Budgetary slack exists when revenues are understated or expenses are overstated. Budget should set high but attainable performance standards. However, budgetary slack makes it easy to achieve the budgeted level of performance. Thus, the effectiveness of the corporate planning process decreases when there is budgetary slack.
When a budget is easily achieved, it is said to have budgetary slack in it. When budgetary slack exists either revenues are understated or expenses are overstated.
When a budget is easily achieved, it is said to have budgetary slack in it. When budgetary slack exists, either revenues are understated or expenses are overstated or both. Hence, management won't work hard on cost-minimization as they simply have to achieve 'easily attainable goals'. Hence, the resources most likely will be allocated inefficiently.
Budgetary slack exists when revenues are understated or expenses are overstated. Since the budgetary slack distort a real attainable level of performance it is difficult to identify potential budget weaknesses.
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