Budgetary slack
Budgetary slack refers to the practice of intentionally underestimating revenue or overestimating expenses in a budget. This creates a cushion, making it easier for a department or individual to meet targets. For example, if a manager predicts lower sales than expected, they can appear to perform better when actual sales exceed these estimations. While it can provide short-term advantages, budgetary slack can lead to inefficiencies and hinder accurate planning, as resources may not be allocated effectively based on inflated estimates. It reflects a lack of transparency and can undermine overall organizational performance.
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Budgetary slack refers to the practice of intentionally underestimating revenues or overestimating expenses when preparing a budget. This creates a cushion, allowing managers to achieve budget targets more easily. For example, if a department expects its expenses to be $1,000, it might budget $1,200 to ensure it appears to meet financial goals. While this can provide a safety net, it may lead to inefficient resource use and less accurate financial planning. Ultimately, budgetary slack can distort real performance and decision-making within an organization.