi

Coast Guard

The Coast Guard (CG) was set up as an Armed Force of the Union in 1978 on

recommendations of Rustamji Committee for preservation and protection of our

Exclusive Economic Zone (EEZ). The CG is responsible for keeping Indias EEZ

measuring over 2.02 million sq. kms. under regular surveillance in order to prevent

poaching/ smuggling and other illegal activities in the EEZ. Besides, the CGs charter

of duties includes pollution control at sea, search and rescue (SAR) and protection of

marine environment.

The Indian Airforce

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 The Indian Air Force (IAF) today, having completed more than six decades of

dedicated service to the nation, is a modern, technology-intensive force distinguished

by its commitment to excellence and professionalism. Keeping space with the

demands of contemporary advancements, the IAF continues to modernise in a

phased manner and today it stands as a credible air power as the nation marches into

the next millennium.

With the ever escalating costs of operations, great emphasis is being placed on cost

effective training, reducing expenditure, optimising output and minimising wastage.

The Air Force has implemented a number of measures to enhance the quality of life of

its personnel in Key welfare areas of housing, education and hostel facilities.

In addition to the traditional wartime roles of the IAF of counter air, counter surface,

strategic and combat support operations, the Air Force has provided significant aid to

civil authorities during natural calamities. The Siachen glacier lifeline continues to be

monitored by the Indian Air Force, fully supporting the Indian Army in fighting on the

worlds highest battlefield. The IAF has also provided aid to civil authorities for the

large scale movement of military and para military personnel to maintain law and order

as well as to cater for the needs of a large number of airmen and jawans in remote

and inaccessible outposts.

The Indian Air Force has seven commands, of which five are operational and

two functional, namely

HQ Central Air Command, Allahabad

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 HQ Eastern Air Command, Shillong

HQ Western Air Command, New Delhi

HQ Southern Air Command, Thiruvananthapuram

HQ South-Western Air Command, Gandhi Nagar

HQ Maintenance Command, Nagpur and

HQ Training Command, Bangalore

Department of Defence Production

The Department of Defence Production was set up in 1962, in the aftermath of the

Chinese aggression to create a self-reliant and self-sufficient indigenous defence

production base . In November, 1965, Department of Defence Supplies was created

to forge linkages between the civil industries and defence production units. The two

departments were merged in December, 1984 into the Department of Defence

Production and Supplies. The Department of Defence Production and Supplies has

been renamed as Department of Defence Production w.e.f. January, 2004.

Since 1962, 16 new Ordnance Factories have been set up. Their capacities

have been augmented and modernised selectively keeping in mind the emerging

requirements of the Armed Forces. All the Ordnance Factories and Defence Public

Sector Undertaking (DPSUs) are engaged in the task of manufacture of equipment

and stores for Defence Services. One more Ordnance Factory is being setup in

Nalanda, Bihar. In addition, capacities of civil sectors are also utilised for the

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purpose. The following DPSUs are functioning under the administrative control of the

Department:-

Hindustan Aeronautics Limited (HAL)

Bharat Electronics Limited (BEL)

Bharat Earth Movers Limited (BEML)

Mazagon Dock Ltd (MDL)

Goa Shipyard Limited (GSL)

Garden Reach Shipbuilders and Engineers Limited (GRSE)

Bharat Dynamics Limited (BDL)

Mishra Dhatu Nigam Limited (MIDHANI)

In addition the following organisations are also associated with the Department of

Defence Producation for the technical support:-

i Directorate General of Quality Assurance (DGQA)

ii Directorate of Standardisation

iii Directorate General of Aeronautical Quality Assurance (DGAQA)

iv Directorate of Planning & Coordination

v Defence Exhibition Organisation (DEO)

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 These Defence Production Units have become self reliant, progressively.

Additional capacities have been built up and new items have been productionised.

These include the main battle tank Arjun, the Advanced Light Helicopter (ALH) and a

range of 155 mm ammunition.

Defence Public Sector Undertakings & Ordnance Factories have exported items worth

Rs. 114.05 corers up to December 31, 2002 against the annual target of Rs. 232.63

corers for the year 2002-03.

The total value of issues by Ordnance Factories and Defence Public Sector

Undertakings during the last three years, is as follows:-

(Rupees in core)

Year Ordnance Public Sector

Factories Undertakings
Total Sales Total Sales Grand Total
2000-2001 5522.00 7666.58 13188.58
2001-2002 6105.00 7666.32 13771.32
2002-2003 6725.00 9042.27 15767.27
(Targets)
Achievements 2836.22 7831.65 10667.87
(upto Dec 2002)

Supplies Wing:-
With a view to achieving self-reliance in the vital sector of Defence, the Department

has been endeavouring to indigenise defence equipment wherever technologically

feasible and economically viable. It has been a part of our indigenisation effort to

29
locate and develop broad-based indigenous supply sources both in the public sector

as well as in the civil trade for many sophisticated and complex equipment. There has

been a significant change in the role of private sector/civil trade in the field of

indigenisation i.e., from the role of supplier of raw-materials, components, sub-

systems, they have now become partners in the manufacture of complete defence

equipment/ systems. The defence industry sector, which was so far reserved for the

public sector, has now been opened up for participation by the Indian Private sector.

The Indian companies are now eligible to apply for license to set up defence industry

for manufacture of all types of defence equipment. Such companies can also have

foreign direct investment, upto 26% of their equity. This is a watershed in the history

of Defence Production. Detailed guidelines have already been issued by the

Department of Industrial Policy & Promotion (DIPP) in consultation with the Ministry of

Defence setting out the modalities for consideration of applications for grant of license.

From the inception of the scheme during 2001-02, 27 applications have been received

upto 30.09.2003 and 13 letters of indent have been issued.

