Market Segmentation

Segmentation 

Marketing strategies for a company ' s product are based on the concepts of segmentation, selecting a target market, and positioning the product within the target market. All markets can be analyzed and divided into segments. A market segment is a group of customers or potential customers within a total market who have similar needs and interests, and who can, therefore, be targeted by the same marketing activities ( a marketing mix ) 

Market segments 

Market segmentation has been defined as:' the subdividing of a market into . . . Subsets of customers, where any subset can be selected as a target market and reached with a distinct marketing mix'. 

The purpose of segmentation is to identify one or more target markets for a product or service. As stated previously, a market is not a mass, homogeneous group of customers, each wanting to buy an identical product. Every market consists of potential buyers with different needs and different buying behavior in different geographical locations. These different customers may be grouped into segments.

A market segment is simply a group of potential customers that have been identified for a product, who appears to have similar needs and interests. Market segmentation is a way of the subdividing of a market into distinct and increasingly homogeneous subgroups of customers, where any subgroup can conceivably be selected as a target market to be met with a distinct marketing mix ' ( Kotler). 

There are two essential elements in this definition of market segmentation, 

( a ) Although the total market consists of widely different groups of consumers, each group consists of people ( or organizations) with common needs and preferences, who perhaps react to various forms of marketing in much the same way. 

( b ) Each market segment can become a target market for a firm and would require a unique marketing mix if the firm is to exploit it successfully. 

It must understand that there is no ' correct ' way to segment a market Companies may segment a market in different ways, and potential group customers in different ways. 

Identifying market segments for consumer goods 

An important task in marketing is to identify how the market may be segmented. Segmentation applies more obviously to the consumer market, but it can also be applied to an industrial market. There are different ways in which a market may be segmented.

Geographical 

Geographical segmentation is straightforward, but useful, especially in business - to - business marketing, which relies heavily on personal selling, A geographic consumer market can be subdivided into socio-demographic such - segments ( see below). 

Lifestyle segmentation

Lifestyle segmentation is based on how people see themselves, and their attitudes towards a particular product or service, or towards their life in general. A market may be segmented according to the interests, activities, personality, and opinions of individuals. This is very useful for many consumer goods since they can be designed and promoted to appeal based on these factors. For example, a company that makes soft drinks may identify a segment in the market of individuals who are concerned about their weight ( and so may want to buy low-calorie drinks ) or individuals who like to have soft drinks when playing a sport and thus may want to buy high - energy drinks). 

Socio-demographic segmentation

A market may be segmented according to the age of potential customers, their position in society and their social or religious background Markets may be segmented according to Age, Religion, Gender, Ethnicity / national origin, Incom,e Social class, Occupation, Family size, Education 

Behavioral segmentation

A market may be segmented according to the way that different segmentation customers respond to, know about, or use a product. A market may be divided into behavioral segments based on : 
( a ) Occasion - when customers buy or use the product. For example, manufacturers of food products may segment the market according to the time of day that customers eat the product. 
( b ) The volume of usage - heavy, medium, or light / occasional usage. 
( c ) Loyalty - a market may be divided between customers who are loyal to a product or product provider and those who are not. 
( d ) The benefits the customers are seeking - what benefits do customers look for in a product? As an example, a manufacturer of toothpaste may seek to appeal to customers based on price ( economic benefits), medicinal quality, the taste of the toothpaste, or cosmetic benefits ( effect on the user ' s appearance). 

Identifying market segments for industrial goods 

Industrial goods are goods for which the customers are businesses that will use the purchased items in their own business operations. Business customers are generally assumed to be more rational in the buying decisions they make than many consumers. Several approaches to the segmentation of an industrial market have been suggested.

A two-stage approach to industrial market segmentation 

A two-stage approach to the segmentation of industrial markets is based on analyzing the market in two stages : 
( 1 ) Macro - segmentation of the market 
( 2 ) Micro-segmentation of the macro - segments 
Macro - segmentation segments the market according to a broad factor such as : 
( a ) Size of company/customer organization 
( b ) The geographical location of customers 
( c ) Industry in which customers operate 
( d ) The general benefits that customers want from the product. For example, manufacturers of automated physical access systems ( systems controlling the access of people to a location ) may want to buy the product for security reasons to control access to a secure location, such as a bank ' s inner offices ) or for facilitating automatic entry and reducing manual ticket handling requirements , such as entry to a sports stadium . 

