Professional Documents
Culture Documents
A. Research Methodology
Study 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 in
the SAP system automatically in that also there is so much complexity is
there 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
S.K.P.I.M.C.S
S.K.P.I.M.C.S
To find oil and natural gas, companies drill through the earth to the
deposits deep below the surface. The oil and natural gas are then pumped
from below the ground by oil rigs. They then usually travel through pipelines.
At oil refineries, crude oil is split into various types of products by
heating the thick black oil. The products include gasoline, diesel fuel,
aviation fuel, home heating oil, oil for ships, and oil to burn in power plants
to make electricity. Oil is used for transportationcars, 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 productsfertilizers for farms, clothes,
toothbrush, plastic bottle, and plastic pen. There are thousands of other
products that come from oil. Almost all plastic comes originally from oil. Oil
is transported in huge pipelines and tanker ships to places where it is made
into other products.
The origin of the oil industry in India can be traced back to the last part
of the 19th century when petroleum was discovered in Digboi in north-east
India. Thereafter large numbers of oil fields have been discovered both
inland and off-shore. This has led to the setting up of refineries to process
the oil and gas for use in various sectors.
S.K.P.I.M.C.S
1. INTRODUCTION TO ONGC
ONGC-A GEM AMONG THE NAVRATNAS
The Oil and Natural Gas Corporation Ltd, popularly known to the
people as ONGC is today the Numero Uno among the Navratna Public
Sector Companies of India. It was set up in 1956 and has made significant
contribution in industrial and economic growth of the country. ONGC is a
leader in India engaged mainly in exploration, development and production
of Crude oil, Natural gas and some Value Added Products.
Now ONGC is Indias largest producer of Crude oil, Natural gas and
LPG. 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 has
number of existing and up-coming interest in selected Oil patches including
development of large gas field in Vietnam Off-shore. It was converted into a
Public Limited company in June 1993 following new liberalized economic
policy adopted by Government of India in July 1991 sought to deregulate
and de-license the core sector (including Petroleum Sector) with partial
disinvestment of Govt. equity in PSUs & other measures. During March 1999
ONGC, M/s. Indian Oil Corporation a down-streaming Giant and M/s. Gas
Authority of India Limited the only gas marketing company agreed to have
cross-holding in each others equity to pave the way for long term strategic
alliance amongst themselves, both for the domestic and overseas business
opportunities in the Energy Value Chain.
S.K.P.I.M.C.S
A. History
1947 - 1960
During the pre-independence period, the Assam Oil Company
in the northeastern and Attock Oil company in northwestern part of the
undivided India were the only oil companies producing oil in the country,
with minimal exploration input. The major part of Indian sedimentary basins
was deemed to be unfit for development of oil and gas resources.
After independence, the national Government realized the importance
oil and gas for rapid industrial development and its strategic role in defense.
Consequently, while framing the Industrial Policy Statement of 1948, the
development of petroleum industry in the country was utmost necessity.
Until 1955, private oil companies mainly carried out exploration of
hydrocarbon resources of India. In Assam, the Assam Oil Company was
producing oil at Digboi (discovered in 1889) and the Oil India Ltd. (a 50%
joint venture between Government of India and Burmah Oil Company) was
engaged in developing two newly discovered large fields Naharkatiya and
Moran in Assam. In West Bengal, the Indo-Stanvac Petroleum project (a
joint venture between Government of India and Standard Vacuum Oil
Company of USA) was engaged in exploration work. The vast sedimentary
tract in other parts of India and adjoining offshore remained largely
unexplored.
In 1955, Government of India decided to develop the oil and natural
gas resources in the various regions of the country as part of the Public
Sector development. With this objective, an Oil and Natural Gas Directorate
was set up towards the end of 1955, as a subordinate office under the then
Ministry of Natural Resources and Scientific Research. The department was
S.K.P.I.M.C.S
Soon, after the formation of the Oil and Natural Gas Directorate, it
became apparent that it would not be possible for the Directorate with its
limited financial and administrative powers as subordinate office of the
Government, to function efficiently. So in August, 1956, the Directorate was
raised to the status of a commission with enhanced powers, although it
continued to be under the government. In October 1959, the Commission
was converted into a statutory body by an act of the Indian Parliament,
which enhanced powers of the commission further. The main functions of
the Oil and Natural Gas Commission subject to the provisions of the Act,
were "to plan, promote, organize and implement programmes for
development of Petroleum Resources and the production and sale of
S.K.P.I.M.C.S
S.K.P.I.M.C.S
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 entering
into the retailing business. ONGC has also entered the global field through
its subsidiary, ONGC Videsh Ltd. (OVL). ONGC has made major
investments in Vietnam, Sakhalin and Sudan and earned its first
hydrocarbon revenue from its investment in Vietnam.
