Annual Business Plan (ABP) & 3-Year Financial Plan (FY 2025–26 to 2027–28)

The budgeting process begins with understanding the strategic priorities of the organization. Meeting with the senior leadership and the strategy team is critical to ensure alignment on key objectives, which may include:

->Meet with senior management/strategy team: What are their strategic goals?

a) Is the focus on market share growth?

b) Profitability improvement?

c) Cost reduction?

d) Expansion into new markets?

e) Launching new products (e.g., blended cement).

f) Sustainability initiatives (e.g., reducing carbon footprint)?

-> Quantify objectives: Try to get measurable targets (e.g., “increase sales volume by 5%”, “reduce energy costs by 3 %”).

2. Gather Historical Data

Gathering financial statements for the past 3–5 years, (FY 2021–22 to FY 2023–24 and current FY 2024–25 estimates) helps identify trends, cost behaviors, and business cycles. Importantly, variance analysis reveals past budgeting inaccuracies, guiding more accurate forecasts.

-> Review actuals from the last 2–3 years:

a) Sales (by region/product)

b) Raw material costs (limestone, coal, gypsum, etc.)

c)  Power & fuel expenses (major cost in cement)

d) Employee costs

e) Maintenance, logistics, admin, etc.

-> Gather past financial statements: (Income Statements, Balance Sheets, Cash Flow Statements) for at least the last 3-5 years (FY 2021-22, 2022-23, 2023-24, and current FY 2024-25 estimates). Look for patterns in sales volume, pricing, cost of goods sold (COGS), operating expenses, and capital expenditures. In addition, analyze trends (e.g., raw material price fluctuations, energy costs, and demand cycles).

-> Understand variances: Why did actuals differ from previous budgets? This helps avoid repeating past mistakes.

#Variance Analysis (vs. Previous Year and vs. Previous Budget)

3. Forecast Key Drivers

Reliable projections depend on carefully estimating operational and market factors:

a) Production Volumes – Based on capacity utilization.

b) Sales Volume & Price – Market trends and competitor prices.

c) Raw Material Consumption – Per ton of cement/clinker projections.

d) Power & Fuel Cost – Link with consumption norms & energy prices.

e) Capex Plans – plant upgrades, new kiln, environmental Capex.

f) Manpower Planning – recruitment, appraisals, retirements.

4. Departmental Inputs

Departmental collaboration is crucial. Each function contributes inputs that form the granular basis of the consolidated budget.

->  Ask each function (Sales, Production, HR, Procurement, Logistics, and Finance) to submit their budget requirements.

a) Sales & Marketing: Sales volume forecasts (by product type, pricing strategies, marketing spend.

b) Production/Operations: Production capacity, planned downtime for maintenance, raw material consumption rates, energy consumption rates, production costs per ton.

c) Procurement: Raw material prices, fuel prices, logistics costs.

d) HR: Headcount projections, salary increments, training costs, benefits.

e) Engineering/Maintenance: Major maintenance schedules, spare parts requirements.

f) Logistics/Distribution: Freight costs, warehousing costs.

g) Administration: Office supplies, utilities, IT expenses.

h) Finance/Tax: Debt servicing costs, depreciation schedules, tax rates.

#Department-wise Budget Summary

5. Build the Budget Structure

®  Revenue Budget (Revenue Forecast: Sales volume × price/ton by product line)

a) Sales Volume Projection (most critical):

i. Start with historical sales.

ii. Adjust for market growth/decline, planned marketing initiatives, new capacity, and competitive actions.

iii. Break down by product type and region/channel.

b) Pricing Strategy:

i. Based on historical pricing.

ii. Adjust for market conditions, inflation, competitive pricing, and any planned price increases/decreases.

iii. Factor in discounts or promotional activities.

c) Total Revenue: Sales Volume (tons) x Average Selling Price per ton.

