Planning and Budgeting Manual, 2015

Transcription

1 Oil and Natural Gas Corporation Limited Planning and Budgeting Manual, 2015 P a g e 1

2 Table of Contents 1. Introduction Objectives Importance of Budgetary Controls Advantages of Budgetary Controls Budgeting Terminology Overview of Budgetary Control Role of Locational Budget Co-ordinator Role of Corporate Budget Section Budget Formulation Budget Timelines Determination of Physical Targets Process Narratives Determination of Annual Financial Outlays Process Narratives Process Flowchart Re-appropriation Guidelines Glossary...11 P a g e 2

3 1. Introduction This manual provides guidelines that lay out objectives, policies, processes, authorities and timelines for ensuring systematic, efficient and timely budget preparation to meet strategic organizational goals Objectives The key objective of a well-established budget process is to deliver better financial decisions that ultimately lead to improved organizational operations and achievement of strategic plans. The budget process consists of processes and activities that incorporate the creation, implementation and evaluation of set financial goals. A good budget process encompasses the following: Incorporates a futuristic perspective Establishes linkages to the strategic organizational goals Stresses budget decisions on results and outcomes Involves and stimulates effective communication The budgeting process is strategic in nature that often comprises of a multi-year financial and operating plan that allocates resources on the basis of identified goals. A good budgeting process fosters collaboration amongst various stakeholders by providing incentives and flexibility that can lead to improved efficiency and accountability Importance of Budgetary Controls The budgetary process induces stakeholders to think systematically and plan ahead about the future activities and financial outlays. They serve as a device for synchronizing the complex operations of the business, and providing a medium for communicating the financial goals. In essence, budgetary control is purported to ensure that the activities carried out are providing the desired results. Budgetary control is a central device tool of management control that includes comparing actual performance with the budgeted performance and subsequently acting upon the actual results to minimize variance and achieve maximum returns. This control mechanism becomes more prominent for a flagship Navratna Public Sector Undertaking like ONGC. The budget exercise incorporates the entire gamut of plan and non-plan activities during the budget year. Since the Company is a Government of India undertaking, plan budget of the Company forms part of the plan budget of GOI through its administrative ministry i.e. Ministry of Petroleum and Natural Gas Advantages of Budgetary Controls Key advantages of budgetary controls are highlighted below: P a g e 3

4 Facilitates management to think about the future and forces management to draft detailed plans for achieving the targets of each work center Facilitates the company in formulation of long term targets to meet the organization s strategic objectives Improves the allocation of scarce resources Provides a basis for assessing the performance of the organization at various levels through a variance analysis. Budget is a yardstick against which actual performance is measured and assessed Deviations from budget can be investigated thereby enabling remedial action to be taken on an ongoing basis based on the variances observed Motivates employees by participating in the setting of budgets, and Promotes coordination and communication within the organization; 1.4. Budgeting Terminology iraid framework: The Book of Delegated Powers 1 has laid down the iraid framework which forms the basis for budget formulation at ONGC. The delegation of duties and responsibilities is based on the iraid framework. Scheme 2 : A Scheme is a compilation of various business activities. Scheme formulation begins at the work center level. All Schemes may or may not result in a quantifiable economic outcome. For economic Schemes with quantifiable outcomes, detailed financial viability analysis will be conducted. For non-economic Schemes where the outcomes are not quantifiable, the performance will be measured on the basis of SMART (Simple, Measurable, Achievable, Relevant and Time bound) goals. Scheme details can be found in the Book of Schemes Financial Concurrence 3 : Financial concurrence, in the context of the revised BDP and associated processes, refers to the consent accorded to a Scheme by the designated independent finance authority. It is a process of according approval to a Scheme by checking the justification and viability of the Schemes. Financial concurrence is required to be obtained for the purpose of approval of a scheme comprising of several relevant activities and sub-activities. It involves a detailed study and evaluation to verify the appropriateness of the Scheme activities. To enhance judicious use of resources, financial concurrence is carried out by following pre-determined steps as per the Book of Financial Concurrence. Commitment Item: Commitment Item is an aggregation of GL Heads Budgets. The commitment items in BCS module have been mapped with the relevant general ledger codes in the FI module. The Commitment Items can be displayed in SAP by executing T-code FM3G. The assignment of commitment items to GL accounts can be displayed by T-code FMDERIVATIONANALYSIS. 1 Book of Delegated Powers as brought into effect from January 1, Detailed guidance on Schemes provided in Book of Schemes 3 Financial Concurrence Manual, 2015 P a g e 4