Macro - segmentation is used to define broad market segments in different ways. Micro-segmentation identifies more specific segments within a broad market segment. ' Micro - segments are homogenous groups of buyers within the macro segments ' (Webster, 2003).
Dividing a macro - segment into micro-segments may be based on: 

( a ) Criteria that customers consider most important when making a buying decision, such as product quality, delivery, technical support, price, or supply continuity. A manufacturer may divide the market based on supplier profiles that appear to be preferred by decision-makers, such as high quality, prompt delivery, but the premium price, or standard quality, lower price, but less prompt delivery. 

 ( b ) Purchasing strategy. Some industrial customers only buy from suppliers on their approved supplier list. A manufacturer may, therefore, segment a market according to the purchasing strategy of potential customers, and target customers with approved supplier list only if they are already an approved supplier or if they are prepared to spend the time and money needed to get on to approved supplier lists. 

Nested approach to industrial market segmentation 

The nested approach to industrial market segmentation developed from the two-stage approach. Markets can be segmented in a multi-stage approach that includes the following five stages. 
( 1 ) Demographics: the industry, company size, and/or customer location 
( 2 ) Operating variables, such as the technology used by customers company technology and their strategic capabilities 
( 3 ) Purchasing factors, such as the role of the purchasing function, buyer-seller relationships, purchasing policies, and purchasing criteria ( benefits sought ) 
( 4 ) Situational factors: the urgency of the order, size of order 
( 5 ) Buyers ' personal characteristics 
Segmentation begins at stage 1 and can be refined gradually by working down through stages 2, 3, 4 and 5

Bottom-up approach 

Kotler suggested a ' build-up ' approach to the segmentation of industrial markets. In this approach, a manufacturer collects and analyses large amounts of data about customers and their buying decisions and habits. Through this detailed analysis, the manufacturer can identify groups of customers ( market segments ) with similar attitudes and approaches to buying. 

Reasons for segmenting markets 

Reason Better satisfaction of customer needs 

Comment The same product will not satisfy all customers. A company should identify the segment of customers who may buy its products, or it must develop products that appeal to a specific segment of the market. 

Growth in revenue and profits 

Comment Some customers will pay more for certain features of a product. By targeting a product at a specific segment of the market, a company can hope to sell more successfully than competitors and make more profit. 

Targeted communications

Segmentation means that communications with targeted customers ( advertising and sales promotions ) can seek to appeal to their particular needs and values. 

Innovation 

By identifying the unmet needs of an identified market segment, companies can innovate and develop variations of a product to satisfy them. 
Segmenting a market also helps marketing managers to think about the reasons why customers in each segment of the market may have different reasons for buying a product. Having identified the reasons why people might want a product, companies can plan how to design and market their products to meet those specific needs. 

Lowest price 

In most markets, there will be one or more segments of the market in which customers want to buy a basic product for the lowest price possible. The design features of the product may be relatively unimportant. Provided that the product performs the function for which it is bought, customers will purchase the cheapest among the competing products available from different producers. This means that in every market, there will be customers whose main concern is with a price. A company that can make and sell the product at the lowest price will have a competitive advantage over its rivals and should be able to dominate this section of the market. In many markets, particularly consumer markets, there will be some companies seeking to be the least - cost and lowest price suppliers to the market.

What Marketing Is

What is Marketing 

Here we are going to discuss the following topics relating to marketing management.

• Marketing, markets and marketing strategies 
• Segmentation 
• Segmentation, targeting, and positioning ( STP ) 
• The marketing mix 
• Managing products and brands 
• Pricing strategies 
• Place: distribution channel management & Promotion strategies 

Marketing , markets and marketing strategies 

Companies sell their products or services in markets they have chosen for targeting. To sell their products and persuade customers to buy them, companies' s must undertake marketing activities.

Marketing strategies are plans developed by companies for selecting target markets and marketing their products or services to potential customers in the target market. 

Marketing creates value by creating interest in a product or service and persuading customers in the target market to buy it. 

Marketing 

It may be tempting to think of marketing as a combination of advertising, sales promotions, and selling, but it covers a wider range of activities. There have been many different definitions of marketing. 

