COSTING STRUCTURE & SENSITIVITY ANALYSIS                     A. Research MethodologyStudy objectives or Learning Objective...
COSTING STRUCTURE & SENSITIVITY ANALYSISData collection sources : -(1) Primary sources:     Cost summary of ONGC-Hazira Pl...
COSTING STRUCTURE & SENSITIVITY ANALYSIS                   1.AN OVERVIEW – OIL                 & NATURAL GAS INDUSTRY     ...
COSTING STRUCTURE & SENSITIVITY ANALYSISatmosphere. Many scientists worry that this continual release of carbondioxide is ...
COSTING STRUCTURE & SENSITIVITY ANALYSIS      To find oil and natural gas, companies drill through the earth to thedeposit...
COSTING STRUCTURE & SENSITIVITY ANALYSIS                 1. INTRODUCTION TO ONGC                ONGC-A GEM AMONG THE ‘NAVR...
COSTING STRUCTURE & SENSITIVITY ANALYSISA. History                                 1947 - 1960      During the pre-indepen...
COSTING STRUCTURE & SENSITIVITY ANALYSISconstituted with a nucleus of geoscientists from the Geological survey ofIndia.   ...
COSTING STRUCTURE & SENSITIVITY ANALYSISpetroleum and petroleum products produced by it, and to perform suchother function...
COSTING STRUCTURE & SENSITIVITY ANALYSISONGC was re-organized as a limited Company under the Companys Act,1956 in February...
COSTING STRUCTURE & SENSITIVITY ANALYSIS  •   Holds largest share (57.2 per cent) of hydrocarbon acreages in India.  •   C...
COSTING STRUCTURE & SENSITIVITY ANALYSISC. Board of DirectorsMr. R S Sharma                     Chairman & Managing Direct...
COSTING STRUCTURE & SENSITIVITY ANALYSISD. Head Office and Regional OfficesCorporate Office / Headquarters: Tel Bhavan, De...
COSTING STRUCTURE & SENSITIVITY ANALYSIS     4.       Cauvery Basin                         Chennai     5.       Assam & A...
COSTING STRUCTURE & SENSITIVITY ANALYSIS               Management     9.        Institute of Biotechnology &         Jorha...
COSTING STRUCTURE & SENSITIVITY ANALYSIS14.   Chief Marketing                      New Delhi15.   Chief Corporate Affairs ...
COSTING STRUCTURE & SENSITIVITY ANALYSISE. OBJECTIVES                                  VisionTo be a World-class Oil and G...
COSTING STRUCTURE & SENSITIVITY ANALYSIS                                  Global Ranking  •   Is Asia’s best Oil & Gas Com...
COSTING STRUCTURE & SENSITIVITY ANALYSISFinancials           ONGC : Share Holding Pattern (% )                   1.52%   2...
COSTING STRUCTURE & SENSITIVITY ANALYSIS3. HAZIRA GAS PROCESSING COMPLEX                 S.K.P.I.M.C.S                 20
COSTING STRUCTURE & SENSITIVITY ANALYSIS                         The industrial pride of india     The ONGC Gas processing...
COSTING STRUCTURE & SENSITIVITY ANALYSISunits plants built with state of the art technology at a cost of Rs. 1300 croresan...
COSTING STRUCTURE & SENSITIVITY ANALYSIS2. ROAD3. PIPELINE4. SHIP                       PRODUCTS DISPATCHED  1. LPG – ROAD...
COSTING STRUCTURE & SENSITIVITY ANALYSIS  2. BPCL  3. HPCL  4. RIL  5. GPCL  6. IPCLThe main competitor of ONGC is Relianc...
COSTING STRUCTURE & SENSITIVITY ANALYSIS                   MAIN UTILITIES AND OFFSITES  1. RAW WATER TREATMENT PLANT  2. L...
COSTING STRUCTURE & SENSITIVITY ANALYSIS                                           (Amount in Rs. Crores)   Particular / P...
COSTING STRUCTURE & SENSITIVITY ANALYSISINTRODUCTION    ONGC Hazira follows cost centre accounting system. It has an ERP  ...
COSTING STRUCTURE & SENSITIVITY ANALYSIS   ONGC Hazira plant follows cost centre accounting method for thepurpose of costi...
COSTING STRUCTURE & SENSITIVITY ANALYSISIn ONGC Hazira plant, the costing system is run on ERP system calledSAP. Entire co...
COSTING STRUCTURE & SENSITIVITY ANALYSIS  Entire ONGC Hazira plant has been divided in around 61 cost centres. A  cost cen...
COSTING STRUCTURE & SENSITIVITY ANALYSISMUMHPMT105          HAZIRA MAINT -E&TMUMHPMT104          MAINT-ESTATEOPERATION SUP...
COSTING STRUCTURE & SENSITIVITY ANALYSISFrom the list, it can be seen that there are 7 broad categories of costcentres in ...
COSTING STRUCTURE & SENSITIVITY ANALYSISmaintenance, cost centre MUMHPMT101 has been created. In the samemanner, for civil...
COSTING STRUCTURE & SENSITIVITY ANALYSIS     1.1.6 Sales & distribution cost centres:Hazira plant produces various product...
COSTING STRUCTURE & SENSITIVITY ANALYSIS     1.1.7.1 Purpose of MUMHPECXP1 & MUMHPECXP2:There is a section in Hazira plant...
COSTING STRUCTURE & SENSITIVITY ANALYSISThe basis for location of cost of project group cost centre is as under: The basis...
COSTING STRUCTURE & SENSITIVITY ANALYSIS  All such expenditure which is initially booked in any of the 60 cost centres  me...
COSTING STRUCTURE & SENSITIVITY ANALYSIS     b) The scheduled as well as actual date of start of R&M job,     c) The sched...
COSTING STRUCTURE & SENSITIVITY ANALYSIS1.3 Work break down structure (WBS):         WBS too is a SAP term. Whenever a cos...
COSTING STRUCTURE & SENSITIVITY ANALYSIS  However, if it is found that there is no oil or gas in the well drilled, allthe ...
COSTING STRUCTURE & SENSITIVITY ANALYSISthrough these mode of transports. Thus SKF for these transport costcentres is disp...
COSTING STRUCTURE & SENSITIVITY ANALYSISThus electrical maintenance cost centre generates activity called maintn(maintenan...
COSTING STRUCTURE & SENSITIVITY ANALYSIS    8. Allocation of cost in the costing system of                              Ha...
COSTING STRUCTURE & SENSITIVITY ANALYSIS   8.1Cost cycle for separating non allocable expensesIn ONGC, certain elements of...
COSTING STRUCTURE & SENSITIVITY ANALYSIS  8.2Cost cycle for allocation of cost of support cost centres to  other cost cent...
COSTING STRUCTURE & SENSITIVITY ANALYSIS                               MAINTENANC                                 E COST  ...
COSTING STRUCTURE & SENSITIVITY ANALYSISout, the scheduled date as well as actual date of start of maintenance job,the sch...
COSTING STRUCTURE & SENSITIVITY ANALYSIS           We take an example to explain how cost of a maintenance cost centre   g...
COSTING STRUCTURE & SENSITIVITY ANALYSIS        The cost of a maintenance cost centre is allocated on the basis ofnormal c...
COSTING STRUCTURE & SENSITIVITY ANALYSIS      For this purpose, there is a facility in SAP which, at the end of theperiod ...
COSTING STRUCTURE & SENSITIVITY ANALYSIS             Cost centre for    Time                                             D...
COSTING STRUCTURE & SENSITIVITY ANALYSIS      Cost cycles for allocation of plant maintenance orders to other costcentres:...
COSTING STRUCTURE & SENSITIVITY ANALYSIS      This is a sample cost cycle in which the cost of operation support costcentr...
COSTING STRUCTURE & SENSITIVITY ANALYSISinputs will be required to produce on unit of finished product. For example,for ge...
These standards have been fed in SAP system for every finished productwhich is produced in Hazira. In SAP terminology, it ...
Process                                   Qty of LPG Qty of LPG actually order no      Process order description    planne...
8.7.2 Example of calculation of cost of LPG produced from LPG plant:     Suppose, during the month of April, 30 batches of...
6. Cooling water                  : 2 units   Again, the cost booked in various cost centres which produce the inputmateri...
0             8,Cooling water               2        6785        13570          .60           142                         ...
SEGMENT 1:HPLOGISEXP: LOGISTICS EXPENSE:     In this segment, the cost booked in cost centre MUMHPSP923(TRANSPORT-BASE OFF...
flows to these two cost centres MUMHPECXP1 & MUMHPECXP2. Forexample, if during a quarter, out of total 40 people of the pr...
The cost of project group cost centre which has flown to cost centreMUMHPECXP2 which is attributable to revenue jobs, flow...
allocations of cost from one cost centre to others is the same as mentionedin the brief description above of various segme...
SEGMENT 1: HPPRODOPSUP: HEAD OPERATION OFFICE:      In this segment cost of cost centre MUMHPSP912 – head operationoffice ...
SEGMENT 4: HPPPPEMEXP: PLANNING, PRODUCTION EVACUATIONCOST:      The cost centre MUMHPSP927 – product planning and evacuat...
SEGMENT        8:    HPERGEXP:         ECONOMIC       RESOURCE         GROUPEXPENSES:      Under this segment the cost of ...
