budgeting in ghana

7/26/2019 Budgeting in ghana

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METHODIST UNIVERSITY COLLEGE, GHANA

THE EFFECTIVENESS OF BUDGETING AND BUDGETARY CONTROLS IN THE

GHANAIAN INSURANCE INDUSTRY. A STUDY OF STAR LIFE ASSURANCE

COMPANY LIMITED

BY

SANDRA ASIBU BBAA/WD/134739

ASOMANING KWASI ERIC BBAA/WD/13371

SAMUEL OKAI ASHONG BBAA/WD/134!4

SAMUEL ATIBILLA BBAA/WD/13""9

SUPERVISOR# MR. CHARLES EGHAN

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CHAPTER ONE

INTRODUCTION

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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 B*-&')$( ' %0 S%)(2.

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. "udgeting is ubiquitous

and has long been considered as a necessary tool in managing a company.

In order to survive under these environmental comple#ities 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. $very

organization is set up to achieve a set of goals. "udget and budgetary control shall be looked at

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as the proven management techniques which help to forecast the major changes which are likely

to affect the business. %s such, organizations should recognize that the effective use and

application of any budget is very dependent on the e#tent to which employees are committed to

the ideals of the budgetary process and encourage behavior that is in accordance with the entity&s

objectives. "ratton and 'old ()**+ --) assert that /an organization can build capacity through

employee participation and empowerment.0

"udgetary 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 e#isting operations, thereby justifying e#panding, eliminating or restricting present

practice. 1arious 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.

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"udget and budgetary control are important tools used in the control of cost. The performance of

every institution lies within the actual revenues and e#penses made during the period. 2igher

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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.

%t 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. %lso 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.

%t 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. 3or better control measures to be developed management should

evaluate how well they have performed. "y evaluation, information can be gathered from

employees at the lower levels to help them develop control measures. 4anagement 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.

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1.3 O5*%+8 ' %0 S%)(2

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

i. To determine whether budget adherence leads to control of cost.

ii. To identify budgetary control measures to improve on 56%7&s performance.

iii. To determine whether there is a relationship between budget evaluation and performance.iv. To determine the e#tent to which budgetary control measures affect performance.

v. To determine the e#tent to which management ensure the achievement of the budget.

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

i. 8oes budget adherence lead to the control of cost9ii. 8oes budget evaluation affect performance9

iii. 8o budgetary control measures affect performance9

iv. Which budgetary control measures can improve on 56%7&s performance9v. To what e#tent does management ensure the implementation of a budget9

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The research work is significant in the sense that it will add to the e#isting 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 56%7 to put in place strategies to help them achieve their set targets

(budget while at the same time leading to greater performance.

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The study used both primary and secondary data. The primary data were obtained from the staff

of 56%7 through interviews based on a wellstructured questionnaire with the budgeting

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department. The secondary data sources were obtained from various te#t books, journals and the

institution&s brochures.

The target population of this study were the employees of the %ccount and 3inance 8epartments

of 5tar6ife %ssurance 7ompany but a sample of :* respondents were selected using purposive

sampling because the researcher wants views from those who work on budgets and have

knowledge about budgeting

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The study consists of five chapters. 7hapter 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. 7hapter two is the general literature review, which reviews

previous studies on budgets and budgetary controls. 7hapter 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.

7hapter four focuses on the analysis of the data collected, presentation and discussion of

findings. 7hapter five is the concluding aspect and focuses on the summary of findings,

conclusion and recommendations.

CHAPTER TWO

LITERATURE REVIEW

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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.

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% budget has been defined by 7hartered Institute of 4anagement %ccountants (7I4%, 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, e#penditure and the employment

of capital0. 7I4% also defined budgetary control as /the establishment of budgets relating the

responsibilities of e#ecutives 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.

2orngreen (;#ford %dvanced 6earners 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. "oth 2orngreen 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. 5uch prediction of the socalled

fortune tellers will determine whether or not the objectives of the firm will be met.

