A PROJECT REPORT ON

“ A STUDY ON COST CONTROL AND COST REDUCTION”AT KARNATAKA

POWER CORPORATION LIMITED
BY

NITHYA.R

1MV18MBA37

Submitted to

VISVESVARAYA TECHNOLOGICAL UNIVERSITY, BELGAUM

In partial fulfillment of the requirements for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

Under the guidance of

INTERNAL GUIDE EXTERNAL GUIDE

KARTHIK S.V S.RAGHAVENDRA

(ASSISTANT PROFESSOR) (GENERAL MANAGER FI NANCE

& ACCOUNTANCY)

DEPARTMENT OF MANAGEMENT STUDIES

SIR M. VISVESVARAYA INSTITUTE OF TECHNOLOGY
BANGALORE
2018-2020
 CERTIFICATE

This is to certify that NITHYA.R bearing USN 1MV18MBA37, is a bonafide student of

Master of Business Administration course of SIR M. VISVESVARAYA INSTITUTE OF
TECHNOLOGY 2018-20, affiliated to Visvesvaraya Technological University, Belgaum.
Project report on “A STUDY OF COST CONTROL AND REDUCTION” is prepared by
him/her under the guidance of KARTHIK.S.V, in partial fulfillment of the requirements for
the award of the degree of Master of Business Administration of Visvesvaraya Technological
University, Belgaum Karnataka.

KARTHIK S.V Dr. SANDHYSUSWARAM

ASSISTANT PROFRSSOR ASSOCIATE PROFESSOR
& HOD

Dr. V.R. MANJUNATH

PRINCIPAL

External viva voce examination

Name of the Examiners Affiliation Signature of the Examiners

1
2
 DECLARATION

I, Nithya.R , hereby declare that the Project report entitled “ A STUDY ON COST
CONTROL AND REDUCTION” with reference to “KARNATAKA POWER
CORPORATION LIMITED” prepared by me under the guidance of(Guide Name), faculty of
M.B.A Department, SIR M. VISVESVARAYA INSTITUTE OF TECHNOLOGY,
Bangalore and external assistance by S.RAGHAVENDRA (GENERAL MANAGER
FINANCE & ACCOUNTANCY)KARANATAKA POWER CORPORATION
LIMITED. I also declare that this Project work is towards the partial fulfillment of the
University Regulations for the award of degree of Master of Business Administration by
Visvesvaraya Technological University, Belgaum. I have undergone project work for a
period of Ten weeks. I further declare that this Project is based on the original study
undertaken by me and has not been submitted for the award of any degree/diploma from any
other University / Institution.

Place: Nithya.R
Date:19/02/2020
 TABLE OF CONTENTS

EXECUTIVE SUMMARY 7
CHAPTER 1 - INTRODUCTION 08-30
CHAPTER 2 - CONCEPTUAL BACKGROUND AND 31-44

LITERATURE REVIEW
CHAPTER 3 - RESEARCH DESIGN 45-49
CHAPTER 4- DATA ANALYSIS AND INTERPRETATION 50-61
CHAPTER 5 - SUMMARY OF FINDINGS ,SUGGESTIONS 62-65
AND CONCLUSION
BIBLIOGRAPHY
A STUDY ON COST CONTROL AND COST REDUCTION AT KPCL

LIST OF TABLE

SL.NO TITLES PAGES

4.1 SHOWING LABOUR COST FOR HYDEL 52
4.2 SHOWING OVERCOST FOR WIND 53
4.3 SHOWING PROFIT MARGIN OF WIND 54
4.4 SHOWING MATERIAL COST OF THERMAL 55-56
4.5 SHOWING LABOUR COST FOR THERMAL 56-57
4.6 SHOWING OVERHEAD COST FOR THERMAL 57-58
4.7 SHOWING PROFIT MARGIN OF THERMAL 58-59
4.8 SHOWING REVENUE SEGMENTATION 60-61
4.9 SHOWING COST ACTIVITES OF THE COMPANY 61-62

LIST OF GRAPH

SL.NO TITLES PAGES

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4.1 SHOWING LABOUR COST FOR HYDEL 52

4.2 SHOWING OVERCOST FOR WIND 53
4.3 SHOWING PROFIT MARGIN OF WIND 54
4.4 SHOWING MATERIAL COST OF THERMAL 55-56
4.5 SHOWING LABOUR COST FOR THERMAL 56-57
4.6 SHOWING OVERHEAD COST FOR THERMAL 57-58
4.7 SHOWING PROFIT MARGIN OF THERMAL 58-59
4.8 SHOWING REVENUE SEGMENTATION 60-61
4.9 SHOWING COST ACTIVITES OF THE COMPANY 61-62

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Executive Summary

Karnataka Power Corporation Limited is a state owned power generating company. The company is
engaged in power generation and distribution across Karnataka. Karnataka Power Corporation Limited
generates power through a portfolio of hydro, thermal and wind energy power plants. The total installed
capacity of the company power plants is 5975.91megawatts. KPCL also works for environment
conservation, pollution monitoring and the implementation of specific environment projects. The
company has a subsidiary. To understand the impact on the profit and loss account due to cost control and
cost reduction. The different practices adapted by the company in respect to cost control and cost
reduction. Analyze the differences between cost control and cost reduction. It suggest best procedure for
cost control and cost reduction .

Analysis an interpretation gives a clear picture that what are the tools used, methodology adopted here a
company profit and loss account is taken into consideration to analyze the data of the company with the
help of table and charts on analyze and interpretation has been interpreted. The end of chapter a finding is
drawn to shown the company that what the strength and weakness of company and what the opportunities
are that company have the threats.

Suggestion, in order to modify current system for a higher growth and progress. The research study was
an enlightening experience to the three dimensions. It is practical work experience. It enhanced creativity
and dexterity of my knowledge, and project was successfully fulfilled of the university.

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CHAPTER 1 INTRODUCTION

INTRODUCTION

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1.1 INDUSTRY PROFILE

The power sector has registered significant progress since process of planned development of the
economy began in 1950. Hydro-power and cost based thermal power has been the main sources of
generating electricity. Nuclear power development is at slower pace, which was introduced, in late sixties.
The concept of operating power systems on a regional basis crossing the political boundaries of state was
introduced in the early sixties. In spite of the overall development that has taken place, the power supply
industry has been under constant pressure to bridge the gap between supply and demand.

HISTORY

Although electricity had been known to be produced as a result of the chemical reactions that take place in
an electrolytic cell since Alessandro Volta developed the voltaic pile in 1800, its production by this means
was, and still is, expensive. In 1831, Michael Faraday devised a machine that generated electricity from
rotary motion, but it took almost 50 years for the technology to reach a commercially viable stage. In
1878, in the US, Thomas Edison developed and sold a commercially viable replacement for gas lighting
and heating using locally generated and distributed direct current electricity.

The world's first public electricity supply was provided in late 1881, when the streets of the Surrey town
in the UK were lit with electric light. This system was powered from a water wheel on the River Way,
which drove a Siemens that supplied a number of arc lamps within the town. This supply scheme also
provided electricity to a number of shops and premises.

Coinciding with this, in early 1882, Edison opened the world’s first steam-powered electricity generating
station at Holborn Viaduct in London, where he had entered into an agreement with the City Corporation
for a period of three months to provide street lighting. In time he had supplied a number of local
consumers with electric light. The method of supply was direct current (DC).

It was later on in the year in September 1882 that Edison opened the Pearl Street Power Station in New
York City and again it was a DC supply. It was for this reason that the generation was close to or on the

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consumer's premises as Edison had no means of voltage conversion. The voltage chosen for any electrical
system is a compromise. Increasing the voltage reduces the current and therefore reduces resistive losses
in the cable. Unfortunately it increases the danger from direct contact and also increases the required
insulation thickness. Furthermore some load types were difficult or impossible to make for higher
voltages.

Additionally, Robert Hammond, in December 1881, demonstrated the new electric light in the Sussex
town of Brighton in the UK for a trial period. The ensuing success of this installation enabled Hammond
to put this venture on both a commercial and legal footing, as a number of shop owners wanted to use the
new electric light. Thus the Hammond Electricity Supply Co. was launched. Whilst the Godalming and
Holborn Viaduct Schemes closed after a few years the Brighton Scheme continued on, and supply was in
1887 made available for 24 hours per day.

Nikola Tesla, who had worked for Edison for a short time and appreciated the electrical theory in a way
that Edison did not, devised an alternative system using alternating current. Tesla realised that while
doubling the voltage would halve the current and reduce losses by three-quarters, only an alternating
current system allowed the transformation between voltage levels in different parts of the system. This
allowed efficient high voltages for distribution where their risks could easily be mitigated by good design
while still allowing fairly safe voltages to be supplied to the loads. He went on to develop the overall
theory of his system, devising theoretical and practical alternatives for all of the direct current appliances
then in use, and patented his novel ideas in 1887, in thirty separate patents.