• ( a ) The American Marketing Association ( AMA ) Board of Directors, which now reviews its definition of marketing every five years , has defined marketing most recently as : ' the activity , set of institutions , and processes for creating communicating , delivering , and exchanging offerings that have value for customers , clients , partners , and society at large ' ( 2012 )

• ( b ) A previous definition of marketing by the AMA was that marketing is: ' the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives ' ( 1985

• ( c ) Philip Kotler, a leading writer on marketing management, has defined marketing as:' the science and art of exploring, creating, and delivering value to satisfy the needs of a target market at a profit. Marketing identifies unfulfilled needs and desires. It defines, measures and quantifies the size of the identified market and the profit potential. It pinpoints which segments the company is capable of serving best, and its designs and promotes the appropriate products and services'.

Marketing: the science and art of exploring, creating, and delivering value to satisfy the needs of a target market at a profit. 

Marketing strategies are strategies/plans for marketing a product or service to a target market.

Markets 

Companies undertake marketing in selected markets. So what is a market? The definition of a market is that it is a group of consumers or organizations:

• That is interested in a product ( or service ) 
• That has the resources to buy a product or service. 
• That is permitted by law or regulation to buy a product ( or service ) 

Using this definition, we can make a distinction between the following markets : 

Potential market  

The total of the consumers or organizations that might be interested in buying the product (or service) 

Available market

The total of the consumers or organizations in the potential market who have the resources to buy the product. 

Qualified available market

The total of the consumers or organizations in the available market who are permitted by law to buy the product, or who are not prohibited by law from buying it.  

Target market 

The part of the market to which the business organization has decided to sell its products ( to serve )

Penetrated market

The part of the target market that the organization has succeeded in selling its products  

There are other ways of classifying markets.

Geographical markets 

Markets may be defined or classified according to the geographic area they cover: global market, regional market, national market, local market. 

Product markets 

Markets may be defined by the type of product that is sold in them, such as a market for oil, the energy market, a stock market, and so on. Within the product market, there are different variations of the product. Even in the market for something basic such as bottled water, there is still water, sparkling water, flavored water, water for water dispenser machines, and water bottles of differing sizes.

Customer markets

Markets may be defined by the intended customers, such as a consumer market, an industrial market, a retail market, and so on.  

In marketing, a market is often defined in terms of its buyers or potential buyers. 

• Consumer markets ( for example, markets for food, cookers, television sets, clothing ) 
• Industrial markets ( also known as a business - to - business, for example, selling machines to a factory ) 
• Government markets ( markets for products that governments purchase, such as armaments and, where there is state-run medical services and schools, medical equipment, medicines, and school equipment )
• Reseller markets ( markets, where the sellers are manufacturers of goods and the buyers, are retailers or other organizations that resell the goods they buy, such as wholesalers ) 
• Export markets ( selling goods to customers in other countries ) 

Consumer goods markets 

Consumer goods are goods that can be used by consumers without the need for any further commercial processing. Consumer goods may be further classified according to the method by which they are purchased : 

• Convenience goods. Goods that consumers buy from a convenient location, such as a local store or supermarket. These are goods that are often purchased regularly and are low - priced. They usually have close substitutes, which may be sold under different brand names. 

• Shopping goods. Goods that consumers may buy after having looked at different products from different manufacturers or retailers before deciding which product to buy. They usually have a higher unit value than convenience goods and are bought less frequently, often from a specialist retailer,  

• Specialty goods. Goods where the consumer wants to buy a specific product because of its unique features. These are generally high - priced goods that are available only from a limited number of sellers. Consumers will take time and trouble to find somewhere they can buy the product. 

Industrial markets or business - to - business ( B2B ) markets 

In industrial markets, the customer is another firm, such as for the sale of machine tools or consultancy advice. In an industrial market, more than a consumer market, customers are motivated by financial and commercial considerations such as :

• Product quality 
• Price 
• Credit terms 
• Delivery dates 
• After-sales service 
.

Industrial goods are purchased by companies in the middle of a supply chain. The purchased goods are used to make other industrial goods or to make consumer goods. The demand for industrial goods depends on the demand for consumer goods that are sold at the end of the supply chain.

Marketing strategies and value creation 

Marketing activities by a company create value by : 

Making potential customers in a target market aware of the company ' s product ( or products or brand name ) and getting them interested in it 

Making interested customers want to buy the product 
Getting them to buy it and depending on the nature of the product, getting them to buy the product repeatedly), many times over 

Value is created in marketing by selling more products and through a combination of sales volume and sales price. 