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%dams ()**;, views budget as a future plan of action for the whole organisation or a sector

thereof. "udgets are plans that deal with future allocations and utilisation of resources to

different activities over a given period of time. 3or 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.

"atty (;


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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

establishment.

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7urrently, much attention has been given to the strengthening of budget and planning and

their interrelationship in developing countries including 'hana. The advocacy for this has

come from prominent international agencies as Anited Bation, International 4onetary 3und,

World "ank and Anited 5tate %gency for International 8evelopment. %ll these agencies are

all interested in encouraging developing and underdeveloped nations to improve their budget

practice. %ll these show the im portance attached to budget as a management process.

%lmost every enterprise, regardless of size, comple#ity 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 e#ecution (5hah )**+@ Cobinson )**+@ 8rake and 3abozzi

)*;*. 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 ("onner )**=@ and

"ierman )*;*. "y 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 (8rake and 3abozzi )*;* ;;:.

The end result of the process is the production of the formal document referred to as a budget.

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%ccording to 7ampbell (;


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with the entity&s objectives. "ratton and 'old ()**+ --) assert that an organization can build

capacity through employee participation and empowerment.

2orngren et al. ()**=, define /budget as a quantitative e#pression of a plan of action0. %tkinson

et al. (;


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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

(%bdelGader D 6uther, )**E, Ayar,)**


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

centers. 5o, the budget has the role to reconcile and regulate these contradictions in

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

iii. 5timulation 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.

iv. 7ontrol of current activity, ensuring discipline according to the business plan.

7areful drafting of budgets ensures the optimum standard to compare undertaken

activity achievements, to determine deviations and to take measures to eliminate them.

v. $valuation of plans fulfillment by each responsibility center and their managers.

4anagement performance can be appreciated by comparing the results with those

e#pected to be achieved.

vi. 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 ma#imization, 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 (Ciley, )*;), >ak D 5chmidgall, )**


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

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Income and "udgeted 5tatement of 3inancial ?osition. "oth the master budget and

cash budget can be described as the financial budget. %ll these budgets, master and

functional, can be further classified

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"udgets can be classified into@ short term budget@ long term budget@ fi#ed budget@ fle#ible

budget@ ero "ased "udget (""@ Colling budget@ %ctivity "ased "udgeting@ Incremental

budgeting and ?lanning, ?rogramming "udgeting 5ystems (??"5.

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"udget 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 comple# and dynamic environment in which they operate.

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This is a long term plan, also called development plan. It is normally for a minimum

duration of : years and is sometimes called the strategic plan of the organisation. 'overnment

prepares : years 8evelopment plan, which can be rolled over for every five year as

manufacturing companies also prepare : years strategic plans, which is sometimes broken into

yearly budget rolled over from one year to the other.

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activity attained. This budget recognises the e#istence of fi#ed, variable and semivariable costs

and is designed to change in relation to the actual volume or output or level of activity in a

period.

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This is also called ?riority 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. "" was introduced in the early ;. and

gained prominence because of its practicability. ?resident 7arter then directed all A5

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

a The decision unit i.e subdividing the organization to discrete subunits where operations

can be meaningfully and individually identified and evaluated@

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

packages namely the lowest level of e#penditure@ the e#penditure required to maintain levels of

activities and the e#penditure required to provide an additional level of service or activity@

c %greed packages will form the budget.

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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. Ander this period, instead of preparing

a budget annually, there would be budget every three or si# month so that as the current

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period ends, the budget e#tended by an e#tra period.

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%ctivity based budgeting (%"" is similar to activity based costing (%"7 and activity based

management (%"4. %"" actually involves planning and controlling along the lines of value

adding activities and processes. Cesource and capital allocations decisions are consistent with

%"4 analysis, which involves structuring the organization&s activities and business processes so

that they better meet costumers and e#ternal need. 3rom the perspective of Wilhelmi and Gleiner

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e#penditure 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 yesteryears into

subsequent year budgets as it only increases the current period&s figure with what the

establishment thinks is the inflationary premium for ne#t year financial period.

