Final answer:
In bottom-up budgeting, without proper controls, there is a tendency to create 'budgetary slack', where departments include excess funds in their budgets. It allows for more employee involvement but needs oversight to avoid inefficiency.
Step-by-step explanation:
Unless properly controlled, a "bottom-up" budgeting process can lead to reduced levels of "budgetary slack."
A good budget allows you to track income and expenses, and identify any wasteful spending to achieve financial targets. When using a bottom-up approach, each department or unit of an organization constructs its own budget to be compiled into the overall company budget. Unlike a top-down budget, which is formulated by senior management and distributed down the hierarchy, bottom-up budgeting can be more motivating for employees as it involves them in the decision-making process.
However, without proper controls, bottom-up budgeting can inadvertently lead to a situation where individual departments pad their budgets with excess funds, creating a budgetary slack. This happens because units may overestimate expenses to ensure they are not short of funds in the upcoming period, which can be wasteful and inefficient.