In budget preparation, if you "intentionally" underestimate your revenues or overestimate your expenses, this is known as budgetary slack.
This is usually done to so that departments can "meet" their actual numbers (either be over revenue budget or under expense budget) so as to get bonuses or achieve appraisal numbers which are tied to the budget.
by
Ghulam Mustafa , Finance Manager , Al Hamli Group of Companies
Budgetary slack is when the people involved in creating a budget deliberately under-estimate the amount of revenue to be generated, or over-estimate the amount of expenses expected to be incurred during the budget period. This allows them a much better chance of "making their numbers," which is particularly important for them if performance appraisals and bonuses are tied to the achievement of budgeted numbers.
Budgetary slack may also occur when there is considerable uncertainty about the results to be expected in a future period.