In 1888, Tesla's work came to the attention of George Westinghouse, who owned a patent for a type of
transformer that could deal with high power and was easy to make. Westinghouse had been operating an
alternating current lighting plant in Grea Barrington, Massachusetts since 1886. While Westinghouse's
system could use Edison's lights and had heaters, it did not have a motor. With Tesla and his patents,
Westinghouse built a power system for a gold mine in Telluride, Colorado in 1891, with a water driven
100 horsepower (75 kW) generator powering a 100 horsepower (75 kW) motor over a 2.5-mile (4 km)
power line. Almarian Decker finally invented the whole system of three-phase power generating in
Redlands, California in 1893.

Then, in a deal with General Electric, which Edison had been forced to sell, Westinghouse's company
went on to construct a power station at the Niagara Falls, with three 5,000 horsepower (3.7 MW) Tesla

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generators supplying electricity to an aluminium smelter at Niagara and the town of Buffalo 22 miles (35
km) away. The Niagara power station commenced operation on April 20, 1895.

Tesla's alternating current system remains the primary means of delivering electrical energy to consumers
throughout the world. While high-voltage direct current (HVDC) is increasingly being used to transmit
large quantities of electricity over long distances or to connect adjacent asynchronous power systems, the
bulk of electricity generation, transmission, distribution and retailing takes place using alternating
current.

Growth of Indian power sector

Power development is the key to the economic development. The power sector has been receiving
adequate priority ever since the process of planned development began in 1959. The power sector has
been getting 18-20% of the total public sector outlay in initial plan periods. Remarkable growth and
progress have led to extensive use of electricity in all the sectors of economy in the successive five years
plans. Over the years (since 1950) the installed capacity of power plants (utilities) has increased to 109092
MW (2004-05) from 1713 MW in 1959, registering a 63 fold increase in 54 years. Similarly, the
electricity generation increased from about 5.1 billion to 440 billion units –86 fold increases. The per
capita consumption of electricity in the county also increased from 15 KWH in 1950 to about 395 KWH
in 2004-05, which is about 26 times. In the field of rural electrification and pump set energization, country
has made a tremendous progress, 88% of the village have been electrified except far flung areas in North
Easter states, where it is difficult to extend the grid supply.

Generation mix

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The share if hydel generation in the total generating capacity of the country has declined from 34% at the
end of the sixth plan to 29% at the end of the seventh plan and further to 25.5 percent at the end of eighth
plan. The share is likely to decline ever further unless suitable corrective measures are initiated
immediately. Hydel power projects, with storage facilities, provide peak time support to the power
system. Inadequate hydel support in some of the regions is adversely affecting the performance of the
thermal power plants. In western and Eastern regions, peaking power provided by thermal plants, some of
which have to back down during off peak hours.

Emergence regional power systems

In order to optimally utilise the dispersed sources for power generation it was decided right at the
beginning of the 1960’s that the country would be divided into 5 regions and the planning process would
aim at achieving regional self sufficiency. The planning was so far based on a region as a unit for planning
and accordingly the power systems have been developed and operated on regional basis, strong integrated
grids exist in all the five regions of the country and the energy resources developed are widely utilised
within the regional grids. Presently, the Eastern and North-Eastern regions are operating in parallel. With
the proposed inter-regional links being developed it is estimated that it would be possible for power to
flow any where in the country with the concept of National Grid becoming a reality during 12 th plan
period.

Private Sectors

The initial response of the domestic and foreign investors to the policy of private participation in power
sector has been extremely encouraging. However, many projects have encountered unforeseen delays.
There have been delays relating to finalisation of power purchase agreements, guarantees and counter
guarantees, Environmental clearances, matching transmission networks and legally enforceable contracts
for fuel supplies. The shortfall in the private sector was due to the emergence of a number of constraints,
which were not anticipated at the time the policy was formulated. The most important is that leaders are
not willing to finance large independent power projects, selling power to a monopoly buyer such as SEB’s
do not pay for electricity. Uncertainties about fuel supply arrangements and the difficulty in negotiating
arrangements with public sector fuel suppliers, which concern penalties for non-performance, is another
area of potential difficulty. This important to resolve these difficulties and revolve a framework of policy
which can ensure a reasonable distribution of risks which make power sector projects financially
attractive.

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The capacity addition programmed for the 9th plan envisaged around 17588MW to be added by private
generating companies. In order to achieve the targeted private sector capacity addition during the 9 th plan,
the following additional facilitating measures have recently been suggested by the promoters. Most of
these have been accepted while some of them are under the consideration of the government.

Objectives of the power sector

 To provide reliable and quality power at a economic price.

 To make the sector commercially sound and self-sustaining.
 To achieve environmentally sustainable power development.
 High performance levels to reduce cost and ensure reliable power supply.

1.2 COMPANY PROFILE

KARNATAKA POWER CORPORATION LIMITED

TYPE - Public

INDUSTRY- Electricity generation

FOUNDED-1970

HEADQUARTERS- Bengalore , India

KEY PEOPLE-PONNURAJ (IAS, MANAGING DIRECTOR)

PRODUCT-Electricity

REVENUE- INR 7744.20 CRORES (2019)

NET INCOME- INR 244.35 CRORES (2019)

NUMBER OF EMPLOYEES – 4623

WEBSITE – http://www.karnatakapower.com

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History of the Karnataka power sector:

The gears of enterprise in Karnataka powered nascent industrial activity as early as the year 1800, when
the first sugar unit was set up. In 1902, Karnataka recorded another “mega watt sized project first” -
Asia’s first Hydro Electric Power Station in Shivanasamudram, on the banks of river Cauvery .In fact,
Karnataka’s pioneering spirit in the field of power has been translated into several major milestones.
Karnataka was the first to embark on Alternating current, when Bangalore City’s lighting scheme was
completed.
Karnataka had the longest transmission line in the world in 1902, from Shivanasamudram to KGF,
covering a distance of 147 km. and Karnataka was the first state in the country to conceive and set up a
professionally managed Corporation to plan, construct, operate and maintain power generation projects in
the state. That’s the legacy that KPCL started with and built on.

KPCL – An Overview

For over three decades, the Karnataka Power Corporation has been a prime mover and catalyst behind key
power sector reforms in the state - measures that have spiraled steady growth witnessed in both industrial
and economic areas. Right from the year of inception, in 1970, KPCL set its sights on “Growth from
within” meeting growing industry.
KPCL today has an installed capacity of 5509.82 MW of Hydel , Thermal and wind energy, with 4000
MW in the pipeline. The 1470 MW Raichur Thermal Power Station located in Raichur dist is accredited
with ISO 14001-2004 certification for its environment protection measures. From an industry vantage
point, KPCL has raised the bar on the quality of deliverables and is constantly working at lowering the
cost per megawatt - a commendable cost-value equation that has become a benchmark on the national
grid. KPCL’s stock in trade is industry proven - well-established infrastructure & modern, progressive
management concepts and a commitment to excel, helping it meet the challenges of the rising energy
demands of Karnataka. The leverage point of KPCL initiatives are its resource management strengths –
right across planning, financing and project engineering. KPCL also has a high rating in terms of project
completion and commissioning within the implementation calendar.

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1.3 PROMOTERS

BOARD OF DIRECTORS
NAMES POSITIONS
Shri B.S. Yediyurappa Chairman, honorable chief minister,
Govt. of Karnataka.
Shri V Ponnuraj IAS, Managing director

Shri P Ravikumar Additional chief secretary to the chife minister

,govt.of karanataka& director.
R. Nagaraj Finance director

Shri Rakesh singh IAS, principal secretary, water resources, Govt. of

Karnataka.
Dr.N .Manjula Managing director

Shri ISN Prasad IAS, Additional chief secretary, finance

department, Govt. of Karnataka.
Shri MB Rajesh gowda IAS, managing director

Shri Mahendra jain IAS, Additional chief secretary, energy

department, Govt. of Karnataka and director.

1.4 MISSION AND VISION

MISSION

KPCL seeks to touch higher vantage points in the world of power engineering. Our formula for achieving
this - start with a world class organization, build-in efficiency and cost control and ensure that progress is
in harmony with the environment.

The Mission of KPCL is to maximize power generation by:

 Exploring, identifying and developing opportunities in power generation.

 Devising innovative ways of setting up and operating power plants.
 Investing in a resource base of technical competence, systems, processes and capability.
 Empowering people, work teams and the support network to achieve these objectives.

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VISION

“Ensuring energy security for Karnataka through diversified energy portfolio”.

1.5 QUALITY POLICY

In order to maintain the growth of its financial system and decrease proverty . karnataka needs to enforce
an in-depth reform of its electricity zone. Government of karnataka acknowledges the wants to have
specific power regulations and objectives to reap the subsequent two priorities.

1. Ensuring that human of karnataka have equitable get entry to primary and fairly priced strength
offering in the to power all the closing household and settlements by the 12 months.

