Process Management - Budgeting

Annual budgeting

The annual budget is the conclusion of the company’s strategic plan in actual numbers/financial figures. Preparation of the annual budget shall commence in December of each year so that the budget for the following financial year could be finalized and approved before the end of the current financial year.

The Corporate Office Finance department shall prepare the annual budget format and send it to PMD Accountants along with necessary guidelines promptly. It is the responsibility of all Project Managers and Heads of Business Units to submit project budgets and business unit budgets to the respective PMD Accountant promptly. PMD Accountants shall compile a PMD budget based on the project budgets and business unit budgets submitted by Project Managers and Head of Business Units, respectively. Budget discussions shall be conducted, and necessary amendments shall be made to project budgets and business unit budgets before the compilation of the PMD budget. The GM of respective PMD shall approve the PMD budget before submitting it to the Corporate Office. Similarly, GM-Finance shall call for the budgets of the departments coming under the Corporate Office.

The GM-Finance shall review the PMD budgets and departmental budgets and advise respective personnel to make the necessary changes if required. GM-Finance shall forward the PMD budgets and departmental budgets for the COO’s approval with necessary recommendations. The COO may advise amendments to the budgets forwarded by the GM-Finance and approve them after the incorporation of amendments. The Corporate Office Finance department shall compile the overall company budget based on the approved PMD budgets and departmental budgets.

The COO shall approve the overall company budget, which will be presented to the Board of Directors for their sanction.  

                                                                                                                                                                                                                                         

Project budgeting           

Initial budget

The Project Manager shall be responsible for the preparation of the project budget with the assistance of the Planning Engineer and Quantity Surveyor and his other staff, if necessary, in consultation with the planning and monitoring team of PMD, before the commencement and execution of work of The project. The following documents shall be used to prepare the project budget but not limited to;

•             Bill of quantities

•             Project contract document & specifications

•             Master material indent

•             Resource plan

•             Construction program

•             Risk assessment report

The Project Manager, after finalization of the project budget at his level, shall forward it to the GM of particular PMD. GM shall propose amendments to the budget by himself or shall hold an initial budget discussion with the project team to make necessary amendments to the budget. The budget shall be forwarded by the GM-PMD, with his recommendations for COO’s approval. The COO shall approve the budget with changes he proposes in consultation with the consultation of GM-PMD and the project team. The following documents are to be sent to the COO with the proposed budget;

•             Budget bill of quantities

•             Monthly breakups of the budget (overhead cost & direct cost)

•             Cash flow forecast

•             Resource allocation plan (material, machinery & men)

•             S curve

The initial approved budget shall be uploaded to SAP system by the Planning Engineer of the project or by the PMD project monitoring team.

Revised Budgets

The Project Manager and his team shall identify the needs to amend the project budget while execution is in progress. Where the requirement for a budget revision arises, the project manager shall submit a budget revision request with a clear justification to the GM-PMD. The GM shall get the proposed budget revisions through his office and make recommendations, as necessary to COO. All budget revisions required to be approved by the COO.

Approved budget revisions shall be uploaded to the SAP system.                                                                                                                                                                                                                                          

Project budget releasing

In executing a project budget through SAP, budget release can be done in two ways. The authority for a budget release will lie on a designated person approved by the management.

•             Overall project release

•             Individual elements based release

Overall budget release

When a project is considered to be released as a whole first, the project definition shall be released, and following this, the WBS elements, networks, activities, and activity elements will be released simultaneously. The decision of an overall project release lies in a higher authority, as decided by the COO. By triggering this process, an impact on the release of the budget will occur as all material requirements will be converted into purchase requisitions and will, therefore, require a large budget release initially.

Individual element based budget release

If a project budget needs to be released in stages as individual work packages following a scheme towards completion, this can be done by releasing a defined work package or a WBS element. This will not have a huge impact on budget releases as it only requires the material requirement stated in the specific work package, thereby will only call for consecutive small budget releases. The decision of an individual element based release lies on a higher authority as decided by the COO.

Project budget monitoring

The Site Accountant shall prepare the Budget Variance Analysis report and P&L account every month, and this shall be reviewed and approved by the Project Manager. The approved Budget Variance Analysis The report, along with the following documents, shall be submitted to the PMD. It is the responsibility of the Project Manager to provide reasons for significant variances.

•             P&L account

•             Budget Variance Analysis report

•             Bill payment monitoring report

•             Cash flow monitoring report

•             S curve report

The site engineering staff is responsible for the preparation of the above documents. The respective PMD office shall review and validate the reasons for significant variances and shall prepare a report with observations. Documents described above shall be taken up for discussion at the monthly progress meeting of PMD. Root causes for budget variances shall be analyzed, and necessary action shall be taken to rectify deviations. The same documents shall be taken up for discussion at the Corporate Office progress review meeting, and remedial actions to be made shall be finalized.

CAPEX Budgeting

CAPEX (Fixed Assets purchases) encompasses the purchases of an asset of a value above LKR 10,000/- that would provide long term benefits (more than one year) to the Company. In the CAPEX budgeting process, the CAPEX budget amount is decided by the GM- PMD or COO at the beginning of the year. Based on this approval Accountant can assign the budget in the system, creating CWIP assets and assigning relevant Investment order can be done by the Asset Account Executive.

CAPEX budgeting for a project

It is the responsibility of the Project Manager, Site Engineer & Quantity Surveyor to identify the fixed asset requirements of the project by referring to the project`s resource plan. Based on the fixed assets requirements, PMD Accountant prepares the CAPEX budget and obtain a recommendation from the Project Manager. After finalizing the CAPEX budget, it shall be forwarded to the GM-PMD to make recommendations & approval. GM-PMD approved budget shall be forwarded to the COO to obtain the final approval. The COO shall approve the budget with changes he proposes. Based on COO’s approval GM - Finance can assign the budget in the system by creating CWIP assets and assigning the relevant Investment order.

                                                                                                                                                                         

CAPEX budgeting for other business units

Head of a respective business unit (other than projects) Required to identify the new asset requirements for the financial year. Based on the required fixed assets, the Site Accountant shall prepare the new annual CAPEX budget. The new annual CAPEX budget shall be forwarded to GM-PMD/SGM with the approval of the Head of the business unit. The approved CAPEX budget shall be forwarded for COO’s approval. Based on COO approval GM -Finance creates CWIP Assets & assigns the relevant investment order.