10
B. Organizational Structure
S.K.P.I.M.C.S
11
C. Board of Directors
Mr. R S Sharma
Dr. 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
Director
Director
Mr. M M Chitale
Director
Mr. A M Uplenchwar
Director
Director
Director
S.K.P.I.M.C.S
12
Location
Mumbai
Mumbai
Mumbai
Uran
Hazira
Ahmedabad
Ankleshwar
Mehsana
Rajamundry
Karaikal
Nazira
Agartala
B. Basins:
1.
2.
3.
4.
5.
Mumbai
Baroda
Rajamundry
Chennai
Jorhat
13
6.
7.
Kolkata
Dehradun
C. Regions:
1.
2.
3.
4.
5.
Mumbai Region
Western Region
Eastern Region
Southern Region
Central Region
Mumbai
Baroda
Nazira
Chennai
Kolkata
D. Institutes:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Dehradun
Dehradun
Ahmedabad
Navi
Mumbai
Navi
Mumbai
Dehradun
Dehradun
Goa
Jorhat
14
10.
11.
Geotectonics Studies
10. School of Maintenance
Practices
11. Regional Training Institutes
Vadodara
Navi
Mumbai,
Chennai,
Sivasagar &
Vadodara.
E. Services:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Mumbai
Mumbai
Dehradun
Baroda
Mumbai
Mumbai
Mumbai
New Delhi
New Delhi
Dehradun
11.
12.
Chief Security
Dehradun
13.
Company Secretary
New Delhi
14.
Chief Marketing
New Delhi
15.
New Delhi
16.
17.
Dehradun
18.
Dehradun
19.
Mumbai
S.K.P.I.M.C.S
Dehradun
New Delhi
15
20.
Environment
Chief Legal
New Delhi
21.
Chief Medical
Dehradun
22.
New Delhi
23.
Chief Commercials
New Delhi
24.
Dehradun
S.K.P.I.M.C.S
16
E. OBJECTIVES
Vision
To be a World-class Oil and Gas Company integrated in energy business
with 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
17
Global Ranking
Is Asias 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.
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-Worlds 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
Financials
S.K.P.I.M.C.S
19
20
Natural gas, which is found at Bombay High. This plant comes under the
Mumbai Region Business Centre (MRBC).
Hazira Gas Processing Complex was set up in September 1985 to
receive gas from Mumbai High initially and subsequently to process sour
Natural Gas from Bassein and other offshore fields. Sour gas along with
associate condensate is transported through two sub-sea pipelines: one 36
diameter(231 kms) and the other 42 diameter (244 kms) from bassein
offshore process platform to Hazira plant.
production 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 Mumbai
region. From a small beginning Exploratory Bombay High with Indias first
offshore Sagar-Samrat. ONGC has come along way. After its success in
Bombay High ONGC discovered various other fields in western offshore.
Among the various discoveries in western offshore, South Bassein proved to
be one of the biggest gas fields in Asia. Total recoverable reserves are
estimated to be of order of 200 billion cubic meters which is phenomenal
when compared to such fields in the world. The exploration of bassein field
paved way for development of number of gas based industries in Gujarat
and Northern India, covering Delhi to bring gas to shore and the process
before it is distributed to consumers, ONGC had chosen a 625 hectares of
land in Hazira plant about 20 km away from surat town which has now
grown to gigantic complex sprawling in 705 hectares with following certain
units plants built with state of the art technology at a cost of Rs. 1300 crores
S.K.P.I.M.C.S
21
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
1. KRIBHCO
3. GAIL
5. HPCL
7. RELIANCE INDIA LTD
CUSTOMERS OF ONGC
2. ESSAR
4. IOCL
6. BPCL
DESPATCH OF PRODUCTS
1. RAIL
S.K.P.I.M.C.S
22
2. ROAD
3. PIPELINE
4. 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
2. BPCL
3. HPCL
4. RIL
5. GPCL
6. IPCL
The 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 PLANT
CO-GENERATION PLANT
S.K.P.I.M.C.S
24
A. FINANCIAL HIGHLIGHTS
S.K.P.I.M.C.S
25
2004-05 ( Actual
for 12 months )
Revenue ( A )
5394
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
LPG
Naphtha
SKO
Gas sales
HSD
Unit
TMT
TMT
TMT
MMSCM
TMT
Target
335.100
686.900
100.000
6116
8.960
Actual
383.438
805.491
113.653
6553.916
9.092814
Achievement
115.32
117.26
113.65
107.16
101.48
Total VAPS
TMT
1130.96
1314.675
116.24
Actual
386.438
805.491
113.653
6553.916
9.092814
1488.25
Achievement
104.75
103.36
113.65
100.34
101.48
104.94
Unit
TMT
TMT
TMT
MMSCM
TMT
TMT
Target
368.93
779.29
100.00
6532
8.96
1418.19
26
S.K.P.I.M.C.S
27
ONGC Hazira plant follows cost centre accounting method for the
purpose of costing of products and reporting of cost data to management
and various other external and internal agencies. Cost centre accounting
is a method for applying resource costs to an organization. The
accounting system identifies each of the organizational parts of the
traditional functional structure and applies the identifiable costs to that
part of the structure.
