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1.0 Introduction
This chapter looks at the background of the study, statement of the problem, objectives of the
study, research questions, significance of the study, scope and limitations of the study, literature
review, research methodology, and definition of terms and the organization of the study.

1.1 Background of the Study.

Wants are numerous while resources are limited but there is every tendency to waste or
underutilize the limited resources by the human factor involved in the production of goods and
services. With various companies competing with one another, only few that are able to produce
at least possible cost will survive the growing competition in the market. Therefore, it is
paramount for every serious business undertaken to produce at that possible minimum cost so as
to remain in business and also achieve the corporate objectives of profitability and stability. In
view of this, there is every need to do a realis- tic planning of the activities of the firm taking into
consideration the limiting factors and the long term objectives of the firm. In order to achieve
this, budgeting a tool of planning and control becomes indispensable. Budgeting is ubiquitous
and has long been considered as a necessary tool in managing a company.
In order to survive under these environmental complexities and unclearness, managers and
stakeholders of both private and organisations need sharp tools, proven management techniques,
to forecast the major changes which are likely to affect the business. These proven management
techniques help to direct and allocate resources needed to attain selected goals. Every
organization is set up to achieve a set of goals. Budget and budgetary control shall be looked at

as the proven management techniques which help to forecast the major changes which are likely
to affect the business. As such, organizations should recognize that the effective use and
application of any budget is very dependent on the extent to which employees are committed to
the ideals of the budgetary process and encourage behavior that is in accordance with the entitys
objectives. Bratton and Gold (2007: 442) assert that an organization can build capacity through
employee participation and empowerment.
Budgetary control, as a proven management tool, helps management, and enhances improved
performance of any economy in different ways. It helps administrative officials to make careful
analysis of all existing operations, thereby justifying expanding, eliminating or restricting present
practice. Various researches on budgets and budgetary controls have clearly shown that
organizations need to pay serious attention to budgetary processes, budgets, and budgetary
controls. In light of these, there are various issues facing organizations as a result of ineffective
budgetary control systems and budget implementation challenges.
The question whether budgeting in the organisation is a formality or reality has attracted the
attention of many scholars and researchers. The problems generate from the formulation,
implementation and evaluation of a budget and as well as the control measures put in place to
help achieve the budget. In addition to these short comings or problems, performance is also
dependent on those who are responsible for the implementation of the budget and the control
systems put in place.

1.2 Statement of the Problem

Budget and budgetary control are important tools used in the control of cost. The performance of
every institution lies within the actual revenues and expenses made during the period. Higher

cost as compared to revenues means that there are certain challenges or problems that affect the
performance of any business.
The issue at hand is whether budgeting in the organisation is a formality or reality as undertaken
by public officials. The problems generate from the formulation, implementation and evaluation
of a budget and as well as the control measures put in place to help achieve the budget. In
addition to these short comings or problems, performance is also dependent on those who are
responsible for the implementation of the budget and the control systems put in place.
At the stage of budget formulation, there is the need to involve the employees of the organization
in order to make them feel as part of management. This will enhance the implementation of a
budget. Also a comparison of actual results against budgeted projections provides a basis for
evaluating performance and signals the need for corrective action. This comparison can be very
meaningful since it identifies the variances, which need analysis and investigation.
At the implementation stage, employees must be communicated to about the budget so that they
can have a better understanding of the budget. This will motivate them to commit to the
achievement of the budget as performance is dependent on how well management communicates
the budget to the employees. For better control measures to be developed management should
evaluate how well they have performed. By evaluation, information can be gathered from
employees at the lower levels to help them develop control measures. Management plays a very
important role in the achievement of a budget as they are responsible for drafting, implementing
and evaluating the budget, as well as identifying effective control measures to correcting
deviations and inefficiencies.

1.3 Objectives of the Study

The broad objective of the study is to determine the effectiveness of budgeting and budgetary
controls. In order to achieve this broad objective the study sought:

To determine whether budget adherence leads to control of cost.

To identify budgetary control measures to improve on SLACs performance.
To determine whether there is a relationship between budget evaluation and performance.
To determine the extent to which budgetary control measures affect performance.
To determine the extent to which management ensure the achievement of the budget.

1.4 Research Questions

In order to achieve the above objectives the following research questions were answered:

Does budget adherence lead to the control of cost?

Does budget evaluation affect performance?
Do budgetary control measures affect performance?
Which budgetary control measures can improve on SLACs performance?
To what extent does management ensure the implementation of a budget?

1.5 Significance of the study

The research work is significant in the sense that it will add to the existing body of knowledge,
enable readers and users of this information to know the various variables to be considered in
drafting a budget that must be taken by managers to achieve the planned activities and finally it
will help management of SLAC to put in place strategies to help them achieve their set targets
(budget) while at the same time leading to greater performance.

1.6 Research Methodology

The study used both primary and secondary data. The primary data were obtained from the staff
of SLAC through interviews based on a well-structured questionnaire with the budgeting

department. The secondary data sources were obtained from various text books, journals and the
institutions brochures.

The target population of this study were the employees of the Account and Finance Departments
of StarLife Assurance Company but a sample of 50 respondents were selected using purposive
sampling because the researcher wants views from those who work on budgets and have
knowledge about budgeting

1.7 Chapter Disposition

The study consists of five chapters. Chapter one focuses on the introduction which includes the
background of the study, statement of problem, objective of the study, methodology, scope and
limitation and structure of the study. Chapter two is the general literature review, which reviews
previous studies on budgets and budgetary controls. Chapter three focuses on the research
methodology. It looks at how the study is carried out which includes the means of data
collection, data analysis, research design, population, sample size and sampling techniques.
Chapter four focuses on the analysis of the data collected, presentation and discussion of
findings. Chapter five is the concluding aspect and focuses on the summary of findings,
conclusion and recommendations.


2.0 Introduction
This chapter reviews relevant literature on budget and budgetary control. It commences by
looking at the definition of budget, nature of budget and concludes by looking at the formulation,
implementation, evaluation and performance of a budget, budgetary control measures.

2.1 Definition of a Budget

A budget has been defined by Chartered Institute of Management Accountants (CIMA), as a
financial or qualitative statement prepared and approved prior to a defined period of time for the
purpose of attaining a given objective. It may include income, expenditure and the employment
of capital. CIMA also defined budgetary control as the establishment of budgets relating the
responsibilities of executives to the requirements of a policy and the continuous comparisons of
actual with budgeted results, either to secure by individual action the objectives of that policy or
to provide a basis for its revision.
Horngreen (1982) defined a budget as a quantitative expression of a plan of action and an aid to
coordination and implementation. The Oxford Advanced Learners dictionary defined budget as
an estimate or plan of the money available to somebody and how it will be spent over a period
of time. Both Horngreen and the dictionary emphasized the word plan, but planning itself is
found in all aspect of human endeavour, hence planning is a blue print of business growth and a
road map for development that helps in deciding objectives, quantitatively and qualitatively. It
involves setting a goal on the premise of the objectives and keeping of the resources. The
process of planning requires that managers of business to act as if they are fortune tellers and
attempt to predict the future course of action to be adopted. Such prediction of the so-called
fortune tellers will determine whether or not the objectives of the firm will be met.

