Resource allocation sounds like a quite unsexy topic. Yet it is one of the most important and most political elements of planning and execution at the organizational, business unit and project level that can be undertaken by and within organizations.
First, we must understand what a resource is and what happens when resources are allocated. Within business and economics, a resource is any factor necessary to accomplish a goal or implement an activity.
When senior management has set top-level corporate or enterprise-level strategies that show a clear and compelling direction for the whole organization, attention moves to the business units or divisions. Each business unit is one of the parts into which a business, organization or company is divided. Business units are fully integrated within the main organization and are not legally or otherwise distinct from it, in contrast to a subsidiary. Each business unit has its own set of strategies supporting the main strategic thrust of the organization. Business unit leaders are responsible for communicating a clear direction for departments, teams, and individuals and ensuring their functions adapt and evolve in a dynamic business environment. Quite often, a business unit will comprise several departments (e.g. HR, PR, marketing, finance, production and R&D) responsible for their own (approved) resource allocation, including planned projects.
Corporate planning can be based on business-level strategy, which aims to gain a competitive advantage by offering genuine value for customers while occupying a unique and strong position in the marketplace. Questions at business-level strategy tend to focus on core matters like “How do we best compete?” and “How do we gain a competitive advantage that can be maintained in the marketplace?”
Four broad types of business resources
Management experts’ views vary about how many business resources an organization needs – usually between 3 and 10. Four types of common business resources are listed below. These are the broad resources that many organizations use every day. Every organization has its own unique needs for resources that enable it to operate effectively, both daily and through to the long term:
- Physical resources. The organisation uses tangible and intangible assets to create value for its customers and other stakeholders. Physical resources may include the equipment, buildings, inventory (the four main categories of business inventory are raw materials and components, work in progress, finished goods and maintenance, repair and operating supplies), and the manufacturing plant and distribution network, which are vital for the organization’s operational performance.
- Human resources, i.e. employees, are often considered the most underrated assets of all organizations and are essential for effective functioning. Human resources (also called human capital) are even more important in service industries since creativity and knowledge are required for each to function well.
- Intellectual resources are not physical and are not tangible. Examples are product patents, organizational brands, and copyright over important materials. (I receive copyright payments yearly for a book I wrote – Strategic Public Relations, which is used as a textbook, mainly at universities. Copyright Agency payments come from licence fees paid by the education, government and commercial sectors for using copyright material.) Customer data, customer knowledge, and even the talent within an organization are a form of intellectual resource.
- Financial resources are the funds and assets that finance an organization’s activities and investments. In simple terms, “financial resources comprise the funding that enables an organization to continue operating, and there are several ways an organization will raise and use its financial resources”.
Decision-making skills are the cornerstone of management in any business, company, or organization. Decision-making is especially important when it comes to resource allocation. Each project, department, and task constantly competes for priority consideration on a day-to-day basis. Furthermore, each activity is time sensitive; rescheduling it may harm progress.
The competing resource needs of a company present the challenge of determining the best criteria for allocation, who will oversee allocations, which activities require urgent allocation, and how many resources will be needed.
Traditional resource allocation methods have had to evolve in recent years due to the COVID-19 pandemic. Many companies opted for remote working solutions after the first lockdown in March 2020. The health industry had to devise a new way of calculating resource utilization to allocate medical supplies to the most affected areas.
Five helpful tips to assist your organization in allocating resources
1. Set achievable goals
The first step of allocating resources lies in understanding the short and long-term goals of the organization, business, or company. Your company might have experienced a decline in profits during the pandemic, and now you wish to grow. You will require a strategic plan for recovering in the short term as you anticipate growth in the long term.
Short-term goals, ideally, will involve allocating resources to critical company operations in need of resources such as capital and human resource. Furthermore, adding more resources to profitable operations will help boost income. Long-term goals will mainly be centred around the company’s survivability by setting up emergency resources.
2. Set up effective communication channels
Effective and timely communication is imperative when planning and executing an organization’s strategy. Conflicts will likely arise when resource allocation changes occur without consulting departments, especially originating departments. Furthermore, work morale will be affected when employees are not involved in making office decisions. Hence, setting up clear communication channels to spread critical info efficiently and avoid issues at all organisational levels is crucial.
Apart from planning and implementing annual communication strategies, the most frequent type of communication relates to comms projects. Poor communication is still the primary contributor to project failure. Project managers often fall into the trap of discussing their work through their lens. Outside their immediate team, they discuss it in technical or feature-based terms:
“This is the main reason why poor communication is still the main reason for one-third of project failures, and this position has not changed in over a decade. If you look at this list published by Microsoft, all reasons for project failure can partially be boiled down to someone not communicating correctly, timely or at all.”