-> Cost of Goods Sold (COGS)  (Raw materials (limestone, gypsum), labor, energy, maintenance).

a) Raw Materials: Limestone, coal/pet coke, gypsum, slag, fly ash.

i. Calculation: Projected Production Volume (tons) x Raw Material Consumption Rate per ton x Projected Raw Material Price.

b) Fuel & Energy: Crucial for clinkerization (kiln) and grinding. Electricity, coal, pet coke, diesel.

i. Calculation: Projected Production Volume (tons) x Energy Consumption Rate per ton x Projected Energy Price.

c) Packing Materials: Bags, etc.

i. Calculation: Projected Sales Volume (tons) x Packing Material Cost per ton.

d) Direct Labor: Wages for production staff.

e) Other Direct Costs: Consumables, water, lubricants.

f) Manufacturing Overheads (Variable & Fixed): 

i. Variable: Maintenance spares directly related to production volume.

ii. Fixed: Factory rent, supervisor salaries, depreciation on plant & machinery.

->  Schedule meetings with:

**Sales Head: “What are the sales targets for FY 25-26? Any new products or markets? What’s the pricing strategy?”

**Production Head: “What’s the planned production volume? Any major maintenance or capacity changes? What are the key raw material and energy consumption rates?”

**Procurement Head: “What’s the outlook for coal, pet coke, and other raw material prices? Any long-term contracts?”

**HR Head: “Any planned headcount changes or salary increments?”

**Finance/Accounting colleagues (senior to you): “Can you help me understand how depreciation is calculated? Where can I find the historical Capex details?”

-> Operating Expenses (OPEX) :- Admin, R&D, marketing, logistics

a) Selling & Distribution Expenses: 

i. Freight & Logistics (major component!): Based on sales volume and distribution network.

ii. Marketing & Advertising: Based on planned campaigns.

iii. Sales Commission: If applicable.

iv. Warehousing costs.

b) Administrative & General Expenses (G&A): 

i. Salaries & Wages (non-production): Admin staff, finance, HR, IT.

ii. Office Rent, Utilities, Supplies.

iii. IT Expenses: Software licenses, hardware, maintenance.

iv. Legal & Professional Fees.

v. Travel & Entertainment.

c) Repair & Maintenance (non-production related).

d) Research & Development (R&D): If any.

->  Capital Expenditure (Capex):- Machinery upgrades, plant expansions, sustainability projects

a) Identify planned investments: 

i. New plant expansion or capacity addition.

ii. Major machinery upgrades or replacements.

iii. IT infrastructure improvements.

iv. Environmental compliance projects.

b) Get detailed quotes/estimates from relevant departments.

-> Cash Flow Budget

a) Interest Income/Expense: Based on cash balances, short-term investments, or outstanding debt.

b) Forex Gains/Losses: If significant international transactions.

c) Other non-operating income/expenses.

**Project cash inflows from operations (sales, collections) and cash outflows (payments for raw materials, salaries, OpEx, CapEx). This is crucial for liquidity management.

->Profit & Loss Forecast

a) Based on existing fixed assets and planned Capex. Work with the accounting team.

b) Based on projected taxable income and applicable corporate tax rates. Consider any tax incentives or disincentives.

**Consolidate all revenue and expense lines to project Gross Profit, Operating Profit (EBIT), Profit Before Tax (PBT), and Net Profit.

-> Balance Sheet Projection

**Project asset, liability, and equity balances at the end of the budget period based on the income statement and cash flow.

6. Prepare Variance & Sensitivity Analysis

a)  Create base, optimistic, and pessimistic scenarios. (e.g., 10% rise in coal prices, 5% drop in demand).

b)  Add variance columns to compare with last year.

**Performance Metrics & Key Ratios: Calculate key ratios: Gross Profit Margin, Operating Profit Margin, Net Profit Margin, ROE, ROCE, Debt-to-Equity, Current Ratio.

#Key Performance Indicators (KPIs)

7. Final Review & Approval

The draft budget undergoes an internal review with department heads followed by a presentation to the CFO and CEO. Feedback is incorporated, and final approval is sought, documenting decisions for governance and audit purposes.

a) Internal review with department heads.

b)  Present draft to CFO/CEO for approval.

8. Monitor & Track Monthly

A budget’s true value lies in its execution. Monthly tracking of Key Performance Indicators (KPIs) ensures accountability and early detection of deviations.

Critical KPIs include:

• Sales Volume Growth
• Production Cost per tonne
• Operating Margin
•  Liquidity Ratios
• · Cash Flow from Operations

a)  Once approved, track monthly performance vs. budget.

**Key Performance Indicators (KPIs): List critical operational and financial KPIs (e.g., EBITDA per ton, Production Cost per ton, Sales Volume Growth, Working Capital Days).