Competitive advantage may be created by success in taking target customer ' s want to buy the company ' s products rather than the products of a competitor. 

Marketing strategies are concerned with: 
Selecting target markets 
Deciding on the appropriate methods for marketing to the selected target market 

Companies may select several different target markets. However, there is no single standard product that is sold to a universal global audience. 
Every market is a variation of a geographical market, product markets, and customer markets.

We will discuss the following topics in the coming post series. Got touch with us. 

• Segmentation 
• Segmentation, targeting, and positioning ( STP ) 
• The marketing mix 
• Managing products and brands 
• Pricing strategies 
• Place: distribution channel management & Promotion strategies 

To be continued... 

What is Warehousing in Supply Chain Management

Warehousing 

Value is created by efficient warehousing management. Efficient warehousing management involves establishing and operating a system for holding inventories of goods and keeping them secure and in good condition until required, and also an efficient and economic system for receiving goods into the store and retrieving them when needed. 

A warehouse is a commercial building for the storage of goods. Warehouses are operated by different types of business organization: 

( a ) Manufacturers have warehouses for storing raw materials and components that have been purchased from suppliers, and for holding inventories of finished goods until they are sold and despatched to customers. 

( b ) Importers use warehouses for holding goods that they have imported into the country, and exporters use warehouses for goods awaiting export to buyers in other countries.  

( c ) The customs department of the government uses warehouses for holding imported goods that have not yet been given customs clearance for import into the country. 

( d ) Wholesalers use warehouses to hold goods they have purchased from manufacturers before they are sold on to retailers. 

Transport and distribution companies use warehouses for holding goods that they are in the process of transporting ( distributing ) on behalf of client businesses. Some warehouses specialize in the storage of particular types of goods. For example, refrigerated warehouses are used to hold goods such as meat products in cold storage, to prevent them from deterioration or decay while in-store. Items held in warehouses range from raw materials and components, to spare parts, finished goods, packaging materials, and agricultural produce.

Purpose of warehousing 

The purpose of warehousing is to hold goods until they are required for use or sale. The main functions of warehousing are : 

• To keep goods secure until they are needed for use or sale 
• To hold goods in a place where they can be located and retrieved easily and quickly when required 
• To minimize the costs of handling goods while in-store 

It is difficult to organize operations in a supply chain so that goods are obtained at exactly the time they are needed for use, or at exactly the time they are needed for selling to a customer . If goods could be obtained at exactly the moment they are needed, there would be no requirement at all for storage and warehousing . 

There is an approach to inventory management known as just - in - time ( JIT ) purchasing and production, which seeks to arrange for the purchase or production of goods at exactly the time they are needed, to reduce inventory levels as close to zero as possible. JIT is explained later, but JIT arrangements are difficult to achieve in practice : 

• Suppliers are often unable to deliver goods at exactly the time that they are needed.
•  Production management systems are often unable to produce goods quickly to meet new customer orders

Inventories and the warehousing of inventories are needed to prevent hold-ups or breakdowns in the supply chain ( or value network), due to delays in supply deliveries or production processes. 

Functionalities of a warehouse management system 

Value is created in warehousing through efficient planning, operations, and control. These are needed in all the following areas of operations ( functions )

• Handling goods received from suppliers: confirming that the supplier has delivered goods as mentioned in the purchase order, in good condition; transferring the purchased items into the storage location
• Similarly, handling, recording and storing finished goods as they come out of production.
• Protection of items/goods during the time they are held in the store 
• Efficient location of items within the store, so that physical movements of items are minimized - this speeds up the despatch process 
• Despatching orders 
• Monitoring and controlling inventory levels, to minimize stock-outs but also to avoid excessive levels of inventory by limiting costs of losses due to damaged and stolen inventory 

Warehousing processes 

Warehouse operations involve the recording of goods received into the warehouse and goods despatched. This is part of the inventory management process. The physical aspects of warehousing involve efficient systems for receiving holding and then despatching items held in store. 

Receiving goods into store 

Receiving goods into the store can be a time-consuming operation. The goods have to be unloaded and physically moved to their storage locations. This process does not add any value to the business, and any method of minimizing the cost of this process adds value by saving money. Some warehouses are located and constructed so that unloading and loading of goods are simplified. For example, some warehouses are located at rail terminals or airports or seaports, and goods received into the store are taken up to or into the warehouse before unloading The physical movement of goods within the store typically involves the use of forklift trucks or cranes. 