Adams (2001), views budget as a future plan of action for the whole organisation or a sector

Budgets are plans that deal with future allocations and utilisation of resources to

different activities over a given period of time. For any organisation to make progress or
achieve its goals, it needs capital and to be able to make profit, it requires planning of its
resources, which can only be achieved through budgeting, hence budgeting serves as a tool for
financial planning.
Batty (1982), defined budgetary control as a system which uses budgets as a means of planning
and control- ling all aspects of producing and or selling commodities or services. This is true as
we tend to prepare revenue and expenditure variance analysis to be able to deduce areas of
divergences for which the management needs to watch to avoid embarrassment as any adverse
variance will translate into inability to meet the corporate objective which will eventually lead
to disagreement with stakeholders
Pandy (1985) has observed that although many people will complain about budget and its
process, budgets are indispensable in a large modern organisation as the benefit that occurs from
budgets and its control is much greater than the cost involved. In view of this, the fact that
resources are scarce, coupled with high competition that permeate most businesses, budgets
when rightly applied, would be an effective tool for planning and control.
Lucey (2010), in support of the CIMAs definition de- fined budget to be a plan quantified in
monetary terms, prepared and approved prior to a defined period of time, usually showing
planned income to be generated or expenditure to be incurred during the period and the capital
to be employed to maintain the given objective. From this definition, we can as well state that
budget is an aid to making and coordinating short range plan; a device for communicating
plan and objectives to various responsibility centres and a basic evaluation of performance.
Therefore, it can be said that budget is a parameter which measures the actual achievement

of people, departments, ministries and firms, while budgetary control ensures that actual results
are positively or negatively in accordance with the overall financial and policy objectives of the

2.2 The Nature of Budget

Currently, much attention has been given to the strengthening of budget and planning and
their interrelationship in developing countries including Ghana. The advocacy for this has
come from prominent international agencies as United Nation, International Monetary Fund,
World Bank and United State Agency for International Development. All these agencies are
all interested in encouraging developing and underdeveloped nations to improve their budget
practice. All these show the im- portance attached to budget as a management process.
Almost every enterprise, regardless of size, complexity or sector, relies heavily on budgets and
budgetary control systems to achieve strategic goals. The success and importance of budget
relates to the identification of organizational goals, allocation of responsibilities for achieving
these goals, and consequently its execution (Shah 2007; Robinson 2007; Drake and Fabozzi
2010). It is one of the most successful and useful management accounting techniques that can
reap handsome rewards if properly understood and implemented.
The process of budgeting involves setting strategic goals and objectives and developing forecasts
for revenues, costs, production, cash flows and other important factors (Bonner 2008; and
Bierman 2010). By putting together a financing and investment strategy in place, this will allow
those responsible for financing of the company to determine what investment can be made and
how these investments will be financed. In other words, budget brings together decisions
regarding capital budget, capital structure, and working capital (Drake and Fabozzi 2010: 115).
The end result of the process is the production of the formal document referred to as a budget.

According to Campbell (1985), a budget is a quantitative analysis prior to a defined period of

time of a policy to be pursued for that period to attain a given objective. Its main purpose is to
aid in the achievement of objectives and direct managerial effort (through planning, cocoordinating, measuring and rewarding) throughout the organization towards global purpose.
Like Campbell (1985), other writers such as Miller et al (2001), Bonner (2008), Drake and
Fabozzi (2010), and Bierman (2010), have all agreed that budgeting is mapping out the sources
and uses of funds for future periods.
However, it is believed that there are both technical and behavioral aspects to budget that can
benefit all firms if properly understood and coordinated. Although the technical aspect is always
emphasized as being most important, Campbell (1985) indicates that the recognition of both the
technical and behavioral aspects of budgeting is essential, if goal and behavior analogy are to be
achieved. Recognizing this dimension, Hope & Fraser (2001), Morris et al (2006), Boon et al
(2007) and other writers in the field are now focusing on the organizational and behavioral
changes needed to support the budgeting process. This is reflected in the latest set of twelve
Beyond Budget principles, which entails a shift from financial performance emphasis to one
based on people. The technical component of budget deals with a mathematical computation of
projected costs and expenses and has been heavily emphasized in the organisation. The
behavioral component however focuses on the ability to achieve the technical aspect of budget
with the use of people. Having observed the nature of the budgeting process Hopwood (1974),
Boxall and Purcell (2008), Eamets et al. (2008) and Redman and Wilkinson (2009) argues that
behavioral and social aspects are an integral part of the budgeting process and should not be
divorced from the technical side. As such, organizations should recognize that the effective use
and application of any budget is very much dependent on the extent to which employees are
committed to the ideals of the budgetary process and encourage behavior that is in accordance

with the entitys objectives. Bratton and Gold (2007: 442) assert that an organization can build
capacity through employee participation and empowerment.
Horngren et al. (2008), define budget as a quantitative expression of a plan of action. Atkinson
et al. (1997), also define budget as a quantitative expression of the money inflows and outflows
to determine whether a financial plan will meet organization goal. The definitions above do not
mention the object of time to which a budget relates. A budget should always be in respect of a
period of time, it could be half yearly, yearly, quarterly, monthly, weekly, daily, or other time
periods (Harper, 1995; Frederick, 2001). A budget is also not just a quantitative expression of a
plan of action but a quantitative economic plan. For a plan of action to be referred to as a budget
it must be in economic term (Harper, 1995). The literature also posits that a budget is a
quantitative expression of a plan of action prepared in advance of the budget period (Lucey,
2000). Lucey identifies that budgets may be prepared for the business as a whole, for
departments or functions with a link with the overall objectives of an organization.
The valuable use of budgets for translating organizational objectives to feasible plan of action is
a major breakthrough against the ordinary use of budgets for cutting cost, restricting spending
and allocating scarce resources.

2.3 Purpose of Budgeting

Budgets have always played a key role in managing an institution, both private and public,
being an important control system in many companies (Ekholm & Wallin, 2000, Merchant &
Van der Stede, 2003). Otley sees the budget as the central stage of most organizations systems
of management control (Otley,1978). The overall objective of the budget is to keep control of
the activity done in the company by providing a roadmap for future activities and to set a
series of goals to be achieved and the means by which to achieve those goals (Achim, 2009a).

Therefore the management efficiency can be appreciated by the achievement of predefined

objectives and the means used to their achievement. There are several empirical studies that
demonstrate that budgets are one of the most used planning and control tool for companies
(Abdel-Kader & Luther, 2006, Uyar,2009).
Managers are responsible for the realization of the indicators within their budgets and for any
variance from the estimated values, cases in which they are required to take remedial action.
Budgets are used by management for different uses (Riley, 2012):

control income and expenditure (the traditional use);

establish priorities and set targets in numerical terms;
provide direction and co-ordination, so that business objectives can be turned into
practical reality;
assign responsibilities to budget holders (managers) and allocate resources;
communicate targets from management to employees;
motivate staff;
improve efficiency;
monitor performance.










functions) are the following:


Planning operations that ensure the companies strategic objectives realization.