2. Providing strength substances that company want to reap monetary increase.

1.6 PRODUCT /SERVICE :

The study is conducted in “Karnataka Power Corporation limited”, which has generating the power as its
product. The firm is providing the service of power without which lightening is not possible. Now a day’s
power is very essential in all the activity of life of human beings.

KPCL is a monopoly producer of power in Karnataka state. The corporation is generating the power by
Hydro, wind and coal. It is really very expensive to generate power. Because it needs constructed dam for
Hydle power generation, generators, plants, which incur huge investment, it also costly in the case of wind
and coal. At present KPCL producing at 70% through hydro, 20% by coal and 10% by wind.

The power generated by KPCL is sold KPTCL (Karnataka Power Transmission Corporation Limited). As
per data collected the corporations is generating power capacity is 19713 million units. The generated
power can not be saved and sold some days later, it should be sold out while generating. Power is sold
with the help of the gridlines, transforms and other power supply tools.

At present KPCL is using modern techniques of power generation. In addition to this the corporation is
training their employees regarding the power generation techniques. The KPCL has more than 20 projects.

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1.7 AREA OF OPERATION (various services in the distribution system )

 Bangalore electricity supply company

 Mangalore electricity supply company
 Hubli electricity supply company
 Gulbarga electricity supply company
 Chamundeshwari electricity company

1.8 INFRASTRUCTURE FACILITIES

The KPCL has manpower of around 9000 employes working all over karnataka. SHAKTI BHAVAN
82,RACE COURSE ROAD BANGALORE -560001 KARNATAKA,INDIA .The infrastructure is
available air conditioned training hall, LED screen projector, computer with internet facility, medical
facilities within the campus, continous power supply with proper power back up, Recreational
facilities, working lunch and tea breaks facilities.

1.9 COMPETITORS

Company in India

Many government as well as private organization have to taken up the task of power generation in
India.

 Ener com system india

 Essar group
 Gujarat state petroleum corporation ltd
 Jindal steel and power limited
 Karnataka power transmission corporation ltd
 Reliance energy ltd
 Alton power india.

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1.10 SWOT ANALYSIS

STRENGTHS

Availability of resources:

Generally the power generation in India is based on natural resources. Availability of abundant coal
reserves and water resource are boon to power sector.

High potential:

Indian power sector have the vast hydro electric potential of producing 150,000 MW. Emergence of
strong and globally comparable central utilities (NTPC, Power Grid) has helped the growth of power
sector.

Effective planning and implementation:

Indian power sector have expertise in integrated and co-ordinated (CEA and Planning Commission).
Availability of highly skilled technical personnel in large numbers has helped to implement these plans
effectively.

Growing demand for the power:

Indian power sector has responded positively to the increasing demand for the power throughout the
country from all sectors due to industrialisation and irrigation facilities

WEAKNESS

Inadequate infrastructure:

Inadequate infrastructure has lead to inadequate power generation and thus under utilisation of available
resource.

Under utilisation of capacity:

Under utilisation of the existing generation capacity in present projects has decreased the profitability.

Interstate disputes:

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Improper water management and interstate water disputes are wasting valuable water resource there by
reducing the production efficiency.

Fluctuating monsoon:

Untimely monsoon causes water scarcity in the country affecting the generation of power and leads to
power cuts and load shedding.

Ineffective power administration:

Ineffective power administration leading to power thefts and inefficient use of electricity by the end
consumer decreases the revenue.

OPPORTUNITIES

Investment opportunities:

Investment opportunities for private people are increasing because of increasing demand for the power.
This contributes to growth of power sector.

Subsidies given by government:

Subsidies are given by government for the generating companies to encourage power generation and
supply.

Largest power markets:

Potentially, Indian power sector is one of the largest power markets in the world. Growing demand for
the power from all sectors of economy like agriculture, manufacturing, service.

Monopoly in power sector:

KPCL being the state monopolist in power generation holds tremendous growth opportunities in the field
of investigation, design, construction, generation and maintenance of power projects.

Consultancy business:

As KPCL is venturing into consultancy business which is still at growing phase, company can look for
bright future.

Explore other source of energy:

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KPCL has opportunity to explore other source of energy like wind based and solar power projects.

Rural electrification:

Government has shown concern rural electrification. Schemes like Bhagya jyothi scheme, which aims to
power to the poor families at cheaper rate.

THREATS

Uncertain government policies:

Changes in political environment affect the government policies. Excess involvement of

government in decision making affects the industry.

Bad debts:

Increasing bad debts due to non payment of electricity bills by poor people and power thefts.

Interstate water disputes:

The interstate water sharing disputes have halted the smooth functioning of many projects.

Entry of private players:

With the advent of economic reforms and liberalization, there is an open gate policies for private
participants like TATA Power, Reliance Energy, GMR, etc, in the field of power.

Rise in prices:

Increase in political of coal due to increase in demand and transportation cost leads to increase cost of
production of Thermal power.

1.11 FUTURE GROWTH AND PROSPECTS

 KPCL is implementing SCADA (Superior Control & Data Acquisition System) in Varahi underground
Powerhouse to facilitate remote control of stations.
 KPCL is also planning microprocessor-based systems to connect smaller power station to another
station to enable better management.
 Power station operation & maintenance & project implementation are monitored /reviewed from the
corporate office through video conferencing use of dedicated lease lines.

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 All offices of KPCL at Ban galore and projects are totally computerized & networked. High-end
software like AutoCAD, Pro is deployed.

1.12 FINANCE DEPARTMENT

FINANCE CHART

Managing Director

Finance Director

General Manager General Manager

(accounts) (Finance)

DGM (A/C’s) DGM (Finance)

Asst.GM Asst.GM
(Accounts) (Accounts)

Accounts Officer Accounts Officer

Asst.Accounts Asst.Accounts
Officer Officer

Senior Asst Senior Asst

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Finance department is very essential for any organisation to be set up. It is the backbone of any
organisation. Similarly the finance department plays a vital role in the set up and running of KPCL.

Chief accountant manager and chief finance manager works under the direct control of finance Director at
KPCL. Other top executive in the finance department are executive (Finance), divisional officer
(Finance), accounts officer, assistant officer, senior assistant (Accounts) and assistant (Accounts).

The chief finance manager and accounts manager handle various activities in the finance department.
Each of them has their tasks cut out systematically in these areas.

In KPCL, finance and accounting department is subdivided into 11 sub departments.

 Salary department

 Cash department

 Bills department

 Budget and costing department

 Consultancy department

 Provident fund department

 Monthly and annual accounts department

 Debt servicing department

 On going project department

 Taxation department

 Pension department

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Salary Department

In KPCL salary department looks after the advances to employee’s salary payable to the employees.Salary
department calculates the salary of employees, on the basis of information given by the Human Resource
department regarding the employee’s attendance, leave, leave not sanctioned, under salary amount
deduction made in respect of provident fund, tax, and remittance charges, recoveries for advance. Salary
department credit net salary amount and reimbursement of Medical and Electricity charges amount to
employee’s bank account by issuing cheques.

Cash Department

The cash section is responsible for all receipts and payments of cash, cheques, etc., and accounting the
same in the books of accounts. KPCL provided 150 corers as working capital to cash department, to
carryout its transactions. If need arises beyond 150 corers, it requires to get permission from senior
executive of finance.

The functions of Cash department are:-

 Operation of Bank accounts.

 Withdrawal of cash from bank, to cater for daily needs.

 Payment of voucher by cheques / cash

 Cash disbursement to salary department for payment of salaries, wages and other payments.

 Writing of cash / bank books.

 Preparation of Bank reconciliation statement.

 Safe custody of cash, cheque book, revenue stamp & other documents like bank guarantees, fixed
deposit receipts and investment etc.

 Reconciliation of inter transfer of funds transaction.

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Bills Department

Bills department concerned with the verification of bills relating to expenses after verification, the bills
will be sent to cash section for payment.

Bills department ensure that the bills amount are not exceeds the budgeted amount. If bills amount
exceeds the budgeted amount, the bill department is not having power to process the bill, in that case
managing director has power to process the bill.

In the department bills are divided in to two types.

1. Major bills.

2. Minor bills.

Major Bills

Major bills stands for amount payable for suppliers to supply goods to the power generating units
according to the predetermined agreements. Agreement is made on Rs. 100/- stamp papers. In case of
delay in supply of goods, penalty of 10% on the purchase work is demanded. 80% of the payment will be
made during the agreement, if the goods are being transported by railways. In case, goods are transported
roadways, payment will be made only on receiving the goods, at the site, the quality and quantity of goods
are verified and inspection report will be sent to the bills section. In bills section the terms and conditions
based on the agreement are verified and if they are found to coincide with inspection report, then the bills
will sent to cash section for payment. If C-form is producing or submitted the right of royalty and exercise
duty would be 4%, otherwise 12%. C-form is issued only after receiving the goods.

Minor Bills

The minor bills include:-

 Payment of interest of loan, debenture, repayment of loan amount and debenture.

 Payment of rent, telephone bill, office expenses printing and stationary, computer maintenance
expenses.

