Final answer:
The practice in question is called budgetary slack and involves conservative budgeting that can lead to a misrepresentation of financials, which can cause inefficiency and complacency. A good budget helps track finances and achieve goals, but difficulty arises from necessary trade-offs. Financial policies can be aggressive, influencing economic conditions and long-term organizational planning.
Step-by-step explanation:
The practice of underestimating budgeted revenues or overestimating budgeted costs to make targets more easily achievable is often referred to as budgetary slack. This practice can be considered a form of conservative budgeting, but can also lead to a misrepresentation of a company's financial situation. On one hand, it can provide a safety net for the company, ensuring that it is more likely to meet its financial targets even if unexpected costs arise or revenues fall short. However, it may also lead to complacency and inefficient use of resources.
A good budget allows for proper tracking of finances, identification of wasteful expenditures, and assists in achieving financial goals. The difficulty in budgeting might stem from the trade-offs and opportunity costs involved, such as sacrificing daily luxuries for more significant financial stability. Sometimes, budget decisions reflected in financial policies can be quite aggressive, such as those involving large budget deficits for expansionary fiscal policies, or may aim for more controlled spending and increased taxation.
Additionally, economic conditions can highly influence budgeting efforts, where recessions might lead to larger deficits or smaller budget surpluses, and booms can lead to increased surpluses. Strict requirements to balance budgets annually could disrupt these automatic stabilizers and exacerbate economic fluctuations. It is thus essential to consider the implications of budgetary practices on both the short-term functioning and long-term strategic planning of an organization.