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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 $nabling 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@

b $nables the management to identify the activities, functions or programmes to be

provided thereby establishing a basis for evaluation of their worthiness and

c ?rovides information that will enable management to assess the effectiveness of its plans.

??"5 was developed in Borth %merica 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 e#pressed in terms of objective to be

achieved over the medium to long term, say F to : years. The programme is objective

related and spread across several conventional departments.

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"udgeting problem can be classified into quantitative and nonquantitative as below

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..1 :)$%+%%+8 P&'56

"udget is concerned with the future and as such the data that goes into its preparation must be

futureoriented but on past events. Bevertheless, 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.

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These are the behavioural problems of budget. They arise as a result of the behaviour of

human factor that is unpredictable. %n average human being changes like weather with

situation to his best advantage. It is this same human being that is e#pected to supply the

information on which the formulation of budget would be based. 2e is also e#pected to use the

budget to achieve the organisational objective. 2e may decide to be enthusiastic or indifferent

about it. 2e may even consider it that his employer wants to reap where he has not shown at

his e#pense, 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. %lso, e#ecutives and employees are e#pected 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.

3rank Wood (;


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there is bound to be problem in the actualisation of the objectives of the budget. This is in line

with 3rank Wood (;


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steps, e#traction 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.

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6ockyer (;


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but this should not be a normal occurence but only in e#ceptional circumstances.

?ractically, budgetary control involves departmental or sectional or functional heads in the

organisation, receiving a copy of budget relating to his activities. $ach month he will receive a

copy of budget report showing visibly where he has over or under spent his budgeted allowance.

3rom 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 e#plain the variance and act in time to stop future occurrence of adverse variances.

?rofessor ?ogue 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 e#ercise control, in short,

manage ment holds the control yardstick.

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iv. ?lanning and controlling of all income and e#penditure to achieve ma#imum benefits for

the organisation@v. ?rovision of yardstick against which actual result can be compared along with

predetermined result@vi. 7hannelization of capital e#penditure in most profitable manner.

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The underlisted conditions are necessary to be in place for a budgetary control to be

effective

i. Involvement and support of top management@ii. 7lear cut information of long term corporate objectives within which the budgeting

system will operate@

iii. Cealistic organisation structure with clearly defined responsibility@

iv. 'enuine and full involvement of the line managers in all aspect of the budgeting

process@

v. %ppropriate accounting and information system which will include the record of

e#penditure and performance related to responsibility@ prompt and accurate reporting

system showing actual against budget@ ability to provide more detailed information or

advice on request@

vi. Cegular revision of budget and targets, where necessary@vii. To be administered in a fle#ible manner. 7hanging in conditions may call for

changes in plans. Cigid adherence to budgets which are clearly inappropriate for

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

effectiveness.

.1!.T0 N( '& B)(%

"udgets are formalized plans of management&s objectives. They serve as a guide in the

implementation of a selected strategy but during the budget period it acts as a management

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control device. The following are some of the different roles played by budgets, which provide a

platform for dealing with management related functions.

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"udget 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 56%7. %nohene ()*;; 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 non

financial 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.

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3eedback is an important role of budget for attaining the e#pected quality and standards in

planning, controlling, leadership and staffing (%du'yamfi, )**=. %ccording to 7ook (;


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percent of the respondents indicated that variance was a good way to measure their performance.

%ll of them agreed that variance reports positively influenced them to improve performance and

increase their bonuses.