 Payment of director’s fee and remuneration.

 Reconciliation of balance of head offices with Banks.

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Budget Department

Budgeting is nothing but the blue print of the future needs of the company. Budget refers to forecast of
future need. KPCL involves two types of Budget.

Revenue Budget

The revenue budget mainly focuses on the sales revenue and the associated costs to generate the power.
The power generation is budgeted on the basis of average of last ten years sales and expenses on the basis
of previous year actual and estimation received from different departments.

 Establishment and general expenses.

 Operation and maintenance.

 Fuel and chemicals.

 Royalty paid for water use.

 Financial charges the outstanding loans.

 Depreciation.

Cash budget

It is helpful in estimating each requirement, planning short term financing and scheduling payments in
connection with capital expenditure project, planning purchase of materials.

Consultancy Department

KPCL today has the capability to undertake large scale power projects from concept to commissioning. It
can also operate the plant on an EPC basis, with a host of exclusive auxiliary services.

KPCLs Consultancy and Engineering Services Division, an offshoot of its core competency, offers its
clients a wide spectrum of consultancy inputs across the complete cycle of power project development. It
has the expertise in analysis and design of structures using STADPRO – 2006, NISA – Finite Element
package, AUTOCAD – 2006, micro station and in house developed software packages for reservoir
operation, Stability of Dams etc

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Provident Fund department

Karnataka power corporation Ltd employee’s contributory provident rules. These rules shall come in to
force from 20th July 1970. The fund shall be deemed to have been established on and from 20 th July 1970.
The regional provident fund commissioner decision is final regarding interpretation of any rule and it must
be carried out by both the trustees and the member of the fund.

Pension department

The employee pension scheme 1995 (statutory). The central Govt established “THE EMPOLYEES
PENSION SCHEME 1995” through the employee’s provident fund and miscellaneous provision Act
1952. This scheme shall come into force on 16th day of November 1995.

Internal Audit Department

Internal Audit in KPCL a statutory requirement as per GOI order of 1975 was established in KPCL in
1977 was earlier under the charge of financial adviser for a quite long, but now not exist separate wing
since 1986 is headed by chief manager (internal audit) and report to M.D KPCL has 5 audit units.

Insurance department

Insurance is a service of an undertaking taken in order to over come or setoff the losses or damages while
operating the business. In order to cover the risk and maintenance KPCL has taken out insurance policy
with many companies. The risky projects among all power generating project are RTPS in order to cover
all those risks while operating all those insurance policies covered under RTPS can be classified:

1. Maintenance
 Standard fire and special perils.
 Boiler explosion policy.
 Terrorism.
2. Construction.

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1.13 FINANCIAL STATEMENT

STATEMENT OF PROFIT & LOSS FOR THE YEAR 31st MARCH 2018 AND 2019

Particular  Note No For the year For the year

ended March ended March
31 2018 31 2019
Income 
Revenue from 3 6,79,178.26 7,74,419.80
operation 5
Other Income 3 1,21,626.19 1,21,585.49
6
Total Income 8,00,804.45 8,96,005.29
Expenses
Cost of materials 3 4,37,452.93 4,45,266.21
consumed 7
Royalty 3,033.14 5,076.39
Maintenance and 3 37,853.72 32,522.94
repair expenses 8
Employee benefits 3 56,533.07 1,19,037.74
expenses 9
Finance cost 4 1,70,323.99 1,76,397.77
0
Depreciation and 4 65,980.09 67,003.73
amortization  1
Other expenses 4 12,054.61 12,173.98
2
22

Total expenses 7,83,231.55 8,57,478.76

2

Profit before tax 17,572.72 38,526.53

Tax expenses 44
2

Current tax - -
Adjustment of tax (1.71) (3.47)
relating to earlier
periods
Deferred tax charge 11,205.09 14,094.77

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Total tax expenses 11,203.38 14,091.30

Profit of the year

6,369.34 24,435.23

Items that will not be

reclassified to profit
or loss 

Remeasurement gains/ (1,90,053.59) (3,891.46)

(losses) of defined
benefit plans
Income tax effect on 66,412.33 1,346.76
above
Total (1,23,641.26) (2,544.70)
Comprehensive
Income(loss) for the
year
Total 3,824.64 (99,206.03)
Comprehensive
Income (loss) for the
year
Earnings per equity 45 13.35 51.23
share in INR: (Face
value: INR 1000/share)

Karnataka Power Corporation Ltd Balance Sheet As At 31-March 2019

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Particulars Note no. As at March 31, As at March

2018 31,2019

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Equity and liabilities:

Equity:
Equity share capital 21 4,76,944.86 4,76,944.86
Other equity 22 4,73,105.60 3,73,899.57
9,50,050.46 8,50,844.43
Liabilities
Non-current liabilities:
Financial liabilities:
Long term borrowings 23 3,69,503.35 4,07,487.82
Trade payables 24 2,008.50 5,971.44
Other financial liabilities 25 3,96.31 51,461.21
Employee benefit 26 72,251.79 2,84,097.55
obligations
Deferred tax liabilities 27 61,619.18 9,301.61
(net)
Deferred income 28 27,679.26 15,706.08
5,33,458.39 7,76,025.71
Current liabilities:

Financial liabilities:
Short term borrowings 29 14,25,071.38 17,04,382.55
Trade payables 30 75,139.54 71,246.97
Other financial liabilities 31 1,17,216.34 1,11,809.77
Other current liabilities 32 46,176.78 45,891.48
Employee benefit 33 7,974,78 15,409.77
Deferred income 34 11,724.62 12,313.00
16,83,303.44 19,61,053.54

Total equity and 31,56,812.29 35,87,923.68

liabilities

Assets:
Non-current assets:
Property, plant and 3 10,43,504.41 10,02,131.06
equipment
Capital work-in-progress 4 1,33,742.53 1,44,847.72

Investment property 5 - 648.52

Other Intangible assets 6 31.09 31.99
Financial assets:
Investments 7 1,27,831.82 2,02,359.00
Loans 8 31,420.06 56,279.77

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Others 9 92.42 335.81

Non-current assets 10 17,831.59 22,081.79
Other non-current assets 11 7,503.04 8,535.60
Employee benefits 12 803.99 -
13,62,850.95 14,37,251.26
Current assets:
Inventories 13 55,880.31 55,065.38
Financial assets
Trade receivables 14 15,57,462.38 17,42,580.49
Cash and cash equivalents 15 2,418.87 1,497.53
Bank balance other than 16 1,119.76 1,699.42
above
Loans 17 1,26,375.45 2,90,245.70
Others 18 216.02 196.68
Current tax assets (net) 19 4,246.73 6,254.76
Other current assets 20 55,241.82 53,132.46
18,03,961.34 21,50,672.42
Total Assets 31,66,812.29 35,87,923.68

CHAPTER 2

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CONCEPTUAL BACKGROUD
AND LITERATURE REVIEW

2.1 INTRODUCTION

Costing

It refers to technique nad process of ascertaining cost. The technique conists of costing principles and
rules ,which is govned and procedure of ascertainment cost of product ansd services

TYPES OF COSTING

1.Actual cost

2.Opportunity cost

3.Maintanances cost

4.Operating cost

5.Fixed cost

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6.Variable cost

7.Semi variable cost

2.2 DEFINITION OF COST CONTROL

MEANING

Cost control is the process in which a business enterprise manages to reduce its business experiences. The
process is initiated by identifying the probable cost and evaluating whether those cost or affordable and
reasonable .then if necessary they may choose to reduce the cost through method such as cutting down ,
moving to less expensive plan or changing the services provider.Cost control aim at reducing
inefficiencies and wastage and setting up pre-determined cost in achieving them.

CHARACTERISTICS OF COST CONTROL

 Delineation of centers of responsibility

 Delegation of authority
 Measurement of performances
 Relevance of controllable
 Cost reporting
 Constant efforts
 Policies and general objectives
ESSENTIAL FEATURES OF COST CONTROL

 COST ACCOUNTING
 COST PLANNING
 COST REPORTING
 CORRECTIVE ACTIONS

ELEMENTS OF COST CONTROL

 Set a standard
 Periodically review the standard and revies them in the light of changed circumstances.
 Select a yardstick for measuring with target or standard.
 Ascertain the actual performance by applying the yardstick which was use for meansuring the
target.

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COST CONTROL TECHNIQUES

 MATERIAL CONTROL
 LABOUR CONTROL
 OVERHEAD CONTROL
 BUDGETARY CONTROL

SIGNIFICANCES OF COST CONTROL

 The main significances of cost control are it aims at maintaining the cost in accordance
with standard of costs.
 It seeks to attain the lowest possible cost under existing conditions
 The emphasis is on the past and present
 It improves the image of company for long term benefits
 It is static and preventive function
 It improves rate of return on investment.
 Improves method of production and use of latest manufacturing techniques which have the
effect or raising productivity and minimizing cost.