For indigenisation of spares of defence equipment, an institutional framework has

been in existence in the form of 8 Technical Committees, comprising officers from the

Directorate General of Quality Assurance. Each Committee is headed by a Technical

officer of the rank of Major General/Brigadier or equivalent. These committees

maintain a compendium of civil industries capable of undertaking the task of

indigenisation of defence equipment / stores after conducting surveys and assessing

their capabilities. After identifying items in consultation with the user services for

indigenisation and keeping in view the commercial viability and the strategic needs,

30
these Committees take up indigenisation activities and ensure timely supply of

defence equipment/stores. Government has taken a decision in February, 2002 that

in future indigenisation work would be the responsibility of Production Agencies like

Ordnance Factories & Defence PSUs and Service Headquarters.

With the objective of encouraging civil industry for indigenous development of Defence

stores, a scheme of National Award for Excellence in indigenisation was introduced in

the year 1993-94. The efforts made by the industry in substituting inputs of defence

equipment & stores are duly recognized by the Department and deserving units are

presented with suitable awards.

To help the civil sector familiarize itself with the requirement of Armed Forces,

permanent sample rooms are maintained in the four metropolitan cities. For facilitating

greater and more meaningful interaction, conferences/exhibitions are organised from

time to time in collaboration with civil industry. During the year 2003-2004 (upto

October, 2003) five exhibitions were conducted at various locations throughout the

country.

ORDNANCE FACTORIES ORGANISATION

The Ordnance Factories Organization is the largest and oldest departmentally

run production organization in the country and is engaged primarily in the manufacture

of Defence hardware. The organization functions under the Department of Defence

Production and Supplies and is a dedicated facility for manufacture of Weapons,

Ammunitions, Vehicles (Armoured and Transport), Clothings, General Stores and

Equipment for Defence Services.

31
 Defence production is highly specialized, complex and poses unique

challenges to make it safe, reliable, consistent in quality and capable of operating

under varying terrains as well as climates and under extreme conditions. Accordingly,

the technologies applied, which cover a wide spectrum of engineering , metallurgy,

chemical, textile, leather and optical technologies, ensure high quality and productivity,

apart from meeting the primary objective of self-reliance.

Apart from supplying to Armed Forces, wherever adequate capacities are

available, the Ordnance Factories also fulfill the requirements of Paramilitary & Police

Forces/Ministry of Home Affairs (MHA), Civil Trade and foreign customers.

There are 39 Ordnance Factories geographically distributed all over India at 24

different locations. There are 10 factories in Maharashtra, 8 factories in U.P.6 factories

each in Madhya Pradesh and Tamilnadu, 4 factories in West Bengal, 2 factories in

Uttaranchal, and one each in Andhra Pradesh, Orissa and union territory of

Chandigarh. The 40th factory is being set up with state of the art technology at

Nalanda, Bihar. The oldest one is Gun & Shell Factory, Cossipore, Kolkata, which was

set up in 1801

Hindustan Aeronautics Limited :-

The Hindustan Aeronautics Limited was established in October 1964 by

merging Hindustan Aircraft Limited and Aeronautics India Limited. It is engaged in the

design, development, manufacture, repair and overhaul of aircraft, helicopters,

engines and their accessories. The Company has 12 divisions located in six states. Its

32
registered office is at Bangalore. HAL has evolved into a large Aeronautics Complex

and has built up comprehensive skills in Design, Manufacature and overhaul of

Fighters, Trainers, Helicopters, Transport Aircraft, Engines, Avionics and System

Equipment. Its product tract record consists of 11 types of Aircraft from in- house R&D

and 13 type by licence production inclusive of 8 types of Aero Engines and over 900

items of Aircraft System Equipment (Avionics, Mechanical, Electrical). The Company

has the requisite core competence base with demonstrated potential to become a

global player.

The Company has exports to more than 20 countries, having demonstrated its quality

and price competitiveness. It has also diversified into the field of Industrial & Marine

Gas Turbine business and Real-time software business.

Bharat Electronics Limited (BEL)

The Bharat Electronics Limited, established in 1954 with its corporate office at

Bangalore , has nine units in the country. It is engaged in the design, development and

manufacture of sophisticated state-or-the-art electronics equipment components for

the use of the defence services, para-military organisations and other governmental

users such as All India Radio, Doordarshan, Department of Telecommunications,

Police Wireless Departments, Meteorological Department etc.

Bharat Earth Movers Limited (BEML)

The Bharat Earth Movers Limited was established in May 1964 and

commenced operations from January 1965. With the disinvestment of shares of

33
BEML, Government of India is still the major shareholder as of end March 2002,

holding over 61.23% of equity shares of the company. BEMLs manufacturing units

located at Bangalore, Kolar Gold Fields (KGF) and Mysore.

All the production units of BEML are fully equipped with necessary general

purpose machines and special purpose machines like extra heavy duty machines,

Computer Numerically Controlled boring machines (CNC machines), CNC bevel

generating system of Gleason design, flexible manufacturing system, heavy and large

size fabrication facility, welding robots, etc., to manufacture transmission and axles,

Hydraulic control values, cylinders and pumps, diesel engines, railway coaches, rail

buses, railway wagons, Alternating Current Electrical Multiple Units (ACEMUs), heavy

duty all terrain multi axle trucks, earth moving machinery and Tracked military vehicles

like armoured recovery vehicles, self propelled gun, tanks and other military vehicles

like heavy recovery vehicles, bridge laying tank, truck based mobile bridge system,

mounted gun system on truck chassis, rocket launcher system etc.

Mazagon Dock Limited (MDL)

The Mazagon Dock Limited, which was established in 1960, is the premier

defence shipyard in the country, has a capacity to build warships upto 6,000 DWT and

merchant ship upto 27,000 DWT. Its product range includes submarines, missile

boats, destroyers, frigates and corvettes for the Indian Navy and patrol vessels for the

Coast Guard. It has diversified products for the oil exploration sector through

production and installation of wellhead platforms and diving services for coating/laying

sub-sea pipelines.

