From small local businesses to scaling startups, any business owner would like to be able to pursue all projects that come their way.
However, the reality is that small and medium-sized businesses (SMBs) are often shorthanded or have limited financial resources, meaning they have to prioritize the projects that are feasible and offer the most financial reward.
Get too conservative with your resources, and you can stunt your growth prospects and your employees’ ability to complete high-quality work. But, extending your resources too thin can create more serious issues, like the inability to pay workers, overworked employees, and unsatisfactory client results.
Thus, effective resource allocation is an important skill for SMBs to master. It helps them balance appropriate resource utilization with the pursuit of their business goals.
Below, we’ll discuss the resource allocation process, common challenges SMBs face with it, and tips for expert resource management.
What is resource allocation?
Resource allocation is the practice of assessing the company's available resources and then strategically deploying them to the appropriate projects for maximum impact.
Resources can consist of:
- Budget
- Time
- People
- Skills
- Tools
- Equipment
- Supplies
So, before beginning a new project, the business owner will determine what resources are available and delegate them appropriately to get the job done within the project's scope.
Again, if not enough resources are dedicated to a certain project, employees can become frustrated because they lack the support or tools to do their jobs correctly. On the other hand, if too many resources are devoted to the project, it might lead to underutilization of people and machinery that could be more productive elsewhere.
Why is resource allocation important?
Resource allocation is an important concept in project management, with potential implications for the company itself, its employees, and clients.
It ensures that the business has enough people with the right skills and the necessary equipment to do the job.
In this way, effective resource allocation impacts customer satisfaction because the company will deploy the appropriate resources to produce high-quality results within the client’s budget and timeline.
It can also support better employee engagement and job satisfaction, as the owner will deliberately match them to the appropriate projects based on their unique skills and abilities.
Who is responsible for allocating resources?
In the traditional sense, the project manager is responsible for allocating resources.
But, not every small business has the capacity or need to keep full-time project managers on payroll.
Thus, resource allocation will often fall on the business owner or team leader, depending on the specific organization.
Regardless of the person’s title, resource allocation should be handled by someone who is familiar with project requirements. They are the ones who have the best understanding of what resources are needed to complete the job correctly.
What are the benefits of resource allocation?
Effective resource allocation can create positive ripple effects throughout the organization. Here are some of the top benefits companies can enjoy:
Optimal use of resources
The largest benefit of effective resource allocation is that it helps companies make the best use of their assets.
As mentioned above, this can improve client and employee satisfaction, while companies benefit from better productivity and retention.
For instance, if a contractor sends workers who are skilled painters to do tile work, this can result in poor results for the client and frustrated employees as they work on something they’re not familiar with or enjoy doing.
For best results, strategic resource allocation requires leaders to diligently pair workers with appropriate tasks based on their unique skills and abilities.
Fewer bottlenecks
Effective resource allocation can also improve operational efficiency and avoid bottlenecks.
It helps companies allocate the appropriate resources to complete each project phase without waiting for additional labor, supplies, or machinery to free up.
This way, they can complete the project on time, keep workers productive, and avoid costly delays that detract from customer satisfaction.
A better balance of priorities
Proper allocation of resources allows companies to pursue the greatest number of projects without overextending themselves.
By carefully aligning their resources with project requirements, they can minimize waste and seize as many opportunities as possible.
But, it also gives them more visibility and discretion to accept the projects they know they have the appropriate resources to handle.
What are the challenges of resource allocation?
While the benefits of resource allocation are widespread, there are certain challenges that SMBs can face during this process, including:
- Limited resources: Smaller organizations may be short-staffed and have fewer financial resources available, making it more difficult to allocate them effectively across multiple projects simultaneously.
- Scope creep: Clients may request that the project be extended beyond its original scope, which may require more people, time, and money than the business owner originally planned for.
- Seasonal demand: SMBs operating in industries with seasonal demand can have a harder time balancing healthy resource utilization if they want to take advantage of temporary surges in demand before it dissipates.
- Employee burnout: SMBs may accept as many projects as possible to hit revenue targets, though this can lead to employee burnout if they don’t keep tabs on everyone’s workloads to ensure they’re healthy and sustainable.