STEPS OF COST CONTROL

ORGANIZING A SYSTEM OF COST CONTROL AND MAKING IT TO WORK SUCCESSFULLY

REQUIRES THE FOLLOWING 5 STEPS

 STEP-1 Setup the targets

 STEP-2 Measures the actual
 STEP-3 Compares the actual with targets
 STEP-4 Take such actions as necessary to eliminates these variations
 STEP-5 Localize cause for the variation between the targets and the actual.

Advantages of Cost control:

 It is the only way which can be adapted to overcome the short term financial crisis.

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 Cost control areas can be easily identified and necessary steps can be taken quickly to reduce
the cost till the time economic pressure.
 Controlling cost other than the quality of product or services, the company can reduce its fixed
cost and can divert this amount to improve the quality of product/services.

Disadvantages of Cost control:

 Excessive cost-control may affect productivity and quality or the organization's ability to add
value.
 Employees may not adapt to the changes very quickly.
 Cost control can discourage the employees to work efficiently.
 Cost control may lead employees to quit the job more.

2.3 COST REDUCTION

Cost reduction refers to real or permanent decrease in cost which is achieved by the up gradation of
technology or through new technology.

The three fold assumption involved in the definition of cost reduction may is summarized as under:

 There is saving in a cost unit.

 Such saving is of a permanent nature.
 The utility and the quality of the goods remain unaffected,

Cost reduction may be defined as the achievement of real and permanent reduction of cost unit of goods
manufactured and services rendered without impairing their suitability for the use intended or diminution
in the quality of the product.

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Cost reduction is the key word for success in today’s global competitive market scenario. It is the new
economic mantra. Gone are the days; where the vendor can pass on the cost of his inefficiency, low
productivity and bureaucratic way of functioning to the customer, as he used to often do in the old sellers
market’s days. Today’s customer has a wide choice in a Net connected global market, where one or the
other market survey vendor is ready to offer the required quality of products and services at competitive
rates, often for strategic reasons of capturing the unconquered market.

Challenging and redefining the existing business objectives based on reengineering of business processes
with a goal to rebuild the old, sleepy giant into a new energetic, vibrant organization is the need of the
hour. Cost reduction measures hence need to be explored in right earnest, not restricted to half-hearted
cost saving measures of economizing just on administrative costs of conveyance, staff welfare, stationery
and telephone, but should be backed up with harsh cost saving measures in all major cost areas.

Cost reduction strategy that is the part of analysis activity for the growth of the business. The survey is
conducted which analyses the eight potential operation strategies for more than 2,400 managers and
corporate-level Service Executives. Cost reductions; enhanced flexibility and agility; reengineering and
restructuring; integrated supply-chain management; enterprise integration; Technology modernization;
and focus on core competencies.

According to survey has found that information technology executives are beginning to focus almost as
much on improving service provided to their companies as on cost reduction by consolidating and
standardizing infrastructure.

IMPORTANT COST REDUCTION AREAS

 Product improvement
 Product planning and control
 Marketing areas
 Personnel management
 Material control
 Administration areas
 Factory organizations
 Utility services
 Finances

COST REDUCTION STRATEGY

 Designed Cost Reduction.

 Lean Production Cost Reduction.
 Overhead Cost Reduction.
 Standardization Cost Reduction.

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 Product Line Rationalization Cost Reduction.

 Supply Chain Management Cost Reduction.
 Quality Cost Reduction.
 Total Cost Measurement to Support All Cost Reduction Activities.

STEPS OF COST REDUCTION

Cost Positioning

Cost Design

Cost Management

Cost control

Stage 1- Cost Control

Cost Control involves cuts in spending based on arbitrary criteria .Costs are divided into committed and
discretionary categories. Cuts target discretionary before committed; large before small; expedient before
sensitive .Performance measured against historical standards.

Stage 2- Cost Management

Cost Management involves a systematic approach to cost reduction that involves an understanding of
relevant cost drivers. Costs are organized by resources, activities, and cost objects. Reductions achieved
by eliminating unused capacity, non value-added activities, and reducing activity cycle times.
Performance measured against long-term target standards.
Stage 3- Cost Design

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Cost Design involves an evaluation and redesign of the internal value chain. It seeks to improve the
relationship among resources required and work performed to satisfy customer requirements .Costs are
organized by process and sub process. Reductions achieved by eliminating redundancy and conforming to
operational strategy. Performance measured against best-in-class standards of performance.
Stage 4 -Cost Positioning
Cost Positioning involves an evaluation and redesign of the external value chain. It seeks to improve the
relationship among supply chain members to enhance competitiveness. Costs are organized by links in the
value chain. Reductions achieved by consolidation of links, sharing information, better coordination, and
exploiting synergies among supply chain members.Performance measured against strategic objectives
such as market share and price targets.

COMPARISON OF STAGES

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STAGES COST COST COST COST

CONTROL MANAGEMENT DESIGN POSITIONING
Basis Arbitrary Understanding cost Redesign Redesign external
spending cuts. drives. internal value chain.
value
chain.
Objectives Achieve cost Satisfy customer Enhance Enhance chain’s
reduction targets. requirements. company competitiveness
competitiv
eness
Time horizon Short-term. Medium- term. Long- Long-term.
term.
Perspective Internal. Internal. Internal. External.

Cost Classified into Organized by Organized Organized by

measurement committed and resource, activities by links in links in external
discretionary. & cost objectives. internal value chain.
value
chain.
Reduction Reduce Eliminate unused Eliminate Consolidate links,
methodology discretionary and capacity, NVA redundanc share information
expedient cost. activities & reduce y co-ordination &
cycle times. &conform synergy.
to
operational
strategy.

ESSENTIALS OF COST REDUCTION

 Development of a program checklist

 From committees in order to identify responsibilities
 Maintaining records of programs
 Identifications of cost reduction idea sources.

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COST REDUCTION TECHNIQUES

 Job evaluation and merit rating

 Production planning and control
 Rationalization
 Quality control
 Standardization
 Market research
 Inventory management and control
 Value analysis.

Advantages of cost reduction:

 Cost reduction increases profits. It provides a basis for more dividends to share holders, bonus to
employees and more retention of profits for expansion of the business.
 Cost reduction will provide money for employee welfare schemes and thus improve men-
management relationship.
 As a result of cost reduction, export price may be lowered which may increase total exports.

Disadvantage of cost reduction:

 Quality may be sacrificed at the cost of reduction in cost.

 In the beginning cost reduction program may not be liked by the employees and danger may be to
the program because success of any cost reduction plan depends upon the willing cooperation and
active participation of employees.
 There may be a conflict between individual objective and organizational objective.

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Differences Between Cost Control and Cost Reduction

Cost as per the established norms is known as cost control. The activity of decreasing per unit cost by
applying new methods of production in such a way that it does not affect the quality of the product is
known as cost reduction.

 Cost Control focuses on decreasing the total cost while cost reduction focuses on decreasing
per unit cost of a product.
 Cost Control is temporary in nature. Unlike Cost Reduction which is permanent.
 The process of cost control is completed when the specified target is achieved. Conversely, the
process of cost reduction has no visible end as it is a continuous process that targets for
eliminating wasteful expenses.
 Cost Control does not guarantee quality maintenance, however 100% quality maintenance is
assured in case of cost reduction.
 Cost Control is a preventive function as it ascertains the cost before its occurrence. Cost
Reduction is a corrective action.
 Cost control is the achievement of pre- determined targets of costs. Cost reduction is the
achievement of the real and permanent reduction in costs.
 Cost control tends to assume a static state of affairs and that standard once set are not challenged.
Cost reduction assumes the existence of concealed potential saving in the standards or pre-
determined costs set for cost control and that these standards are always subject to challenge.
 Cost control is concerned with predetermining costs, comparing it with actual costs, analysing the
variances and taking corrective measures. Cost reduction is not concerned with maintenance of
performance according to predetermined targets. it is rather concerned with finding out new
product design, methods,etc
 Cost control is a part of cost accounting function Cost reduction may be achieved even when no
cost accounting system is in operation
 Cost control lacks dynamic approach to cost improvement Cost reduction is more dynamic
approach to cost improvement .

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2.4 LITERATURE REVIEW

INTRODUCTION

This chapter examined leading concepts on the aspect of cost control and reduction. The meaning of the
terms in the research title, which is effect of cost control and reduction are given from different references.
The main issues of the research topic are highlighted including the past studies, critical review and gaps to
be filled .

Reeve and Philpot (1988) supported that statistical process control is an efficient way in cost control and
cost reduction techniques. He said that, defining the process from the point of view of the financial
manager is the first step in SPC. More so, over time, the characteristics of the process are measured and
observed. Control charting is the process of studying the difference from the mean. This identifies
correctly if the process has come up against any special difference that needs better attention. With the use
of SPC, firms are able to significantly improve organizational effectiveness, product quality, and process
efficiency.