Budgeting process stimulates managers to predict all the problems before their
appearance and thereby avoid making hasty decisions in the event of certain undesirable
situations in the future. We can say that budgeting "guarantees" that they will plan
future operations depending on how it was accomplished the previous budget, taking
into account all the factors that have influenced changes regarding previous budget


Coordinating various activities of different types of subdivisions. Coordination of each
employee and groups interests.
Each subdivision of an economic entity has its own objectives and this can lead to

situations in which these goals are contradictory in relation to other responsibility

centers. So, the budget has the role to reconcile and regulate these contradictions in

favor of the economic entity so that these situations can be prevented.

Stimulation of managers from all business levels to achieve predetermined goals of
each responsibility center.
This budget feature strongly manifests in case of participative budgeting when
responsibility center managers can propose various quantitative indicators. Therefore
the budget indicators are indicators not forced to realize from the center but settled by
mutual agreement with the management of each responsibility center.


Control of current activity, ensuring discipline according to the business plan.

Careful drafting of budgets ensures the optimum standard to compare undertaken
activity achievements, to determine deviations and to take measures to eliminate them.


Evaluation of plans fulfillment by each responsibility center and their managers.

Management performance can be appreciated by comparing the results with those
expected to be achieved.


Training managers and other employees from financial services of a company.

There are different reasons for which companies use budgets. The key purposes of budgets
can be translated into planning the use of resource, forecasting the future, assistance in
performance evaluation and maximization, assuring the means of communication for the
management, controlling the activities of various groups within the firm, motivating
employees to achieve performance, controlling performance by investigating variances,
resolving conflicts of interest between groups with the organization, pricing decisions and
control (Riley, 2012, Oak & Schmidgall, 2009, Cruz, 2007).

2.4 Steps in Budget Preparation

The following steps are to be established to prepare a quality budget:

Existence of a budget manual: the manual shall contain the standing instructions
governing the responsibilities of persons, procedures, forms and records relating to the


preparation and use of the budget;

Constitution of the budget committee: the committee consists of the chief executive
officer and representatives of functional areas as finance, production, marketing, selling,
engineering etc.


The committee is to formulate the program for the preparation of the

Identifying principal budget factor: the factor that limits the level of activities (such as
shortage of skilled labour, inadequate raw material or machine capacity) the extent of


which should be firstly assessed before preparing the functional budgets;

Appointment of a budget officer: normally an accountant who is charged with the
responsibility of issuing budget instructions to various departments; receiving and
checking the budget estimates; pro- viding historical information to departmental
managers to help them in their forecasting; ensuring that departmental


prepare their budgets in time; preparing the budget summaries; submitting budgets to
committee and furnishing explanation on particular points; discussing difficulties with

man- agers and coordinating all budget works;

Establishing the budget periods: budget could be established into control periods


which could be weekly, monthly, quarterly or even yearly;

Preparation of the master budget: this is the consolidation of various functional
budgets (sales budget, production budget, production cost budget, plant utilisation
budget, capital expenditure budget, selling and distribution budget and cash budget).
Master budget can be summarised into Budgeted Statement of Comprehensive

Income and Budgeted Statement of Financial Position. Both the master budget and
cash budget can be described as the financial budget. All these budgets, master and
functional, can be further classified

2.5 Classifications and Types of Budget

Budgets can be classified into; short term budget; long term budget; fixed budget; flexible
budget; Zero Based Budget (ZBB); Rolling budget; Activity Based Budgeting; Incremental
budgeting and Planning, Programming Budgeting Systems (PPBS).

Short term budget

Budget established for use over a short period of time, usually a year, which the
responsible officer is to use for control purposes. This is commonly in use in manufacturing
industries due to the complex and dynamic environment in which they operate.

Long term budget

This is a long term plan, also called development plan.

It is normally for a minimum

duration of 5 years and is sometimes called the strategic plan of the organisation. Government
prepares 5 years Development plan, which can be rolled over for every five year as
manufacturing companies also prepare 5 years strategic plans, which is sometimes broken into
yearly budget rolled over from one year to the other.

Fixed budget

Chartered Institute of Management Accountants (CIMA) defined fixed budget as budget set
prior to a control period and not subsequently changed in response to changes in any activity
costs or revenues. It may serve as a benchmark in performance evaluation

Flexible budget

CIMA defined flexible budget as a budget designed to change in accordance with the level of

activity attained. This budget recognises the existence of fixed, variable and semi-variable costs
and is designed to change in relation to the actual volume or output or level of activity in a

Zero Based Budgeting.

This is also called Priority based budgeting. It is a technique which seeks to eliminate the
drawbacks of traditional incremental budgeting by taking the budgets for service of overhead
centres back to minimal operating level and then requiring increments above this level to be
quantified and adjusted. ZBB was introduced in the early 1970s in the US by Phyrr, O. and
gained prominence because of its practicability.

President Carter then directed all US

governments to adopt the technique. The technique is concerned with the evaluation of cost
and benefits of alternatives and implicit in it is the concept of opportunity cost. It is applied in
three stages of:

The decision unit: i.e subdividing the organization to discrete sub-units where operations

can be meaningfully and individually identified and evaluated;


The decision packages: each decision unit manager submits no less than three budget

packages namely: the lowest level of expenditure; the expenditure required to maintain levels of
activities and the expenditure required to provide an additional level of service or activity;

Agreed packages will form the budget.


Rolling Budget

This is also known as continuous budget. It is a system of budgeting that involves continuously
updating budgets by reviewing the actual results for a specific period in the budget and
determining a budget for the corresponding time period. Under this period, instead of preparing
a budget annually, there would be budget every three or six month so that as the current

period ends, the budget extended by an extra period.


Activity Based Budgeting

Activity based budgeting (ABB) is similar to activity based costing (ABC) and activity based
management (ABM). ABB actually involves planning and controlling along the lines of value
adding activities and processes. Resource and capital allocations decisions are consistent with
ABM analysis, which involves structuring the organizations activities and business processes so
that they better meet costumers and external need. From the perspective of Wilhelmi and Kleiner
(1995), ABB can be applied in all industries and in all functions, including service industries and
overhead functions. It also can be used in manufacturing. It is really a management process,
operating at the activity level, for continuous improvement on performance and costs.
This is also called activity cost management which is defined as a method of budgeting
based on an activity framework and utilizing cost driver data in the budget setting and variance
feedback processes. It is a part of planning and controlling system which tends to support the
objectives of continuous improvement and it also a form of development of conventional
budgeting system. It is characterised by the following:
Recognition of activities that drive cost with the aim of controlling the causes of cost directly
rather than the cost themselves;
Differentiates and examines activities for their value adding potentials;
The department activities are driven by demands and decisions which are beyond
the control of budget holder;
Encourages immediate and relevant performance measures required than are found in
conventional budgeting systems.

Incremental budgeting

This is the traditional approach that uses the current year estimates of income and

expenditure as the basis for determining the budget for the year. It is normally used in
public sector and it has the misfortune of carrying over the inadequacy of yester-years into
subsequent year budgets as it only increases the current periods figure with what the
establishment thinks is the inflationary premium for next year financial period.