Research methodology
Research methodology
Research methodology
Research methodology
Research methodology
Research methodology
Research methodology
Research methodology
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  1. 1. COSTING STRUCTURE & SENSITIVITY ANALYSIS A. Research MethodologyStudy objectives or Learning Objectives: -  To know how the costing calculation is done in order to carry out the per unit cost of the finished product.  To know how the final cost of products arises after including all the expenses which are incurred in Hazira plant during production of the products.  As calculation is done automatically in SAP system so how that calculation is done that has been shown in the report.  In Sensitivity Analysis to know how the % rise in cost differs at different levels during general condition as well as in present condition.Scope of the study: - The scope of study includes the calculation of cost which is done inthe SAP system automatically in that also there is so much complexity isthere so in order to reduce the complexity this type of calculation is done.There is need to derive Activity Based Costing to firm the cost of each input.In Sensitivity Analysis company can save the cost durig present condition. S.K.P.I.M.C.S 1
  2. 2. COSTING STRUCTURE & SENSITIVITY ANALYSISData collection sources : -(1) Primary sources: Cost summary of ONGC-Hazira Plant of the finished products as wellas worked in SAP system also.(2) Secondary sources: - As secondary sources I have studied different magazines, books andweb sites.(D) Data analysis: -Tables is used as data analysis tools.(E)Limitations of the study: -  Some of the information of the company is highly confidential, so I had to restrict my self up to the data given by the company only.  No. of employee available for sharing the information is less because all are busy in their own work.  While preparing the project I had to use hypothetical data whenever needed because of the unavailability of some of the required data. S.K.P.I.M.C.S 2
  3. 3. COSTING STRUCTURE & SENSITIVITY ANALYSIS 1.AN OVERVIEW – OIL & NATURAL GAS INDUSTRY Almost all oil and natural gas are found deep underground in tinyholes in rocks. Millions of years ago a sea covered much of what is now dryland. In prehistoric times, tiny plants and animals lived in the sea. Whenthese creatures died, they sank to the bottom of the sea, and got buried inlayers of mud and sand. As the ages passed, this organic material sankdeeper and deeper. The earths crust changed its shape, and put intensepressure and heat on what was once only plants and tiny animals. Heatfrom the earths interior and the weight of the overlying rocks graduallychanged the energy-containing substances in the accumulated plants intohydrocarbon liquids and gases. As millions of years passed, these depositsturned into chemicals that are now called ‘hydrocarbons’. Hydrocarbons are simple molecules made up of carbon and hydrogenatoms joined together in chains or in rings. These molecules, being light andmobile, migrated upwards through the rocks but eventually became trappedbeneath impermeable rock structures in the earths crust. That is where oiland natural gas come from. Some were created millions of years ago, somewere created thousands of years ago, and some are being created rightnow! Much of the oil and gas production now comes from underneath thesea-bed. As the technology for extraction continues to advance, productionbecomes possible from deeper and deeper waters. But the supplies arelimited. Every drop of oil burnt adds to the monumental environmentproblems already created by pumping gases like carbon dioxide into the S.K.P.I.M.C.S 3
  4. 4. COSTING STRUCTURE & SENSITIVITY ANALYSISatmosphere. Many scientists worry that this continual release of carbondioxide is an important cause of global warming. Natural gas is usually found underground near an oil source. It is amixture of light hydrocarbons including methane, ethane, propane, butane,and pentane. Other compounds found in natural gas include carbon dioxide,helium, hydrogen sulphide, and nitrogen. It is found around the world, butthe largest reserves are in the former Soviet Union and the Middle East.This gas is lighter than air and is highly flammable, made up mainly of a gascalled methane. Methane is a simple chemical compound that is made up ofcarbon and hydrogen atoms. Natural gas usually has no odour and cannotbe seen. Before it is sent to the pipelines and storage tanks, it is mixed witha chemical that gives it a strong odour, almost like rotten eggs. The odourmakes it easy to detect a leak. Natural gas is the cleanest burning fossil fuel. When it is burned, itgives off less carbon dioxide than oil or coal, virtually no sulphur dioxide,and only small amounts of nitrous oxides. Natural gas is mostly composedof methane and other light hydrocarbons. Both the carbon and the hydrogenin methane combine with oxygen when natural gas is burned, giving offheat. Coal and oil contain proportionally more carbon than natural gas,therefore giving off more carbon dioxide per unit of energy produced.Natural gas gives off 50% of the carbon dioxide released by coal and 25%less carbon dioxide than oil, for the same amount of energy produced.Carbon dioxide is the most important greenhouse gas contributing to globalwarming. S.K.P.I.M.C.S 4
  5. 5. COSTING STRUCTURE & SENSITIVITY ANALYSIS To find oil and natural gas, companies drill through the earth to thedeposits deep below the surface. The oil and natural gas are then pumpedfrom below the ground by oil rigs. They then usually travel through pipelines. At oil refineries, crude oil is split into various types of products byheating the thick black oil. The products include gasoline, diesel fuel,aviation fuel, home heating oil, oil for ships, and oil to burn in power plantsto make electricity. Oil is used for transportation—cars, airplanes, trucks,buses, and motorcycles. Oil is stored in large tanks until it is sent to various places to be used.Oil is also made into many different products—fertilizers for farms, clothes,toothbrush, plastic bottle, and plastic pen. There are thousands of otherproducts that come from oil. Almost all plastic comes originally from oil. Oilis transported in huge pipelines and tanker ships to places where it is madeinto other products. The origin of the oil industry in India can be traced back to the last partof the 19th century when petroleum was discovered in Digboi in north-eastIndia. Thereafter large numbers of oil fields have been discovered bothinland and off-shore. This has led to the setting up of refineries to processthe oil and gas for use in various sectors. S.K.P.I.M.C.S 5
  6. 6. COSTING STRUCTURE & SENSITIVITY ANALYSIS 1. INTRODUCTION TO ONGC ONGC-A GEM AMONG THE ‘NAVRATNAS’ The Oil and Natural Gas Corporation Ltd, popularly known to thepeople as ONGC is today the Numero Uno among the ‘Navratna’ PublicSector Companies of India. It was set up in 1956 and has made significantcontribution in industrial and economic growth of the country. ONGC is aleader in India engaged mainly in exploration, development and productionof Crude oil, Natural gas and some Value Added Products. Now ONGC is India’s largest producer of Crude oil, Natural gas andLPG. It also produces other value added products such as NGL, C2-C3,Aromatic Rich Naphtha and Kerosene. Internationally its wholly owned subsidiary ONGC Videsh Limited hasnumber of existing and up-coming interest in selected Oil patches includingdevelopment of large gas field in Vietnam Off-shore. It was converted into aPublic Limited company in June 1993 following new liberalized economicpolicy adopted by Government of India in July 1991 sought to deregulateand de-license the core sector (including Petroleum Sector) with partialdisinvestment of Govt. equity in PSUs & other measures. During March 1999ONGC, M/s. Indian Oil Corporation – a down-streaming Giant and M/s. GasAuthority of India Limited – the only gas marketing company agreed to havecross-holding in each other’s equity to pave the way for long term strategicalliance amongst themselves, both for the domestic and overseas businessopportunities in the Energy Value Chain. S.K.P.I.M.C.S 6
  7. 7. COSTING STRUCTURE & SENSITIVITY ANALYSISA. History 1947 - 1960 During the pre-independence period, the Assam Oil Companyin the northeastern and Attock Oil company in northwestern part of theundivided India were the only oil companies producing oil in the country,with minimal exploration input. The major part of Indian sedimentary basinswas deemed to be unfit for development of oil and gas resources. After independence, the national Government realized the importanceoil and gas for rapid industrial development and its strategic role in defense.Consequently, while framing the Industrial Policy Statement of 1948, thedevelopment of petroleum industry in the country was utmost necessity. Until 1955, private oil companies mainly carried out exploration ofhydrocarbon resources of India. In Assam, the Assam Oil Company wasproducing oil at Digboi (discovered in 1889) and the Oil India Ltd. (a 50%joint venture between Government of India and Burmah Oil Company) wasengaged in developing two newly discovered large fields Naharkatiya andMoran in Assam. In West Bengal, the Indo-Stanvac Petroleum project (ajoint venture between Government of India and Standard Vacuum OilCompany of USA) was engaged in exploration work. The vast sedimentarytract in other parts of India and adjoining offshore remained largelyunexplored. In 1955, Government of India decided to develop the oil and naturalgas resources in the various regions of the country as part of the PublicSector development. With this objective, an Oil and Natural Gas Directoratewas set up towards the end of 1955, as a subordinate office under the thenMinistry of Natural Resources and Scientific Research. The department was S.K.P.I.M.C.S 7
  8. 8. COSTING STRUCTURE & SENSITIVITY ANALYSISconstituted with a nucleus of geoscientists from the Geological survey ofIndia. A delegation under the leadership of Mr. K D Malviya, the then Minister ofNatural Resources, visited several European countries to study the status of oilindustry in those countries and to facilitate the training of Indian professionals forexploring potential oil and gas reserves. Foreign experts from USA, WestGermany, Romania and erstwhile U.S.S.R visited India and helped thegovernment with their expertise. Finally, the visiting Soviet experts drew up adetailed plan for geological and geophysical surveys and drilling operations tobe carried out in the 2nd Five Year Plan (1956-57 to 1960-61). In April 1956, the Government of India adopted the IndustrialPolicy Resolution, which placed mineral oil industry among the schedule Aindustries, the future development of which was to be the sole andexclusiveresponsibility of the state. Soon, after the formation of the Oil and Natural Gas Directorate, itbecame apparent that it would not be possible for the Directorate with itslimited financial and administrative powers as subordinate office of theGovernment, to function efficiently. So in August, 1956, the Directorate wasraised to the status of a commission with enhanced powers, although itcontinued to be under the government. In October 1959, the Commissionwas converted into a statutory body by an act of the Indian Parliament,which enhanced powers of the commission further. The main functions ofthe Oil and Natural Gas Commission subject to the provisions of the Act,were "to plan, promote, organize and implement programmes fordevelopment of Petroleum Resources and the production and sale of S.K.P.I.M.C.S 8