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.11.1 A(8$% ' B)(% $( B)(%&2 C'$%&'6

i. "udget and budgetary control compels management to think about future, which is

probably the most important feature of a budgetary planning and control system.

ii. To look ahead, to set out detailed plans for achieving the targets for each department,

operation and give idea to each manager.

iii. To anticipate and give the organization purpose direction.iv. "udget and budgetary control helps to promote, coordinate and communicate.

v. Cequires managers of budget centers to be made responsible for the achievement of

budget targets for the operation under their personal control.

.11. D+(8$% ' B)(% $( B)(%&2 C'$%&'6

i. "udget can be seen as pressure devices imposed by management.

ii. 4anagers may over estimate costs so that they will not be blamed in the future if they

overspend.

iii. Inaccurate recordkeeping.

iv. 8ispute over resources allocation.v. 8epartment blaming each other if targets are not attained.

.1 I;'&%$* ' *%+8 5)(%+$ 2% +$ 5)+$ '&$+%+'$

"udgets are an integral part of running any business in a successful manner. $ffective budgeting

system is a key to organizational success. This article discusses about the importance of effective

budgeting system in business organizations.

"udget 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

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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. %ny differences (variances are made the responsibility of key individuals who can

either e#ercise control action or revise the original budgets. It this way, budgetary control is the

establishment of budgets relating to the responsibilities of e#ecutives 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.

$ffective 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 e#ercise

control, but it also leads to align business goals within the framework of organization&s 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 e#actly 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. %t this stage, it must be noted that a welldefined

business policy and objectives are the prerequisite for a sound budgeting system to be

established.

>ne 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

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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.

$ffective budgeting systems can help managers perform their major management functions

effectively and efficiently. % sound budgeting system provides more accurate assessment in

terms of both managerial and organizational performance. ?articipating 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.

CHAPTER THREE

RESEARCH METHODOLOGY AND PROFILE OF THE ORGANI=ATION

3.1. I$%&'()*%+'$

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

value.

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3. R&*0 D+$

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

'hanaian Insurance Industry using 5tar6ife %ssurance 7ompany 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 R&*0 P';)6%+'$, S;6 S+ $( S;6+$ T*0$+)

3.3.1 R&*0 P';)6%+'$

The target population of this study is the employees of 5tar6ife %ssurance 7ompany. The total

number of employees in the company is ;E=.

3.3. S;6 + $( S;6+$ T*0$+)

%ccording to 5aunders et al ()**+, 5ampling 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. 5hapiro ()**= 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 (:* respondents. The study uses

purposive sampling as the technique to select the sample size and respondents.

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3.4 D% $( D% A$62+

%ccording to Kin ()**=, si# sources of evidence could be used in conducting a research method

which follows, documentation, archival records, interviews, direct observations, participant

observation, and physical artifacts. The sources of data are both primary and secondary data.

3.4.1 P&+&2 D%

The primary data are collected using questionnaire as the data collection instruments with key

respondents. In all fifty (:* questionnaires were sent to the respondents. Cespondents will be

asked to answer the questions or give their views and opinions to the researcher through the

provision of their responses.

3.4. S*'$(&2 D%

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 D% $62+

$vans ()**:, e#plained 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

4icrosoft e#cel software and 5?55. This software helped the researcher to input and present the

data to be analyzed and interpreted in percentages, tabular and chart forms.

3." P&'+6 ' S%&L+ A)&$* C';$2 L++%(.

5tar6ife %ssurance 7ompany 6imited is a leading 6ife %ssurance 7ompany 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 6aw )**E, %ct +)- in >ctober )**:, thus making it the first 6ife %ssurance 7ompany

to be separated as a composite 7ompany.

29


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5tar6ife %ssurance has over the years delivered value added services to its valued clients making

it one of the preferred 6ife companies in 'hana. It is no doubt that we are part of the top three

life assurances companies in 'hana. The company currently employs about ;E= staff.