34
Garden Reach Shipbuilders & Engineers Ltd (GRSE)

The Garden Reach Shipbuilders & Engineers Limited was incorporated as a joint

stock company in 1934, under the name M/s Garden Reach Workshop Limited

(GRW). The Government of India acquired the company in 1960 and was

rechristened as Garden Reach Shipbuilders & Engineers Limited (GRSE). Since

then, it has grown and diversified its activities and is now a multi-unit shipyard with a

Shipbuilding Division and an Engineering and Engine Division. The company builds

and repairs warships and auxiliary vessels for the Navy and the Coast Guard. Its

product range includes frigate carrier & oil tankers, patrol vessels, attack craft, high

technology ship borne equipment, portable Bailey type steel bridges, turbine pumps

for the agricultural sector, marine sewage treatment plants, diesel engines etc.

Goa Shipyard Limited (GSL)

The Goa Shipyard Limited was established in the year 1957. After the liberation of

Goa , it became a Public Sector Undertaking under the Ministry of Defence in 1967.

Goa Shipyard Limited builds a variety of modern, medium sized and special purpose

ships for the Defence and Civil sectors.

Bharat Dynamics Limited (BDL)

BDL was established in 1970 and made great strides in the past few decades making

contribution in the remarkable achievements in Defence Production and meeting

needs of the nation.

35
In the present globalised market, change usually involves restructuring, repositioning

and securing a viable future. Addressing and managing change allows us to remain

competitive over the long term Fear of failure, feeling of threatened and paucity of

information are issues that reflect upon the basic self-confidence and dealing with

these issues requires strategies and agenda for action.

In this context, BDL like any other corporate entity, is also faced with the critical task of

making headway in Globalised Defence Market successfully. While the trend of

Economic Globalizations will continue to provide expanded opportunities and

challenges, it is incumbent upon BDL to develop a vision and devise strategies for

building on its strengths and be prepared to face the upcoming threats.

A fundamental change in business and economic practices has created a flood of

knowledge into diverse and changing needs of defence of our nation. BDL is now

living in an era where timeframes for decision making have been reduced and rapid

change in fragmenting the rules of the game.

For understanding this nature of change requires looking beyond what is fragmenting

in the present and focus upon what is coming together as new systems of operations

and rules of game.

Sweeping changes are on the anvil which are to be visualised by us and should not

tend to focus on limitations set by the prevailing environment. We cannot afford to

become prisoners of the present but have to take a hard look of the future.

36
BDL made an enviable mark in the field of defence production and supplies till now,

while gearing up for the future. BDL is ready and vibrating to breed new strategies to

face and shape the future. BDL is confident that it will conquer the changing

paradigms with clinical swiftness and surgical precision, backed by tremendous

capabilities built in earlier.

Mishra Dhatu Nigam Limited (MIDHANI)

The Mishra Dhatu Nigam Limited (MIDHANI), was incorporated as Public

Sector Undertaking in 1973 at Hyderabad to achieve self-reliance in the areas of

super-alloys, titanium alloys and special purpose steel required for strategic sectors

like Aeronautics, Space, Armaments, Atomic Energy, Navy special products like

molybdenum wires and plates, titanium and stainless steel tubes, alloys for electrical

and electronic application like soft magnetic alloys controlled expansion alloys and

resistance alloys.

37
 Company Profile:-

Bharat dynamics limited (BDL) was established in year 1970. Its main objectives when

established were to become prime production agency towards missile technology .It produced

first generation missiles. It is basically a public sector enterprise under Ministry of Defence and

raises all its funds from government only.

It has several small unites at different places of Hyderabad. But later on in 1983 all the units

were shifted to Kanchanbagh complex .Till 1980, almost it is a single turnover project.

Afterwards the production and sales figures increased where the production and sales were on

three figures after 1989 onwards.

BDL has three units where missiles are manufactured. First unit is in KANCHANBAGH,

the second unit in BHANUR and third unit is in VIZAG.

38
 Over the last few years, the company had rapidly expanded its production base and its

operation in the field of Guided Missiles and successfully started the production and delivery

of small arms. The surface-to-air missiles are being developed by DRDO under the Integrated

Guided Missile Development Program (IGMDP) The company has significantly increased its

production and sales volume during the year 1994-1995 over the previous years.

The company has setup advanced Information Technology Systems and developed

appropriate software for production and financial management purpose. Local area network

(LAN) has also been installed bringing computer awareness in many areas of management. The

institute of systems and technology management (ISTM) of BDL was established in 1993-

1994 is now fully operational and various training programs are regularly conducted in the

institute.

The company has been identified as the nodal production agency for Night Vision

Systems for anti-tank applications.

MISSIONS;
The mission of BDL is to establish itself as an aerospace industry and simultaneously

emerge as a sophisticated, self-sufficient high technology enterprise serving the developmental

needs of the nation.

OBJECTIVES;

1. Meet production commitments and maximize customer satisfaction.

2. To become self-reliant and competitive in Guided missile Technology and

production.
3. To maximize utilization of existing production capacities.

39
 4. To develop and nurture human resources.
5. To ensure a sustainable growth of BDL.
6. To maximize shareholders wealth.

SIGNIFICANT ACHIEVEMENTS;

The company achieved the targets in respect of MILAN missile. Regular production

of KONKUR missile system using indigenous materials was established. An exports order of

rs.13 .76 Crores was executed during the year . The company has successfully completed the

indigenization programme drawn up in respect of indigenize the components and sub-system,

which is necessary to be most competitive and self-reliant in order to meet the huge demand.

The R&D wing of the company has developed new system viz: SIMULATORS, FIELD

LEVEL TEST EQUIPMENTS. The received for these have bee completed successfully during

the year

FUTURE PLANS AND INVESTMENTS:

The corporate plan of the company approved by the Board is based on continuing

advances in the companys core strength .There is a future plan to design and produce a second

generation ATGM. The company has established a modern R&D and electronics centre to cater

the future demand. The new center will be cost effective and will have modern equipment to

manufacture electronic systems and sub-systems. The company has also plan to diversify its

activities into Low Level Air Defence System and other Guided missile areas where potential

requirements exists.

