Budgetary Slack: Does it Hurt Organisations?

Abstract

Budgetary slack is a common practice where managers deliberately underestimate revenue and overestimate expenses in their budgets to create a cushion. Budgetary slack, the intentional padding of budgets by managers, has long been recognized as a controversial practice in organizations. This article addresses the complex issue of budgetary slack in budgeting process, whether it could result in positive or negative impact on organization and employees' performances. The article identifies the various factors contributing to budgetary slack including high budget participation, information asymmetry, and high job insecurity, and the detrimental effects they can have on an allocation of resources, performance evaluation, accountability and innovation among employees. Additionally, the article explores the potential moderating factors, including performance measurement system, corporate governance, mechanism, and leadership, that could influence the relationship between the budgetary slack and its detrimental effects. These conclusions are based on a thorough review of recent research articles, which offer valuable insights into the various attributes of organizations as well as the impacts of budgetary slack.