Planning, Programming Budgeting System(PPBS)

This system analyses the output of a given programme and also seeks for alternatives to find
the most effective means of reaching basic programme activities. It involves the preparation
of long term corporate plan that clearly establishes the objectives that the organisation has
to achieve. It aims at achieving the following objectives:
a) Enabling the management of a non profit making organisation to make more informed
decision about the allocation of resources to meet overall objectives of the organisation;

Enables the management to identify the activities, functions or programmes to be

provided thereby establishing a basis for evaluation of their worthiness and

c) Provides information that will enable management to assess the effectiveness of its plans.
PPBS was developed in North America in state and federal government activities, based on
system theory, out- put and objective oriented with a substantial emphasis on resource
allocation based on economic analysis. It is not based on traditional organisational structure
and division, but on programmes of activities with common objective of the organisation sub
divided into programmes. These programmes are expressed in terms of objective to be
achieved over the medium to long term, say 3 to 5 years.

The programme is objective

related and spread across several conventional departments.

2.6 Problems of Budgeting

Budgeting problem can be classified into quantitative and non-quantitative as below:

2.6.1 Quantitative Problems

Budget is concerned with the future and as such the data that goes into its preparation must be
future-oriented but on past events. Nevertheless, there is always a technical problem in
forecasting accurately the future in a world that is dynamic in nature. It should also be noted
that since budgets are set by human judgement, they are subjected to the same feasibility
which attends all human activity.

Therefore, the dynamism of the future would definitely

raise variance between the actual and the budgeted results.

2.6.2 Non-Quantitative Problems
These are the behavioural problems of budget.
human factor that is unpredictable.

They arise as a result of the behaviour of

An average human being changes like weather with

situation to his best advantage. It is this same human being that is expected to supply the
information on which the formulation of budget would be based. He is also expected to use the
budget to achieve the organisational objective. He may decide to be enthusiastic or indifferent
about it. He may even consider it that his employer wants to reap where he has not shown at
his expense, he may therefore bring in wide variables into the budget, most especially where
he is informed that the budget would serve as a reference point in determining his efficiency of
performance. Also, executives and employees are expected through education to have a very
good understanding of what the budget is all about where this education and consequently the
under- standing is lacking, failure and collapse of the budgetary process is unavoidable.
Frank Wood (1988) has noted that many people look at budgets not as a control tool but as a
strait jacket. Too much rigidity in the pursuance of the budget could al- ways be detrimental to
the realisation of the objectives of the budget. Horngen and Foster (1985) observed that the
budget helps managers but that budget itself needs help. To this end, top management and
indeed the work force must be in support of the budget. Where this support is however lacking,

there is bound to be problem in the actualisation of the objectives of the budget. This is in line
with Frank Wood (1958) who noted that the more managers are brought into the budgetary
process, the more successful the budgetary control is likely to be. A manager whom a budget is
imposed rather than actively participating in it formulation is more likely to pay less attention to
the budget and use it unwisely in the control process. Miller and Earnest (1966) summarised the
need to secure the actualisation of the budget through participation by saying that participation
tends to increase the commitment, commitment tends to heighten motivation, motivation which
is job oriented tends to make managers work hard and more productive work by managers tends
to enhance the companys prosperity, therefore participation is good
2.7 Concept of Control
The goal of control is ensure that operations and performance conform to plans.
Controlling includes all activities that ensure that the actions of the organisation are directed
toward the stated goals.
Koontz et al (1979) defined control as the regulation of work activities in accordance with
predetermined plans, such as to ensure the accomplishment of the organisations objectives.
Control operates through standard and also measures the work performance according to these
standards and correct deviations from the standard.

It presumes that there is a standard or

plan against which performance is compared. Lucey (2003), in support of the above, opined
that control concerns itself with the efficient use of resources to achieve a previously determined objective, or set of objectives contained within a plan.
Steps involved in controlling include:
First of all establishing plan, goal or objective decision rule, then followed by recording of
actual performance of activity, then creation of a mechanism to compare the above two

steps, extraction of variances, that is, the difference be- tween the first two steps, then
investigation of the causes leading to the variances and finally correcting the variance or
taking appropriate action on the variances.

2.8 Budgetary Control

Lockyer (1983) was of the opinion that once a budget has been drawn up, it can be used as an
instrument of control by continually comparing actual with budget performance. Since all
activities are ultimately capable of being expressed in financial terms, the breath of control
possible is very great. Hence budget control is part of the overall system of responsibility
accounting within an organisation, as costs and revenues are analysed in accordance with
areas of personal responsibilities of the budget holders through permitting financial
Budgetary control relates expenditures to the personnel responsible for the various
expenditures at the various cost centres so that each manager is held responsible for the cost
by which he has control.
The terminology of CIMA (2006) defined budgetary control as the establishment of executive
the requirement of policy and the continuous comparison of actual with budgeted results, either
to secure by individual action, the objectives of that policy or to provide a basis for its
revision. Suffices to say that budget is not an island on its own, emphasis is placed on control
which is done in form of comparing action with budgeted plan.
Lucey (2008) defined budgetary control as the process of comparing the actual results with the
planned results and reporting on the variations called variance. This according to him, sets
control framework which helps expenditure to be kept within an agreement limits, deviations are
noted all along for corrective actions. In some circumstances, it may be necessary to revise goal

but this should not be a normal occurence but only in exceptional circumstances.
Practically, budgetary control involves departmental or sectional or functional heads in the
organisation, receiving a copy of budget relating to his activities. Each month he will receive a
copy of budget report showing visibly where he has over or under spent his budgeted allowance.
From this he will be able to decide on the corrective step to take. This is in tandum with the
fact that variances are the responsibility of departmental or sectional heads and every one of
them has to explain the variance and act in time to stop future occurrence of adverse variances.
Professor Pogue underscores this practical aspect of budgetary control, when he states that if
the actual sales as compared the budget always results in adverse variance, provided it is realistic
and attainable, it is not advisable to revise the figure just because they were not attained.
Therefore, it can be concluded that budgetary control on its own controls nothing but rather it is
management acting on the information received by way of results that exercise control, in short,
manage- ment holds the control yardstick.
Batty (1963) budgetary control is a system which takes budget as a means of producing and or
selling commodities or services. The same Batty (1970) went further to state that budgetary
control aims at the performance of three primary functions of planning, corporation and control
aided by feedback and corrective action. But Buyer and Holmes (1984) considered budgetary
control as a means of control in which the actual state of affairs is empowered with that planned
for, so that the appropriate action may be taken with regards to any deviations before it is too
2.9 Objectives of Budgetary control
The major objectives of budgetary control can be summarised as:
i. Combination of ideas of all levels of management in the preparation of budget;
ii. Coordination of various activities in business organisation;
iii. Revelation of where an organisation needs to remedy a situation;


Planning and controlling of all income and expenditure to achieve maximum benefits for


the organisation;
Provision of yardstick against which actual result can be compared along with
predetermined result;
Channelization of capital expenditure in most profitable manner.


