Methods of Resource allocation
(i) Based on percentages:
Usually, companies have been following system of allocation of resources by percentages. It may not serve much purpose these days. They may be of help only in making some comparisons. The allocation of resources should not be based on their availability or scarcity as it may prove to be counterproductive. The resource allocation should be made with regard to strategies of a company for its future competitive position and growth. The decisions of resource allocation are also closely connected with the objectives of a company.
(ii) Based on modern methods
Other methods include –Portfolio models, product life-cycle charts, balance sheets, profit and loss statements income statements. When retrenchment or turnaround strategies are implemented zero-based budgeting is used. During mergers, acquisitions and expansion, capital budgeting techniques are suggested. Resource allocation is not purely a rational technique but is based on several behavioral and political considerations. The other analytical conceptual models used for strategic choice are growth share matrix, ‘stop light’, and Directional Policy Matrix used in multi divisional firms. A more comprehensive approach to management decisions on resource allocation is provided by the budgeting system carefully geared to the chosen strategy.
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