  9. 9. COSTING STRUCTURE & SENSITIVITY ANALYSISpetroleum and petroleum products produced by it, and to perform suchother functions as the Central Government may, from time to time, assign toit ". The act further outlined the activities and steps to be taken by ONGC infulfilling its mandate. 1961 - 1990 Since its inception, ONGC has been instrumental in transforming thecountrys limited upstream sector into a large viable playing field, with itsactivities spread throughout India and significantly in overseas territories. Inthe inland areas, ONGC not only found new resources in Assam but alsoestablished new oil province in Cambay basin (Gujarat), while adding newpetroliferous areas in the Assam-Arakan Fold Belt and East coast basins(both inland and offshore). ONGC went offshore in early 70s and discovered a giant oil field inthe form of Bombay High, now known as Mumbai High. This discovery,along with subsequent discoveries of huge oil and gas fields in Westernoffshore changed the oil scenario of the country. Subsequently, over 5billion tones of hydrocarbons, which were present in the country, werediscovered. The most important contribution of ONGC, however, is its self-reliance and development of core competence in E&P activities at a globallycompetitive level. After 1990 The liberalized economic policy, adopted by the Government of Indiain July 1991, sought to deregulate and de-license the core sectors (includingpetroleum sector) with partial disinvestments of government equity in PublicSector Undertakings and other measures. As a consequence thereof, S.K.P.I.M.C.S 9
  10. 10. COSTING STRUCTURE & SENSITIVITY ANALYSISONGC was re-organized as a limited Company under the Companys Act,1956 in February 1994. After the conversion of business of the erstwhile Oil & Natural GasCommission to that of Oil & Natural Gas Corporation Limited in 1993, theGovernment disinvested 2 per cent of its shares through competitivebidding. Subsequently, ONGC expanded its equity by another 2 per cent byoffering shares to its employees. During March 1999, ONGC, Indian Oil Corporation (IOC) - adownstream giant and Gas Authority of India Limited (GAIL) - the only gasmarketing company, agreed to have cross holding in each others stock.This paved the way for long-term strategic alliances both for the domesticand overseas business opportunities in the energy value chain, amongstthemselves. Consequent to this the Government sold off 10 per cent of itsshare holding in ONGC to IOC and 2.5 per cent to GAIL. With this, theGovernment holding in ONGC came down to 84.11 per cent. In the year 2002-03, after taking over MRPL from the A V Birla Group,ONGC diversified into the downstream sector. ONGC will soon be enteringinto the retailing business. ONGC has also entered the global field throughits subsidiary, ONGC Videsh Ltd. (OVL). ONGC has made majorinvestments in Vietnam, Sakhalin and Sudan and earned its firsthydrocarbon revenue from its investment in Vietnam. ONGC today is the only fully–integrated petroleum company in India,operating along the entire hydrocarbon value chain: S.K.P.I.M.C.S 10
  11. 11. COSTING STRUCTURE & SENSITIVITY ANALYSIS • Holds largest share (57.2 per cent) of hydrocarbon acreages in India. • Contributes over 84 per cent of Indian’s oil and gas production. • Every sixth LPG cylinder comes from ONGC. • About one-tenth of Indian refining capacity.B. Organizational Structure S.K.P.I.M.C.S 11
  12. 12. COSTING STRUCTURE & SENSITIVITY ANALYSISC. Board of DirectorsMr. R S Sharma Chairman & Managing DirectorDr. A K Balyan Director (HR)Mr. A K Hazarika Director (Onshore)Mr. N K Mitra Director (Offshore)Mr. D K Pande Director (Exploration)Mr. U N Bose Director (T&FS)Mr. U Sundararajan DirectorMr. Rajesh V Shah DirectorMr. M M Chitale DirectorMr. A M Uplenchwar DirectorMr. Anil Razdan DirectorMr. Ashok Chawla Director S.K.P.I.M.C.S 12
  13. 13. COSTING STRUCTURE & SENSITIVITY ANALYSISD. Head Office and Regional OfficesCorporate Office / Headquarters: Tel Bhavan, DehradunRegistered Office: Jeevan Bharti Towers, New Delhi Plants/ Assets/Basins/Regions/Institutes/Major Projects A. Assets/Plants: Sr. Name of Asset Location No. Mumbai High Asset Mumbai Neelam & Heera Asset Mumbai Bassein & Satellite Asset Mumbai Uran Plant Uran Hazira Plant Hazira Ahmedabad Asset Ahmedabad Ankleshwar Asset Ankleshwar Mehsana Asset Mehsana Rajamundry Asset Rajamundry Karaikal Asset Karaikal Assam Asset Nazira Tripura Asset AgartalaB. Basins: 1. Western Offshore Basin Mumbai 2. Western Onshore Basin Baroda 3. KG Basin Rajamundry S.K.P.I.M.C.S 13
  14. 14. COSTING STRUCTURE & SENSITIVITY ANALYSIS 4. Cauvery Basin Chennai 5. Assam & Assam-Arakan Basin Jorhat 6. CBM- BPM Basin Kolkata 7. Frontier Basin DehradunC. Regions: 1. Mumbai Region Mumbai 2. Western Region Baroda 3. Eastern Region Nazira 4. Southern Region Chennai 5. Central Region KolkataD. Institutes: 1. Keshava Deva Malaviya Institute Dehradun of Petroleum Exploration (KDMIPE) 2. Institute of Drilling Technology Dehradun (IDT) 3. Institute of Reservoir Studies Ahmedabad 4. Institute of Oil & Gas Production Navi Technology Mumbai 5. Institute of Engineering & Ocean Navi Technology Mumbai 6. Geo- data Processing & Dehradun Interpretation Center (GEOPIC) 7. ONGC Academy Dehradun 8. Institute of Petroleum Safety Goa Health & Environment S.K.P.I.M.C.S 14
  15. 15. COSTING STRUCTURE & SENSITIVITY ANALYSIS Management 9. Institute of Biotechnology & Jorhat Geotectonics Studies 10. 10. School of Maintenance Vadodara Practices 11. 11. Regional Training Institutes Navi Mumbai, Chennai, Sivasagar & Vadodara.E. Services: 1. Chief Drilling Services Mumbai 2. Chief Well Services Mumbai 3. Chief Geo-Physical Services Dehradun 4. Chief Logging Services Baroda 5. Chief Engineering Services Mumbai 6. Chief Offshore Logistics Mumbai 7. Chief Technical Services Mumbai 8. Chief Info-com Services New Delhi 9. Chief Corporate Planning New Delhi 10. Chief Human Resource Dehradun Development 11. Chief Employee Relations Dehradun 12. Chief Security Dehradun 13. Company Secretary New Delhi S.K.P.I.M.C.S 15
  16. 16. COSTING STRUCTURE & SENSITIVITY ANALYSIS14. Chief Marketing New Delhi15. Chief Corporate Affairs & Co- New Delhi ordination16. Chief Corporate Communication New Delhi17. Chief Material Management Dehradun18. Chief Technical Services Dehradun19. Chief Health, Safety & Mumbai Environment20. Chief Legal New Delhi21. Chief Medical Dehradun22. Chief Internal Audit New Delhi23. Chief Commercials New Delhi24. Chief Exploration and Dehradun Development S.K.P.I.M.C.S 16
  17. 17. COSTING STRUCTURE & SENSITIVITY ANALYSISE. OBJECTIVES VisionTo be a World-class Oil and Gas Company integrated in energy businesswith dominant Indian leadership and global presence. World Class • Dedicated to excellence by leveraging competitive advantages in R&D and technology with involved people. • Imbibe high standards of business ethics and organizational values. • Abiding commitment to safety, health and environment to enrich quality of community life. • Foster a culture of trust, openness and mutual concern to make working a stimulating and challenging experience for our people. • Strive for customer delight through quality products and services. Integrated In Energy Business • Focus on domestic and international oil and gas exploration and production business opportunities. • Provide value linkages in other sectors of energy business. • Create growth opportunities and maximize shareholder value. Dominant Indian Leadership • Retain dominant position in Indian petroleum sector and enhance Indias energy availability Mission To be an Indian Integrated Energy Multinational (PSU); Target: ATurnover of 50 Billion US dollars in 5 years. S.K.P.I.M.C.S 17
  18. 18. COSTING STRUCTURE & SENSITIVITY ANALYSIS Global Ranking • Is Asia’s best Oil & Gas Company, as per a recent survey conducted by US-based magazine ‘Global Finance’. • Ranks as the 2nd biggest E&P company (and 1st in terms of profits), as per the Platts Energy Business Technology (EBT) Survey 2004. • Is placed at the top of all Indian Corporate listed in Forbes 400 Global Corporate (rank 133rd) and Financial Times Global 500 (rank 326th), by Market Capitalization. . • Is recognized as the Most Valuable Indian Corporate, by Market Capitalization, Net Worth and Net Profits, in current listings of Economic Times 500 (4th time in a row), Business Today 500, Business Baron 500 and Business Week. • ONGC ranks among the top 10 Oil and Gas companies in world in terms of market capitalization. • ONGC has been ranked 273rd in the Forbes 2000-World’s biggest and most powerful companies as measured by composite ranking for sales, profits, assets and market value.F. FINANCIAL DETAILS S.K.P.I.M.C.S 18
  19. 19. COSTING STRUCTURE & SENSITIVITY ANALYSISFinancials ONGC : Share Holding Pattern (% ) 1.52% 2.59% 6.19% Govt of India 3.54% GAIL 9.61% IOCL Public 2.40% FIIs, NRIs Pvt Corporate FIIs, Banks 74.15% S.K.P.I.M.C.S 19
  20. 20. COSTING STRUCTURE & SENSITIVITY ANALYSIS3. HAZIRA GAS PROCESSING COMPLEX S.K.P.I.M.C.S 20
  21. 21. COSTING STRUCTURE & SENSITIVITY ANALYSIS The industrial pride of india The ONGC Gas processing unit is located at Hazira on the suburbs ofSurat city in Gujarat. HGPC plant was specifically laid for processingNatural gas, which is found at Bombay High. This plant comes under theMumbai Region Business Centre (MRBC). Hazira Gas Processing Complex was set up in September 1985 toreceive gas from Mumbai High initially and subsequently to process sourNatural Gas from Bassein and other offshore fields. Sour gas along withassociate condensate is transported through two sub-sea pipelines: one 36”diameter(231 kms) and the other 42” diameter (244 kms) from basseinoffshore process platform to Hazira plant. From here the natural gasproduction is carried out which on earlier stage is supplied to GAIL and HBJ(Hazira Bijapur Jagdishpur) pipeline. With the discovery of Bombay High begun the growth of Mumbairegion. From a small beginning Exploratory Bombay High with India’s firstoffshore Sagar-Samrat. ONGC has come along way. After its success inBombay High ONGC discovered various other fields in western offshore.Among the various discoveries in western offshore, South Bassein provedto be one of the biggest gas fields in Asia. Total recoverable reserves areestimated to be of order of 200 billion cubic meters which is phenomenalwhen compared to such fields in the world. The exploration of bassein fieldpaved way for development of number of gas based industries in Gujaratand Northern India, covering Delhi to bring gas to shore and the processbefore it is distributed to consumers, ONGC had chosen a 625 hectares ofland in Hazira plant about 20 km away from surat town which has nowgrown to gigantic complex sprawling in 705 hectares with following certain S.K.P.I.M.C.S 21