VARIANCE ANALYSIS:

40
 Budgets are the estimates and their accuracy on the accuracy of the forecast.

Especially in concerns with irregular production schedules and those depending on job orders.

Accurate budgeting becomes difficult. A variance means disagreement or discrepancy between

statements. If there arises a difference between budgeted estimates and actual that is known as

variance. The major operative part is the periodical comparison of actual with estimates,

working out the variance and tracing the variances to their root cause. Variance that leads to an

increase in profit is termed as favorable and which results in lower profit will be unfavorable.

The following essential points should be noted in the utility of the variance analysis:

1. Variances should not be automatically applied for control purpose. They are just indicators of

where the reasons for difference exist.

2. If part of a variance due to one factor is wrongly merged with that of another, the analysis

report submitted to the would be misleading and wrong conclusions may come from it.

3. Controllable variances should be reported with promptness as soon as they occur. the

variances should be reported frequently on time. This would enable corrective action being

for the future production while work-in-progress and before the project or job is completed.

Delay in variance analysis creates difficulties in placing responsibilities. Moreover

inefficiencies and losses if not corrected, continue to increase. Moreover inefficiencies and

losses if not corrected, continue to increase.

4. For effective control the responsibilities and authority of each individual should be laid in

clear terms.

5. A particular variance may be joint responsibility of more than one individual or

department. It is obvious that if corrective action has to be effective in such cases, it should

be taken jointly. Uncontrollable variances be made with same case. This should compel the

41
 top management to take corrective action by changing the policy which gave rise to

uncontrollable variance.

The following is the variance analysis for BDL:-

VALUE OF PRODUCTION: (2002-03)

( In Cores)

DIVISIONS ACTUALS BE RE ACTUALS VARIANC

2002-2003 2003-2004 2003-2004 2003-2004 E
Actual-RE
MILAN 96.93 118.02 91.76 84.86 (6.9)

KONKUR 94.25 118.78 221.85 124.04 (97.81)

TRISHUL 21.46 28.06 19.21 12.28 (6.93)
PRITHVI 31.86 57.17 82.38 47.8 (34.58)

ELECTRO 5.08 9.57 11.57 8.36 (3.21)

NIC
TOTAL 248.7 331.6 426.77 277.34 (149.43)

INTERPRETATION:-

In the above value of production budget, revised estimates are anticipated at

426.77 cores, where as actual are 277.34 cores. Thus, there is a variance of (149.43); the short

42
fall in production is mainly to short fall in one of the production business due to non- supply of

components from collaborators

BE stands for Budgeted Estimate

RE stands for Revised Estimate

VALUE OF PRODUCTION: (2003-04)

(In cores)

ACTUALS BE RE ACTUALS VARIANCE

DIVISIONS 2003-2004 2004-2005 2004-2005 2004-2005

MILAN 84.86 48.87 58.84 59.80 .96

KONKUR 124.04 286.50 247.15 227.91 (19.24)

TRISHUL 12.28 40.55 21.51 12.43 (9.08)

PRITHVI 47.8 121.60 140.87 89.06 (51.81)

ELECTRONICS 8.36 52.28 19.61 18.47 (1.14)

TOTAL 277.34 549.8 487.98 407.67 (80.31)

INTERPRETATION:-

43
 In the above value of production budget, revises estimates are anticipated at 487.98

cores, where as actual are 407.67 cores. Thus is there is a variance of (80.31); the short fall is

due to non-receipts of some critical components.

VALUE OF PRODUCTION: (2004-05)

(In cores)
DIVISIONS ACTUALS BE RE ACTUALS VARIANCE
2004-2005 2005-2006 2005-2006 2005-2006

MILAN 59.80 17.62 3.59 (1.11) (4.7)

KONKUR 227.91 286.23 233.25 148.47 (84.78)

TRISHUL 12.43 0.00 7.17 9.25 2.08

PRITHVI 89.06 192.35 132.10 124.49 (7.61)

ELECTRONIC 18.47 17.70 10.03 14.85 4.82

TOTAL 407.67 513.9 386.14 295.95 (90.19)

INTERPRETATION:-
In the above value of production budget, revised estimates are anticipated at 386.14 cores

as actual are 295.95 corers. Thus there is a variance of (90.19); the short fall in production is

mainly due to anticipated orders not revised in respect of some products.

44
 VALUE OF PRODUCTION:- (2005-06)
(in corers)
DIVISIOS ACTUALS BE RE ACTUALS VARIANCE
2005-06 2006-07 2006-07 2006-07
MILAN 2.38 60.91 1.38 84.06 82.68
KONKUR 210.21 173.06 234.23 177.28 (56.95)

TRISHUL 10.70 23.00 8.99 8.66 (0.33)

PRITHVI 116.99 202.47 187.45 133.22 (54.23)

ELECTRONICS 14.96 53.35 3.50 3.81 (0.31)

TOTAL 355.24 512.79 435.79 407.03 (28.52)

VALUE OF PRODUCTION:(2006-2007)

45
VALUE OF PRODUCTION:(2007-2008)

DIVISION ACTUAL BE RE ACTUAL VARIANCE

(2006-07) 2007-08 2007-08 2007-08
MILAN 84.06 0.00 1.79 1.77 (0.02)
KONKUR 177.28 147.68 82.57 85.38 2.81
TRISHUL 8.66 188.13 162.60 0.43 (162.17)
PRITHVI 133.22 0.00 0.60 153.96 153.36

ELECTRONIC 3.81 0.00 2.31 1.45 (0.86)

TOTAL 407.03 335.81 249.87 242.96 (6.88)

INTERPRETATION:-
In the above value of production budget revised estimates are anticipated at 249.87

corers where as actual are: 242.96 corers thus there is a variance (6.88); which mean

target did not reach

VALUE OF PRODUCTION:(2007-2008):

