Resource Allocation in Management: Methods, Process & Strategy

Lesson Transcript
Instructor: Shawn Grimsley

Shawn has a masters of public administration, JD, and a BA in political science.

Only so many resources are available, and a business must decide where to use them. In this lesson, you'll learn about resource allocation, the ideal method, and a typical allocation process. A short quiz follows the lesson.

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.

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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.

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