Thus, in cost centre accounting, entire organization is divided into
parts and an attempt is made to identify and book costs related to these
parts separately so that cost incurred on each of such parts can be found
out separately for further use in cost control and other management
decisions.
6. Certain terms
S.K.P.I.M.C.S
28
Cost centre:
S.K.P.I.M.C.S
29
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
COST CENTRE
CODE
S.K.P.I.M.C.S
30
MUMHPMT901
MUMHPMT105
MUMHPMT104
MAINT_COMMON
HAZIRA MAINT -E&T
MAINT-ESTATE
S.K.P.I.M.C.S
31
From the list, it can be seen that there are 7 broad categories of cost
centres in Hazira plant namely:
1.1.1 Plant cost centres:
All the major plants of ONGC Hazira plant have been identified with a
separate cost centre. For example, gas sweetening unit (GSU) plant has
been identified with cost centre MUMHPPl102. Similarly, LPG unit has
been identified with cost centre MUMHPPl103 and the like.
Whenever costs are incurred for any of the plants, these costs are
booked in respective plants 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 utility
plants to generate/produce and consume these utilities. Like, for power
and steam generation, Hazira plant has its own captive power plant
which generates power sufficient to run the plant on its own.
Each of such utility plants too, has been identified with separate cost
centres. 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 are
carried out in the plants, separate cost centres have been created for
each of maintenance activities. For electric maintenance in the plant, cost
centre MUMHPMT102 has been created which captures all the electrical
maintenance cost incurred in Hazira plant. Similarly, for mechanical
S.K.P.I.M.C.S
32
S.K.P.I.M.C.S
33
of
Hazira
separate
cost
centres,
MUMHPTP910
&
S.K.P.I.M.C.S
34
S.K.P.I.M.C.S
35
The basis for location of cost of project group cost centre is as under:
The basis for allocation of cost of MUMHPSP910 to secondary cost
centres MUMHPECXP1 & MUMHPECXP2 is the number of manpower
engaged in revenue projects and capital projects. Thus if total cost
booked in a particular period in cost centre MUMHPSP910 is say Rs. 100
and during that period 7 persons
S.K.P.I.M.C.S
36
37
Order type
Malfunction report orders
Modular repair order
Threshold orders
Maintenance request orders
Crisis management orders
Preventive maintenance orders
Calibration orders
Refurbishment orders
Refurbishment orders workshop
Refurbishment orders OEM/ external
Audit orders
PM order for IMR activities
S.K.P.I.M.C.S
38
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
S.K.P.I.M.C.S
39
internal order is transferred to the capital asset i.e. Oil or gas well.
However, if it is found that there is no oil or gas in the well drilled, all
the cost booked in the internal order is transferred to cost centre which
gets allocated further depending upon the mapping in SAP. However,
since no drilling activity takes place in Hazira plant, internal orders are
not used costing system of Hazira plant.
S.K.P.I.M.C.S
40
MUMHPPl101
MUMHPPl102
GSU plant
20.00%
MUMHPPl103
LPG plant
40.00%
cost MUMHPPl105
plant
Dpd plant
15.00%
Sru plant
Cfu plant
15.00%
5.00%
MUMHPPl106
MUMHPPl301
5.00%
cost
(MUMHPUT201)
centre
gets
allocated to the above plant cost centres proportionately. Thus SKF for
allocation of waste water treatment plant cost is fixed percentage.