  22. 22. COSTING STRUCTURE & SENSITIVITY ANALYSISunits plants built with state of the art technology at a cost of Rs. 1300 croresand process of growth is continued. It has gas processing capacity of 41MMSCMD (Million Metric Standard Cubic Meter per Day). The whole Plantis completely automated where no one can find a single person working inthe field area. This fully automated plant is maintained and inspectedregularly with the responsible group of people. PRODUCTS 1. SWEET NATURAL GAS 2. LPG (LIQUIFIED PETROLEUM GAS) 3. ARN (AROMATIC RICH NAPHTHA 4. SKO (SUPERIOR KEROSENE OIL) 5. ATF (AVIATION TURBINE FUEL) 6. HSD (HIGH SPEED DIESEL) 7. HEAVY CUT 8. SULPHUR CUSTOMERS OF ONGC1. KRIBHCO 2. ESSAR3. GAIL 4. IOCL5. HPCL 6. BPCL7. RELIANCE INDIA LTD DESPATCH OF PRODUCTS1. RAIL S.K.P.I.M.C.S 22
  23. 23. COSTING STRUCTURE & SENSITIVITY ANALYSIS2. ROAD3. PIPELINE4. SHIP PRODUCTS DISPATCHED 1. LPG – ROAD, PIPELINE, RAIL 2. NAPHTHA – SHIP, PIPELINE, RAIL 3. SKO – ROAD, PIPELINE 4. SULPHUR – ROAD • NATURAL GAS is sold to GAIL and marketing is done by GAIL. • LPG is sold to IOCL, HPCL, BPCL and for domestic purpose. • NAPHTHA is exported to Singapore, Hong Kong, South Korea, Japan etc through ship. • SKO is sold to local customers as well as HSD also. • ATF is used for internal purpose as well as HSD also. • SULPHUR is sold to chemical companies.These all are the Value Added Products. COMPETITORS OF ONGC 1. ESSAR OIL S.K.P.I.M.C.S 23
  24. 24. COSTING STRUCTURE & SENSITIVITY ANALYSIS 2. BPCL 3. HPCL 4. RIL 5. GPCL 6. IPCLThe main competitor of ONGC is Reliance Petrochemicals Ltd. MAIN PLANT 1. GAS TRUNKLINES 2. GAS SWEETENING UNIT (GSU) 3. DEW POINT DEPRESSION (DPD) 4. LPG RECOVERY UNIT 5. CONDENSATION FRACTIONATE UNIT (CFU) 6. CAUSTIC WASH UNIT (CWU) 7. GAS DEHYDRATION UNIT (GDU) 8. KEROSENE RECOVERY UNIT (KRU) AUXILLIARY PLANTCO-GENERATION PLANT S.K.P.I.M.C.S 24
  25. 25. COSTING STRUCTURE & SENSITIVITY ANALYSIS MAIN UTILITIES AND OFFSITES 1. RAW WATER TREATMENT PLANT 2. LPG STORAGE SPHERES 3. NGL STORAGE TANKS 4. NAPHTHA STORAGE TANKS 5. KEROSENE STORAGE TANKS 6. HSD/ATF STORAGE TANKS 7. FIRE WATER STORAGE TANKS 8. RAW WATER RESERVOIR.A. FINANCIAL HIGHLIGHTSStatement showing Revenue and Surplus of Hazira plant S.K.P.I.M.C.S 25
  26. 26. COSTING STRUCTURE & SENSITIVITY ANALYSIS (Amount in Rs. Crores) Particular / Period 2004-05 ( Actual 2005-06 ( Projected for 12 months ) for 9 months up to Dec 05 ) Revenue ( A ) 5394 5210 Expenditure Statutory levies 474 373 Expenses* 152 130 Depreciation 43 29 Total ( B ) 669 532 Surplus ( A – B ) 4725 4678* Expense do not include input and Headquarter cost.MOU Target v/s Achievement Apr-Nov 05 Product Unit Target Actual Achievement LPG TMT 335.100 383.438 115.32 Naphtha TMT 686.900 805.491 117.26 SKO TMT 100.000 113.653 113.65 Gas sales MMSCM 6116 6553.916 107.16 HSD TMT 8.960 9.092814 101.48 Total VAPS TMT 1130.96 1314.675 116.24PC Target v/s Achievements (Apr-05) Products Unit Target Actual Achievement LPG TMT 368.93 386.438 104.75 Naphtha TMT 779.29 805.491 103.36 SKO TMT 100.00 113.653 113.65 Gas sales MMSCM 6532 6553.916 100.34 HSD TMT 8.96 9.092814 101.48 Total VAPs TMT 1418.19 1488.25 104.94 4. COSTING STRUCTURE OF HAZIRA PLANT S.K.P.I.M.C.S 26
  27. 27. COSTING STRUCTURE & SENSITIVITY ANALYSISINTRODUCTION ONGC Hazira follows cost centre accounting system. It has an ERP system called SAP (system application & products of database). SAP is used world over by most of the corporate giants and is well known for its capabilities for integration of data. In ONGC, SAP system facilitates integration of financial data with costing data, production data and sales and distribution data. Thus in SAP, all the basic data for costing in Hazira plant are picked up form various modules of SAP like FI(Finance) module, Production module, S&D module and MM(Material Management module). This is one of the distinct advantage of SAP that it avoids duplicity of data entry and is used a common data base for different purposes. SAP is a system that integrates and automates all facets of business operations. This includes planning, manufacturing, and sales, while more recent ERP software products encompass marketing, inventory control, order tracking, customer service, finance and human resources as well. 5. Methods of Costing at ONGC Hazira plant S.K.P.I.M.C.S 27
  28. 28. COSTING STRUCTURE & SENSITIVITY ANALYSIS ONGC Hazira plant follows cost centre accounting method for thepurpose of costing of products and reporting of cost data to managementand various other external and internal agencies. Cost centre accountingis a method for applying resource costs to an organization. Theaccounting system identifies each of the organizational parts of thetraditional functional structure and applies the identifiable costs to thatpart of the structure. Thus, in cost centre accounting, entire organization is divided intoparts and an attempt is made to identify and book costs related to theseparts separately so that cost incurred on each of such parts can be foundout separately for further use in cost control and other managementdecisions. 6. Certain terms S.K.P.I.M.C.S 28
  29. 29. COSTING STRUCTURE & SENSITIVITY ANALYSISIn ONGC Hazira plant, the costing system is run on ERP system calledSAP. Entire costing calculations are done by this ERP system only. Thuscost in Hazira plant and SAP system go hand to hand and it is difficult tounderstand the costing system of Hazira plant if we make an attempt tounderstand it in isolation without taking into the SAP system. Therefore,to understand the cost system of the Hazira plant certain terms must beunderstood. These terms are used by the costing system of SAP. Some moreimportant terms have been explained here below:1. Cost object: A cost object, in SAP terminology, is a cost carrier. In other words, it isan object with reference to which costs are incurred. For example, costcentre is a cost object. Thus, LPG plant is a cost centre and therefore it isa cost object too as various costs are incurred to run the LPG plant. InSAP the cost objects are: 1.1 Cost centre 1.2 Plant maintenance order 1.3 Work break down structure (WBS) 1.4 Process order 1.5 Internal orderEach of these cost objects have been explained hereafter:1.1 Cost centre: S.K.P.I.M.C.S 29
  30. 30. COSTING STRUCTURE & SENSITIVITY ANALYSIS Entire ONGC Hazira plant has been divided in around 61 cost centres. A cost centre can be defined as a unit with reference to which cost is incurred. The list of cost centres of Hazira plant is given as follows:LIST OF COST CENTRES OF HAZIRA PLANTCOST CENTRE CODE COST CENTRE DESCRIPTIONPLANT COST CENTRESMUMHPPL101 SLUG CATCHER UNITMUMHPPL102 GSU PLANTMUMHPPL103 LPG PLANTMUMHPPL105 DPD PLANTMUMHPPL106 SRU PLANTMUMHPPL107 GDU PLANTMUMHPPL108 KRU PLANTMUMHPPL301 CFU PLANTUTILITY COST CENTRESMUMHPUT204 IG PLANTMUMHPUT202 UTILITY WATERMUMHPUT205 COOLING WATER SYSTEMMUMHPUT206 DMW PLANTMUMHPUT201 WWTP PLANTMUMHPUT102 ELECT DIST SYSTMUMHPSP928 COGEN OFFICEMUMHPUT101 COGEN POWER PLANTMUMHPUT105 HAZIRA TURBINE I & IIMUMHPUT108 HAZIRA TURBINE IIIMUMHPUT103 MP BOILERSMUMHPUT104 STEAM GENERATIONMUMHPUT106 HZR- HITACHI BOILERMUMHPUT107 HAZIRA THERMAX BOILRMUMHPUT203 PLANT/INSTT. AIRMAINTENANCE COST CENTRESMUMHPMT101 MAINT-PROCESS-MECHMUMHPMT102 MAINT –ELECTMUMHPMT103 MAINT-PROCESS-INSTT.MUMHPMT902 HAZIRA MAINTN CIVILMUMHPMT901 MAINT_COMMON S.K.P.I.M.C.S 30
  31. 31. COSTING STRUCTURE & SENSITIVITY ANALYSISMUMHPMT105 HAZIRA MAINT -E&TMUMHPMT104 MAINT-ESTATEOPERATION SUPPORT COST CENTRESMUMHPSP930 CORROSION MONITORINGMUMHPSP931 CONDITION MONITORINGMUMHPSP911 CHEMISTRY-PTAUMUMHPSP912 OPERATION OFFICE/GM(MUMHPSP915 PLANT TRAININGMUMHPSP932 R.E(P) OFFICEMUMHPPTAU1 PROCESS ANALYSIS UPGMUMHPSP905 HAZIRA QAD / EMADMINISTRATIVE SUPPORT COST CENTRESMUMHPSP910 PROJECT GROUPMUMHPSP901 PROJECT HEADS OFFICMUMHPSP902 F&AMUMHPSP903 P&A/LEGAL/IRMUMHPSP904 MMMUMHPSP929 HAZIRA INFO COMMUMHPSP914 SHEMUMHPSP913 ERGMUMHPSP916 MEDICALMUMHPSP919 TOWNSHIPMUMHPSP917 SECURITY & VIGILANCESALES & DISTRIBUTION COST CENTRESMUMHPSP923 TRANSPORT-BASE OFFICMUMHPTP910 PRODUCT STORAGE OFFIMUMHPTP901 PRODUCT DESPATCH OFFMUMHPTP301 DESPATCH-PIPELINEMUMHPTP321 DESPATCH-RAILMUMHPSP927 HAZIRA PP& EVACUATIONMUMHPTP341 DESPATCH-ROADSECONDARY COST CENTRESMUMHPECXP1 HAZIRA LOG E&C_CAPMUMHPECXP2 HAZIRA LOG E&C_REMUMHPGEEXP HAZIRA GEN EXP S.K.P.I.M.C.S 31
  32. 32. COSTING STRUCTURE & SENSITIVITY ANALYSISFrom the list, it can be seen that there are 7 broad categories of costcentres in Hazira plant namely: 1.1.1 Plant cost centres:All the major plants of ONGC Hazira plant have been identified with aseparate cost centre. For example, gas sweetening unit (GSU) plant hasbeen identified with cost centre MUMHPPl102. Similarly, LPG unit hasbeen identified with cost centre MUMHPPl103 and the like.Whenever costs are incurred for any of the plants, these costs arebooked in respective plant’s cost centres. 1.1.2. Utility cost centres:For the purpose of running the plant, various utilities like water, steam,power, inert gas etc are required. ONGC Hazira plant has its own utilityplants to generate/produce and consume these utilities. Like, for powerand steam generation, Hazira plant has its own captive power plantwhich generates power sufficient to run the plant on its own.Each of such utility plants too, has been identified with separate costcentres. For example, MUMHPUT204 represents inert gas plant;similarly, water utility plant has been given code MUMHPUT 202. 1.1.3 Maintenance cost centres:In order to capture separately the maintenance activities which arecarried out in the plants, separate cost centres have been created foreach of maintenance activities. For electric maintenance in the plant, costcentre MUMHPMT102 has been created which captures all the electricalmaintenance cost incurred in Hazira plant. Similarly, for mechanical S.K.P.I.M.C.S 32