Resource allocation example
To get a better understanding of what resource allocation looks like for SMBs, let’s consider an example of a small moving company.
The business has nine movers on staff and three trucks of different sizes. The company experiences peak demand in the summer and on the weekends, while weekdays can be a bit slower.
In the middle of June, the company receives a few booking requests for the following Saturday:
- Move A: A cross-town move of a one-bedroom apartment; no packing, only moving required
- Move B: An interstate move of a three-bedroom house; full-service packing and moving
- Move C: A small office relocation, including computers, desks, and filing cabinets
Based on the unique needs of each job, the owner decides to allocate its resources as follows:
- Move A: Two movers with the smallest truck take on the apartment job. The job is expected to take around four hours, giving them more time to help with other jobs as needed.
- Move B: Four movers with the largest truck take on the three-bedroom home move. The company assigns the most experienced movers to this job, given its complexity and duration.
- Move C: The remaining three movers take the mid-sized truck to handle the office move. In the afternoon, the workers from Move A can help reassemble the office furniture in the new location.
By allocating the movers with the right skills and the proper equipment to each move, the company will be able to complete all three successfully and within the desired time frame.
Tips for effective resource allocation
Resource allocation isn’t something that team leaders or project managers can start the morning a new project begins.
It’s an ongoing practice that SMBs should engage in proactively and monitor continuously to ensure they have the right resources deployed to each project.
Here are some expert tips and strategies that can help you manage and allocate resources effectively:
Define the scope and resource requirements
The first step in any resource allocation process should begin with clearly understanding the project’s scope and main objectives.
This will be the foundation for making allocation decisions, breaking down the project into individual phases, milestones, and tasks.
For each individual deliverable, estimate the specific resources that will be needed. Then, you can take a comprehensive look at the resource requirements of the entire project.
As we mentioned earlier, try to avoid scope creep, which can be detrimental to total project costs and timelines. Clearly agreeing on the project’s scope with clients before commencing can help to prevent this.
Identify and allocate the best-fit resources
Once you know the exact resources required, you can begin evaluating your assets and determining which are the best fit for the current task.
This might start with examining your team’s current workload and capacity. You should see what everyone is working on and who can take on a new assignment.
Depending on the priority of the work they're currently assigned to compared to the urgency of the new project, you may decide to reprioritize and reschedule certain employees before getting started.
Aside from labor resources, you should also identify any tools or equipment that are needed for the project and whether they are currently in use.
When you know who and what you can dedicate to the new project, you can make the proper allocations, ensuring you match the right people with the right skills and machinery to deliver high-quality work.
Consider project costs
Make sure all resource allocation decisions align with the project’s budget. Even if you have resources available, it may not make the most financial sense to assign them to a given project.
Maybe you have six employees available for work, though the project only requires three. Assigning all available workers might get it done quicker. However, this could double your labor costs, putting you well over budget.
Thus, the resources you allocate should be cost-effective for a project and help you capture more profit.
Use project dashboards
You can complete resource allocation and planning tasks by hand. But, utilizing advanced project management software can provide you with a number of helpful features to make more strategic, data-driven decisions.
These solutions may include capacity management, employee time clocks, and task tracking so it’s easier to make resource allocation decisions and monitor progress on projects.
They often come with dedicated project dashboards, where you can evaluate resource utilization and project costs in real-time, helping you determine if you’re staying on budget and the timeline.
This software can help you be more responsive to changing needs as the project advances. For instance, if you notice things are moving behind schedule, you can quickly view which team members with the right skills have available capacity.
Keeping business spend on track
Whether you’re managing one or dozens of projects at a time, strategic resource allocation can help you stay on budget and keep your employees and clients satisfied.
It ensures you get the most out of your people and resources and helps to keep you from underutilizing your team or overblowing your budget.
Beyond project management, keeping your spend in check is the key to profitability and growth.
With BILL Spend & Expense, it’s easier to set and control budgets with flexible settings, offering better visibility into your company’s finances. And, with a convenient dashboard for monitoring activity on each policy and budget, you can get a quick overview of transactions in one location.
To see how BILL can help you control business spending, sign up for a demo today.
