Shawn has a masters of public administration, JD, and a BA in political science.
Definition of Resource Allocation
Resource allocation is a process and strategy involving a company deciding where scarce resources should be used in the production of goods or services. A resource can be considered any factor of production, which is something used to produce goods or services. Resources include such things as labor, real estate, machinery, tools and equipment, technology, and natural resources, as well as financial resources, such as money.
Method of Resource Allocation
In an economist's perfect world, which doesn't exist, of course, resources are optimally allocated when they are used to produce goods and services that match consumers' needs and wants at the lowest possible cost of production. Efficiency of production means fewer resources are expended in producing goods and services, which allows resources to be used for other economic activities, such as further production, savings, and investment. This basically boils down to creating what customers want as cheaply and efficiently as possible.
Resource Allocation Process & Strategies
Strategic planning: Resource allocation begins at strategic planning when a company formulates its vision and goals for the future. The vision and strategic goals are accomplished through achievement of objectives. For example, a consumer electronics company's goal may be to become the market leader in computer tablets. An objective towards this goal is the design and promotion of an innovative tablet.
Budgeting: Once you have set your objective, you will need to allocate sufficient resources to accomplish it. In practical terms, this is often a matter of project budgeting. In our example, the company will allocate money for market research to determine unmet consumer needs and wants for a computer tablet, money for product design and development, funds for production, and money for promotional activities, such as advertising. Each department may take its budgeted funds and allocate those resources for more specific purposes, such as hiring employees, commissioning marketing studies, and buying raw materials and components.
Logistical management: Resources have to be moved to where they need to be in order to accomplish the company's objectives that will bring it closer to its strategic goal. Logistics is the process by which a company manages the flow of resources coming into the company, flowing inside the company, and flowing out of the company.
In our example, information from the marketing research team needs to go to the product development team. Once the product development team designs the specifications, that information needs to go to production. Workers may need to be hired to produce the tablets. Raw materials and components for the tablets may need to be purchased from outside suppliers, and some of the manufacturing process may be outsourced to other firms and then returned for further production or distribution to distribution channels, such as retail stores.
Monitoring and evaluation: The resource allocation process should be monitored and evaluated to ensure that resources are allocated in accord with the company's objective in a cost-effective and efficient manner. This can be accomplished through careful logistical management and proper accounting and auditing.
Resource allocation is a process in which a company decides where it wants to place its scarce resources. The overall strategy is to produce the goods and services that match customer preferences for the lowest possible cost of production so that resource use can be maximized. The resource allocation process begins with strategy formulation and setting objectives. You then will allocate resources needed for achievement of objectives through the budgeting process. Logistical management will enable you to ensure that the resources go where they need to be. Finally, you should continually monitor and evaluate the process to ensure efficient use of resources and to identify all problems.
Methods & Processes
- Resource allocation: the process of a company deciding where resources need to go
|Processes & Strategies||Explanation|
|Efficiency of production||Creating what customers want as cheaply and efficiently as possible|
|Strategic planning||Company formulates its vision and goals|
|Budgeting||Allocation of sufficient resources to reach goals|
|Logistical management||Resources need to be moved to where they need to be|
|Monitoring and evaluation||Entire plan and strategies need to be periodically evaluated to make sure things are cost-effective and efficient|
Review this lesson a few times, then take the assessment test and ensure that you can:
- Provide the definition of resource allocation
- Discuss efficiency of production as it relates to resource allocation
- Evaluate ways in which companies create a strategic plan and work it
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