What Is Padding the Budget?

Budget Padding is a practice of submitting an artificially inflated proposed budget in order to

give the budget room to expand or to cover unexpected costs. Budget padding is viewed as
unethical, but those who perpetrate it defend it on the grounds of practicality.

For instance, making the budget proposal larger than the actual estimates for the project is done
either by increasing a project's expenses or decreasing its expected revenue. The goal of budget
padding is to get an approval committee to grant an artificially high level of funding to the
budget maker's proposed project.

There is some contention over the exact definition of padding: some contend that inflating
expenses to take expected inflation into account is responsible foresight rather than padding,
while others see any increase beyond current estimates as padding.

Incentives/Justification for Budget padding.

Budget makers face several incentives to pad their budgets.

First, they want to account for economic factors. This is true of budget increases that anticipate
inflation or, in the case of international projects, fluctuations in exchange rates.

Second, they want to avoid red tape. If an unexpected expense arises, the padding gives the
project flexibility to cover it -- that is called slack or breathing room.

Third, they want to make a favorable impression on their superiors. If they propose a larger
budget and then outperform the budget, then the project team will be viewed favorably by
the bosses.

Finally, they fear budget cuts. Some budget padders fight against cuts that they see as unfair by
anticipating them with an inflated proposal.

Consequences
In theory, projects should spend according to the accurate budget estimates so that padding
would have no real effect. In practice, however, to ensure that the approval committee does not
cut the budgets in the following year. Projects with extra room/fund in their budget tend to
use it up while those Recurring projects, especially, spend money unnecessarily in order to
use up their entire budgets thereby leading to wastages of scares financial resources.

Ethical Considerations
Aside from the financial consequences, many people question the acceptability of budget
padding because it is a deceptive practice. They say that it breeds a harmful business atmosphere
and promote free ground for fraudulent and corrupt officers. On the contrary, budget padding's
defenders cite its widespread use as a justification of its acceptability. They also argue that unfair
actions on the part of bosses, like budget cuts, force them into preemptive budget inflation.