  33. 33. COSTING STRUCTURE & SENSITIVITY ANALYSISmaintenance, cost centre MUMHPMT101 has been created. In the samemanner, for civil maintenance, infocomm maintenance, etc, separate costcentres, as indicated in the list above have been created. 1.1.4 Operation support cost centres:To support operations of the plant, a huge team of engineers and othertechnical experts has been engaged in Hazira plant. This team ensuresthat every activity of the plant goes on smoothly without interruption aseven a single day’s plant shut down can result in loss of millions ofrupees.For identifying cost of each of such operation support separately, aseparate cost centre has been created in SAP system. Like, for conditionmonitoring group of the plant (which continuously monitors the conditionof the plant), cost centre, MUMHPSP931 has been created. Similarly,chemistry section of the plant which monitors quality controls has beenidentified with cost centre MUMHPSP911. 1.1.5 Administrative support cost centres:All the administrative departments like human resources & employeerelations department, finance & accounts section, material managementsection, health, safety & environment section etc have been identifiedwith separate cost centres to capture cost of each of these departments.Finance & accounts section has been given cost centre codeMUMHPSP902. Again, material management section’s cost centre isMUMHPSP904 and the like. S.K.P.I.M.C.S 33
  34. 34. COSTING STRUCTURE & SENSITIVITY ANALYSIS 1.1.6 Sales & distribution cost centres:Hazira plant produces various products like gas, LPG, ARN, SKO, andHSD. These products are dispatched to customers through variousmodes of transportations. Mainly dispatches are through pipeline, rail androad. Gas is dispatched to GAIL through pipeline, while other liquidproducts are dispatched through rail, road and as well as throughpipelines.To identify cost of dispatch of goods by each of modes of transportation,cost centres have been created in SAP for each of these modes. Forexample, for dispatch through pipeline, cost centre MUMHPTP301 hasbeen created. Similarly, for rail dispatch, cost centre, MUMHPTP321 iscreated.Again, to capture cost of storage of products, cost of marketing section ofHazira separate cost centres, MUMHPTP910 & MUMHPSP927havebeen created. 1.1.7 Secondary cost centres:Secondary cost centres are those cost centres in which no direct cost isbooked. They receive cost from primary cost centres (i.e. the costcentres in which direct costs are booked). The purpose of secondary costcentres is to ensure proper allocation of cost to appropriate products andactivities.In Hazira, there are three secondary cost centres, namely,MUMHPECXP1, MUMHPECXP2 & MUMHPGEEXP. S.K.P.I.M.C.S 34
  35. 35. COSTING STRUCTURE & SENSITIVITY ANALYSIS 1.1.7.1 Purpose of MUMHPECXP1 & MUMHPECXP2:There is a section in Hazira plant called project group section. Thissection takes care of implementation of all the revenue and capitalprojects of Hazira plant. In other words, it executes & monitors all therepair & maintenance jobs and also the projects for construction of somecapital asset like plant, building etc.Project group section of Hazira plant has been identified with a separatecost centre called MUMHPSP910. Costs of project group section areinitially booked in this cost centre.Since, this section is engaged in execution and monitoring of revenue aswell as capital projects, some part of its cost should go to revenue whilethe other part should logically be capitalized with the cost of assets whichcome into being through capital projects which are executed andmonitored by it.To facilitate this, secondary cost centres, MUMHPECXP1 andMUMHPECXP2 have been created.The flow of cost of the project group cost centre can be understoodthrough the following diagram: S.K.P.I.M.C.S 35
  36. 36. COSTING STRUCTURE & SENSITIVITY ANALYSISThe basis for location of cost of project group cost centre is as under: The basis for allocation of cost of MUMHPSP910 to secondary costcentres MUMHPECXP1 & MUMHPECXP2 is the number of manpowerengaged in revenue projects and capital projects. Thus if total costbooked in a particular period in cost centre MUMHPSP910 is say Rs. 100and during that period 7 persons of project group cost centre wereengaged revenue projects and rest of 3 persons were engaged in capitalprojects, Rs.70 shall be allocated to products and Rs..30 will becapitalized with the cost of capital projects executed and monitored byproject group section. 1.1.7.2 Purpose of MUMHPGEEXP:There is certain expenditure which is treated in ONGC as non-allocable.That is to say that these expenses are not allocated to products. Theseexpenses are expenditure like prior period expenses, foreign exchangeloss, write off of assets, advances etc. S.K.P.I.M.C.S 36
  37. 37. COSTING STRUCTURE & SENSITIVITY ANALYSIS All such expenditure which is initially booked in any of the 60 cost centres mentioned above. However, since these expenses are non-allocable, before the allocation of cost starts, they are taken out from the primary cost centres and transferred to the cost centre MUMHPGEEXP. Thus the purpose of MUMHPGEEXP is to capture all the non-allocable expenditure.1.2 Plant & maintenance order (PM order): SAP system provides facility to capture cost as well as maintenance history of each of the equipments of a plant. This is facilitated by use of plant maintenance order. A pm order is a cost object that capture maintenance cost of an equipment. In the SAP system of Hazira plant, details like its description and specification, its location, the date of its commissioning, etc of equipment is maintained. This detail is called “equipment master”. Each of such equipment has been given a unique number by which it is identified. Further, each such equipment has been attached to a cost centre depending upon its location & use. For keeping record of repair & maintenance of each of these major equipments, the facility of pm orders is used. Whenever repair or maintenance of a equipment is done, a pm order is created in the SAP system. SAP gives a unique number to each of such pm orders. In that pm order details like: a) The equipment for which repair or maintenance job is being carried out, S.K.P.I.M.C.S 37
  38. 38. COSTING STRUCTURE & SENSITIVITY ANALYSIS b) The scheduled as well as actual date of start of R&M job, c) The scheduled as well as actual date on which the R&M job was finished, d) The cost of stores & spares or any other expenditure incurred in carrying out the job, e) The time (in hours) taken to complete the R&M job. Thus, it can be seen that significant amount of information is collected in these pm orders for further use in reporting and analysis. For detailed analysis, even pm orders too have been broadly classified in the following types:Order type code Order typePm15 Malfunction report ordersPm20 Modular repair orderPm25 Threshold ordersPm30 Maintenance request ordersPm35 Crisis management ordersPm40 Preventive maintenance ordersPm45 Calibration ordersPm50 Refurbishment ordersPm55 Refurbishment orders – workshopPm60 Refurbishment orders – OEM/ externalPm65 Audit ordersPm70 PM order for IMR activities This further classification of order types helps in more deep analysis of R&M of an equipment. Appropriate order type is selected by the person creating order, depending upon the nature of R&M work to be carried out. S.K.P.I.M.C.S 38
  39. 39. COSTING STRUCTURE & SENSITIVITY ANALYSIS1.3 Work break down structure (WBS): WBS too is a SAP term. Whenever a cost is incurred for a capital project which will result in creation of a capital asset, the cost is not booked in a cost centre or pm order. Such cost is booked in a WBS so that this type of cost can be captured separately. Thus cost of a capital project is initially booked in a WBS. Then on completion of the project, all the cost collected in a WBS is transferred to the capital asset to which it pertains.1.4 Process order: A process order is a cost object to capture cost of production of final products. It should be noted here that no direct cost is booked in a process order. Costs initially booked in cost centres, pm orders flows into process orders and thereby arrives at final cost of the products.1.5 Internal order: Internal order is similar to WBS. However, while WBS is used for a normal capital project, internal order is used for a special capital asset i.e. An Oil or Gas well. When an oil well is drilled, huge cost is incurred in its drilling. To keep a separate record of cost incurred for such well, separate internal order is created in SAP for each well drilled. All the costs incurred in drilling of that well is initially booked in that particular internal order. Then if it is found that the there exists oil or gas in that well, all the cost of the internal order is transferred to the capital asset i.e. Oil or gas well. S.K.P.I.M.C.S 39
  40. 40. COSTING STRUCTURE & SENSITIVITY ANALYSIS However, if it is found that there is no oil or gas in the well drilled, allthe cost booked in the internal order is transferred to cost centre whichgets allocated further depending upon the mapping in SAP. However,since no drilling activity takes place in Hazira plant, internal orders arenot used costing system of Hazira plant. 2. Statistical key figure (SKF)In SAP SKF means “the basis for allocation of cost” from one cost objectto other and finally to finished products. From the above discussion, it isclear that costs are initially booked in cost objects like cost centres, pmorders, WBS and internal orders. In order to allocate these costs booked,it is required to define some basis so that cost booked can be allocatedto products. For example, as explained above, the cost of project groupcost centre MUMHPSP910 is allocated to secondary cost centresMUMHPECXP1 & MUMHPECXP2 on the basis of number of persons ofproject group sections engaged in revenue projects and in capitalprojects. Thus SKF for allocating cost of MUMHPSP910 is manpower. Atthe end of each period, when allocation of cost takes place, it isdetermined that how many employees of project group cost centres wereengaged in revenue projects and how many were engaged in capitalprojects. These numbers are fed in SAP system and on the basis of SKFfed, SAP makes automatic calculations and allocation of cost takesplace.Similarly, the cost of transportation cost centres like products dispatch –rail (MUMHPTP321), product dispatch – pipeline (MUMHPTP301) isallocated to products on the basis of quantity of final products dispatched S.K.P.I.M.C.S 40