56%7 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 5tar%ssurance and unicredit that owns +*L and F*L respectively of

its share capital. The company is represented by vibrant "oard of 8irectors who has

demonstrated deep understanding and knowledge of the insurance industry. 56%7 also have

other sub board committee such as audit, nomination, technology and risk. The company has as

its board of directors accomplished business e#ecutives who e#ercise sound corporate

governance principles.

P&'()*%

With our set of innovative products and a team full of zeal and enthusiasm, we intend to

contribute significantly to the 7ompany&s market share, deepen our relations with corporate

institutions and increase the company&s profit margins.

The company&s products are grouped into three different categories and these are

i. C'&;'&% P&'()*%5tar6ife $mployee 5ecurity ?lan ('roup 6ife, 5tar6ife Geyman ?lan, 5tar6ife 6oan

?rotection ?lanand 5tar6ife 4ortgage ?rotection ?lanii. I$(+8+()6 P&'()*%

5tar 7hild 6ifeline ?lus, 5tarlife 7ashbuilder ?lus, 5tarlife $steem 2omecall ?lan,

5tarlife 3amily ?rotection ?olicyand 5tar6ife Wealthmaster ?lus

iii. S;*+6 P&'()*%"ancassuranceand 'roup Welfare 5cheme

30
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CHAPTER FOUR

DATA ANALYSIS, PRESENTATION AND DISCUSSION OF FINDINGS

4.! I$%&'()*%+'$

This chapter focuses on the analysis, presentation and interpretation of the data gathered from the

sample of fifty (:* persons. In all, fifty questionnaires were administered. The respondents to

the questionnaires returned each questionnaire issued to them implying ;**L response rate. The

responses from the questionnaires were analyzed and presented through the use of tables, pie

charts, bar charts and percentages. %ll questionnaires were issued to the staff of 56%7.

4.1 D'&;0+* ' %0 R;'$($%

The tables, charts and graphs show the gender, educational levels and years of e#perience of the

respondents.

4.1.1 G$(& ' S%

T56 1# G$(& ' S%

R;'$ F&)$*2 P&*$% ?@

M6 F: +*

F6 ;: F*

31


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T'%6 :* ;**

Source: Field Data, 2016

The above table, Table ;, shows the gender distribution of staff of 56%7 taken as a sample of

this study. >ut of the :* respondents, F: (+*L of the respondents are males while ;: (F*L are

females. This is an indication that the organization has a favorable policy towards the

employment of males than females.

4.1. E()*%+'$6 B*-&')$( ' R;'$($%

F+)& 1# E()*%+'$6 5*-&')$( ' &;'$($%

0

1020

30

40

50

60

70

80

90

100

5 11

20

8 6

50

10

22

40

1612

100

FREQUENCY

PECENTAGE


3rom 3igure ;, out of the :* respondents, :(;*L have postgraduate degree. ;; ())L hold

professional certificates, )*(-*L hold first degree, =(;EL hold 8iploma and E(;)L hold >M%

6evel certificates. This informs us that the works of the selected responses at 56%7 require

certain level of e#pertise and skills to perform them.

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4.1.3 L$%0 &8+* +$ SLAC

T56 # L$%0 &8+* +$ SLAC

R;'$ F&)$*2 P&*$% ?@

L %0$ " 2& ;F )E

B%$ $( 9 2& ); -)

1! 2& $( 5'8 ;E F)

T'%6 :* ;**


3rom Table ), respondents have the following length of service in 56%7 ;F ()EL are less than

five years, );(-)L between si# and nine years, ;E(F) ten years and above. averagely most of

the workers at 56%7 have over : years working e#perience with the company and have acquired

more working e#perience with the facilities and activities of 56%7 which may be due to

acceptable working conditions. 56%7 therefore, needs to maintain acceptable current condition

as well as introduce other strategies that will motivate staff to stay and enhance effective

performance.

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4. T2; ' B)(%+$ S2% U( I$ SLAC

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

organization.