Holding goods in-store until required 

Efficient warehouse management involves making the best use of space within the warehouse. This involves not just making use of all the floor area to hold goods, but also to stack goods as high as possible. 

Pallets are stored in pallet racks, which may go up to the ceiling, Pallets stored high in a pallet rack can be placed in-store and then retrieved using cranes. Pallets low down near the floor can be retrieved using forklift trucks. Since storing and retrieving goods is easier when the goods are held close to the ground, the most commonly - used goods should usually be located low down in a pallet rack. 

Retrieving goods when required 

When goods are required for use or despatch, the objective of warehouse management should be to locate and retrieve them as quickly as possible. Cranes and forklift trucks can be used to do this. In some warehousing operations, automated storage and retrieval systems speed up the process and reduce costs by removing much of the need for human intervention. 

Automated systems may include automated cranes or conveyor belt systems. Conveyor belts can be used to move goods from their location in the warehouse to the place where they will be packaged and loaded for despatch. 

Warehousing can be an expensive operation, but costs can be reduced employing efficient systems for accepting goods into the store, location and storage and retrieval for use or despatch. 

Although JIT systems of operation seek to reduce the need for inventories and warehouses, warehousing and holding inventories is often a necessary requirement for the efficient functioning of the supply chain. The development of online selling - the direct selling of goods to consumers through the internet - is creating additional demands for warehousing to support the operations of the supply chain. Goods must be available in-store to meet the demand for online buying. 

Warehousing cost management and performance controls 

Management should monitor the efficiency and effectiveness of warehousing operations and should seek to keep warehousing costs under control. Inventory costs are discussed later. Other important aspects of warehousing are : 

• Time to complete operations
• Security and safety of goods held in store 
• Use of the facilities available ( capacity usage ) 

Standard times may be set for the time that it takes to : 

• Receive goods into the store and place them in their storage location 
• Retrieve goods from the store, from the time that a request for goods is received to the time they are despatched from the warehouse 

Security and safety of goods may be monitored by measurements of: 

• Losses due to damaged goods that have to be disposed of 
• Unexplained losses, possibly due to theft 

Some losses due to damage or theft are probably unavoidable, but these should be kept to a tolerable ( low ) level. 

Capacity usage may be measured by the average amount of storage space actually used as a percentage of warehouse capacity. A low capacity usage ratio may indicate that the organization' s warehousing facilities are too large. 

Below areas will be discussed in the coming posts series,

Warehouse management systems ( WMS ) 

Inventory management 

Physical distribution and logistics systems 

Supply chain information systems 

Supply chain performance management

To be continued...

Elements of Supply Chain Management

Here we expect to discuss the following areas in this post. 

Elements of supply chain management 

Warehousing 

Warehouse management systems ( WMS ) 

Inventory management 

Physical distribution and logistics systems 

Supply chain information systems 

Supply chain performance management

Elements of supply chain management 

The supply chain is the network of organizations involved in the different processes and activities that convert raw materials into finished goods and services to produce value for the end consumer. Supply chain management is concerned with managing those parts of the supply chain over which an organization has influence or control. The two parts of the supply chain over which a business organization has most control are : 

Its relationships with its suppliers 

The interface with suppliers: inward logistics and stores management 

Its relations with customers 

The interface with customers: warehouse management and outward logistics 

A supply chain flows from raw materials producers to the customers for the end products, and most business organizations (except for retailing organizations) are somewhere in the middle of the chain. 

The term ' upstream activities in a supply chain mean the activities of organizations earlier in the supply chain. A company's s suppliers are " upstream ' in the supply chain.

Downstream activities are the activities that occur later in the supply chain, ending with the sale of goods to the end consumer. A company ' s customers are ' downstream ' in the supply chain. 