3. Activity type:
For the purpose of allocation of some of the cost centres, SAP system
uses utility called activity. It is assumed that some cost centres are
engaged in rendering services to other cost centres. Thus these cost
centres generate activities which are consumed by other cost centres.
For example, electrical maintenance cost centre of Hazira plant is
engaged in electrical maintenance of all other cost centres of the plant.
S.K.P.I.M.C.S
41
7.Cost cycles:
This is one of the important parts of costing system in SAP. A cost
cycle is a small computer programme which facilitates allocation of cost
initially booked in different cost objects like cost centres, pm orders, WBS
etc to final products. In this computer programme, mapping is done which
defines how cost will flow from one cost object to other and finally to
finished 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 that
programme and the inputs provided, automatically makes all the complex
calculations and provides final output in the form of product costs.
S.K.P.I.M.C.S
42
43
Each of these cost cycles have been explained hereunder one by one:
8.1Cost cycle for separating non allocable expenses
In ONGC, certain elements of expenditure are considered as nonallocable. In other words this expenditure is not allocated to final
products. This expenditure includes:
S.K.P.I.M.C.S
44
MUMHPGEEXP takes place in any of the cost cycles which are executed
after distribution cost cycle.
S.K.P.I.M.C.S
45
maintenance orders, the cost will get allocated to other cost centres
which are maintained by these maintenance cost centres.
The flow diagram here below shows the flow of cost of maintenance
cost centres:
MAINTENANC
E COST
CENTRE
PM Order
1
PM Order
2
PM Order
3
Cost
Centre1
Cost
Centre 2
Cost
Centre 3
46
S.K.P.I.M.C.S
47
It has been stated above that in every plant maintenance order, the
time (in hours) taken for completion of the job is booked. For allocation of
cost booked in maintenance cost centre, this time forms basis.
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:
Pm order
no
10012658
10012793
10012806
10012883
10012886
10012887
10012888
10012906
10012915
10012916
Location
Time
taken for
job done
Cost
incurred
Nil
Sru plant
MUMHPPl106
2 hours
LPG
storage
area
GSU plant
MUMHPTP910
5 hours
2,500.00
MUMHPPl102
6 hours
6,000.00
Cfu plant
MUMHPPl301
4 hours
10,000.00
Kru plant
MUMHPPl108
2 hours
Nil
GSU plant
MUMHPPl102
3 hours
1,500.00
Kru plant
MUMHPPl108
4 hours
2,000.00
LPG plant
MUMHPPl103
8 hours
1,000.00
3 hours
3,000.00
4 hours
2,500.00
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
S.K.P.I.M.C.S
48
: 50 hours
S.K.P.I.M.C.S
49
Now, for 41 hours we have 10 different pm orders but for rest of the 09
hours we dont have any pm orders.
For this purpose, there is a facility in SAP which, at the end of the
period automatically creates a pm order which shows these remaining hours
of normal capacity of that cost centres.
Thus we assume that at the end of the period, SAP generated one
more pm order (no. 10012917) with 09 hours.
Now, we assume that during the month of April, the cost booked in the
cost 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 the
maintenance 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 hour
Rate of depreciation per hour = 50000 / 50 = Rs.1000 per hour.
Now the allocation of cost will be as under:
Pm order
no
Time
taken
for job
done
Exp rate
per hour
Depreciati
on rate
per hour
Exp cost
of the
job done
(a)
(b)
(c)
(d)
(e)
(f)=(cxd)
Hours
Rs
/hours
Rs /hours
Rs
10012658 MUMHPPl106
S.K.P.I.M.C.S
1,000
20,0
Dep
cost of
the job
done
(g)=(cx
e)
Direct
cost
incurre
d
Total
cost of
job done
(h)
(i)=(f+g+
h)
Rs
Rs
Rs
2,
22,0
50
5 10,000
1,000
10012806 MUMHPPl102
6 10,000
1,000
10012883 MUMHPPl301
4 10,000
1,000
10012886 MUMHPPl108
2 10,000
1,000
10012887 MUMHPPl102
3 10,000
1,000
10012888 MUMHPPl108
4 10,000
1,000
10012906 MUMHPPl103
8 10,000
1,000
10012915 MUMHPPl101
3 10,000
1,000
10012916 MUMHPUT201
4 10,000
1,000
41 10,000
1,000
9 10,000
1,000
50 10,000
1,000
10012917 MUMHPSP901
00
50,0
00
60,0
00
40,0
00
20,0
00
30,0
00
40,0
00
80,0
00
30,0
00
40,0
00
410,
000
90,0
00
500,
000
000
5,
000
6,
000
4,
000
2,
000
3,
000
4,
000
8,
000
3,
000
4,
000
41,
000
9,
000
50,
000
00
57,5
00
72,0
00
54,0
00
22,0
00
34,5
00
46,0
00
89,0
00
36,0
00
46,5
00
479,
500
99,0
00
550,
000
2,
500
6,
000
10,
000
1,
500
2,
000
1,
000
3,
000
2,
500
28,
500
-
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.
