Final answer:
Building slack into a budget involves conservative revenue forecasts and slightly inflated expense estimates to protect against unexpected financial shortfalls, but it requires careful management to ensure resource efficiency.
Step-by-step explanation:
When a manager builds slack into a budget, they are essentially incorporating a cushion into the financial plan. This cushion can take the form of underestimated revenues or overestimated expenses to ensure that the organization remains within its budget even in the face of unforeseen circumstances. To handle estimates of revenues, a manager might conservatively predict lower revenue figures, whereas for expenses, they might allocate slightly more funds than what is strictly necessary. This practice provides a safeguard against the possibility that actual revenues might fall short or expenses might exceed the initial projections.
However, while creating slack may offer a degree of financial safety, it can also lead to less efficient use of resources if not managed carefully.