Creating value in the supply chain 

Value is created in any of the following ways : 

• Cutting costs 
• Persuading customers to pay a higher price for products 
• Selling more products 
• Selling a more profitable mix of products 

Creating value through the supply chain can be achieved in the following ways : 

• Responsiveness 
• Reliability 
• Relationships Management of efficiency in logistics operations 

Responsiveness 

Companies must be able to supply their customers quickly. Customers may expect to receive products as soon as they want to buy them, or at least within a particular time after placing an order. 
Responding quickly to customer orders creates value because customers are more likely to buy from companies that can supply them immediately, or faster. 
Responsiveness means having goods in the warehouse available to supply to customers on-demand, or being able to fulfill a customer ' s order promptly. 
To meet customers ' demand for goods, a company needs the materials and components from its own suppliers. Responsiveness, therefore, also means having a sufficient amount of material items in-store to meet production demand or being able to obtain materials promptly from customers. 

Reliability

 Deliveries through the supply chain must be reliable in terms of timeliness, quality, and quantity. Reliability depends to some extent on responsiveness, but the value is created when customers can rely on a company to deliver the right amount of goods, of the right quality, and at the time when they are expected. For example, value is created in service for delivering parcels by promising a delivery time and meeting the promise. Reliability is also improved by transparency in the supply chain, so that upstream firms can see orders coming from their customers and can monitor deliveries coming from downstream suppliers. 

Relationships 

The need for responsiveness and reliability means that a company can establish strong relationships of trust and mutual understanding with its suppliers and its customers. A supply chain can be seen as a network based on collaboration and common interest. Companies can work with the suppliers to find ways of improving responsiveness to customers and improving the reliability of supply. 

Operational efficiencies 

Management can also create value by improving the efficiency of stores and warehouse operations. Minimizing inventory levels, without running out of inventory when needed, reduces the investment in inventory, and so reduces financing costs. Investment in better warehousing equipment and shelving may enable a company to use its warehouse space more efficiently, for example, by stacking items higher. Better use of space could result in lower accommodation costs. Companies may try to increase value by obtaining lower prices from suppliers. However, a risk with this buying strategy is that a relationship of trust is difficult to establish when the customer is continually demanding lower prices: and efficient buying might not create a sustainable competitive advantage. 

Creating a competitive advantage in the supply chain 

The previous section explained how value can be created through supply chain management. But does supply chain management simply create a threshold competence, using threshold resources, or can supply chain management be used to create a core competency and competitive advantage? The answer to this question is that this will depend on the circumstances.

Methods of improving the supply chain 

There are different ways of improving the supply chain. A company ' s ability to use these methods of supply chain management will depend on its circumstances. 

Reduce the number of Suppliers 

Suppliers who are not responsive or reliable may be suppliers " dropped', and reliable suppliers used more extensively. Using lewer suppliers should reduce administration costs in the buying department. It may also allow a company to make more use of shared IT systems with suppliers. Having fewer key suppliers should also improve the opportunities for developing strong relationships with them.

Reduce the number of customers

In some cases, this may improve supply chain management by allowing a company to focus on customers who are more profitable and provide more value. Coordinate production , warehousing and sales , and marketing Supplier involvement in product development and component design If a company is planning a marketing campaign for a product , management should make sure that a sufficient amount of the product is held in the warehouse or can be produced quickly in order to meet the expected increase in sales demand .

Supplier involvement in product development and component design

For companies that develop new products, the value can be created by involving key suppliers in the product design. Suppliers may be able to suggest ways of producing materials or components more cheaply without loss of quality or may be able to work with the company on ways of developing improved components.

Below areas will be discussed in the coming posts series,

Warehousing 

Warehouse management systems ( WMS ) 

Inventory management 

Physical distribution and logistics systems 

Supply chain information systems 

Supply chain performance management

To be continued...

Process Management - Budgeting

Annual budgeting

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

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

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

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

                                                                                                                                                                                                                                         

Project budgeting           

Initial budget

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

•             Bill of quantities

•             Project contract document & specifications

•             Master material indent

•             Resource plan

•             Construction program

•             Risk assessment report

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

•             Budget bill of quantities

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

•             Cash flow forecast

•             Resource allocation plan (material, machinery & men)

•             S curve

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

Revised Budgets

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

Approved budget revisions shall be uploaded to the SAP system.                                                                                                                                                                                                                                          

Project budget releasing

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

•             Overall project release

•             Individual elements based release

Overall budget release

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

Individual element based budget release

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

Project budget monitoring

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

•             P&L account

•             Budget Variance Analysis report

•             Bill payment monitoring report

•             Cash flow monitoring report

•             S curve report

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

CAPEX Budgeting

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

CAPEX budgeting for a project

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

                                                                                                                                                                         

CAPEX budgeting for other business units

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