  41. 41. COSTING STRUCTURE & SENSITIVITY ANALYSISthrough these mode of transports. Thus SKF for these transport costcentres is dispatch quantity. These dispatch quantities are fed in SAPsystem at the end of every period on the basis of which allocation of costbooked in transportation cost centres takes place.Again for some of the cost centres, basis has been fixed permanently,depending upon past experience and records. For example, it has beendetermined that waste water treatment plant of Hazira plant processeswaste water coming out of various other plants in the followingproportion: MUMHPPl101 Slug catcher unit 5.00% MUMHPPl102 GSU plant 20.00% MUMHPPl103 LPG plant 40.00% Thus every time, the MUMHPPl105 Dpd plant 15.00% cost of waste water treatment plant cost MUMHPPl106 Sru plant 15.00% MUMHPPl301 Cfu plant 5.00% centre(MUMHPUT201) gets allocated to the above plant cost centresproportionately. Thus SKF for allocation of waste water treatment plantcost is fixed percentage. 3. Activity type:For the purpose of allocation of some of the cost centres, SAP systemuses utility called activity. It is assumed that some cost centres areengaged in rendering services to other cost centres. Thus these costcentres generate activities which are consumed by other cost centres.For example, electrical maintenance cost centre of Hazira plant isengaged in electrical maintenance of all other cost centres of the plant. S.K.P.I.M.C.S 41
  42. 42. COSTING STRUCTURE & SENSITIVITY ANALYSISThus electrical maintenance cost centre generates activity called maintn(maintenance) and the same is consumed by other cost centres.SAP system facilitates (through pm orders) keeping a record ofconsumption by all other cost centres of activity maintn during a period.At the end of the period, the cost of electrical maintenance cost centrewill get allocated to other cost centres on the basis of this record. 7.Cost cycles:This is one of the important parts of costing system in SAP. A cost cycleis a small computer programme which facilitates allocation of cost initiallybooked in different cost objects like cost centres, pm orders, WBS etc tofinal products. In this computer programme, mapping is done whichdefines how cost will flow from one cost object to other and finally tofinished products and the basis of such flow.At the end of the period, when this computer programme (i.e. Cost cycle)is executed and SAP system, on the basis of mapping done in thatprogramme and the inputs provided, automatically makes all the complexcalculations and provides final output in the form of product costs. S.K.P.I.M.C.S 42
  43. 43. COSTING STRUCTURE & SENSITIVITY ANALYSIS 8. Allocation of cost in the costing system of Hazira plantOnce we obtain an understanding of the above terms, it becomes easierto understand the cost allocation system of Hazira plants.As stated above, the entire process of allocation of cost of Hazira plant isautomated through cost cycles already created in SAP system. Costcycles are executed one by one and the allocation takes placeaccordingly. Thus, it does not involve any manual calculations.For the purpose of allocation of costs in Hazira, the following cost cyclesare executed: I. Cost cycle for separating non allocable expenses II. Cost cycle for allocation of cost of support cost centres to other cost centres which receive services of these support cost centres III. Cost cycle for allocation of cost of maintenance cost centres to plant maintenance orders. IV. Cost cycles for allocation of plant maintenance orders to other cost centres. V. Cost cycle for allocation of cost booked in WBS to final capital assets VI. Cost cycle for allocation of cost of operation support cost centres to plant & utility cost centres VII. Cost cycle for allocation of utility & plant cost centres cost to finished productsEach of these cost cycles have been explained hereunder one by one: S.K.P.I.M.C.S 43
  44. 44. COSTING STRUCTURE & SENSITIVITY ANALYSIS 8.1Cost cycle for separating non allocable expensesIn ONGC, certain elements of expenditure are considered as non-allocable. In other words this expenditure is not allocated to finalproducts. This expenditure includes: 1. Prior period expenditure 2. Leave encashment 3. Ex-gratia & bonus 4. Financial costs 5. Advances, inventory and assets written off 6. Statutory levies like sales tax, excise duty etc 7. Donations, etcIn SAP, any expenditure can be booked only when some cost object isspecified at the time of booking of such expenditure. Therefore, to bookthe above mentioned non- allocable expenditure cost object (normally acost centre) has to be specified. For this reason, it becomes necessary totake this expenditure out of the costing activities before allocation begins.For the purpose of separating this expenditure, a cost cycle called“distribution cost cycle” is executed. This cost cycle takes out from all thecost centres the non-allocable cost elements and put them in cost centreMUMHPGEEXP. No further allocation of these cost elements fromMUMHPGEEXP takes place in any of the cost cycles which are executedafter distribution cost cycle. S.K.P.I.M.C.S 44
  45. 45. COSTING STRUCTURE & SENSITIVITY ANALYSIS 8.2Cost cycle for allocation of cost of support cost centres to other cost centres which receive services of these support cost centres:As mentioned above, there are several support cost centres which renderservices to other cost centres. For example, finance & accounts section(cost centre MUMHPSP902) renders services to all the other costcentres. Similarly, human resources & employee relations section (costcentre MUMHPSP903) too renders services to all other cost centres.These cost centres known as administrative support cost centres.Cost of these cost centres is allocated to all the other cost centres whichare receiving services of these support cost centres.This is done by executing “support cost centres assessment cycle” afterexecuting this cost cycle, the cost in the administrative support costcentres become nil. 8.3Cost cycle for allocation of maintenance cost centres to plant maintenance orders:The cost of maintenance cost centres of Hazira plant does not straightaway get allocated to the cost centres who receive their services. Thecost of these maintenance cost centres is routed through plantmaintenance orders. In other words, first the cost of maintenance costcentres will get allocated to plant maintenance orders then from plantmaintenance orders, the cost will get allocated to other cost centreswhich are maintained by these maintenance cost centres.The flow diagram here below shows the flow of cost of maintenance costcentres: S.K.P.I.M.C.S 45
  46. 46. COSTING STRUCTURE & SENSITIVITY ANALYSIS MAINTENANC E COST CENTRE PM Order PM Order PM Order 2 3 1 Cost Cost Cost Centre 2 Centre 3 Centre1 The entire process of allocation of cost of maintenance cost centres toother cost centres through plant maintenance orders can be understood asunder:8.3.1 Creation of plant maintenance order: Whenever the maintenance people are requested to carry outmaintenance work in any of the plants, they are mandatory required tocreate a plant maintenance order in SAP system. When a plantmaintenance order is created, SAP system allots a unique number to such pm order. The maintenance order contains all the details related to thatparticular maintenance job for which it has been created. Like, the nature ofmaintenance job, the place in plant where the job is to be carried out, theplant officer on the request of whom the maintenance job is to be carried S.K.P.I.M.C.S 46
  47. 47. COSTING STRUCTURE & SENSITIVITY ANALYSISout, the scheduled date as well as actual date of start of maintenance job,the scheduled as well as actual date of completion, the time (in hours) takenfor the job and the cost (stores, spares, or any other expenditure) incurredfor the maintenance job.8.3.2 Confirmation of job in the plant maintenance order: When the maintenance job is over, the person carrying out job isrequired to confirm the completion of job in the SAP system. Whileconfirming the job, he is required to fill up all the details of job relating tocompletion such as date and time of completion, time taken for the job etc.8.3.3 Closing of plant maintenance order: After confirming the completion of job in the plant maintenance order,the concerned person is required to change the status of the plantmaintenance order to “close”. Once the plant maintenance order is closed,no further modification in the information fed in that order can be changed.Nor can that order be used for any other purpose. Thus, closing of plantmaintenance order is important to ensure correctness of data fed therein.8.3.4 Computation of maintenance cost at the end of the period: The activity of allocation of cost takes place at the end of the periodfor which product cost is to be calculated. It has been stated above that in every plant maintenance order, thetime (in hours) taken for completion of the job is booked. For allocation ofcost booked in maintenance cost centre, this time forms basis. S.K.P.I.M.C.S 47
  48. 48. COSTING STRUCTURE & SENSITIVITY ANALYSIS We take an example to explain how cost of a maintenance cost centre gets allocated to plant maintenance orders: Suppose, during the month of April 06, the cost centre MUMHPMT101 (mechanical process maintenance cost centre), carried out 10 maintenance jobs at various locations in the plant. These jobs are as under: Cost centre for TimePm order Cost Nature of job done Location which R&M taken for no incurred carried out job done10012658 Repairing of abnormal sound from Sru plant MUMHPPl106 2 hours Nil acid transfer pump in SRU plant at locationct-310012793 Fixing up of pressure gauge LPG MUMHPTP910 5 hours 2,500.00 problem in LPG sphere (c2) storage area10012806 Repairing of mdea tank leakage GSU plant MUMHPPl102 6 hours 6,000.00 from tank no. 31E301 in GSU plant10012883 Fixing up of coupling disconnected Cfu plant MUMHPPl301 4 hours 10,000.00 in CFU plant at location no. 62P604B10012886 Repairing of poor pumping of Kru plant MUMHPPl108 2 hours Nil chemical from NGL tank of KRU10012887 Cleaning of air filter of 63B601A at GSU plant MUMHPPl102 3 hours 1,500.00 GSU plant10012888 Fixing up malfunctioning of motor Kru plant MUMHPPl108 4 hours 2,000.00 no. 90FIC1304 in KRU10012906 Cleaning of suction strainer at LPG plant MUMHPPl103 8 hours 1,000.00 location p901b in LPG plant10012915 De-choking the sampling point at Slug catcher MUMHPPl101 3 hours 3,000.00 slug catcher unit10012916 Repairing of flange leakage at Wwtp MUMHPUT201 4 hours 2,500.00 location 77LV1303 in Wwtp plant Total 41 hours 28,500.00 It should be noted here that in real situation far more than 10 plant maintenance orders are prepared by a maintenance section during a month. However, for the sake ok convenience and simplicity, we have assumed that only 10 plant maintenance orders were created by the maintenance section during a month. S.K.P.I.M.C.S 48
