Budget padding

While participative budgeting can be very effective, it can also have shortcomings. Too much participation and discussion can lead to vacillation and delay. Also, when those involved in the budgeting process disagree in significant and irreconcilable ways, the process of participation can accentuate those differences. Finally, the problem of budget padding can be severe unless incentives for accurate projections are provided. 

Why do people pad budgets with budgetary slack There are three primary reasons. First, people often perceive that their performance will look better in their superiors eyes if they can beat the budget. Second, budgetary slack often is used to cope with uncertainty. 

The third reason why cost budgets are padded is that budgetary cost projections are often cut by others in the resource-allocation process. Thus the process of preparing budgets can result in a vicious cycle. Budgetary projections are padded because they will likely be cut, and they are cut because they are likely to have been padded. 

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