Wing (2000) stated that there are two major fundamental financial management tools which include
budgets and variance analyses. Nevertheless, the reports of variance are not necessarily useful for a
manager. When performing variance analyses, the main difficulty is that there is need for cost to be
known as either as variable or fixed cost. Practically, large numbers of costs do not perform in this
manner. It leads to constraints on reports and inadequate management behaviour. The author opined that
financial managers must develop models that will reflect the way cost actually perform, and reporting the
difference through improved cost models. When a system is based on an inadequate model, this can be
used or discarded. But when it is used, it leads to inadequate decisions by the management.

Lucey (1996) opined key emphasis on management by objective as a modern and effective method of cost
control. It would be used in a positive and constructive way to provide a cost system related to cost
performance evaluation and cost progression analysis. Thus, all forms of cost control method must be
designed and implemented in such a way as to complement the behaviour of people in an organisation.
Only then will cost control system to improve performance and lead to organization effectiveness.

Cokins (2002) stated that companies needs to be equipped with accurate cost modelling procedure so as
to manage their costs and ascertain an acceptable profit margin. However, as competition grows larger,
the origination of new products must outdo product becoming old or out fashioned. Production of a
product that has been produced can be accomplished through reduction of unfavourable cost differences
from the product’s standard cost and applying advancement process and managing the cost.

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Swee–Lean chan and Nga–Na Leung (2004) have concluded that “web based documents and the
displayed informations will be useful for construction cost management and the system retrieves useful
data from the original documents and reorganizes the information according to specific tasks or
users”.

Mohammed Fadhil Dulaimi and David Langford (1999) concluded that “the psychological aspects and
behaviour of the Construction Project Managers influence very much on the Cost Management”.

Thomas and San vido (1989) “the productivity loss at a construction site is due to inefficient Material
management. So the integrated material management programme such as disruptions, work content,
constructibility issues, construction methods, environmental conditions, management aspects etc., are to
be considered and applied to construction.

Yong – Woo Kim and Glenn Ballard (1998) “the earned value method (EVM) is a project control
technique that provides a quantitative measure of work performance. It is considered the most advanced
technique for integration of schedule and cost. Critique of earnedvalue method includes :While each cost
account or activity is assumed to be independent in the earned value method, they should be considered
dependent. Managers can manipulate work sequences when releasing work to the field and it is possible
to release work assignment that are not shielded from uncertainty In order to make cost variances (CV)
positive, managers try to decrease the actual cost of work performed (ACWP) as much as possible”.

Khaled EI–Rayes and Amr Kandil (2005), “the traditional two-dimensional time-cost trade off analysis
to an advanced threedimensional time-cost-quality trade off analysis as a multi objective genetic algorithm
provides the capability of quantifying and considering quality in construction optimization”.

Robert I. Carr (1993) “a unified nomenclature and parallel budgets, and variance structure allow
integrating of cost and schedule control for projects that share common work breakdown structures.
Budget, actual and variance values of cost, progress and time are combined in a single figure provide an
integration at the activity/Cost account level”.

Tricia Varvel, Stephanie G. Adams, Shelby J. Pridie, and Bianey C. Ruiz Ullaa (2004) “individuals
training on the type of personality of team members helped them to improve communication, trust and
interdependence, essential characteristics of an effective team. Therefore,understanding and tolerance of
individual’s behaviors and actions are the largest benefit”.

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William C. Ibbs, Clarence K. Wrong and young Hoon Kwak (2001), “changes in projects are
common, but it affects the cost, the scheduling and the duration of projects, both directly and indirectly.
By applying this project change management system, project participants can minimize deleterious
change and promote beneficial change”.

Stefanie G. Brandenburg, Carl T.M. Hass F. and Robert W. Glover (2003) “the shortage of skilled
construction workers is a long term problem that at times may be alleviated slightly during a recession but
will continue to worsen as time progresses. The reasons behind the shortage are numerous, ranging from
a poor image of the industry, to declining real wages, to poor work environments and the lack of a stable
of the solutions used to address the situation but are difficult to sustain without a comprehensive, long
term strategy to support developed with senior industry consultants and researchers, so as a first stage the
workers skills and productivity, creating a situations where the value of the workers, is to be increased.
Then as a second strategy, the existing work force, regardless of its skill level, is to be managed
efficiently. The focus is on organization, communication and utilization of field management”.

Khalfan, Bonchlaghem, Anumba and Carrillo (2003) “managing knowledge is particularly important
to the construction industry due to the unique characteristics of its projects such as multi-disciplinary
teams, temporary team members, heavy reliance on experience, the one of nature of the projects, tight
schedules, limited budget etc. The C-sanD Projects, ie. creating, sustaining, and Disseminating
knowledge for sustainable construction, is very essential for this current need”.

Lauri Koskela and Glenn Ballard (2003) “it is not enough to adopt generic requirements for the
production system in construction, but rather it is required that the peculiarities of construction, such as
one-of-a kind production, site production and temporary organization are suitably accommodated. It is
required that all parts and aspects of the production system are synergistically coupled : the total optimum
is sought, rather than a sum of location optima”.

Elizabeth Kraft and Paul S. Chinowsky (2003), “in this evolutionary development, the dominent
attitude within the construction industry has been that strategic business management and long term
business planning did not apply to the construction industry due to the constantly changing nature of the
projects. However, in the changing economic world, a resurgence of interest is occurring in the
importance of organization management to the success of companies within the organization”

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Virendra KR. Paul and Dr.V.Thiruvenkadam (2006) “Cost Related Processes after Practical
completion should be done by the process owner . The Project Manger such as; (i) Defect rectification and
completion formalities, (ii) preparation of final account of time, (iii) updating lost cost report, (iv)
preparing complete final account and issue relevant final certificate, (v) feed back on Cost performance
assessment”.

RESEARCH GAP

After reviewing the above literature on cost control and cost reduction we came to know that several
studies have been umdertaken on this topic .cost control measures a positive impact on the company as
reducing costs directly reflects in increase in the level of profit of the company.

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CHAPTER-3 RESEARCH DESIGN

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3.1 RESEARCH DESIGN

TITLE OF THE STUDY: “A STUDY ON COST CONTROL AND COST REDUCTION IN
KPCL COMPANY LTD.”

RESEARCH DESIGN:
The research design is the conceptual structure which research is conducted. It constitutes the blue print
for the collection, measurement and analysis of data. A research design is a basic plan, which guides the
data collection and analysis of the phases of the project. It is the framework, which specifies the type of
information to collect the source of data collection procedure. Data was collected from primary and
secondary source.
Research design adapted for the study: Explorative research is used in the study:- Study of secondary
information i.e., the annual report of the company.

STATEMENT OF PROBLEM:

To find out the different cost control and cost reduction Strategy adopted by KPCL company and
compare with other competitors with the help of necessary charts. And impact of cost reduction and cost
control due to economic recession.

NEED FOR THE STUDY

The necessity for studying the topic cost control and reduction of the company is very certain in the
organisation because it reflects or shows the position of overall outcome or result it derivers from its
performances .it helps in overcome pitfalls if any by taking effective decisions. It needs to ascertain or
size up a company by Performances ,Profitability. Different tools are techniques used to analyse the cost
control and reduction by the cost sheet ,balances sheet, profit and loss account etc.are used to ascertaining
a company data and also determine the pros and cons of company performance.

OBJECTIVE OF THE STUDY:

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 To understand the impact on the profit and loss account due to cost control or cost reduction.

 To study the different practices adapted by the company in respect to cost control and cost

reduction.

 To analyze the differences between cost control and cost reduction.

 To suggest the best procedure for cost control and cost reduction.

SCOPE OF THE STUDY

 To reduce the cost of the company.
 To maximize the productivity of the company and achieve the cost leadership in the industry.
 Make observations on various procedures followed in the industry and to suggest the effective
practices, so that the profitability of the company increases and cost gets decreases.

RESEARCH METHODOLOGY
Methodology implemented in the study includes secondary sources of data .The most of study is
conducted based on secondary sources. The data is taken from the website of the company, Annual
report published by the company.
 Analyze the effectiveness with the help of annual reports of the company.
 Own observation of various practices followed by the company.
 The Analysis has been done by considering the data of the year 2016-2017, 2017-2018, and 2018-
19 profit and loss account of the company.

HYPOTHESES

There is no significant impact of effective cost control and reduction measures on the growth and there
profitability of the company.

Inefficient application of cost control and reduction techniques leads to a decline in there profit level of
the company when other factors are constant.

SOURCES OF DATA

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 The Primary data is obtained from interaction with the concerned officers in the departments,
department manual and other publication of the company.
 The secondary data is mainly obtained from, internal reports, magazines, website, and annual report
of the company.

RESEARCH TOOLS
The tools and technique is used for the analyzing the data, which includes: Table, Pie-diagram, Bar-chart
and simple percentage method have been used for the purpose of analysis and presentation. For data
analysis a subsequent interpretation as been interpreted.

LIMITATION OF THE STUDY

As for as possible I have put in my best efforts to collect the data in the course of the entire study.
Throughout the study, I found some of limitations, which are

 The study is limited to Role of cost control and cost reduction in KPCL.
 The study is limited to the information provided by the company.