2.9.1 Conditions for Effective Budgetary Control System

The under-listed conditions are necessary to be in place for a budgetary control to be

Involvement and support of top management;

Clear cut information of long term corporate objectives within which the budgeting


system will operate;

Realistic organisation structure with clearly defined responsibility;
Genuine and full involvement of the line managers in all aspect of the budgeting


Appropriate accounting and information system which will include: the record of
expenditure and performance related to responsibility; prompt and accurate reporting
system showing actual against budget; ability to provide more detailed information or


advice on request;
Regular revision of budget and targets, where necessary;
To be administered in a flexible manner. Changing in conditions may call for
changes in plans.

Rigid adherence to budgets which are clearly inappropriate for

current conditions, will cause the whole budgeting system to lose credibility and

2.10. The Need for Budgets

Budgets are formalized plans of managements objectives. They serve as a guide in the
implementation of a selected strategy but during the budget period it acts as a management

control device. The following are some of the different roles played by budgets, which provide a
platform for dealing with management related functions.
2.10.1 Formulation and Implementation
Budget formulation in the organisation is carried out mainly by a department, the budget office,
but with inputs from, and in close consultation with other government departments.
Implementation is carried out by the management of SLAC. Anohene (2011) stated that the
implementation of the budget after the formulation stage involves; allocating responsibilities and
resources, monitoring and evaluating performance, collecting and analyzing financial and nonfinancial data to determine variances and deviations, reaching a conclusion after comparing all
the alternative choices made and taking corrective and comprehensive measures or actions to
overcome the variances and deviation.
2.10.2 Performance and Evaluation
Feedback is an important role of budget for attaining the expected quality and standards in
planning, controlling, leadership and staffing (Adu-Gyamfi, 2008). According to Cook (1968),
feedback is generally positively associated with budget performance. Feedback focuses on the
extent to which employees have achieved expected levels of work during a specified time period.
Budgets being a standard for performance are also used to evaluate managerial performance
(Srinivassan, 1987). Similarly, Douglas (1994) used a case study approach and found that budget
places a high importance on the budget-to-actual comparison for performance evaluation
purposes both at the corporate and the subsidiary levels. Anderson (1993) also supported this
view, stating that in most US companies the development of budget is still used as the main
performance measurement system. Weisenfeld and Tyson (1990), in a sample of 68 US managers
from two companies, found that budget and variance analysis can be positive tools, if the
accounting information or communication process is functioning appropriately. A total of ninety

percent of the respondents indicated that variance was a good way to measure their performance.
All of them agreed that variance reports positively influenced them to improve performance and
increase their bonuses.

2.11 Advantages and Disadvantages of Budget and Budgetary Control

2.11.1 Advantages of Budget and Budgetary Control

Budget and budgetary control compels management to think about future, which is


probably the most important feature of a budgetary planning and control system.
To look ahead, to set out detailed plans for achieving the targets for each department,


operation and give idea to each manager.

To anticipate and give the organization purpose direction.
Budget and budgetary control helps to promote, coordinate and communicate.
Requires managers of budget centers to be made responsible for the achievement of
budget targets for the operation under their personal control.

2.11.2 Disadvantages of Budget and Budgetary Control


Budget can be seen as pressure devices imposed by management.

Managers may over estimate costs so that they will not be blamed in the future if they


Inaccurate record-keeping.
Dispute over resources allocation.
Department blaming each other if targets are not attained.

2.12 Importance of effective budgeting system in business organizations

Budgets are an integral part of running any business in a successful manner. Effective budgeting
system is a key to organizational success. This article discusses about the importance of effective
budgeting system in business organizations.
Budget is a quantitative plan used as a tool for deciding which activities will be chosen for a
future time period. In a business, the budgeting for operations will include the following:

preparing estimates of future sales, preparing estimates of future cash collections and
disbursements, whereas the budgetary control is a technique whereby actual results are compared
with budgets. Any differences (variances) are made the responsibility of key individuals who can
either exercise control action or revise the original budgets. It this way, budgetary control is the
establishment of budgets relating to the responsibilities of executives to the requirements of a
policy and the continuous comparison of actual with budgeted results.
There is a great need for defining a clear line of authority and responsibility in business
organizations, so that the business goals and objectives may be attained accordingly. It is through
the effective budgeting system, the authorities and responsibilities are established at different
levels in a way as needed to achieve the predetermined goals and objectives successfully.
Effective budgeting system is a great way to successfully attain the business goals and objectives
having been quantified and clearly stated. It not only provides a method of allocating and using
resources within the business organization helping the key individuals to monitor and exercise
control, but it also leads to align business goals within the framework of organizations strategies
and long term plans.
The careful planning and control of a sound budget benefits a company in many ways. It helps to
stay focused on its strategy and plan knowing exactly where it needs to spend its resources, while
it aids greatly to control inaccuracies regarding projections minimizing the discrepancies
between the standards and the actual results. At this stage, it must be noted that a well-defined
business policy and objectives are the prerequisite for a sound budgeting system to be
One of the greatest positive impacts of a sound budgeting system on an organization and
its employees is that it establishes a great motivation among them by allowing them to
participate in setting budgets at all levels of management. In this way, using the budget

successfully, not only enables the employees to pay greater attention to details, but also to think
before they act. It is thus a great way to determine how a firm functions and earns and also to
motivate employees by periodically comparing their performance.
Effective budgeting systems can help managers perform their major management functions
effectively and efficiently. A sound budgeting system provides more accurate assessment in
terms of both managerial and organizational performance. Participating in budgeting process
motivates the key individuals to achieve budget level of efficiency. Thus, budgets are an integral
part of running any business in a successful manner.


3.1. Introduction
This chapter is divided into two sections. The first section, research methodology, deals with the
various methods and procedures adopted to ensure that the research work is carried out
successfully. It focuses on the research design, population, and sample size, sampling techniques,
source of data and instrumentation, data gathering procedure, data analysis and presentation. The
second section, profile of the organization looks at the history, mission, and vision and core

3.2 Research Design

The research design, as an important element, provides the framework for collection of data and
analysis of data. The descriptive approach requires the use of observations for the study. The
purpose of employing this method is to describe the budget and budgetary control system of the
Ghanaian Insurance Industry using StarLife Assurance Company as the case study. The
researcher opted to use this kind of research method considering the desire to obtain first hand
data from respondents so as to draw rational and sound conclusions and make recommendations
for improvement in budgeting and budgetary controls.

3.3 Research Population, Sample Size and Sampling Technique

3.3.1 Research Population
The target population of this study is the employees of StarLife Assurance Company. The total
number of employees in the company is 168.
3.3.2 Sample size and Sampling Technique
According to Saunders et al (2007), Sampling is the process of selecting units from a population
of interest so that by studying the sample we may fairly generalise our results back to the
population from which they were chosen. Shapiro (2008) defines sample size as the number of
units that were chosen from which data were gathered.
The sample size which is part of the population is fifty (50) respondents. The study uses
purposive sampling as the technique to select the sample size and respondents.


