Budgetary Slack Creation and Control Methods: a literature review

Abstract

Budgetary slack refers to the practice of understating revenues and/or overstating costs in a budget to make budgeted targets easier to achieve. This thesis synthesizes 65 peer-reviewed research papers on budgetary slack and qualitatively discusses the factors affecting its creation and the methods to control it. Information on the root causes of budgetary slack and its various control methods can help companies improve their budgeting process and decrease budgeting slack, therefore enabling more effective use of company resources. Findings indicate that budgetary slack is primarily researched through surveys and experiments, mainly using managers and students as samples, respectively. Furthermore, findings indicate that the circumstances under which budgetary slack occurs are complex, and the factors are strongly interwoven. This thesis proposes a model of the various factors affecting its creation. The importance of slack control primarily depends on the company's strategy, but factors such as the type of costs and the operating environment should also be considered.