What is Budgetary Slack?
Budgetary slack involves underestimating budgeted revenue—or overestimating expenses.
How it Works
To form a budget, a business takes past performance data.
From this information, it sets future performance targets.
Sometimes, though, the business will need to set targets for a completely new product, for which no previous data is available.
Or trading conditions have changed, and the future is very uncertain.
In these situations, the business may go ahead and lay down budgets.
However, the business may factor in some budgetary slack by underestimating revenue projections.
At the same time, they may overestimate expense projections.