Rethinking budgetary slack
as budget risk management
Moataz Elmassri
Zagazig University, Zagazig, Egypt, and
Elaine Harris
Roehampton University, London, UK
Abstract
Purpose – The purpose of this paper is to draw on a small-scale study that investigated the
relationships between the budget-setting process and slack, and how budgetary, behavioural and
contextual factors can affect this relationship, to reconceptualise the phenomenon of budgetary slack
as a budget risk management strategy.
Design/methodology/approach – A case study method was employed, which enabled the
researchers to investigate factors suggested by prior literature that affect slack creation. In total, nine
structured interviews were conducted in a state-owned Egyptian petroleum company, which gave the
researchers a different way of thinking about the budget slack phenomenon.
Findings – The authors found that slack is created, but not perceived negatively by managers,
wherever they are in the organisational hierarchy. Few factors from the literature appeared to have any
effect on the creation of budgetary slack, but the covert view of budget slack as a negative behaviour,
adopted by early literature was perceived by participants as unethical and inconsistent with Egyptian
culture. Managers did not recognise the notion of budgetary slack, though a “contingency” was
created and was seen as entirely rational and acceptable by both superiors and subordinates. These
findings are consistent with more recent literature in taking a more positive view, and with risk
management thinking.
Research limitations/implications – The evidence from this small study in a single organisation
obviously cannot be generalised to the whole population. More research is needed in different contexts
in order to discover whether managers may perceive this link between budget contingencies and risk
management. Also, further research may explore the ethical dimension of behaviour and its possible
foundation in religious values and beliefs, to see if this influences how building “contingencies” into
budgets is perceived.
Practical implications – If we were to stop portraying the creation of budgetary slack as a negative
behaviour and accept that practitioners find it acceptable in managing budgets in an uncertain
economic environment, more managers may be open about it.
Originality/value – The main contribution of this paper is that it proposes that what was originally
described as a negative behavioural phenomenon be rethought as a positive risk management
strategy. Though other authors have viewed budget slack more positively, none has made the explicit
link to risk management. The authors reposition budget slack in terms of contingency planning and
show how this is consistent with risk management thinking.
Keywords Egypt, Budgetary control, Corporate finances, Budgeting process, Budgetary slack,
Context, Organizational behaviour, Risk management
Paper type Research paper
Introduction
Budgets can be used for operational planning, performance evaluation, communicating
and coordinating, forecasting and strategy formulation (Berry et al., 2005; Hansen and
Van der Stede, 2004). Participation in the budget-setting process varies across different
organisations. Despite the potential benefits of participation, e.g. increased motivation
and commitment, participation has been perceived as having negative results. One
of the possible consequences, “budgetary slack”, is defined as “the intentional
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0967-5426.htm
Journal of Applied Accounting
Research
Vol. 12 No. 3, 2011
pp. 278-293
r Emerald Group Publishing Limited
0967-5426
DOI 10.1108/09675421111187700
278
JAAR
12,3