Wally would have jumped right on this. His reports at the meetings for the next forty years would be masterpieces of prevarication. Poor Dilbert is still carrying a broken flashlight while he seeks an honest manager
PHB's critical error is confusing "setting high standards" with "setting high expectations" - setting the standard would involve his providing an actual example, and in his case it is completely impossible to set a high standard.
Although there is a small correlation, since his expectations are impossible as well.
Dilbert should have just said "okay" and left quickly. Sure, there's no budget (just charge everything to overhead and/or sell the PHB's furniture). But there's also no schedule and no interruptions, so he could basically work on whatever he wanted with zero accountability.