Cost cycles for allocation of plant maintenance orders to other cost
centres:
Through this step, the cost of plant maintenance orders flows to other
cost centres where the maintenance job has been carried out.
S.K.P.I.M.C.S
51
In the above example, the cost shown in column i of the table above
will 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. In
ONGC, when cost is incurred for a capital project which is expected to be
completed over a period of time, it is not directly booked in the account
pertaining to capital work in progress. There is a separate series of accounts
in which cost is first booked. Further, the cost booked under these accounts
is not booked with reference to a cost centre, but it is booked with reference
to a WBS. Then at the end of the period, the cost booked under these
WBSs is transferred to accounts related to capital work in progress or in
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 fixed
asset is executed.
8.6 Cost cycle for allocation of cost of operation support cost centres
to plant & utility cost centres:
This is a sample cost cycle in which the cost of operation support cost
centres like cost centre MUMHPSP930 (corrosion monitoring section),
MUMHPSP931 (condition monitoring section) etc, gets allocated to all other
plants & utility cost centres.
S.K.P.I.M.C.S
52
Under this cycle only, cost of certain utility cost centres like
MUMHPUT101 (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 like
MUMHPUT102 (power utility cost centre) & MUMHPT 104 (steam utility cost
centre).
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 result
of these steps, all the cost of Hazira plant gets allocated to two types of cost
centres 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 finished
products like GAS, LPG, ARN, SKO, HC & HSD
8.7.1 The basis of allocation to finished products:
While implementing SAP system in ONGC, Hazira plant, on the basis
of past 15 years experience, it was determined that how much of various
inputs 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
Steam
Inert gas
: 2 units
: 3.5 units
: 7 units
Power
: 4 units
S.K.P.I.M.C.S
: 2 units
53
These standards have been fed in SAP system for every finished
product which is produced in Hazira. In SAP terminology, it is called
recipe. This recipe in fact, forms the basis for allocation of cost of plant
and utility cost centres to finished products. This recipe is revised every
time when there is a major change in the production process which
results in change in the input requirements of finished products. Every
day, the production people make a process order for production of each
of finished products. At the end of the day, the actual quantity of finished
products produced is confirmed in that process order. This process order
is linked to the recipe. Through this link, it calculates the total inputs
required for production of the quantity of finished product confirmed at
the end of the day. And finally at the end of the period for which cost is to
be ascertained, SAP system sums up all the inputs required as well as
the out put of finished products for allocation of cost. It may please be
noted here that the actual system in SAP is complex. For the sake of
convenience, certain steps have been eliminated in the example below.
Process
order no
1100054052
1100054053
1100054054
1100054055
1100054056
1100054057
1100054058
1100054059
1100054060
1100054061
1100054062
1100054063
1100054064
1100054065
1100054066
1100054067
1100054068
1100054069
1100054070
1100054071
1100054072
1100054073
1100054074
1100054075
1100054076
1100054077
1100054078
1100054079
1100054080
1100054081
1100054082
: 2 units
2. Power
: 4 units
3. Steam
: 3.5 units
: 7 units
6. Cooling water
: 2 units
Again, the cost booked in various cost centres which produce the input
materials required for production of LPG as well as the output of these cost
centres are shown in the table below. And on the basis of output quantity
and the cost, per unit cost of these items too is shown in the column f of
the table:
Cost centre
(a)
MUMHPPl102
Gas
MUMHPUT102
MUMHPUT104
Out put
quantity
(c)
Unit of
output
(d)
Cost incurred
during April
(e)
12000 Tm3
1500000
Power
750000 Kwh
1000000
750000 Mt
500000
MUMHPUT206
Steam
De-mineralized
water
1000000 KL
750000
MUMHPUT204
1000000 Mt
900000
MUMHPUT205
Cooling water
2000000 KL
1200000
Rate ( Rs /
unit of output)
(f)=(e/c)
125.
