Resource Allocation

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Resource Allocation

After resource mobilisation, resource allocation activity is undertaken. This involves allocation of different resources financial and human among various organisational units and subunits. In order to understand the rationality of resource allocation, it is essential to understand commitment principle because resource allocation is a kind of commitment.

resource Allocation

Commitment Principle

Commitment involves adhering to a thing for which a person is committed. In the context of planning, commitment principle implies planning for the future impact of today’s decisions.
Since the futurity of different decisions varies, the risk involved in respective decisions also varies. Applying the concept of commitment principle in resource allocation implies that when resources are committed to a unit or a project, the organisation takes a risk. The risk involved depends on the time taken to recover resource cost. Since a unit requires resources for varying periods-long-term for the creation of physical assets; short-term for inventory, debtors, etc., cost recovery period also varies.
Therefore, while allocating resources, commitment principle should be taken into consideration.

Basis for Resource Allocation

While allocating the resources, an organisation may take two alternative steps: (i) resources should be allocated at a place where these have their maximum contributions, or (ii) resources should be put according to the needs of various organisational units/subunits. Both these alternatives may become complementary to each other if there is an objective evaluation of the resource requirement of various units.
Budgeting is the means through which resources ‘are allocated to various organisational units. However, the traditional budgeting which focuses just on the past resource allocation as the basis is not useful for resource allocation in any way because of the conditions, both external as well internal, change making the past practices of resource allocation meaningless. Therefore, when budgeting is used as a tool for resource allocation, it has to be oriented to the objectives of the organisation and the way each unit of the organisation will contribute to he achievement of these objectives. From this point of view, following types of budgeting are more relevant:
1. Capital budgeting
2. Performance budgeting
3. Zero-base budgeting
4. Strategic budgeting.