3.4 Data and Data Analysis

According to Yin (2008), six sources of evidence could be used in conducting a research method
which follows, documentation, archival records, interviews, direct observations, participantobservation, and physical artifacts. The sources of data are both primary and secondary data.
3.4.1 Primary Data
The primary data are collected using questionnaire as the data collection instruments with key
respondents. In all fifty (50) questionnaires were sent to the respondents. Respondents will be
asked to answer the questions or give their views and opinions to the researcher through the
provision of their responses.
3.4.2 Secondary Data
The secondary sources of data are from the internet, published articles, journals, and thesis as
well as related studies on budget and budgetary control.
3.4.3 Data analysis
Evans (2005), explained that data analysis focuses on data in the form of words and
mathematical inferences. In this research, data gathered from the field are analyzed using the
Microsoft excel software and SPSS. This software helped the researcher to input and present the
data to be analyzed and interpreted in percentages, tabular and chart forms.

3.5 Profile of StarLife Assurance Company Limited.

StarLife Assurance Company Limited is a leading Life Assurance Company offering a wide
range of need base life assurance products designed to meet the financial security needs of the
insuring public. Incorporated as a limited liability company in compliance with the new
Insurance Law 2006, Act 724 in October 2005, thus making it the first Life Assurance Company
to be separated as a composite Company.

StarLife Assurance has over the years delivered value added services to its valued clients making
it one of the preferred Life companies in Ghana. It is no doubt that we are part of the top three
life assurances companies in Ghana. The company currently employs about 168 staff.
SLAC has branches in all regional capitals and other contact offices to serve its numerous
customers. The company has a strong sales force that is able to promote and sells its products.
The company is owned by StarAssurance and unicredit that owns 70% and 30% respectively of
its share capital. The company is represented by vibrant Board of Directors who has
demonstrated deep understanding and knowledge of the insurance industry. SLAC also have
other sub board committee such as audit, nomination, technology and risk. The company has as
its board of directors accomplished business executives who exercise sound corporate
governance principles.
With our set of innovative products and a team full of zeal and enthusiasm, we intend to
contribute significantly to the Companys market share, deepen our relations with corporate
institutions and increase the companys profit margins.
The companys products are grouped into three different categories and these are:

Corporate Products
StarLife Employee Security Plan (Group Life), StarLife Keyman Plan, StarLife Loan


Protection Plan and StarLife Mortgage Protection Plan

Individual Products
Star Child Lifeline Plus, Starlife Cashbuilder Plus, Starlife Esteem Homecall Plan,


Starlife Family Protection Policy and StarLife Wealthmaster Plus

Special Products
Bancassurance and Group Welfare Scheme



4.0 Introduction
This chapter focuses on the analysis, presentation and interpretation of the data gathered from the
sample of fifty (50) persons. In all, fifty questionnaires were administered. The respondents to
the questionnaires returned each questionnaire issued to them implying 100% response rate. The
responses from the questionnaires were analyzed and presented through the use of tables, pie
charts, bar charts and percentages. All questionnaires were issued to the staff of SLAC.

4.1 Demographics of the Respondents

The tables, charts and graphs show the gender, educational levels and years of experience of the

4.1.1 Gender of Staff

Table 1: Gender of Staff


Percentages (%)







Source: Field Data, 2016



The above table, Table 1, shows the gender distribution of staff of SLAC taken as a sample of
this study. Out of the 50 respondents, 35 (70%) of the respondents are males while 15 (30%) are
females. This is an indication that the organization has a favorable policy towards the
employment of males than females.

4.1.2 Educational Background of Respondents

Figure 1: Educational background of respondents








Source: Field Data, 2016

From Figure 1, out of the 50 respondents, 5(10%) have postgraduate degree. 11 (22%) hold
professional certificates, 20(40%) hold first degree, 8(16%) hold Diploma and 6(12%) hold O/ALevel certificates. This informs us that the works of the selected responses at SLAC require
certain level of expertise and skills to perform them.

4.1.3 Length service in SLAC

Table 2: Length service in SLAC


Percentage (%)

Less than 5 years



Between 6 and 9 years



10 years and above






Source: Field Data, 2016

From Table 2, respondents have the following length of service in SLAC: 13 (26%) are less than
five years, 21(42%) between six and nine years, 16(32) ten years and above. averagely most of
the workers at SLAC have over 5 years working experience with the company and have acquired
more working experience with the facilities and activities of SLAC which may be due to
acceptable working conditions. SLAC therefore, needs to maintain acceptable current condition
as well as introduce other strategies that will motivate staff to stay and enhance effective


4.2 Type of Budgeting System Used In SLAC

The researcher asked a question as regards to the type of budgeting systems used in the

Figure 2: Type of budgeting system used in SLAC



Source: Field Data, 2016

From Figure 2, 40(80%) of the respondents agreed that SLAC uses the Zero based Budget while
10(20%) said they use Incremental budgeting. This implies that each fiscal year a new budget is
developed from scratch and only a few departments or items are continued from the previous
years budget those using the line incremental budgeting.

4.3 Person in Charge of Budget Preparation

The researcher asked a question as regards to the person in charge of the budget preparation in


Table 3: Person in charge of budget preparation


Percentage (%)

Departmental Heads






Any Other





Source: Field Data, 2016

From Table 3, 26(52%) confirmed that budgets are prepared by the Departmental Heads and the
budget unit in SLAC while 15(30%) said budgets are prepared by the Accountant and 9(18%)
said budgets are prepared by others .This implies that employees are not involved in the
preparation of the budget used by the organization, therefore the use of budget and budgetary
control will not be effective in the organization.

4.4 Review of Budget

The researcher asked a question as regards to the one who reviews the budget in the organization.
Figure 3: Review of budget


Management (Managers)

Members of the Senior Staff

Any other


Source: Field Data, 2016

From Figure 3 48(96%) agreed that budget is reviewed by management, 2 (4%) agreed is a
member of the senior staff and none agreed that the budget unit reviews the budget. Again this
may be an indication of a lack of clear line of communication as far as budget and budgetary
control is concerned. A lack of clear line of communication means that budgetary control system
is ineffective because employees are not involved in both the preparation and the review of the

4.5 Budgetary Control

The researcher asked a question as regards to the adherence to the organizations time table in the
preparation of its budget.
Table 5: Budgetary control


Percentage (%)










Source: Field Data, 2016

As illustrated in Table 4 above, 15(30%) respondents answered yes that the organization
adheres to its time table for the preparation and release of the budgets and 35(70%) answered
no the organization does not adhere to its time table. This will give room for people to default.
Therefore, steps must be taken to ensure that budget timetables are followed strictly to enhance
the effectiveness of budgetary control system.

4.6 Release of monthly review report

The researcher asked a question as regards to whether the organizations release a monthly review
report to the public.

Figure 4: Release of monthly review report













Source: Field Data, 2016


From Figure 4, 45 (90%) respondents answered no and 5(10%) responded yes. This shows
that the budgetary control system in SLAC is ineffective though ten percent of the respondents
claim to be done periodically.

4.7 Budget and Performance

The researcher asked a question as regards to whether budgets contain performance indicators
and whether they are useful in assessing performance.
Table 5: Budget and performance

Percentage (%









Source: Field Data, 2016

From table 5 above 42(84%) responded yes that the performance of SLAC is influenced by
budget evaluation, whiles 8(16%) responded no. This implies that budgets contain
performance indicators and are useful in assessing performance.