  49. 49. COSTING STRUCTURE & SENSITIVITY ANALYSIS The cost of a maintenance cost centre is allocated on the basis ofnormal capacity of the cost centre. For the sake of convenience, we assume that the normal capacity ofMUMHPMT101 is to render 50 hours of service during a month. From the above list, it can be seen that the work done byMUMHPMT101 during the month is only 41 hours. Thus 9 hours remainedidle. However, it should be noted that in a company like ONGC, amaintenance section is not always engaged in maintenance work only. There are several other works which the people of a maintenance costcentre have to perform like, attending meetings, trainings, preparation offiles for various purposes like approvals, sanctions for expenditure,preparation of miscellaneous reports etc, Therefore, it is assumed that remaining hours are got consumed inthese other works. Therefore the work distributions in hours for the maintenance costcentre MUMHPMT101 in the above example will be as under”(i) Hours consumed in maintenance jobs: 41 hours(ii) Hours consumed in other misc work: 09 hoursTotal : 50 hours Now, for 41 hours we have 10 different pm orders but for rest of the 09hours we don’t have any pm orders. S.K.P.I.M.C.S 49
  50. 50. COSTING STRUCTURE & SENSITIVITY ANALYSIS For this purpose, there is a facility in SAP which, at the end of theperiod automatically creates a pm order which shows these remaining hoursof normal capacity of that cost centres. Thus we assume that at the end of the period, SAP generated onemore pm order (no. 10012917) with 09 hours. Now, we assume that during the month of April, the cost booked in thecost centre MUMHPMT101 was as follows:(i) Expenditure: Rs. 500000/-(i) Depreciation of the assets used by the cost centre: 50000/- When the cycle for allocation of maintenance cost centres is executed,SAP first calculate cost per hour by dividing the cost booked in themaintenance cost centre by the normal capacity of that cost centre.In the above example, the rates will be as under:Rate of expenditure per hour = 500000 / 50 = Rs. 10000 per hourRate of depreciation per hour = 50000 / 50 = Rs.1000 per hour.Now the allocation of cost will be as under: S.K.P.I.M.C.S 50
  51. 51. COSTING STRUCTURE & SENSITIVITY ANALYSIS Cost centre for Time Dep Direct Depreciati Exp cost TotalPm order which repair & taken Exp rate cost of cost on rate of the cost of no maintenance for job per hour the job incurre per hour job done job done job carried out done done d (g)=(cx (i)=(f+g+ (a) (b) (c) (d) (e) (f)=(cxd) (h) e) h) Rs Hours Rs /hours Rs Rs Rs Rs /hours 10,0 20,0 2, 22,010012658 MUMHPPl106 2 00 1,000 00 000 - 00 10,0 50,0 5, 2, 57,510012793 MUMHPTP910 5 00 1,000 00 000 500 00 10,0 60,0 6, 6, 72,010012806 MUMHPPl102 6 00 1,000 00 000 000 00 10,0 40,0 4, 10, 54,010012883 MUMHPPl301 4 00 1,000 00 000 000 00 10,0 20,0 2, 22,010012886 MUMHPPl108 2 00 1,000 00 000 - 00 10,0 30,0 3, 1, 34,510012887 MUMHPPl102 3 00 1,000 00 000 500 00 10,0 40,0 4, 2, 46,010012888 MUMHPPl108 4 00 1,000 00 000 000 00 10,0 80,0 8, 1, 89,010012906 MUMHPPl103 8 00 1,000 00 000 000 00 10,0 30,0 3, 3, 36,010012915 MUMHPPl101 3 00 1,000 00 000 000 00 10,0 40,0 4, 2, 46,510012916 MUMHPUT201 4 00 1,000 00 000 500 00 10,0 410, 41, 28, 479, 41 00 1,000 000 000 500 500 10,0 90,0 9, 99,010012917 MUMHPSP901 9 00 1,000 00 000 - 00 10,0 500, 50, 550, 50 00 1,000 000 000 - 000 It may be noted here that the past pm order (no. 10012917) here is the one which is automatically generated by SAP system in case there is an underutilization of normal capacity of the cost centre. The cost centre MUMHPSP901 which is presumed to be the cost centre where services have been rendered by this pm order. Is a general cost centre cost of which flows to all the plants and utility cost centres in suitable proportion. By picking up this general cost centre, SAP system ensures that the cost of unutilized (or utilized in general work) hours of maintenance cost centre gets spread over to all the cost centres fairly. S.K.P.I.M.C.S 51
  52. 52. COSTING STRUCTURE & SENSITIVITY ANALYSIS Cost cycles for allocation of plant maintenance orders to other costcentres: Through this step, the cost of plant maintenance orders flows to othercost centres where the maintenance job has been carried out. In the above example, the cost shown in column “i” of the table abovewill flow to respective cost centres appearing in column “b”. 8.5 cost cycle for allocation of cost booked in WBS to final capital assets: The term WBS has been explained in the start at point no. 1.3. InONGC, when cost is incurred for a capital project which is expected to becompleted over a period of time, it is not directly booked in the accountpertaining to capital work in progress. There is a separate series ofaccounts in which cost is first booked. Further, the cost booked under theseaccounts is not booked with reference to a cost centre, but it is booked withreference to a WBS. Then at the end of the period, the cost booked underthese WBSs is transferred to accounts related to capital work in progress orin case the capital project is complete, to the final fixed asset. For this transfer of cost to capital work in progress /final fixed asset,the cost cycle for allocation of cost from WBS to capital WIP / final fixedasset is executed. 8.6 Cost cycle for allocation of cost of operation support cost centres to plant & utility cost centres: S.K.P.I.M.C.S 52
  53. 53. COSTING STRUCTURE & SENSITIVITY ANALYSIS This is a sample cost cycle in which the cost of operation support costcentres like cost centre MUMHPSP930 (corrosion monitoring section),MUMHPSP931 (condition monitoring section) etc, gets allocated to all otherplants & utility cost centres. Under this cycle only, cost of certain utility cost centres likeMUMHPUT101 (co-gen power plant), MUMHPUT105 (gas turbine i & ii),MUMHPUT106 (gas turbine iii), MUMHPUT103 (mp boiler), MUMHPUT106(Hitachi boiler) flows to final cost centres of these utilities likeMUMHPUT102 (power utility cost centre) & MUMHPT 104 (steam utility costcentre). 8.7 Cost cycle for allocation of utility & plant cost centres cost to finished products: So far, we have discussed six steps of cost cycles above. As a resultof these steps, all the cost of Hazira plant gets allocated to two types of costcentres namely:Utility cost centres like power, water, steam etc.Plant cost centres like LPG plant, GSU, KRU etc.From these two type of cost centres, the cost ultimately flows to finishedproducts like GAS, LPG, ARN, SKO, HC & HSD8.7.1 The basis of allocation to finished products: While implementing SAP system in ONGC, Hazira plant, on the basisof past 15 years experience, it was determined that how much of various S.K.P.I.M.C.S 53
  54. 54. COSTING STRUCTURE & SENSITIVITY ANALYSISinputs will be required to produce on unit of finished product. For example,for generation of one unit of LPG, the following inputs are as required: Natural gas : 2 units Power : 4 units Steam : 3.5 units De-mineralized water: 1 unit Cooling water : 2 units Inert gas : 7 units S.K.P.I.M.C.S 54
  55. 55. These standards have been fed in SAP system for every finished productwhich is produced in Hazira. In SAP terminology, it is called “recipe”. Thisrecipe in fact, forms the basis for allocation of cost of plant and utility costcentres to finished products. This recipe is revised every time whenthere is a major change in the production process which results inchange in the input requirements of finished products. Every day, theproduction people make a process order for production of each offinished products. At the end of the day, the actual quantity of finishedproducts produced is confirmed in that process order. This process orderis linked to the recipe. Through this link, it calculates the total inputsrequired for production of the quantity of finished product confirmed atthe end of the day. And finally at the end of the period for which cost is tobe ascertained, SAP system sums up all the inputs required as well asthe out put of finished products for allocation of cost. It may please benoted here that the actual system in SAP is complex. For the sake ofconvenience, certain steps have been eliminated in the example below.
  56. 56. Process Qty of LPG Qty of LPG actually order no Process order description planned produced Metric tonne Metric tonne1100054052 LPG through LPG plant 200 2181100054053 LPG through LPG plant 225 2151100054054 LPG through LPG plant 225 2231100054055 LPG through LPG plant 220 2221100054056 LPG through LPG plant 230 2321100054057 LPG through LPG plant 210 2001100054058 LPG through LPG plant 250 2401100054059 LPG through LPG plant 215 2151100054060 LPG through LPG plant 220 2101100054061 LPG through LPG plant 235 2331100054062 LPG through LPG plant 210 2071100054063 LPG through LPG plant 220 2241100054064 LPG through LPG plant 200 1981100054065 LPG through LPG plant 225 2301100054066 LPG through LPG plant 225 2201100054067 LPG through LPG plant 220 2201100054068 LPG through LPG plant 230 2261100054069 LPG through LPG plant 210 2061100054070 LPG through LPG plant 250 2411100054071 LPG through LPG plant 215 2141100054072 LPG through LPG plant 220 2231100054073 LPG through LPG plant 235 2331100054074 LPG through LPG plant 210 2011100054075 LPG through LPG plant 220 2121100054076 LPG through LPG plant 200 1961100054077 LPG through LPG plant 225 2141100054078 LPG through LPG plant 225 2221100054079 LPG through LPG plant 220 2141100054080 LPG through LPG plant 230 2281100054081 LPG through LPG plant 210 2031100054082 LPG through LPG plant 250 245 6880 6785
  57. 57. 8.7.2 Example of calculation of cost of LPG produced from LPG plant: Suppose, during the month of April, 30 batches of LPG were producedand accordingly, thirty process orders were generated as follows: As mentioned above, we assume that the recipe for production of LPGfrom LPG plant is as under: 1. Natural gas : 2 units 2. Power : 4 units 3. Steam : 3.5 units 4. De-mineralized water : 1 unit 5. Inert gas : 7 units
  58. 58. 6. Cooling water : 2 units Again, the cost booked in various cost centres which produce the inputmaterials required for production of LPG as well as the output of these costcentres are shown in the table below. And on the basis of output quantityand the cost, per unit cost of these items too is shown in the column “f” ofthe table: Cost centre out Out put Unit of Cost incurred Rate ( Rs / Cost centre put quantity output during April unit of output) (a) (b) (c) (d) (e) (f)=(e/c) 125.MUMHPPl102 Gas 12000 Tm3 1500000 00 1.3MUMHPUT102 Power 750000 Kwh 1000000 3 0.6MUMHPUT104 Steam 750000 Mt 500000 7 De-mineralized 0.7MUMHPUT206 water 1000000 KL 750000 5 0.9MUMHPUT204 Inert gas plant 1000000 Mt 900000 0 0.6MUMHPUT205 Cooling water 2000000 KL 1200000 0 Now, when the total quantity of LPG produced and per unit cost ofinputs required for production of LPG are available, we can calculate thecost of production of LPG. This calculation is shown in the table below: Total input Qty of input consumptio required to LPG Cost of per Cost of LPG Input n in produce one produced unit of input produced production unit of LPG of LPG (a) (b) (c) (d)=(bxc) (e) (f)=(dxe) 125 1,696,Gas 2 6785 13570 .00 250 1 36,Power 4 6785 27140 .33 187 0 15,Steam 3.5 6785 23747.5 .67 832De-mineralized 0 5,water 1 6785 6785 .75 089 0 42,Inert gas plant 7 6785 47495 .90 746