46
 SALES BUDGET:(2002-3)
(CRORES)

DIVISIONS ACTUALS BE RE ACTUALS VARIANCE

2002-03 2003-04 2003-04 2003-04
MILAN 128.64 77.28 243.08 89.92 (153.16)

KONKUR 100.56 113.02 101.87 136.45 34.58

TRISHUL 20.43 6.08 24.49 123.64 99.15

PRITHVI 27.16 57.17 82.38 15.63 (66.75)

ELECTRONICS 3.77 0.00 12.89 9.59 (3.3)

TOTAL 280.56 253.55 464.71 375.23 (898.48)

INTERPRETATION:

47
 In the above sales budget, revised estimates are anticipated at 464.71 cores, where as

actual are 375.23 crores. Thus, there is a variance of (89.48); the short fall in sales is mainly

due to short fall in volume of production

SALES BUDGET:(2003-04)
DIVISIONS ACTUALS BE RE ACTUALS VARIANCE
2003-04 2004-05 2004-05 2004-05
MILAN 89.92 59.81 71.83 73.76 1.93

KONKUR 136.45 287.11 255.35 186.58 (68.77)

TRISHUL 123.64 40.55 21.77 15.65 (6.12)

PRITHVI 15.63 121.06 140.87 108.56 (32.31)

ELECTRONICS 9.59 52.28 19.71 18.22 (1.49)

TOTAL 375.23 560.81 509.53 402.77 (106.76)

INTERPRETATION:-

In the above sales budget, revised estimates are anticipated at 509.53 cores, where as

actual are 402.77 cores. Thus, there is a variance of (89.48); the short fall in sales is mainly

due to short fall in volume of production.

SALES BUDGET:(2004-05)
(In DIVISIONS ACTUALS BE RE ACTUALS VARIANCE
cores) 2004-05 2005-06 2005-06 2005-06
MILAN 73.76 0.05 0.25 6.34 6.09

KONKUR 186.58 285.15 258.35 179.33 (79.02)

TRISHUL 15.65 0.00 9.89 99.78 89.89

PRITHVI 108.56 192.35 132.10 120.74 (11.36)

48
ELECTRONICS 18.22 17.70 10.03 14.91 4.88

TOTAL 402.77 495.22 410.62 421.1 10.48

 INTERPRETATION:
In the above sales budget, revised estimates are anticipated at 410.62 cores, where as

actual are 421.1 cores. Thus, there is a variance of (10.48); which means there is an

improvement in sales compared to previous year.

SALES BUDGET:-(2005-06)

(In cores)
DIVISIONS ACTUALS BE RE ACTUALS VARIANCE
2005-06 2006-07 2006-07 2006-07
MILAN 6.34 0.25 1.38 83.90 82.52

KONKUR 179.33 198.14 227.73 185.99 (41.74)

TRISHUL 99.78 11.50 11.79 12.04 0.25

PRITHVI 120.74 202.47 174.45 127.73 (46.72)

ELECTRONICS 14.91 5.18 3.90 4.21 0.31

TOTAL 421.1 417.54 419.54 413.87 (5.38)

INTERPRETATION:-

49
 In the above sales budget, revised estimates are anticipated at 419.25 cores, where

as actual are 413.87 crores. Thus, there is a variance of (5.38); which means targets did

not reach.

SALES BUDGET:- (2006-07)

(In corers)
DIVISIONS ACTUALS BE RE ACTUALS VARIANCE
2006-07 2007-08 2007-08 2007-08
MILAN 83.90 0 1.79 0.91 (0.88)

KONKUR 185.99 200.77 144.92 117.76 (27.16)

TRISHUL 12.04 0 0.60 0.48 (0.12)

PRITHVI 127.73 176.13 151.60 157.86 6.26

ELECTRONICS 4.21 0 2.22 0.76 (1.46)

TOTAL 413.87 376.87 301.13 277.77 (23.33)

INTERPRETATION:-
In the above sales budget, revised estimates are anticipated at 301.13 corers,

where as actual are 277.77 corers. Thus, there is a variance of (23.33); which means

targets did not reach.

50
 SALES BUDGET:- (2007-2008):

MANPOWER BUDGET:-(2002-03)
(MEMBERS)
PARTICULARS ACTUALS BE RE ACTUALS VARIANCE
2002-2003 2003-04 2003-04 2003-04
OFFICERS 806 835 809 791 18

DIRECT 914 911 893 904 (11)

WORKERS
INDIRECT 1423 1455 1475 1425 50
WORKERS

TOTAL 3143 3201 3177 3120 57

INTERPRETATION:-

In the above manpower budget, member as per are estimates are anticipated at

3177, where as members as actual are 3120. The reduction in manpower compare to

last year is mainly due to introduction of VRS (voluntary retirement scheme).

51
 MANPOWER BUDGET: (2003-04)

(MEMBERS)
PARTICULARS ACTUALS BE RE ACTUALS VARIANCE
2003-2004 2004-2005 2004-2005 2004-2005
OFFICERS 791 826 755 684 71
DIRECT 904 894 864 857 7
WORKERS
INDIRECT 1425 1492 1392 1376 16
WORKERS
TOTAL 3120 3212 3011 2917 94

INTERPRETATION:-

In the above manpower budget, the members as per revised estimates are 3011. Where

as members as per actual are 2917. The main reason of this variance is due to the following

reasons:

Company has sufficient number of officers to do day-to-day operation.