CHAPTER SCHEME

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CHAPTER 1 –INTRODUCTION

Introduction, industry profile& company profile: Introduction of cost control and cost reduction and
advantages and disadvantages, differences between cost control and reduction, profile of the organisation,
including , promoters, vision, mission, quality policy, product/services ,profile areas of operation,
infrastructure facilities, competitors information, SWOT analysis, future growth and prospects and
financial statement.

CHAPTER 2-CONCEPTUAL BACKGROUND AND LITERATURE REVIEW

This chapter study on the background of cost control and cost reduction ,review of literature of the cost
control and cost reduction ,research gap.

CHAPTER 3-RESEARCH DESIGN

This chapter provides a plan of the study and it includes; statement of problem; objective of the study ;
scope of the study ; tools and techniques for collection of data; hypothesis, Limitations of the study;
scheme of the chapter.

CHAPTER 4- DATA ANALYSIS AND INTERPRETATION

This chapter provides an analysis of the data collected with interpretation with tune with the objective.

CHAPTER 5-FINDINGS, CONCLUSION AND SUGGESTIONS

This chapter provides summary of findings suggestions and conclusions.

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CHAPTER 4 ANALYSIS AND

INTERPRETATION

DATA ANALYSIS AND INTERPRETATION

In this chapter the primary & secondary data is collected from company records are analyzed. The data is
collected through interaction and published records. It was ban opportunity for to meet them where in ideas

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regarding the topics were expressed and various other matter regarding their organisation ,government
regulations ect..
The data is represented in the tabular form and chart to give clear picture of the situation and also the facts
revealing from data is expressed. The following data is analysis related to their entire organization and not to
individual units and division.
Where the new data is collected from various sources such as information provided by the company, data
collected from the final accounts, income and expenditure accounts and receipts and payment accounts. The
information collected is summarized, tabulated and finally analyzed and interpreted to get the end result as to
know the performances of KPCL.

PROFIT AND LOSS ACCOUNT

PARTICULAR 2016-17 2017-18 2018-19

REVENUE 1636360 1529325.05 1453597.8

OPERATING PROFIT(PBIDT) 132879 1673834.59 56099.25

INTEREST - - -

DEPRECIATIONAND 99864 120824.76 132984.63

AMORTIZATION

PROFIT AFTER TAX 89639 455157.13 30804.57

ANALYSIS
From the above table it can be seen that the company’s revenue was Rs.1636360 in the year 2016-17, Rs.1529325C in
the year,2017-18, Rs.1453597 in the year 2018-19 and Rs.4397 .(It has been observed that there is an increasing
decrease in Revenue where it shows clearly that there is an increase in revenue due to high productivity.)Even
operating profit has been increased during the year 2016-17 it is Rs. 132879 and in 17-18 it is Rs.1673834 and in 18-
19 it has decreased to Rs.56099

SHOWING INCREASING IN REVENUE AND PROFIT

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1,800,000

1,600,000

1,400,000

1,200,000

1,000,000
REVENUE
800,000 Column1

600,000

400,000

200,000

0
2016-17 2017-18 2018-19

INTERPRETATION
The above analysis it can be seen that in the year 2016-17,2017-18,2018-19. Were increase and decreases of
the revenue due to high productivity.
The company should clearly monitor the cost aspect to increase more revenue and reduce cost in
productivity of the company.

CHART 4.1: SHOWING LABOUR COST FOR HYDEL

PARTICULARS 2016-17 2017-18 2018-19

DIRECT LABOUR 0.136 0.106 0.139

TREND 100% 77.94% 102.20%

INCREASE/

DECREASE - -22.06% 2.20%

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ANALYSIS: From the above table we can see that are huge changes in direct labour cost for all the year.
The cost incurred in the year 2016-17 is 0.136 in the year 2017-18 it has cost down by 22.06% and to
0.106 and in the p.y again it has increased by 31.1 and 0.139%.

GRAPH 4.1: SHOWING LABOUR COST FOR HYDEL

120%

100.00% 102.20%
100%

80% 77.94%

60%

40%

20%

0%
2016-17 2017-18 2018-19

Column1

INTERPRETATION: From the above analysis it can be seen that in the year 2016-17, 2017-18 and
2018-19 that the direct labour cost was high in 2016-17 but in the year 2017-18 it was controlled efficient
and number of labour was reduced so it has come down but again it has increased in the year 2018-19
because there us greater demand for electricity so number of labours has increased the labour has
increased the cost has come back to its position at the year 2016-17 it had been controlled and reduced the
total cost.

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Chart 4.2- SHOWING OVERHEAD COSTS FOR WIND

(COST PER UNIT)

PARTICULAR 2016-17 2017-18 2018-19

OVERHEAD 1.532 1.381 2.511

TREND 100% 90.14% 163.90%

INCREASE/DECREASE - -9.86% -63.90%

ANALYSIS
From the above table it had been shown that overhead cost in the year 2018-19 has been increased to
rs.2.511 with 80.82%more than as it was in the year 2016-17 where it was Rs.1.532.In the year 2017-18
overhead cost was reduced to rs.1.381 so there was a reduction of -9.86% when it is compared with 2016-
17.now the overhead cost has to be reduced.

4.2 GRAPH SHOWING OVERHEAD COST FOR WIND

180%

160%

140%

120%

100%

80%

60% Column2

40%

20%

0%
2016-17 2017-18 2018-19

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INTERPRETATION
The graph represents overhead cost has increased to larger extent .the overhead cost has been reduced and
controllable efficiency .now there is the necessity to bring down the overhead cost. It is not in a good
indication for making profit .reason where they should be analyzed is to curb the cost.
4.3 Chart : SHOWING PROFIT MARGIN OF WIND

PARTICULAR 2016-17 2017-18 2018-19

TOTAL COST 2.365 2.679 3.957

SELLING PRICE 3.242 3.244 3.434

PROFIT MARGIN 0.877 0.565 -0.523

ANALYSIS

In the table where there is increase in total cost.company as earned a profit in 2016-17 which is 0.877 and
2017-18 which is 0.565 and 2018-19 which is -0.523. in the year 2018-19 there is loss due to increase in
total cost .

4.3 GRAPH SHOWING PROFIT MARGIN OF WIND

0.8

0.6

0.4

0.2
Series 3
0
2016-17 2017-18 2018-19
-0.2

-0.4

-0.6

INTERPRETATION

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There is greater increase in total cost in 2017-18 the total costis greater on the margin of an organization.
the over head expenses has increased and it has the greater impact on the total cost which led to loss in the
margin of the company. Increase in selling price is a positive sign for the company now the overhead cost
is controlled.

4.4 SHOWING MATERIAL COST FOR THERMAL

PARTICULAR 2016-17 2017-18 2018-19

DIRECT MATERIAL 3.172 3.481 3.210

TRENDS 100% 109.74% 101.19%

INCREASE/DECREASE - 9.74% 1.19%

ANALYSIS

Direct material is which an integral part of the product becomes and in thermal plant major direct material
cost . The direct material incurred for producing per unit of electricity by thermal plant in the year 2016-
17 is rs.3.172 and it has significantly increased by 9.74% to rs,3.481 in 2017-18 p.y where in 2018-19 the
direct material cost has come down and it has decreased by 1.91% to rs.3.210. so there is an huge
variation in direct cost control.

4.4 GRAPH SHOWING MATERIAL COST FOR THERMAL

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112%
110%
108%
106%
104%
102% Series 3
100%
98%
96%
94%
2016-17 2017-18 2018-19

INTERPRETATION

The graph represents where direct material cost incurred for producing per unit of electricity has been
increased in the year 2017-18 de to increase in the consumption of coal by thermal plants and wastage
were incurred more.in order to control it repairs were made and it resulted in reduction in cost of raw
material cost .there is 1.95% decrease in cost of direct material in 2018-19 when it is compared with 2016-
17.

4.5 TABLE SHOWING LABOUR COST FOR THERMAL

PARTICULAR 2016-17 2017-18 2018-19

DIRECT LABOUR 0.104 0.114 0.129

TREND 100% 109.61% 124.03%

INCREASE/DECREASE - 9.61% 24.03%

ANALYSIS

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Increase in the direct labour cost for the years. the direct labour cost incurred in the year 2016-17 is
rs.0.104 but in the year 2017-18 has been increased by rs.0.114 and the year 2018-19 it has increased.

4.5 GRAPH : SHOWING LABOUR COST FOR THERMAL

140%

120%

100%

80%

Series 3
60%

40%

20%

0%
2016-17 2017-18 2018-19

INTERPRETATION

Direct labour cost incurred for producing per unit of electricity in increasing continuously year by year .
every year the direct labour expenditure is increased .where it has been paid as wages for the labour high
and also increase in recruitment.it has to be controlled and if it is not controlled it will increase
tremendously and will have to increase more impact on profitability.

