Budgetary slack
In one sentenceA deliberate understatement of revenues or overstatement of expenses in the budget, so the manager can meet the target more easily.
Simply put
If evaluation or bonuses are tied to meeting the budget, a manager may deliberately set easy figures.
The result: a budget that does not reflect real potential, and money set aside for expenses that will not happen. The remedy is to compare estimates with past performance and market indicators.
Worked example
A branch manager actually expects sales of 1,000,000 SAR for the year, but submitted 900,000 SAR in the budget so he can exceed it easily.
Sales actually expected1,000,000 SAR
Sales submitted in the budget900,000 SAR
Budgetary slack1,000,000 − 900,000 = 100,000 SAR
Don't confuse it with
Unfavorable varianceA variance appears after execution; slack is built into the budget before the period begins.