00
1.3
3
0.6
7
0.7
5
0.9
0
0.6
0
Now, when the total quantity of LPG produced and per unit cost of
inputs required for production of LPG are available, we can calculate the
cost of production of LPG. This calculation is shown in the table below:
Input
Qty of input
required to
produce one
unit of LPG
LPG
produced
(a)
(b)
(c)
Total input
consumptio
n in
production
of LPG
(d)=(bxc)
Gas
6785
13570
Power
6785
27140
3.5
6785
23747.5
6785
6785
6785
47495
Cooling water
6785
13570
Steam
De-mineralized
water
Cost of per
unit of input
(e)
125
.00
1
.33
0
.67
0
.75
0
.90
0
.60
Cost of LPG
produced
(f)=(dxe)
1,696,
250
36,
187
15,
832
5,
089
42,
746
8,
142
1,804,
245
Thus 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 MT
This 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 has
sound system of costing. Through this project, an attempt has been made to
describe the costing method of the plant is a simple manner. The system is
yet more complex than what has been described here. Incorporating and
explaining all of its complexities and explaining them in this project was not
possible as almost all of its costing system is handled by SAP system which
involves great amount of back ground calculations on the basis of
programming designed therein.
9. EXPLAINATION OF CALCULATION
FIRST COST CYCLE C2HPOO HAZIRA SUPPORT COST CYCLE
The first cost cycle which is executed is C2HPOO (Hazira support
cycle). 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 described
here below:
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 in
proportion to the expenditure booked in the receiver cost centres.
SEGMENT 2: HPLOGISDEP: LOGISTICS DEPRECIATION:
In
this
segment,
the
depreciation
booked
in
cost
centre
The receiver cost centres in this segment are all the cost centres
except the support cost centres.
SEGMENT 4: HPENGSEREX: HAZIRA PROJECT GROUP EXPENSES:
Under this segment, the cost of cost centre MUMHPSP910 (Hazira
project group cost centre) is allocated to two secondary cost centres
namely, MUMHPECXP1 & MUMHPECXP2.
The project group section of the Hazira plant is engaged in execution
of revenue and capital projects. On the basis of manpower of project group
section, engaged in revenue and capital projects, the cost of this section
flows to these two cost centres MUMHPECXP1 & MUMHPECXP2. For
example, if during a quarter, out of total 40 people of the project group
section, 30 were engaged in revenue projects while rest 10 were engaged in
capital projects and the total cost incurred by the project group section
during that quarter was 100 Rs., then, rs.25 will flow to cost centre
mumhpecxp1 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 centre
flows to cost centre MUMHPECXP1 & MUMHPECXP2.
In this segment, the cost of cost centre MUMHPECXP1 flows to
capital projects which were under execution by the project group section.
Continuing the example of segment 4, Rs. 25 which are attributable to
capital projects, will flow to these capital projects in proportion to the cost
booked in these respective capital projects.
cost
of
cost
centre
MAINTENANCE
COMMON
The basis of
allocations of cost from one cost centre to others is the same as mentioned
in the brief description above of various segments of the cost cycle.
Finally, the last two columns under heading cost in various cost
centres after cycle C2HPOO shows the cost in various cost centres after
execution of cost cycle C2HPOO. From these columns it can be observed
that after execution of cycle C2HPOO, cost in some of the cost centres
(mainly support cost centres) will to other cost centres (mainly operations
related cost centres). This way, the cost of support cost centres will become
zero.
It can be seen that after execution of cost cycle C2HPOO, the cost of
following cost centres will become zero:
MUMHPSP901
MUMHPSP902
MUMHPSP903
MUMHPSP904
MUMHPSP914
MUMHPSP915
MUMHPSP916
MUMHPSP917
MUMHPSP919
MUMHPSP929
MUMHPSP910
MUMHPSP923
MUMHPMT901
MUMHPMT902
COST
CENTRE
MUMHPPL101
MUMHPPL102
MUMHPPL103
MUMHPPL105
MUMHPPL106
MUMHPPL301
PLANT
SLUG CATCHER UNIT
GSU PLANT
LPG PLANT
DPD PLANT
SRU PLANT
CFU PLANT
RATIO
5
20
40
15
15
5
The ratio mentioned above has been fed in this segment of the cost
cycle and sap system follows this ratio for allocation of cost of WWTP to
these plant cost centres.
