“Textbooks describe economics as the study of the allocation of scarce resources. That definition may be the 'what,' but it certainly is not the 'why.’”
- Ben Bernanke
Whether it is economics or management, resource allocation is involved in both. If you want to run a successful project then it is important to have the right resources. These resources can be tools, financial aid or humans. When all these combine the results will automatically be reflected.
It implies that having necessary resources at every point of time is important. In this blog you will learn more about resource allocation and how it is done. You will also see some major challenges that prevail when resource allocation is done.
(Check out what Economic Analysis means)
What is resource allocation?
Continuing with the same example of running a successful project, let us see what resource allocation actually means. We are well aware that the right people are needed to do a certain job. So, you need writers, laborers, managers, designers, accountants and every possible expert in their field to work on the designated areas.
Now you will also require softwares and hardwares to work on. These are also resources. In short, proper resources need to be allocated for a job to do it right.
Resources are considered as an investment and management ensures that they are allocated effectively and efficiently throughout the entity to get maximum profits and longer sustainability. Sometimes there can be mismanagement in allocation. It can lead to heavy costs, delay in delivery, and time delay as well.
According to a study conducted by PMI- almost 43% of the projects have to increase the budgets later on and around 49% of businesses cannot stick to a deadline. It also revealed that only 26% of businesses can successfully manage resources and allocate them properly.
In the resource planning process, resource allocation is a vital step and without its completion an effective resource management cannot be done. While doing projects resources are either fully available, partially available or completely scarce.
Therefore, managers should take into account the resource availability before taking up on any project. It is important as you must not face any scarcity or difficulty at a later stage.
(Take a look at - Introduction to capital budgeting)
Benefits of Resource Allocation
As we know that resource allocation is an important aspect in the resource management process as it allows proper planning and implementation to achieve the desired goal. It also helps to increase the overall optimization of optimum utilization of resources. Given below are the benefits of resource allocation.
It helps to reduce the costs of the projects.
Improves employee engagement in the project and helps to satisfy them.
Timely and successful delivery of the projects is done.
It also helps to achieve best results with the existing resources in hand.
Challenges in resource allocation
It is easy to say that resource allocation has a lot of benefits when implemented and done right. Doing it right is what takes more work. Identifying the right resources at the right time can be a tedious task for the team. Given below are some of the challenges faced during resource allocation.
Challenges in resource allocation
Change in scope of the project
Even though the project scope is pre-decided, sometimes during the project life cycle there can be certain alterations in the scope. Sometimes there are fluctuations in the market that cause resource scarcity. Therefore, due to change in scope of the project resource allocation gets affected and has to be redone keeping present circumstances in mind.
Technological advancements have made the traditional tools obsolete. Newer tools are coming in the market and businesses are trying their level best to keep up with them. With changing tools, the resources associated with them will also demand change.
Experts have to be hired, proper skill training has to be imparted. Therefore, with tools being outdated, the project will also suffer and resource allocation will be redone each time some newer tool is used in the project.
Miscommunications are common between the different departments in a business. Sometimes the sales and delivery team can have certain issues while communicating.
Sales team will forget to contact the delivery team before entering into a contract. Or the delivery team will forget to get the data from the sales team. This gap can lead to poor resource allocation and because of this companies can miss the deadlines.
Mismatch between capacity and demand
If the company is unable to forecast the future demands of a product then it will create chaos later on. If the demand gets high then businesses will not be able to work at full capacity because of which the sales and profit will be hampered.
Or in case the demand is low and the forecast was done wrong, there will be surplus of products in stock with no buyers. Therefore, maintaining a proper relationship between capacity and demand is important for proper resource allocation.
(Suggested Read - What is Economic Development?)
Under and over allocation of resources
While allocating resources sometimes there may be over allocation in a particular department or a project. How can you avoid it? We know that allocating uniformly will give us the best results. Both under allocation and over allocation can be a problematic scenario. If resources are under allocated then it will cause losses and reduced productivity.
Similarly over allocating them will cause low quality of products, burnout, surplus stock lying in godowns etc. It is important to make a proper strategy and forecasts in order to allocate the resources uniformly. To achieve optimum utilization and efficiency allocation is an important step.
The process of allocation is not complete until the project or the task gets completed. There should be continuous monitoring and any challenge should be paid immediate attention.
Modern business intelligence tools can be used to monitor everything. If there is over allocation then it must be controlled and steps should be taken to avoid the same mistake in future. If there is under allocation then why is it so? Are resources scarce? All these questions should be taken into account.