5 2. Overview of Budgetary Control The budget planning exercise is initiated with the preparation of physical targets and formulation of the respective Schemes. The responsibility of Assets, Basins, Plants and Institutes shall be to create Schemes in consultation with the Service heads. Schemes once sanctioned by the Decide Authority (as per the iraid framework) shall be submitted to the for compilation and onward movement to the. Detailed process narrative has been highlighted in Chapter 5. The chart below depicts flow of information and the functions/ personnel involved in the exercise of budgetary control. Budgeting Structure Board of Directors FMC Executive Committee (Asset) (Basin) (Plant) (JV) (Institute) Recommending Authority Role of Locational Budget Co-ordinator The roles and responsibilities of the are highlighted below: The shall co-ordinate with MDTs to ensure timely submission of Schemes The shall act as a point of contact for clarifying budgeting related issues P a g e 5

6 On receipt of the Scheme, the shall review the Schemes to ensure that sanctions have been received from appropriate authorities The shall compile the Schemes received from Asset/Basin/Plant/institute and forward to in a timely manner The shall liaise with on a regular basis and disseminate information from to other Scheme preparers 2.2. Role of Corporate Budget Section The shall be primarily responsible for coordinating, compiling and assigning budgets to the various Schemes: The shall be responsible for issuing circulars periodically on Scheme formulation and timelines On receipt of the compiled Scheme budget from the, the shall compile the outflows pertaining to the various Scheme for BE and RE The shall present the annual budget plan/budget agenda to the EC, FMC and BoD, for approval Any suggestions arising from the EC meeting shall be communicated to for further communication to the work centers on budget approval shall upload the approved budget for procurement in SAP at the top node level. The same shall then be communicated to each work center for fund loading 3. Budget Formulation 3.1. Budget Timelines Stage Activity Description Time Schedule Stage 1 Determination of physical targets Determination of physical targets based on the approved and the proposed Schemes of the work centres 30 th June of each financial year Submission of the physical targets by the units to 07 th July Compilation of the approved physical targets and approval of the same by the EC 15 th July Stage 2 Determination of approved financial outlays for consumption and procurement based budget Compilation of duly approved (sanctioned) Scheme wise financial outlays for the budgeting period to by s 31 st August of each financial year P a g e 6

7 Submission of draft budget proposal by to in the prescribed formats for both procurement and consumption budget duly approved by the Head of the units Presentation of draft budget proposal by to EC Re-submission of budget proposals based on EC review and directives if required Submission of budget agenda by for consideration of FMC and BoD Approval by FMC and BoD of annual budget proposal 05 th September 15 th September of each financial year End of September of each financial year October of each financial year October of each financial year 4. Determination of Physical Targets The physical targets are framed by the Assets and Basins in consultation with the respective heads of Services and approved by the concerned Directors in line with the overall corporate objective, MoU targets and five year plan projections. The physical targets form the basis for Scheme planning, budget estimates and the annual plan 4.1. Process Narratives S. No. Activities including internal controls Responsibility 1. Upon issuance of the detailed circular on budget formulation by the Corporate Budget Section, each work centre shall initiate the process of compilation of the physical targets. Asset/Basin/Plant Manager The physical targets shall correlate with the available resources in the relevant period for e.g. Rig availability. Information with respect to such resources shall also be disclosed while setting physical targets. In the event that the rig months available are not adequate due to any unforeseen factors, the physical plans for drilling and work over P a g e 7

8 activities shall be revised and brought in line with the rig months available. 2. The finalised physical targets shall be compiled in the specified formats and shall be forwarded to 3. The physical targets received from all the locations shall be compiled by the Corporate Budget Section. Any Variation between RE and BE vis-àvis BE as approved in the previous year shall be explained by the Assets/ Basins/Plants through a separate note to the Corporate Budget Section. 4. The physical targets shall be presented to EC for approval. EC shall deliberate the physical targets and once targets are approved by the EC, the same are considered for firming up the Financial Outlays through ongoing/to be approved schemes. Asset/Basin/Plant Manager EC 5. Determination of Annual Financial Outlays On intimation of the physical targets, each work centers shall review all its existing schemes to co-relate whether an existing Scheme is enough to achieve the physical targets or some new Schemes are required to be introduced to meet the physical targets. E.g. additional Oil and Gas production that cannot be fulfilled via existing Scheme shall require formulation of a new Scheme. Due consideration shall be provided to the status of the Schemes while drafting the budget estimates. For Schemes which have already been approved by Board based on life cycle cost and benefits, the annual financial outlays shall be reviewed based on current costs and estimates. In case the revised annual outlays result in increase in overall cost of scheme, feasibility of the scheme shall be reviewed and revised sanction, as applicable, shall be obtained. As Schemes represent the consumption based budget, procurement budget can be calculated by the below formula: Procurement Budget: Planned Closing Stock at the unit (+) Planned Consumption under various Schemes (-) Opening Stock at unit The difference between procurement and consumption is reflected as inventory variation, which is shown as working capital change. It is to be ensured that inventory levels are maintained at optimal level. The requirement of contractual services is planned precisely after considering the realistic requirement so that it does not impact cost of the Schemes/Activity. Budget for Operated Pre-NELP/ NELP/CBM Blocks/Producing JV's In case of ONGC Operated Joint Ventures and NELP Blocks, full budget need to be provided under respective Schemes. Budget for well material like Casings, Well Heads, etc. and Manpower, Office Expenditure, PEL fee etc. will be planned under NELP blocks/ JVs respective Schemes. Thus, total budget of ONGC Operated Joint Ventures at 100% level needs to be worked out. However, the portion of costs to be shared by other JV partners and which will be reimbursed by them should be worked out separately. P a g e 8