Company has sufficient number of direct workers to meet the demand and it has the capacity to

meet the urgent demand with an existing worker

MANPOWER BUDGET:

(MEMBERS)
PARTICULARS ACTUALS BE RE ACTUALS VARIANCE
2004-2005 2005-06 2005-06 2005-06
OFFICERS 684 757 712 665 47

DIRECT WORKERS 857 864 878 866 12

INDIRECT 1376 1401 1415 1378 37
WORKERS
TOTAL 2917 3022 3005 2909 96

INTERPRETATION:-

52
 The above manpower budget is based on the production budget. Main reasons for

this variance are between revised and budgetary estimates which are due to the difference

PARTICULARS ACTUALS BE RE ACTUALS VARIANCE

2005-2006 2006-07 2006-07 2006-07

OFFICERS 665 767 680 622 58

DIRECT 866 927 887 824 63

WORKERS
INDIRECT 1378 1430 1283 1368 (85)
WORKERS
TOTAL 2909 3124 2850 2814 36

between sanctioned and authorized strength. If we observe, indirect

workers are it has the capacity to meet the urgent demand with existing workers.

MANPOWER BUDGET:-

(2005-06) (MEMBERS)

s :

INTERPRETATION:-

In the above manpower budget, member as per are estimates are anticipated

at 2850, where as members as per actual are 2814. The reduction is due to

voluntary retirement scheme as there were no recruitments taken place in BDL.

53
 MANPOWER BUDGET:-(2006-07)
(MEMBERS)
PARTICULAR ACTUALS BE RE ACTUALS VARIANCE
2006-2007 2007-2008 2007-2008 2007-2008
622 706 663 622 41
OFFICERS
DIRECT 824 907 854 819 35
WORKERS

INDIRECT 1368 1262 1308 1301 7

WORKERS

TOTAL 2814 2875 2825 2742 83

INTERPRETATION:-
In this above manpower budget, members as per revised estimates are anticipated at

2825 where as the members as per actual where as the members as per actual are 2742. The

reduction is due to voluntary retirement scheme scheme as there were no recruitment taken

place in BDL.
54
 MANPOWER BUDGET:-(2007-2008)

WELFARE BUDGET:(2002-03)

(In cores)
PARTICULARS ACTUALS BE RE ACTUALS VARIANCE
2002-2003 2003-04 2003-04 2003-04
CANTEEN 0.162 0.23 0.20 1.32 (1.12)
MEDICAL 6.612 5.19 6.48 2.36 4.12
TRANSPORT 1.63 1.78 1.71 6.76 (5.05)
TOWNSHIP 2.14 2.39 3.11 2.93 0.18
55
TOTAL 10.094 9.59 11.5 13.37 (1.87)
 WELFARE BUDGET:- (2002-03)

(In cores)
PARTICULARS ACTUALS BE RE ACTUALS VARIANCE
2003-2004 2004-05 2004-05 2004-05
CANTEEN 2.36 2.25 2.39 2.27 0.12
MEDICAL 8.76 6.79 6.69 6.62 0.07
TRANSPORT 1.32 1.72 1.45 1.67 0.22
TOWNSHIP 2.93 3.16 3.6 3.04 0.556
TOTAL 13.37 13.92 14.13 13.65 0.53

WELFARE BUDGET:- (2004-05)

(In crores)
PARTICULAR ACTUALS BE RE ACTUALS VARIANCE
S 2004-2005 2005-06 2005-06 2005-06
CANTEEN 2.27 2.48 2.36 2.37 (0.01)

56
 MEDICAL 6.62 7.33 6.94 6.03 0.91
TRANSPORT 1.67 1.48 1.87 1.73 0.14
TOWNSHIP 3.04 3.86 3.23 3.30 (0.07)

TOTAL 13.65 15.15 14.4 13.43 0.97

WELFARE BUDGET:(2006-07)
(In cores)
PARTICULARS ACTUALS BE RE ACTUALS VARIANCE
2006-2007 2007-08 2007-08 2007-08
CANTEEN 2.35 2.44 2.51 2.52 (0.01)
MEDICAL 5.98 6.64 6.24 7.31 (1.07)
TRANSPORT 3.19 4.23 4.23 3.54 0.69
TOWNSHIP 1.82 1.91 1.85 1.84 0.01
TOTAL 13.34 9.22 14.8 15.21 0.41

INTERPRETATION:
In the above welfare budget revised estimates are anticipated at 14.8 crores where as

actual are 15.21 cores. If we observe the division wise variance the expenses of the transport

``increase by (0.01) cores due to voluntary retirement scheme many of them had left.

57
 PARTICULARS ACTUALS BE RE ACTUALS VARIANCE
2002- 2003-2004 2003-2004 2003-2004
2003
INCOME
SALES
Finished goods 26,932.20 38353.06 55244.03 27509.56 -27734.47
Miscellaneous 1163.35 70 250.87 180.387
Job works 187.13 0.87 0.87
Exports 53.51 1162.77 39.42 24.58 -14.84
TOTAL SALES 28336.19 39515.83 55353.63 27785.88 -2757.57
Other incomes 11723.33 8034.60 10450.63 11624.61 1173.98
TOTAL INCOME 40059.43 47550.43 65804.43 39410.49 -26393.59
EXPENDITURE
Consumption of 11268.13 28204.76 32787.40 18635.44 14151.96
materials
Direct expenses:
DRE 175.23 245.35 461.09 117.25 343.84
Tools 368.85 712.33 811 814.74 -3.74
Others 372.87 243.74 262 330.36 -68.36
Salaries & wages 7531.21 8086.59 8178.62 8168.90 9.72
(as per schedule B)
Salaries & wages 4491.97 3842.86 4209.81 4646.91 -437.10
(As per schedule c)
Interest 20.38 10 15 0.99 14.01
Depreciation 834.33 972.34 878.1 785.91 92.27
Provisions 1037.44 510.39 1607.69 1189.59 418.10
Deduct
Expenditure relating
to
DRE 64.44 87.5 216.26 110.72 105.72
Tools and jigs 90.24 206 176 106.75 69.25
Capital works
Others 12.08 0 392.26 16.28 375.98
Sub totals: 160.76 293.45 392.26 233.75 158.51
Add : decrease in 3191.84 2924.37 5266 -2341.46
WIP
Less: increase in 3691.32
WIP
TOTAL 29115.49 38843.54 51747.90 29191.07 22556.83
EXPENDITURE
PROFIT BEFORE 10943.84 8706.92 51747.90 29191.07 22556.83
TAX
PROFIT AND LOSS ACCOUNT (RS. In lakhs)