DESPATCH-PIPELINE
DESPATCH-RAIL
DESPATCH-ROAD
8:
HPERGEXP:
ECONOMIC
RESOURCE
GROUP
EXPENSES:
Under this segment the cost of cost centres MUMHPSP913 erg
section flows to all other plants & utility cost centres on the basis of cost
booked in the receiver cost centres.
SEGMENT9: HPCORREXP: CORROSION MONITORING SECTION
EXPENSES:
Under this segment the cost of cost centres MUMHPSP930
CORROSION MONITORING section flows to all other plants & utility cost
centres on the basis of cost booked in the receiver cost centres.
SEGMENT 10: HPCONDEXP: CONDITION MONITORING SECTION
EXPENSES:
Under this segment the cost of cost centres MUMHPSP931
condition monitoring section flows to all other plants & utility cost centres on
the basis of cost booked in the receiver cost centres.
STEAM GENERATION
HAZIRA TURBINE I&II
HAZIRA TURBINE III
DMW PLANT
Thus, it is obvious that the cost of co-gen office should flow to these
above mentioned cost centres only.
Accordingly,
under
this
segment
the
cost
of
cost
centre
PROPORTION
30.00
40.00
20.00
10.00
MUMHPTP301
MUMHPTP321
MUMHPTP341
DESPATCH-PIPELINE
DESPATCH-RAIL
DESPATCH-ROAD
MUMHPTP910
MUMHPTP301
DESPATCH-PIPELINE
MUMHPTP341
DESPATCH-ROAD
MUMHPTP321
DESPATCH-RAIL
BASIS OF ALLOCATION
DISPACTH QUANITY OF VARIOUS PRODUCTS
DISPACTH QUANITY OF VARIOUS PRODUCTS
THROUGH PIPELINE
DISPACTH QUANITY OF VARIOUS PRODUCTS
THROUGH ROAD
DISPACTH QUANITY OF VARIOUS PRODUCTS
THROUGH RAIL
And the receiver cost centres in these all the four segments are the
product related cost centres as under:
MUMH10P2TA
MUMH10P2TH
MUMH10P2TL
MUMH10P2TN
MUMH10P2TS
The main objective of this cost cycle is to transfer the cost of various
cost centres related to power generation and steam generation in to single
cost centres pertaining to power & steam so that cost of generation of power
& steam can be calculated.
In Hazira, for the purpose of identification of cost separately, for each
of gas turbines and also for each of the boilers, separate cost centres have
been created and cost relating respective turbines / boilers are booked in
the respective cost centres related thereto.
However, ultimately only one power cost and one steam cost is
calculated for the purpose of product costing. For this purpose, it is required
to transfer the cost booked in different cost centres of gas turbines to a
single cost centre of power. Similarly, it is required to transfer the cost of
different cost centres relating various boilers to a single cost centre of
steam.
For this purpose, this cost cycle has been designed.
Therefore under this cost centre, 100% cost of one cost centre flows
to another as under.
COST FLOWS FROM
MUMHPUT101
MUMHPUT105
MUMHPUT108
MUMHPUT103
MUMHPUT106
MUMHPUT107
MP BOILERS
COST FLOWS TO
ELECTICITY
MUMHPUT102 DISTRIBUTION
SYST
MUMHPUT104
STEAM
GENERATION
SYSTEM
Thus it is clear that cost finally comes to one cost centre i.e.
MUMHPUT102 (FOR POWER) and MUMHPUT104 (FOR STEAM) from
where single rate for cost of power generation and steam generation can be
calculated.
FOURTH COST CYCLE C4HPC0 HAZIRA OPERATION COST CYCLE III
This cost cycle has one segment only in which entire cost in sulphur
recovery unit cost centre (MUMHPPL106) gets transferred to gas
sweetening unit (MUMHPPL102).
Thus the cost of SRU ultimately goes to natural gas. This is because,
for the purpose of production of natural gas from sour gas, it is absolutely
necessary to establish sulphur recovery unit for environmental point of view.
Thus the sole purpose of SRU is to produce natural gas only.
ALLOCATION OF COST TO FINISHED PRODUCTS
After execution of the above referred cost cycles, the cost of various
cost centres gets accumulated in few cost centres mainly plant & utility type
cost centres.