F+)& # T2; ' 5)(%+$ 2% )( +$ SLAC

0102030405060

708090

100

FREQUENCY

PERCENTAGE (%)


3rom 3igure ), -*(=*L of the respondents agreed that 56%7 uses the ero based "udget while

;*()*L 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

year&s budget those using the line incremental budgeting.

4.3 P&'$ +$ C0& ' B)(% P&;&%+'$

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

56%7.

34


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T56 3# P&'$ +$ *0& ' 5)(% ;&;&%+'$

R;'$ F&)$*2 P&*$% ?@

D;&%$%6 H( )E :)

A**')$%$% ;: F*

A$2 O%0& < ;=

T'%6 :* ;**


3rom Table F, )E(:)L confirmed that budgets are prepared by the 8epartmental 2eads and the

budget unit in 56%7 while ;:(F*L said budgets are prepared by the %ccountant and


36/57

48

2

4anagement (4anagers 4embers of the 5enior 5taff %ny other


3rom 3igure F -=(


37/57

NO F: +*

TOTAL :* ;**


%s illustrated in Table - above, ;:(F*L respondents answered Nyes0 that the organization

adheres to its time table for the preparation and release of the budgets and F:(+*L answered

/no0 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. R6 ' '$%062 &8+ &;'&%

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

report to the public.

F+)& 4# R6 ' '$%062 &8+ &;'&%

YES NO TOTALS

0

10

20

30

40

50

60

70

80

90

100

5

4550

10

90

100

3C$OA$B7K

?$C7$BT%'$ (L.


37


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3rom 3igure -, -: (


39/57

YESNO

TOTAL

0

10

20

30

40

50

60

70

80

90

100

40

10

50

80

20

100

3C$OA$B7K

?$C7$BT%'$ (L


3rom figure : above -*(=*L agreed that budgets have a significant effect on the control of cost

in 56%7. >n the other hand, ;*()*L of the total respondents rejected the assertion that budgets

have a significant effect on cost control in 56%7. 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 E$*')&$% ' 5)(% $( 5)(%&2 *'$%&'6

The researcher asked a question whether budget and budgetary control should be encouraged or

not.

T56 # E$*')&$% ' 5)(% $( 5)(%&2 *'$%&'6

R;'$ F&)$*2 P&*$% ?@

YES :* ;**

NO * *

TOTALS :* ;**

39


40/57


3rom the above table we can see that almost all the :*(;**L respondents agrees that budget

and budgetary control should be encourage in 56%7 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 56%7.

4.1!# B$+% ' B)(%&2 C'$%&'6

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 56%7. These benefits include

i. "udgetary 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

ii. It ensures that adequate financial resources are always available. 'ood 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.iii. It increases production efficiency, eliminates waste, and controls cost. "ecause 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.

iv. It helps management take corrective actions where necessary. 4anagement is able to

know where corrections need to be made by comparing actual results to the budget.

v. 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.

40


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vi. It keeps the organization focused. "udgets 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 6acey (ibid.This means that the employees of 56%7 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 C) ' V&+$* S%&L+ O;&%+'$

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

represents the yardstick for all other e#penses in 56%7.ii. This means that some e#penses such as commission, direct insurance e#penses and other

underwriting e#penses are normally budgeted and linked to the 'ross premium income.

?ractically when the premium target is not met, these e#penses that are directly linked

gross premium should be fle# to represent the actual state of affairs of the company.

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

iii. %nother cause is the approval of the e#penditure which is vital to the operation of 56%7

but was not previously considered in its operations.

iv. There are e#penditures 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 e#penditure or income.v. 7osting is also a likely cause of a variance.

vi. This happens where e#penditure 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.

41


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4.1 H' V&+$* & $(

The monthly performance plays much emphasis in gross premium and some few e#penses in

summarized form such as staff cost, administrative e#penses, promotional e#penses,

underwriting e#penses, financial e#penses.

The variances in gross premium are discussed with 2ead of sales. 2ere the head of sales suggest

ways of increasing sales and it is not documented.