9 5.1. Process Narratives S.No. Activities including internal controls Responsibility 1. On receipt of the sanctioned Scheme proposals the shall consolidate all sanctioned Schemes at a work centre level shall conduct the following checks: Proper concurrence and sanction received SAP module correctly updated to reflect Scheme details 2. The shall forward the consolidated Schemes at a work centre level to (under approval of Finance and Key executive). 3. shall review the Budget proposals to see whether they are in line with organisational goals and objectives. may ask for additional clarifications/ information/documents. In such a case, the shall provide all such necessary information as required by the. Post satisfactory review by the, a draft annual budget proposal shall be prepared by and submitted to the EC. 4. The EC shall deliberate on the draft annual budget proposal and shall either recommend for approval of the Board or gives directions for review of the budget to. 5. shall intimate to who in turn shall notify the respective work centre about the revised guidelines provided by EC. The shall co-ordinate with the work centres and seek revised information on the Scheme proposals as per the revised guidelines provided by EC. 6. Post submission of information from the work centre and satisfactory review by the, the Scheme proposal shall be re-submitted to EC for approval. 7. Post approval from EC, shall finalize the budget agenda and submit the same for approval to the BoD through FMC. The BoD has full powers to approve the budget. EC /LBS The budget agenda shall comprise of analytical information such as internal resource generation, budgeted profitability, unit cost of activities etc. to facilitate the FMC and BoD for approving the proposed budgets. 8. Once the budget is approved, intimation shall be sent to all the relevant Asset/Basin/Plant Managers. P a g e 9

10 9. Budget finally approved by the BoD is loaded by the in the SAP module at the top node for three CI s i.e. Captial_AVL, Manpower_AVL and Others_AVL for the retracting fund centre. This will ensure budgetary controls at procurement level. The Consumption based budget for each Scheme shall be loaded as WBS in the PS module of SAP to ensure controls at a Scheme level by the respective Recommending Authority. will ensure that correct data has been loaded in SAP Process Flowchart Process Chart for Scheme-wise Budgeting No EC to approve or request for revision Yes Post approval from EC, to finalise the budget agenda and submit the same for approval to the BoD through FMC Once the budget is approved intimation to be sent to all the relevant Asset/Basin/Plant Managers to intimate of revised guidelines. to coordinate with work centers to seek revised information Post satisfactory review by the, draft annual budget proposal to be prepared by and submitted to the EC Budget approved by the BoD To be loaded by the in the SAP module Additional information/ clarification requested by to be provided by LBS as required to review the Schemes proposals to confirm if the proposals are in line with organisational goals and objectives to consolidate all sanctioned Schemes at work centre level. to forward consolidated Schemes at a work centre level to Post sanction and approval Scheme proposal to be forwarded by RA to for consolidation 6. Re-appropriation Guidelines Re-appropriation of funds primarily implies transfer of funds from one primary unit of appropriation to another and can be sanctioned only under formal instructions of the competent authority. As the Schemes are based on consumption, there will be revised sanction and not re-appropriation in their case. Re-appropriations have been primarily provided to account for business uncertainty and peculiarities. Re-appropriation guidelines are also aimed at enabling Scheme owners to having efficient management of their budgets to enhance P a g e 10

11 efficiency and accountability through quicker decision making. Re-appropriation shall be approved by the competent authority based on the powers laid down in the BDP. The budgetary process provides flexibility to the managers in their operations and at the same time makes them accountable for cost of operations in terms of Schemes. At the corporate level, budget allocations to the Assets and Basins are made on the basis of physical work program and overall resource generations. Budgetary control allows flexibility to the managers to take day to day expenditure decisions as per demands of the occasion subject to Funds availability and Powers of budget re-appropriation delegated under BDP chapter Glossary AFE BDP BE BoD CA DA EC FMC MDT MoU RA RBC RE Acronym Definition Authorisation for Expenditure Book of Delegated Powers Budget Estimates Board of Directors Concurring Authority Corporate Budget Section Decide Authority Executive Committee Finance Management Committee Locational Budget Co-ordinator Multi-Disciplinary Team Memorandum of Understanding Recommending Authority Regional Budget Co-ordinator Revised Estimates P a g e 11