58
 (2002-2003)
:

PROFIT AND LOSS ACCOUNT GRAPH:- (2002-2003)

59
PROFIT AND LOSS ACCOUNT:- (2003-04)

60
PARTICULARS ACTUALS BE RE ACTUALS VARIANCE
2003-2004 2004-2005 2004-2005 2004-2005
INCOME
SALES
Finished goods 27509.56 73623.35 63067.26 50719.68 -12347.58
Miscellaneous 250.87 376.80 376.80
Job works 0.87 105 2.3 -102.70
Exports 24.58 11162.77 1181.56 1375.96 194.40
TOTAL SALES 27785.88 84786.12 64353.82 52474.74 -11879.08
Other incomes 11624.61 8805.13 4588.12 5694.67 1106.55
TOTAL 39410.49 93591.25 68941.94 58169.41 -10772.53
INCOME
EXPENDITURE
Consumption of 18635.44 52538.17 40039.32 33350.88 6688.44
materials
Direct expenses:
DRE 117.25 441.78 375.02 422.53 -47.51
Tools 814.74 428.25 401.33 129.9 271.43
Others 330.36 79.84 142.41 259.39 -116.98
Salaries & wages 8168.90 8573.76 8247.18 8074.30 172.88
(as per schedule
B)
Salaries & wages 4646.91 4248.11 5424.77 4955.23 469.54
(As per schedule
c)
Interest 0.99 10 10 0.94 9.06
Depreciation 785.99 964.78 876.61 788.71 87.90
Provisions 1189.59 1376.24 1058.65 2466.85 -1408.20
Deduct
Expenditure
relating to
DRE 110.72 20 376.06 184.73 191.33
Tools and jigs 106.75 157 165 196.12 -31.12
Capital works 0.00
Others 16.28 0 0 50.86 -50.86
Sub totals: 233.75 177 541.06 431.71 109.34
Add : decrease in 461.68 5072.88 233.91 4838.97
WIP
Less: increase in
WIP
TOTAL 29191.07 68945.61 61098.11 50250.93 10847.18
EXPENDITURE
PROFIT 10205.20 14645.64 8368.51 7924.19 444.32
BEFORE TAX

61
 PROFIT AND LOSS ACCOUNT:-
(2004-05)

62
PARTICULARS ACTUALS BE RE ACTUALS VARIANCE
2004-2005 2005-2006 2005-2006 2005-2006
INCOME
SALES
Finished goods 50719.68 74523.57 55284.45 45532.48 -9751.97
Miscellaneous 376.80 166 52.53 -113.47
Job works 2.3 5 25 0 -25.00
Exports 1375.96 0.00 0.00 0.00 0.00
TOTAL SALES 52474.74 74528.57 5547.45 45585.01 -9890.44
Other incomes 5694.67 4956.91 5160 6751.33 1591.30
TOTAL 58169.41 79485.48 60635.48 52336.34 -8299.14
INCOME
EXPENDITURE
Consumption of 33350.88 58523.93 39309.51 31346.45 7963.06
materials
Direct expenses:
DRE 422.53 284.34 302.33 164.32 138.01
Tools 129.9 322.06 296.58 130.63 165.95
Others 259.39 98.78 116.77 286.58 -169.81
Salaries & wages 8074.30 8763.17 8716.77 8198.57 518.20
(as per schedule
B)
Salaries & wages 4955.23 4540.01 5098.32 4828.06 270.26
(As per schedule
c)
Interest 0.94 10 10 0.47 9.53
Depreciation 788.71 1005.65 877.54 715.46 162.08
Provisions 2466.85 1291.40 1422.36 2870.86 -1448.50
Deduct
Expenditure
relating to
DRE 184.73 136.67 252.5 262.24 -9.74
Tools and jigs 196.12 162 160 172.34 -12.34
Capital works
Others 50.86 0 0 4.91 -4.91
Sub totals: 431.71 298.67 412.5 439.46 -26.96
Add : decrease in 233.91
WIP
Less: increase in 363.47 1489.94 -1489.94
WIP
TOTAL 50250.93 74177.20 58193.52 46621.02 11572.50
EXPENDITURE
PROFIT 7924.19 5308.25 2441.96 5228.02 -2786.06
BEFORE TAX

63
PFRFIT AND LOSS ACCOUNT GRAPH:-(2004-05)

PROFIT AND LOSS ACCOUNT (In Lakhs)

64
PARTICULARS ACTUALS BE RE ACTUALS VARIANCE
2005-2006 2006-2007 2006-2007 2006-2007
INCOME
SALES
Finished goods 45532.48 60708.05 58098.28 53153.33 -4944.95
Miscellaneous 52.53 19642.49 45 0 -45
Job works 0 25 0 0 0.00
Exports 0.00 0.00 0.00 0.00 0.00
TOTAL SALES 45585.01 80375.54 58143.28 53153.33 -4989.48
Other incomes 6751.33 4259.33 5788.37 8337.85 2549.48
TOTAL 52336.34 84634.87 63931.65 61491.18 -2440.47
INCOME
EXPENDITURE
Consumption of 31346.45 56191.94 45383.73- 32900.99 -12482.74
materials
Direct expenses:
DRE 164.32 365.65 189.52 113.24 -76.28
Tools 130.63 225.56 133.52 171.85 38.33
Others 286.58 2499.01 32.23 297.11 264.88
Salaries & wages 8198.57 9885.28 8766.78 8471.17 -295.61
(as per schedule
B)
Salaries & wages 4828.06 5175.59 5706.71 5054.61 -652.10
(As per schedule
c)
Interest 0.47 10 10 0.19 -9.81
Depreciation 715.46 1119.59 715.46 644.57 -83.14
Provisions 2870.86 1505.02 1112.21 2545.50 1433.29
Deduct
Expenditure
relating to
DRE 262.24 142.18 120.00 107.90 -12.10
Tools and jigs 172.34 160 100.00 182.24 82.24
Capital works
Others 4.91 0 0 24.90 -24.90
Sub totals: 439.46 302.18 220.00 315.04 95.04
Add : decrease in
WIP
Less: increase in 1489.94 274.52 -274.52
WIP
TOTAL 46621.02 76275.46 61842.41 49609.41 12232.74
EXPENDITURE
PROFIT 5228.02 11881.51
BEFORE TAX
ABOVE GRAPH PROFIT AND LOSS ACCOUNT (2005-2006)