The head of sales is required to e#plain the factors causing the variances. The heads of

department responsible for the e#penses identified above is required to e#plain variances if any.

%ll these are not documented. 5ince 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.

T56 7# A$62+ ' V&+$*

A*%)6 B)(% V&+$* V&+$*

'2c '2c '2c '2c

'ross premium F*,:*+,


43/57

Bet 7ommission ),FE*,+;< -,F++,


44/57

%n 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. %lso 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. G'6 &6%+'$0+; 5%$ *';$2 $( ;6'2

% budget and budgetary control system will be more effective if there is a relationship between

the organization&s goals and the individual employee&s 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 M$$% %%+%)( %'&( 5)(% 8&+$*

The importance of the attitude of management towards budget variance to the effectiveness of a

budgetary system cannot be overemphasized. 4anagement 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 G&'); C'0+'$

$ach 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 individual&s

action affects everybody. This, to a large e#tent, will influence the actions of each individual in

the sense that they would not want to put their selfish needs first at the e#pense of all others. If

44


45/57

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.

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

".! I$%&'()*%+'$

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.

45


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".1 S)&2

This study was undertaken at the 2ead >ffice of 5tar6ife %ssurance 7ompany and was aimed at

finding out the effectiveness of budget and budgetary control as a cost management tool in

56%7. This study also sought to find out the key benefits of budget and budgetary control at

56%7.

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

i. 56%7 considers budget as an important role planning and controlling cost. It was

established that "oard of 8irectors require the company to prepare its budget and submit

for review and approval before the year end. This show the importance the "oard attaches

to the budgeting process.

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

every 2ead of 8epartment is required to submit their input for the budgetary

process.

iii. That the budget committee is headed by the 2ead of finance. The head of 3inance heads

the budget committee. The head of 3inance coordinates the various inputs submitted by the

various heads of department and present the budget for the year.

iv. 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 e#penses.

v. That 2ead of finance prepares performance report monthly. The performance report

basically highlights the main items of e#penditure and revenue. The main e#penditure refer

here are the staff cost, promotional e#penses, financial e#penses, administrative e#penses

and underwriting e#penses. The income only considers the premium received from policy

holders.

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vi. This performance report highlights, compares between the budget and actual result.

2owever this is only discussed at $#co management meeting comprising only top

management staff of 56%7.

vii. 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.

viii. That causes of variance ate not identified and e#plained 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 e#planation for the variances

identified.

i#. 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 fle#ed 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.

#i. That the e#penditure outside budget is not approved by the e#ecutive 8irector.

#ii. 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

respectively.

". C'$*6)+'$

This research analyzed the effectiveness of budget and budgetary control in organizational

performance within 5tarlife %ssurance 7ompany limited. In researching into the effectiveness of

budget and budgetary control as a cost management tool in 56%7 the %ccra 2ead >ffice, the

researcher concluded that, most employees and employers perceived the budget and budgetary

control system to be good and beneficial.

47


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The research established that the budget and budgetary control is a key concept in modern

organization. 2owever, the budget building takes more time. %lso, the researcher came to the

conclusion that the adherence to the budget and budgetary control at 56%7 is not too good due

to lack of employees participation in budget preparation. 3ew of them e#pressed 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.

3urthermore, the performance reporting highlighting variances do not go down to most line

managers and it is also not comprehensive.

".3. R*'$(%+'$

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 56%7 and make it more effective.

(i That the 4anaging 8irector should be the 2ead of the "udget 7ommittee with the head

of 3inance 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

4anaging 8irector. The managing 8irector should give direction and dictate the pace and

assign roles and responsibilities.

(ii That the monthly performance report should be detailed enough to cover all lines of items

or e#penditures budgeted for. This will clearly identify areas, items or e#penditures that

are clearly moving outside budget so as to get the needed attention. 7urrently the detail

analysis is not satisfactory. %lso the variance reporting should be documented indicating

the correcting measures that are to be taken.

