The creation of “Budgetary Slack” is an accounting
maneuver (usually frowned-upon) to allow extra expenditures in a future cash flow.
Budgetary Slack (BS) is created during the budgeting process by underestimating future
revenues (income), and/or overestimating projected expenses, thus “padding” the budget.
It results in increased ease of “making the numbers”. BS is most common in companies
in which large numbers of managers (and sometimes employees) participate in the
budgetary process.
Most accountants disapprove of the
creation of Budgetary Slack because it is an attempt to guarantee staying on budget
without requiring top performance or efforts to economize. In other words, budgetary
slack destroys motivation and devaluates efficiency. It also represents an artificial
projection rather than a realistic assessment of the company’s condition and the
business environment.
The reference defines BS and has
links to multiple treatises on the subject.
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