65
PARTICULARS ACTUALS BE RE ACTUALS VARIANCE
2006-2007 2006-2007 2007-2008 2007-2008
INCOME
SALES
Finished goods 53153.33 52996.68 42479.18 43351.31 872.13
Miscellaneous 0 0 0 0 0
Job works 0 0 0 0 0
Exports 0.00 0 0 0 0
TOTAL SALES 53153.33 52996.68 42479.18 43351.31 872.13
Other incomes 8337.85 4797.21 6902.40 8229.74 1327.34
TOTAL 61491.18 57793.89 49381.58 51558.54 2176.96
INCOME
EXPENDITURE
Consumption of 32900.99 35092.96 24580.11 23989.00 591.11
materials
Direct expenses:
DRE 113.24 217.43 371.15 127.17 243.98
Tools 171.85 161.43 402.70 311.84 90.86
Others 297.11 55.94 133.09 111.47 21.62
Salaries & wages 8471.17 9558.50 9558.44 9470.72 87.72
(as per schedule
B)
Salaries & wages 5054.61 5095.08 5069.55 4927.26 142.29
(As per schedule
c)
Interest 0.19 10.0 10.00 0.12 9.88
Depreciation 644.57 841.11 726.79 618.27 108.52
Provisions 2545.50 1018.06 951.38 2504.67 -1553.29
Deduct 103.00 130.00 192.47 -182.47
Expenditure
relating to
DRE 107.90 107.90 103.00 192.47 -182.47
Tools and jigs 182.24 100.00 100.00 155.58 -55.58
Capital works
Others 24.90 1.83 -1.83
Sub totals: 315.04 203.00 230.00 349.88 -119.85
Add : decrease in
WIP
Less: increase in 274.52 4067.83 -4067.83
WIP 66
TOTAL 49609.41 56959.80 48684.99 46478.23 2206.76
EXPENDITURE
PROFIT 11881.51 834.09 696.59 5080.31 -4383.72
BEFORE TAX
 PROFIT AND LOSS ACCOUNT:- 2006-2007:-

ABOVE GRAPH PROFIT AND LOSS ACCOUNT:- (2006-2007)

67
 FINDINGS:-
The organizational arrangement has not received adequate attention of the

management.
A separate specialized budget department did not exist for preparation,

implementation and review of budget.

Budgets are prepared on the basis of past performance and experiences.
There is no co-ordination between the departments while preparing budget.
Only demand, supply and price are in influenced for preparation of the budget.

External factors affecting the performance budgeting system in BDL are:

Limited and exclusive customer base i.e., Army, navy and air force.
Delay in technology transfer from collaborators.
Involvement of many external agencies right from the technology transfer to the

final product acceptance

International environment and government policies

68
 CONCLUSIONS:-

There is a variance between the actuals and budgeted figures for all types of budgets.
Revised estimations are not similar to the actual performances.
Revised estimates are not influencing the actual performances effectively.
There is no special encouragement for effective budget preparation

Suggestions:-

69
a) Co- ordination of different is for installing a good budgetary system and this should be

maintained in future.
b) Financial feed back information vis--vis budget motivation is largely confined to higher-

level management. It should be communicated to middle line level for better control and

morale of the people.

c) Re-planning is to take place at the time of half-yearly review on the basis of experience

which the corporation had in the first six-months.

d) A complete copy of the budget may be supplied to the budgeters well in advance and any

change in the budget, after finalization due to inevitable reasons may be made only after

discussion with the concerned sub-ordinates.

e) First line managers should realize that technical performance standards and budgets are

the guide and yardsticks for the achievement of their target.

f) The study reveled that most of the employees are ignorant of even their role in budget

development process of their organization. This may lead to mistrust and hostility

resulting in low productivity. Hence the budget officer should keep professional contacts

with people especially from purchase. Sales and personal and keep them informed about

the financial and technical standards.

g) It would be better to have frequent consultations and clarification regarding technical

figures with line manager so that they have the same perspective and understanding .

70
BIBLIOGRAPHY:

S. P. JAIN & K. NARANG kalyani publishers, 9th edition, cost accounting.

P. L. MEHTA sultan Chand publishers, 9th edition, managerial economies.
O. p. KHANNA - 2001 edition, industrial engineering and management.
N. K. PRASAD books syndicate PVT. LTD,9 th edition, principles and

practice of cost accounting.

PRASANNA CHANDRA 2000 edition, financial management.
BATTACHARYA cost accounting

71
 TERMINOLOGY:

ISTM? INSTITUTE OF SYSTEM AND TECHNOLOGY MANAGEMENT.

IGMP? INTEGRATED GUIDED MISSILE DEVELOPMENT PROGRAMME.
DRDO? DEFENCE RESEARCH DEVELOPMENT ORGANISATION.
DRDL? DEFENCE RESEARCH DEVELOPMENT LABORATORY.
ATGM? ANTI TANKER GUIDED MISSILE.
IGMP? INTEGRATED GUIDED MISSILE.
BE ? BUDGET ESTIMATES.S
RE ? REVISED ESTIMATES.
FC ? FORECAST
BDL? BHARAT DYNAMICS LIMITED.

72