(iii The variance report should continue to highlight and e#plain the causes of the variances

in the monthly performance report and this should be documented and e#plained to all

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line managers. This could help control e#penditure and help in the future budgetary

process.(iv It is also important that the variance report should identify those lines of e#penditure that

varies directly in line with 'ross premium income. This will make it possible to fle# the

budget to match actual premium other than just to take the Nraw& actual e#penditure whilst

which may not present the true state of affairs.

4oreover, since the head of finance is also a key member of the budget committee, he

should be able to highlight those individual e#penses that have deviated materially from

the budget and request e#planation from the line managers involve. This will help in

taken corrective action and also helping in future budgeting processes.(v 5ince the budget is a key tool, it is important that 56%7 takes it as their responsibility to

e#plain the current issue of the budget to staff. It should also e#plain 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.

(vi The organization should encourage employee&s participations in budget preparation,

evaluation and implementation. "udget preparation and procedures should be known to

all employees. The organization should adhere to it budget time table.(vii The finance department should review all e#isting standards and introduce measures

that will tighten the internal control system to prevent leakages of financial resources@

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REFERENCES

%bdelGader,4.,6uther,C. ()**E, /4anagement accounting practices in the "ritish

food and drinks industry0,British Food Journal, ;*= (:, pp. FFE!F:+.

%chim 5. %. ()**


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$nternational Journal o% Contemporar& #ospitalit& Management, ('!(, ;FE-F.

"uyers and 2olmes, '. (;

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'rifel, 5. 5. (;., "urgstahler, 8. D5chatzberg, P. ()**=.

$ntroduction to Management Accounting, (;-th $d. Bew Persey ?earson ?rentice 2all.

Goontz, 8onnel, 2 D 7yril (;


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4iller, P. 'erald, 2ildreth, "artley W., D Cabin, Pack ()**;.?erformance"ased "udgeting,

Westview ?ress, 7olorado.

Bdan, P. 8. ()**+.?ublic finance a Bigerian perspective. aria 3aith printers.

>ak, 5., 5chmidgall, C.5. ()**rganisation %ccounting, pp ;)E;-=.

>tley, 8.T. (;


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Ayar, %. ()**


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-. 2ow long have you been with 56%79

6ess than : years R S between E and < years R S ;* years and more R S

SECTION B

:.What budgeting system do you operate

a. ero "ased budgeting R S b. 6ine Incremental budgeting R S c. Colling budget R S

%ny other, please specify.

E. Who isMare in charge of budget preparation in the organization9

a. 8epartmental heads R S b. %ccountant R S c. The commissioner general R S

%ny other, please specify.

+. Who reviews the budget9

a. % member of staff at a senior level R S b. % member of staff at a junior level R S

%ny other, please specify..

=. 8oes the organization adhere to its time table for the preparation and release of the budgets9

a. Kes R S b. Bo R S


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;F. Is the control of cost affected by the adherence of employees to the achievement of a budget9


;-. In what ways is budgetary control of benefit to the organization9

a. "udgetary control coordinates the activities of the various departments and functions of the

business R S

b. It ensures that adequate resources are always available R S

c. It increase production efficiency and eliminates waste and controls the cost R S

d. It helps management to take corrective actions where necessary R S

e. "udgets provide clear guidelines for managers and supervisors R S


;:. What factors do you think contribute to the effectiveness of budget and budgetary control

system9

a. ?articipation in goal setting R S

b. 'oals relationship between company and employees R S

c. 4anagement&s attitude towards budget variance R S

d. 'roup cohesion R S


;E. 2ow has budgeting and budgetary control helped the organization9

;+. 2ow has budgeting and budgetary control affected the organization9

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;=. Will you encourage budget and budgetary control in your organization9


If yes why, and if no why9

;

budgeting in ghana

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