In fact, one of the major conclusions drawn in a 2022 agile culture change project quoted by Microsoft is that:
“Agile represents a profound shift in the way we work — not just the way we work on tasks but how we view work, plan for it, and produce it as a whole within teams. Communication is a huge part of all these agile processes: ‘90% of the job is communication’ when managing or working directly with agile teams.”
if you do not effectively (or at all) communicate the value of your project to external stakeholders, you are incurring a needless risk of under-performance or even failure in terms of adoption or value activation. In this case, communication can effectively be a career maker or breaker for project managers and IT as a whole.
Any traditional communication strategy will include a plan to inform external stakeholders of new features’ development status, data volume statistics or system response latency improvements achieved. These will often be shared via email with business executives weekly or monthly. Little thought is given to keeping the achievements in line with what these executives really care about (see earlier) or how to wrap them in a consumable, emotionally and visually captive fashion.
3. Reprioritize operations
The achievable goals above will reveal the nature of operations in your organization. Traditionally, the prioritization method of allocating resources to lacking operations would be an excellent place to start. However, a strategic approach to the process will be better when looking at the bigger picture.
As a result, you will need to identify all business operations at the organizational level, calculate the resources they are currently using, and run them through a prioritization matrix. The matrix will reveal the nature of tasks from different dimensions instead of the time and resources required.
Due to the consistent conclusions drawn from research in the past couple of decades, senior management should authorize the head of corporate communication to review all operations from a communication perspective.
4. Manage finite resources
Once you have identified the operations requiring more attention, the required resources per task can be calculated. As mentioned in this article, a projection of the organization’s economic growth should be made to give short- and long-term perspectives.
Potentially profitable activities can be analyzed versus those that might be causing losses. Overlaying the performance trend of each operation before, during, and after the pandemic with the company’s growth trajectory can give top management a clearer insight into where to allocate resources.
5. Team designation
The designation of a team to oversee the resource allocation process will either make or break the initiative. Large corporations have multiple departments. Ideally, you can use resource management software to identify suitable candidates and have a face-to-face interview to understand your potential team better.
The team designation will require a managerial approach. You will need to delegate the task to ensure a fruitful process. The team composition usually includes employees from all departments and company stakeholders. The two groups of people will provide an internal and external viewpoint of the dynamic of each department.
Use Allocation Methods
Resource allocation in any organization or company always creates pushback from department heads or employees. Each department member is attached to their turf and might reject the allocation procedure. Furthermore, allocating human resources might destabilize a department because of disrupted workflow. The following steps will help curb possible resistance:
- Management incentives and the integration of dynamic resource allocation into the planning process will aid integrated allocations. The aim is to achieve necessary and positive results for management to continually look for methods to utilize resources for the broader good of the firm rather than their fiefdoms.
- Decide who is responsible for what at the corporate centre and business unit levels, what gets tracked and reported, and what the escalation procedure will be.
- Review the underlying assumptions frequently to ensure they remain valid for newly requested investments and previously allocated resources that have not yet been used. Is it necessary to revise the assumptions if managers object to resource allocation decisions?
- Consider organizational changes to improve resource flexibility, like adopting modern technologies and training employees. Different allocation methods will help cater to the resource needs of each department, operation, and project. The varying methods should maintain the workflow in the company or organization.
Maintain flexible use of resources amid varied stakeholder priorities
A study by McKinsey consultants found that managers achieved better results with ‘fluid reallocation of resources’ rather than ‘one-off choices’. An HBR article in 2015 subsequently recommended that ‘funds, people and attention’ flexibility would be better executed this way rather than in single allocations that are not reviewed progressively.
Resource allocation is not easygoing. Managers continually face the task of allocating resources by balancing costs, benefits, and risks – and gaining commitment from stakeholders to those decisions. This task is complex and challenging because many options are available, benefits and risks are rarely discussed regarding single objectives, and various stakeholders with different agendas compete for limited resources. In addition, some resource allocations might suit individual business units while not satisfying others who may resist implementation. These others may form small teams ‘surreptitiously working on non-approved projects in which they are heavily invested personally’, according to a study by Phillips & Bana e Costa for the London School of Economics.
Resource allocation is a productive way to utilize finite company resources. As a management tool, it effectively helps any organization stay afloat in the continuing pandemic and Ukraine war crises. Furthermore, the organization will reach its peak potential when resources are optimally utilized at the organizational, business unit, project, and individual levels. Follow each step and gradually watch overall productivity improvement.