From these cost centres, the cost gets allocated to finished products
through
process
orders
(already
explained
in
earlier
sections
11.SENSITIVITY ANALYSIS
Units/ Unit
of LPG
Unit of
Measure
Rate (Rs /
unit of
output)
C
D = (A x C)
At Present
rates
Natural gas
Power
Steam
De-mineralized
Water
Inert Gas
Cooling Water
Total Cost
Incidence
% rise in Cost
2
4
3.5
1
7
2
E=Dx
1.01
1%
F=Dx
1.02
2%
G=Dx
1.05
5%
TM3
Kwh
MT
125
1.33
0.67
250
5.32
2.345
252.50
5.37
2.37
255.00
5.43
2.39
262.50
5.59
2.46
KL
MT
KL
0.75
0.9
0.6
0.75
6.3
1.2
0.76
6.36
1.21
0.77
6.43
1.22
0.79
6.62
1.26
265.92
268.57
1.00%
271.23
2.00%
279.21
5.00%
Units/ Unit
of LPG
Unit of
Measure
Natural gas
Power
Steam
De-mineralized
Water
Inert Gas
Cooling Water
Total Cost
Incidence
% rise in Cost
Rate (Rs /
unit of
output)
C
2
4
3.5
1
7
2
E=Dx
1.01
1%
F=Dx
1.02
2%
G=Dx
1.05
5%
252.50
5.37
2.35
255.00
5.43
2.35
262.50
5.59
2.35
TM3
Kwh
MT
125
1.33
0.67
At Present
rates
250
5.32
2.345
KL
MT
KL
0.75
0.9
0.6
0.75
6.3
1.2
0.75
6.30
1.20
0.75
6.30
1.20
0.75
6.30
1.20
265.92
268.47
0.96%
271.02
1.92%
278.68
4.80%
Table-2 shows the present condition in which there is price rise in only
2 items i.e. Natural gas and Power, where as in other raw materials price is
stable
So from the Table-2 we can see if there is an increase in 1% of natural
gas & power there is 0.96% rise in cost, where as in 2% & 5% there is
1.92% & 4.80% rise in cost respectively.
In general condition there should be 1% increase in overall cost of all
the raw material but due to cost control practices at ONGC the cost of
steam, de-mineralized water, inert Gas and cooling water can be controlled
and it can save 0.04% total cost. In the same way though there is 2% and
5% increase in natural gas and power it can save 0.08% and 0.20% of total
cost
During the F.Y 2005-06 LPG productions was 1172 TM3.
LPG production in general condition at 1% = 1172 268.57= 314764.04
2% = 1172 x 271.23= 317881.56
5% = 1172 x 279.21= 327234.12
LPG production at present condition at 1% = 1172 x 268.47= 314646.84
2% = 1172 x 271.02= 317635.44
5% = 1172 x 278.68= 326612.96
LPG saved at
1% = 314764.04 - 314646.84=117.2
2% = 317881.56 - 317635.44=246.12
5% = 327234.12 - 326612.96=621.16
12.Improvement Opportunities
Sr.
No.
Area
Opportunities
Operations
Costing Method
Concept of
Costing
Costing tools
Value chain
analysis
Optimization of manpower
and its utilization
Benchmarking with Global
majors
Small group activities can
be organized to improve
employee productivity.
At present, distribution
based costs are loaded
on every cost centre.
ONGC should derive
Activity based costing to
firm the cost of each
input.
In present competitive
era, profit can only be
achieved with cost
optimization, not by
adding margin of profit to
costs.
Benchmarking of similar
industry should be
undertaken to align the
costs of ONGC to Global
majors.
Use of simple tools like
sensitivity analysis,
SWOT etc can be used in
day-to-day cost analysis
Models should be
developed to identify the
optimum value chain for a
given input scenario.
Impact
Reduction in
manpower
Path for improvement
in Delivery, Cost,
Quality and Safety
shall be evolved.
Cost which are
disproportionately
higher can be trimmed
TQM philosophy of
Plan/Do/Check & Act
can be adopted for the
whole site.
This will identify the
impact of % swing in
cost constituents.
Although complex, but
such analysis shall be
realized through right
product-mix and
utilization of resources
13.Bibliography
1. www.ongcindia.com
2. www.ongc.net
3. www.ongctsg.com
4. OPERATION RESEARCH J.K. SHARMA