4.8 Effect of Budgets on Cost Control

The researcher asked a question as regards to how effective budget is on the control of cost.
Figure 5: Effect of budgets on cost control















Source: Field Data, 2016

From figure 5 above 40(80%) agreed that budgets have a significant effect on the control of cost
in SLAC. On the other hand, 10(20%) of the total respondents rejected the assertion that budgets
have a significant effect on cost control in SLAC. This implies that budget provide a loop hole
for spending officers to inflate prices. This may especially be the case when the actual price of
the good is far below the budgeted value.
4.9 Encouragement of budget and budgetary control
The researcher asked a question whether budget and budgetary control should be encouraged or
Table 6: Encouragement of budget and budgetary control


Percentage (%)








Source: Field Data, 2016

From the above table we can see that almost all the 50(100%) respondents agrees that budget
and budgetary control should be encourage in SLAC to checks for unnecessary spending as
limits how much can be spent at a given period of time and spells out how it should be spent,
also to help improve the performance level in SLAC.

4.10: Benefits of Budgetary Control

The respondents generally agreed that an effective budgetary control system is important to any
organization. They therefore outlined some key benefits that budgetary control offers to an
organization like SLAC. These benefits include:

Budgetary control coordinated the activities of the various departments and functions of
the business by ensuring that all the activities of the various departments are geared


towards the achievement of the organizational goals

It ensures that adequate financial resources are always available. Good budgets are those
that are able to estimate almost accurately the resources that are needed for a particular
period. Therefore the required resources would be made available to at least the entire


period in accordance with the budget.

It increases production efficiency, eliminates waste, and controls cost. Because budgets are
compared with the actual outcome to judge performance, officers always work hard to


meet the budget. This will enhance performance of the in all respect.
It helps management take corrective actions where necessary. Management is able to


know where corrections need to be made by comparing actual results to the budget.
It provides clear guidelines for managers and supervisors. The budgets provide a standard
based on which the outcome can be compared. They also tell supervisors and managers
what to use, for what, when and how to use them. It therefore ensures effectiveness in the
management process of planning, coordinating and control.


It keeps the organization focused. Budgets spells out what the organization want to
achieve for the period and so channels its resources to that course.

These benefits of budgetary control suggested by the respondents are consistent with those
suggested by Lacey (ibid).This means that the employees of SLAC will generally be willing to
cooperate with budgetary control system if they are effective since they are aware of the benefits
that it brings to the organization.

4.11 Causes of Variance StarLife Operations


The variance generally stem from the premium income. The premium income generally


represents the yardstick for all other expenses in SLAC.

This means that some expenses such as commission, direct insurance expenses and other
underwriting expenses are normally budgeted and linked to the Gross premium income.
Practically when the premium target is not met, these expenses that are directly linked
gross premium should be flex to represent the actual state of affairs of the company.


When such is no done, it can cause a variance.

Another cause is the approval of the expenditure which is vital to the operation of SLAC


but was not previously considered in its operations.

There are expenditures though not budgeted for, but it is essential for the operations of
the company. When such events happen and it is material, it can create a variance


between budget and actual expenditure or income.

Costing is also a likely cause of a variance.
This happens where expenditure was not appropriately estimated or income not
appropriately estimated. This a basic cause of variance, more especially if there are a lot
of transactions that are denominated in foreign currencies.


4.12 How Variances are managed

The monthly performance plays much emphasis in gross premium and some few expenses in
summarized form such as

staff cost, administrative expenses, promotional expenses,

underwriting expenses, financial expenses.

The variances in gross premium are discussed with Head of sales. Here the head of sales suggest
ways of increasing sales and it is not documented.
The head of sales is required to explain the factors causing the variances. The heads of
department responsible for the expenses identified above is required to explain variances if any.
All these are not documented. Since there are a lot of individual items making up the
summarized item in the performance, it is important that we consider the individual items in
detail to help formulate solid factors causing the variance so as to take appropriate steps at
addressing them.

Table 7: Analysis of Variance

Gross premium

















Net premium



Underwriting expenses
Transfer to Life Fund














Partial Withdrawals






Net Commission



2,017, 22


Management Expenses
Staff Cost




Financial Expenses








Marketing Expenses





Admin. Expenses





Source: Annual Report, 2014

Table 7 above shows a monthly performance report of SLAC limited.
The report is cumulative in nature. It shows the year to date amount, the budget amount, variance
and variance percentage of the premium and expenses.
For SLAC limited, any variance, positive or negative above 5% calls for investigation.
The table above shows the monthly performance report for the month of November 2014.
The report shows the comparism between actual expenditure / premium, the variance and the
variance percentage
It also considered the total expenses against the budget, the variance and the variance percentage.
By SLAC standard any variance above 5% calls for investigation.
The table represents an example of performance report that is prepared monthly by the Head of
Finance and it is submitted for discussion in a monthly meeting.

4.13 Factors That Contribute to the Effectiveness of Budget and Budgetary Control
If a budgetary control system is to be effective certain key factors must be considered. According
to the respondents these factors are very crucial if budgets are to be used as tools for cost control.
4.13.1 Participation in goal setting


An effective budget and budgetary system is one that ensures that employees opinions are
factored into the setting of the goals of the organization for a particular period. This will bring
about a sense of responsibility in among the employees to work even harder to achieve the goals
they have set for themselves. Also it will encourage them to work harder as they will not feel that
tasks are being imposed on them by their superiors. They will therefore strive to achieve such
goals in an efficient and effective manner which will enhance cost control.
4.13.2 Goals relationship between company and employees
A budget and budgetary control system will be more effective if there is a relationship between
the organizations goals and the individual employees goals. If employees are able to identify
themselves with the goals of the organization and see the goals of the organization as being one
that will help them achieve their personal goals, they will personalize the organizational goals
and work hard to achieve them.

4.13.3 Managements attitude towards budget variance

The importance of the attitude of management towards budget variance to the effectiveness of a
budgetary system cannot be overemphasized. Management must be seen to take budget variance
very seriously and act swiftly to remedy any situation that needs prompt attention. This will
make the system very effective as employees will also work hand in hand with the management.
4.13.4 Group Cohesion
Each member of the organization must be made to have a feeling that he or she is a vital part of
the organization. They must feel that they are all part of a bigger society where each individuals
action affects everybody. This, to a large extent, will influence the actions of each individual in
the sense that they would not want to put their selfish needs first at the expense of all others. If


there is unity among the employees of the organization, they would want to achieve budgets and
goals as effectively as possible for the general good of all.


5.0 Introduction
This chapter presents the summary of the findings and conclusion from the issues arising from
the study. It summarizes the finding obtained through interviews and questionnaire and other
sources of information. It therefore continues to conclude on the effectiveness of budget and
budgetary control in organizations and prescribe recommendations on how to make the budget
more effective in organizations.


5.1 Summary
This study was undertaken at the Head Office of StarLife Assurance Company and was aimed at
finding out the effectiveness of budget and budgetary control as a cost management tool in
SLAC. This study also sought to find out the key benefits of budget and budgetary control at

In consonance with the objectives of the study it was identified that;


SLAC considers budget as an important role planning and controlling cost. It was
established that Board of Directors require the company to prepare its budget and submit
for review and approval before the year end. This show the importance the Board attaches


to the budgeting process.