  59. 59. 0 8,Cooling water 2 6785 13570 .60 142 1,804, 245Thus cost of production of 6785 MT of LPG is Rs 1,804,245/-Therefore cost of production of 1 MT of LPG will be = 1,808,245/6875 = Rs. 263.02 per MTThis is how the cost of production of finished product is arrived at finally.Conclusion: From the above discussion, it is clear that ONGC, Hazira plant hassound system of costing. Through this project, an attempt has been made todescribe the costing method of the plant is a simple manner. The system isyet more complex than what has been described here. Incorporating andexplaining all of its complexities and explaining them in this project was notpossible as almost all of its costing system is handled by SAP system whichinvolves great amount of back ground calculations on the basis ofprogramming designed therein.9. EXPLAINATION OF CALCULATIONFIRST COST CYCLE C2HPOO –HAZIRA SUPPORT COST CYCLE The first cost cycle which is executed is C2HPOO (Hazira supportcycle). This cost cycle has certain segments. In each segment, cost of one(or more) cost centres gets allocated to other cost centres. Each of the segments of this cost cycle has been briefly describedhere below:
  60. 60. SEGMENT 1:HPLOGISEXP: LOGISTICS EXPENSE: In this segment, the cost booked in cost centre MUMHPSP923(TRANSPORT-BASE OFFICE) gets allocated to all the other cost centres inproportion to the expenditure booked in the receiver cost centres.SEGMENT 2: HPLOGISDEP: LOGISTICS DEPRECIATION: In this segment, the depreciation booked in cost centreMUMHPSP923 (TRANSPORT-BASE OFFICE) gets allocated to all theother cost centres in proportion to the expenditure booked in the receivercost centres.SEGMENT 3: HPOTHERSUP: OTHER SUPPORT EXPENSES ANDDEPRECIATION: Through this segment of the cost cycle, the expenditure anddepreciation of the support cost centres like Finance, P&A, MaterialManagement section etc gets allocated to all the other cost centres inproportion to the expenditure booked in the receiver cost centres. The receiver cost centres in this segment are all the cost centresexcept the support cost centres.SEGMENT 4: HPENGSEREX: HAZIRA PROJECT GROUP EXPENSES: Under this segment, the cost of cost centre MUMHPSP910 (Haziraproject group cost centre) is allocated to two secondary cost centresnamely, MUMHPECXP1 & MUMHPECXP2. The project group section of the Hazira plant is engaged in executionof revenue and capital projects. On the basis of manpower of project groupsection, engaged in revenue and capital projects, the cost of this section
  61. 61. flows to these two cost centres MUMHPECXP1 & MUMHPECXP2. Forexample, if during a quarter, out of total 40 people of the project groupsection, 30 were engaged in revenue projects while rest 10 were engaged incapital projects and the total cost incurred by the project group sectionduring that quarter was 100 Rs., then, rs.25 will flow to cost centremumhpecxp1 and remaining rs.75 will flow to cost centre MUMHPECXP2.SEGMENT 5: HPESCAPEX: HAZIRA PROJECT GROUP EXP – ASSET In the fourth segment above, the cost from project group cost centreflows to cost centre MUMHPECXP1 & MUMHPECXP2. In this segment, the cost of cost centre MUMHPECXP1 flows tocapital projects which were under execution by the project group section. Continuing the example of segment 4, Rs. 25 which are attributable tocapital projects, will flow to these capital projects in proportion to the costbooked in these respective capital projects.SEGMENT 6: HPESCAPDP: HAZIRA PROJECT GROUP DEP The depreciation of project group section which flows to cost centreMUMHPECXP 1 is not capitalized with the cost of capital projects in thesegment 5. This depreciation amount is thus not capitalized. Thisdepreciation is, through this segment, gets transferred to cost centreMUMHPECXP. Thus, this depreciation is treated as general depreciationand flows to all the cost centres (except support cost centres).SEGMENT 6: HPESREV: HAZIRA PROJECT GROUP – REVENUE JOBS
  62. 62. The cost of project group cost centre which has flown to cost centreMUMHPECXP2 which is attributable to revenue jobs, flows to all the costcentres (excluding support cost centres) in this segment in proportion tocost booked in the receiver cost centres.SEGMENT 7: HPMAINTCMN: HAZIRA MAINTENANCE COMMON: The cost of cost centre “MAINTENANCE COMMON –MUMHPMT901” which is not allocated through plant maintenance orders, isallocated under this segment to all the other maintenance cost centres inproportion to the actual expenditure booked in the receiver cost centres.SEGMENT 8: HPCIVILMTN: HAZIRA MAINTENANCE CIVIL: The cost of cost centre “MAINTENANCE CIVIL – MUMHPMT902”which is not allocated through plant maintenance orders is allocated underthis segment to all the other maintenance cost centres in proportion to theactual expenditure booked in the receiver cost centres.CALCULATION OF COSTS ALLOCATED THROUGH COST CYCLEC2HPOO: In the separate sheet enclosed here, an attempt has been made tomake calculations with hypothetical figures. In the first two columns ofexpense & depreciation under heading “cost initially booked” it shows theamount of expenditure & depreciation booked under various cost centres ofHazira plant. In the next columns, it shows how the cost initially booked in differentcost centres gets allocated to various other cost centres. The basis of
  63. 63. allocations of cost from one cost centre to others is the same as mentionedin the brief description above of various segments of the cost cycle. Finally, the last two columns under heading “cost in various costcentres after cycle C2HPOO” shows the cost in various cost centres afterexecution of cost cycle C2HPOO. From these columns it can be observedthat after execution of cycle C2HPOO, cost in some of the cost centres(mainly support cost centres) will to other cost centres (mainly operationsrelated cost centres). This way, the cost of support cost centres will becomezero. It can be seen that after execution of cost cycle C2HPOO, the cost offollowing cost centres will become zero:MUMHPSP901 PROJECT HEADS OFFICEMUMHPSP902 F&AMUMHPSP903 P&A/LEGAL/IRMUMHPSP904 MMMUMHPSP914 SHEMUMHPSP915 PLANT TRAININGMUMHPSP916 MEDICALMUMHPSP917 SECURITY & VIGILANCEMUMHPSP919 TOWNSHIPMUMHPSP929 HAZIRA INFO COMMUMHPSP910 PROJECT GROUPMUMHPSP923 TRANSPORT-BASE OFFICMUMHPMT901 MAINT_COMMONMUMHPMT902 HAZIRA MAINTN CIVILSECOND COST CYCLE C4HPAO – HAZIRA OPERATION COST CYCLE – I Under the second cost cycle C4HPAO, cost of some more costcentres gets allocated to other cost centres who receive their services. Thesender cost centres in this cost cycle mainly are operation support costcentres like, chemistry section, corrosion monitoring section, conditionmonitoring section etc. Like the first cycle, this cycle too has various segments, each one ofthem has been explained briefly here below:
  64. 64. SEGMENT 1: HPPRODOPSUP: HEAD OPERATION OFFICE: In this segment cost of cost centre MUMHPSP912 – head operationoffice gets allocated to all the plants & utility cost centres in proportion to thecosts initially booked in the receiver cost centres.SEGMENT 2: HPPRESENGEX: RESIDENT ENGINEER (PRODUCTION): In this segment cost of cost centre MUMHPSP932 – RESIDENTENGINEER (PRODUCTION) gets allocated to all the plants & utility costcentres in proportion to the costs initially booked in the receiver costcentres.SEGMENT 3: HPWWTPEXP: WASTE WATER TREATMENT PLANTEXPENSES: WWTP (waste water treatment plant) of Hazira process the watercoming out of various plants before its disposal into the river tapti. On thebasis of past experience, an estimate has been made of the quantity ofwaste water coming out of various plants which is processed by WWTP. Onthe basis of these quantities, a ration has been developed for allocation ofcost of WWTP to various other plant cost centres. This ratio is as under:COSTCENTRE PLANT RATIOMUMHPPL101 SLUG CATCHER UNIT 5MUMHPPL102 GSU PLANT 20MUMHPPL103 LPG PLANT 40MUMHPPL105 DPD PLANT 15MUMHPPL106 SRU PLANT 15MUMHPPL301 CFU PLANT 5 The ratio mentioned above has been fed in this segment of the costcycle and sap system follows this ratio for allocation of cost of WWTP tothese plant cost centres.
  65. 65. SEGMENT 4: HPPPPEMEXP: PLANNING, PRODUCTION EVACUATIONCOST: The cost centre MUMHPSP927 – product planning and evacuationwhich is engaged in marketing of various products which are produced inHazira plant, is allocated to transportation cost centres on the basis ofquantity of products dispatched through various mode of transportation viz,rail, pipeline and road.Thus the receiver cost centres in this segment are:MUMHPTP301 DESPATCH-PIPELINEMUMHPTP321 DESPATCH-RAILMUMHPTP341 DESPATCH-ROADSEGMENT 5: HPPAUEXP: PROCESS ANALYSIS, UP GRADATION: Under this segment the cost of cost centre MUMHPPTAU1 -PROCESS ANALYSIS, UP GRADATION flows to all other plants & utilitycost centres on the basis of cost booked in the receiver cost centres.SEGMENT 6: HPQAEQMEXP: QUALITY & EQUIPMENT MANAGEMENT: Under this segment the cost of cost centres MUMHPSP905 - HAZIRAQAD / EM flows to all other plants & utility cost centres on the basis of costbooked in the receiver cost centres.SEGMENT 7: HPCHEMEXP: CHEMISTRY EXPENSES:Under this segment the cost of cost centres MUMHPSP911 – chemistrysection flows to all other plants & utility cost centres on the basis of costbooked in the receiver cost centres.
  66. 66. SEGMENT 8: HPERGEXP: ECONOMIC RESOURCE GROUPEXPENSES: Under this segment the cost of cost centres MUMHPSP913 – ergsection flows to all other plants & utility cost centres on the basis of costbooked in the receiver cost centres.SEGMENT9: HPCORREXP: CORROSION MONITORING SECTIONEXPENSES: Under this segment the cost of cost centres MUMHPSP930 –CORROSION MONITORING section flows to all other plants & utility costcentres on the basis of cost booked in the receiver cost centres.SEGMENT 10: HPCONDEXP: CONDITION MONITORING SECTIONEXPENSES: Under this segment the cost of cost centres MUMHPSP931 –condition monitoring section flows to all other plants & utility cost centres onthe basis of cost booked in the receiver cost centres.SEGMENT 11: HPUTWTREXP: UTILITY WATER EXPENSES: Under this segment the cost of cost centre MUMHPUT202 – UTILITYWATER SECTION flows to cost centre MUMHPSP913 (ERG GROUP) fromwhere it ultimately goes to all other plants & utility cost centres on the basisof cost booked in the receiver cost centres.SEGMENT 12: HPCOGENEXP: COGEN OFFICE EXPENSES: Co-gen office is engaged in servicing the following cost centres.MUMHPUT104 STEAM GENERATION

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