4.6 TABLE : SHOWING OVERHEAD COST FOR THERMAL

PARTICULAR 2016-17 2017-18 2018-19

OVER HEAD COST 0.851 0.702 0.817

TREND 100% 82.49% 96%

INCREASE/DECREASE - -17.51% -4%

ANALYSIS

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The over head cost is increased in slow mode, in 2016-17 overhead cost was 0.851 and decreased by
rs.0.149 tp rs.0.702 in 2017-18 it has been increased by rs.0.115 to rs. 0.817when compared it with p.y
.there is a greater fluctuations in overhead cost.

4.6 GRAPH: SHOWING OVERHEAD COST FOR THERMAL

120%

100%

80%

60%
Series 3

40%

20%

0%
2016-17 2017-18 2018-19

INTERPRETATION

There is a greater fluctuation in overhead cost incurred in thermal production process. the expenses like
repairs and maintenances has greater impact on total overhead cost.it has to cut down the total cost of
electricity per unit will have direct impact on per unit margin.

4.7 TABLE SHOWING PROFIT MARGIN OF THERMAL

PARTICULAR 2016-17 2017-18 2018-19

TOTAL COST 4.126 4.284 4.156

SELLING PRICE 3.650 3.988 3.841

PROFIT MARGIN -0.476 -0.296 -0.315

ANALYSIS

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There is a fluctuation in total cost for all 3years but when it comes to selling price it has increased by
0.338 to 3.988 in the year 2017-18 when it is compare to 2016-17 it is 3.65 in 2018-19 there is a reduction
in total cost by 0.141.it had been decreased in selling price 0.147 where it has compared to previous year.

4.7 GRAPH SHOWING PROFIT MARGIN OF THERMAL

0
2016-17 2017-18 2018-19

-0.05

-0.1

-0.15
Series 3
-0.2

-0.25

-0.3

-0.35

INTERPRETATION

The company incurred loss by selling electricity at lesser price . there is a increases in total cost it is a due
to increased in overhead which has direct impact on total cost.total cost had been reduced to earn margin.
Selling price is fixed by the government there is a variation and it has increased slightly which lead to
profit making company.

4.8 TABLE REVENUE SEGMENTATION (RS.IN CRORE)

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PARTICULARS HYDEL THERMAL WIND SOLAR

STATIONS STATIONS STATION STATIONS
S

2016-17 6667.95 17905.82 8.01 32.38

2017-18 7012.80 14855.69 7.21 36.75

2018-19 12027.54 12977.02 5.25 43.14

ANALYSIS

Revenue segmentation of the year 2019 of the company . The major revenue of the company comes from
hydel power that as 34.52% from thermal station it is 33.16%,wind stations 43.08% and solar power
32.32% .so there are the major revenue which the company gets its activites.

4.8 GRAPH SHOWING REVENUE SEGMENTATION IN PERCENTAGE

HYDEL
THERMAL
WIND
SOLAR

INTERPRETATION

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Analysis that revenue of the company comes from hydel station. The profits of the company fully based
on the revenue of the hydel generation station and thermal stations,and wind and solar station .cost control
and reduction allows the company to increase in its profits.

4.9 TABLE COST ACTIVITIES OF THE COMPANY

ACTIVITIES 2016-17 2017-18 2018-19

MANUFACTURING 23.5 26.5 27.5

FINANCIAL 37.4 35.7 34.5

PRODUCTS

FINANCIAL 19.3 21.6 21.8

SERVICES

OTHERS 19.8 16.2 16.2

TOTAL 100% 100% 100%

ANALYSIS

The above table shows the activities of the company. The main activity of the company is
from financial services, that is it provides various information to its clients based on their
requirements, but during the year 2016-2017 the percentage has being decreased from 37.4%
(2016-2017) to 35.7 %(2017-2018) and to 34.5 (2018-19), but it has increased its percentage
in Manufacturing activities that is from 23.5% (2016-2017) to 26.5% to 27.5%, and even
there is a slight increase in its percentage of financial products that is from 19.3% (2016-
2017) to 21.6% %(2017-2018) and again to 21.8% in (2018-19).

4.9 GRAPH SHOWING COST ACTIVITIES OF THE COMPANY

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40

35

30

25
MANUFACTURING
20 FINANCIAL PRODUCTS
FINANCIAL SERVICES
15 OTHERS

10

0
2016-17 2017-18 2018-19

INTERPRETATION
The above analysis clearly shows that the companies performance in manufacturing and all
other is good, but there is a slight decrease in its financial services and others. so the above
analysis shows that the companies services has come down during the year 2018-19.and there
is a slight decrease in other activities of the company when it compared to previous year
2017. The company should take measures to increase its cost benefit.

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CHAPTER 5 FINDINGS
CONCLUSION AND
SUGGESTIONS

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SUMMARY OF FINDINGS, SUGGESTIONS AND CONCLUSION

FINDINGS:
 The organization is effectively historical budgeting system for the cost management
and cost control at KPCL.

 The company is preparing budget for each productiob but variation can be seen actual
and budgeted,the organization has not reduce the cost within the budget.

 The electricity is generated from thermal,hydel,wind,solar. The cost incurred to

produce per unit of electricity from solar to high when compared to others.

 The labour cost is an major expenditure incurred by the company in all organization
in all the production process.

 Interest charges for loans taken for financial projects are very high and this is
reducing margin to a greater extent.

 The raw-materials are not utilized properly by the company in different power
generation stations.

 The thermal power generation cost of material has been increasing and there are no
measurers taken to control it.due to an higher consumption of coal and wastge from it.

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SUGGESTIONS:

The analysis has shown that there has being a pressure on company because of a slight
increase in revenue and profits. So during this economic pressure and global financial crisis
company has to take some cost control measures and should encourage cost reduction
programmed in the company and should balance both cost as well as profit at the same time.

Some of the cost control measures the company can adapt to overcome the financial
crisis, they are as follows:

 The KPCL should reduce the importing of power from other states.

 The KPCL should adopt the latest technology in generation of power in the power
stations

 The company should control employee bonuses and compensation packages once in a
particular year.
 Introduce productivity based payment: The productive hours they spend in the
company. This may result in salary.
 The KPCL has to cut its employee travel costs and should withdraw free snacks and
food facility in canteen.
 Reduce the overall budget of the company.
 Encourage the employees to go off pay holidays: it means encourage the employees to
take leave, but during this leave period the employee cannot draw leave salary.
 Strictly instruct the employees to turn off the monitor, when it is not in use, so that
company can eliminate unnecessary waste and can reduce its power consumption.
 Clearly monitor the telephone bills to prohibit surplus payment.
 Provide any regional vacations (like Christmas, ramzan etc), during this time the
company should not pay the amount for the vacations.
 Try to reduce phone calls and instruct the employees to undertake the interactions
through emails.
 Reduce postal charges by utilizing electronic media like internet.
 Avoid unnecessary printing cost.
 Reduce the salary for the fresher’s during the training period.

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 The KPCL should adopt Cost reduction and cost cutting as a tool to eliminate
unnecessary cost in generation of power.
 Company should increase the operating efficiency in controlling the operating
expenses, to achieve net profit margin.
 The area chosen for cost reduction is: Administrative overheads: office stationary
expenses (printing expenses).

CONCLUSION:

 Based on the study made at KPCL, on Cost control and Cost reduction, the
following conclusions are made by researcher-
 Cost control is an temporary arrangement to reduce the cost which is because of the
following reasons they are:
The role of cost control is for short period or may be for long period based on the below
situations.
 Economic pressure.
 Financial crisis.
 Economy slow down.
 So cost plays a major role during the economic pressure which enables the company
to bring the cost down till the pressure goes on.
 Cost reduction is a routine exercise which is carried out for attainment of operational
efficiency. Cost reduction is a corrective function because it challenges the
predetermined costs and seeks to improve the performance by reducing cost; it is a
continuous function of self-analysis for making more and more improvements in
performance.
 If KPCL adopt this method it can easily eliminate unnecessary cost in Manufacturing
and Administration activities.
 The role of COST REDUCTION is for a longer period of time and the reduction
made in the services are real in nature and will be playing a role by implementing
innovative ideas from time to time which is done as a continuous activity.
 I am completely indebted to the company and learned a lot. It’s my immense
opportunity to do Project report in KPCL Bangalore.

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BIBLIOGRAPHY

o DR.N.K. Agarwal, Cost Accounting, Shuchita Prakashan Publication

Ltd, Allahabad, 5th Edition.
o M.N. Arora, Cost Accounting, Himalaya Publications Private Ltd,
Mumbai, Edition 2006.
o Jain.S.P, Narang.K.L, Cost Accounting, Kalyani Publication, New
Delhi, Edition 1999.
REPORTS:

 FINANCIAL REPORTS OF KPCL.

 JOURNALS AND ANNUAL REPORTS OF THE COMPANY.
 ANNUAL BUDGETS OF KPCL.

WEBSITE

www.kpcl.com ( company website)

www.google.com

www.ICAI.IN

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