That department heads submit input to the budget committee .It was observed that the


every Head of Department is required to submit their input for the budgetary
That the budget committee is headed by the Head of finance. The head of Finance heads
the budget committee. The head of Finance coordinates the various inputs submitted by the


various heads of department and present the budget for the year.
That the premium is the main driver of the budget. The premium budget is key for the
budget. The head of sales and strategy present its premium budget which provides the bases


for the various expenses.

That Head of finance prepares performance report monthly. The performance report
basically highlights the main items of expenditure and revenue. The main expenditure refer
here are the staff cost, promotional expenses,

financial expenses, administrative expenses

and underwriting expenses. The income only considers the premium received from policy



This performance report highlights, compares between the budget and actual result.
However this is only discussed at Ex-co management meeting comprising only top

management staff of SLAC.

That the result comes in total not individual line items that were budgeted for.
a. It follows that the performance report does not highlight the individual items so as to make
the variance reporting more meaningful. The reporting in total is not very relevant and does

not help in decision making.

That causes of variance ate not identified and explained thoroughly. The causes or reasons
for the variances are not documented and they are not comprehensive. The variance report
is also not handed to the line managers formally requesting explanation for the variances


That since the premium is the main driver of the budget; if there is a significant change in


premium income, the company do not present flexed budget for these activities.
That most staff is not aware of the salient aspects of the budget figures, causes of variances


as well as steps being taken to correct them to achieve the budget results.
That the expenditure outside budget is not approved by the executive Director.
It ensures that adequate resources are always available, it increase production efficiency
and eliminate waste and controls the cost, it helps management to take corrective actions
where necessary, and budget provide clear guidelines for managers and supervisors

5.2 Conclusion
This research analyzed the effectiveness of budget and budgetary control in organizational
performance within Starlife Assurance Company limited. In researching into the effectiveness of
budget and budgetary control as a cost management tool in SLAC the Accra Head Office, the
researcher concluded that, most employees and employers perceived the budget and budgetary
control system to be good and beneficial.

The research established that the budget and budgetary control is a key concept in modern
organization. However, the budget building takes more time. Also, the researcher came to the
conclusion that the adherence to the budget and budgetary control at SLAC is not too good due
to lack of employees participation in budget preparation. Few of them expressed doubt about the
effectiveness of budget and the budgetary control system since the budget is mostly prepared by
the ministry of finance and the budget unit without the involvement of all employees.
Furthermore, the performance reporting highlighting variances do not go down to most line
managers and it is also not comprehensive.

5.3. Recommendations
In view of the importance that budget and budgeting plays in ensuring efficiency in organization,
the following recommendations are proposed. This will help to improve the budgeting
preparation of SLAC and make it more effective.

That the Managing Director should be the Head of the Budget Committee with the head
of Finance functioning as the coordinator of the various input into the budget. The
preparation of the budget and controlling aspect of it should be the responsibility of the
Managing Director. The managing Director should give direction and dictate the pace and


assign roles and responsibilities.

That the monthly performance report should be detailed enough to cover all lines of items
or expenditures budgeted for. This will clearly identify areas, items or expenditures that
are clearly moving outside budget so as to get the needed attention. Currently the detail
analysis is not satisfactory. Also the variance reporting should be documented indicating


the correcting measures that are to be taken.

The variance report should continue to highlight and explain the causes of the variances
in the monthly performance report and this should be documented and explained to all

line managers. This could help control expenditure and help in the future budgetary

It is also important that the variance report should identify those lines of expenditure that
varies directly in line with Gross premium income. This will make it possible to flex the
budget to match actual premium other than just to take the raw actual expenditure whilst
which may not present the true state of affairs.
Moreover, since the head of finance is also a key member of the budget committee, he
should be able to highlight those individual expenses that have deviated materially from
the budget and request explanation from the line managers involve. This will help in


taken corrective action and also helping in future budgeting processes.

Since the budget is a key tool, it is important that SLAC takes it as their responsibility to
explain the current issue of the budget to staff. It should also explain the performance
report to staff and discussion of the practical steps taken to correct the variances. This


will create staff participation in the budget and will ensure a smooth process.
The organization should encourage employees participations in budget preparation,
evaluation and implementation. Budget preparation and procedures should be known to


all employees. The organization should adhere to it budget time table.

The finance department should review all existing standards and introduce measures
that will tighten the internal control system to prevent leakages of financial resources;


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This questionnaire is intended to seek information for a research work in partial fulfillment of the
requirement for the award of a Bachelor of Business Administration Degree (Accounting Option)
by students of the Methodist University College Ghana. The data obtained will be used solely for
academic purposes and confidentiality is assured. Please respond honestly. Please write and/or
tick where appropriately.

1. Gender: Male [

Female [

2. Age Group:
18 30 years [

31 40 years [

41 50 years [

51 65years [

3. Level of Education

Diploma [

1st Degree [

] Professional [

Any Other, Please specify


4. How long have you been with SLAC?

Less than 5 years [

] between 6 and 9 years [

] 10 years and more [

5. What budgeting system do you operate?
a. Zero Based budgeting [

] b. Line Incremental budgeting [

] c. Rolling budget [ ]

Any other, please specify.

6. Who is/are in charge of budget preparation in the organization?
a. Departmental heads [

] b. Accountant [

] c. The commissioner general [

Any other, please specify.

7. Who reviews the budget?
a. A member of staff at a senior level [ ] b. A member of staff at a junior level [ ]
Any other, please specify..
8. Does the organization adhere to its time table for the preparation and release of the budgets?
a. Yes [

b. No [

9. Does the SLAC release to the public a mid-year review of the budget that includes updated
income and expenditure estimates for the budget year underway?
a. Yes [

b. No [

10. Is the performance of SLAC influenced by budget evaluation?

a. Yes [

b. No [

11. Are budgets useful for assessing the performance of the SLAC?
a. Yes [

b. No [

12. Does the budget contain performance indicators, such that one can assess whether there has
been progress towards meeting policy goals?

a. Yes [

b. No [

13. Is the control of cost affected by the adherence of employees to the achievement of a budget?
a. Yes [

b. No [

14. In what ways is budgetary control of benefit to the organization?

a. Budgetary control coordinates the activities of the various departments and functions of the
business [

b. It ensures that adequate resources are always available [

c. It increase production efficiency and eliminates waste and controls the cost [
d. It helps management to take corrective actions where necessary [
e. Budgets provide clear guidelines for managers and supervisors [


Any other, please specify..

15. What factors do you think contribute to the effectiveness of budget and budgetary control
a. Participation in goal setting [ ]
b. Goals relationship between company and employees [
c. Managements attitude towards budget variance [
d. Group cohesion [

Any other, please specify..

16. How has budgeting and budgetary control helped the organization?

17. How has budgeting and budgetary control affected the organization?


18. Will you encourage budget and budgetary control in your organization?
a. Yes [

b. No [

If yes why, and if no why?

19. Please any suggestions to improve the budgeting and budgetary control(s) in the organization

Thank You