Allocation of resources is both a one-time and a continuous process. The implementation of a project would require the allocation of resources. An on-going business concern would also require a continual infusion of resources.

The allocation of resources may take place at the corporate level i.e. by the Board of Directors and /or the CEO. This is known as the top-down approach. In the bottom-up approach resources are allocated after seeking recommendations from operating personnel/functional departments. A third approach involves allocating resources through the budgeting process in which allocations are drafted, modified and finalized jointly.

Resources are the means or instruments used by an organisation to make available goods and services of right quality, in right quantity, at right place, time and price. This is a value addition function as it is a conversion process.

Learn about: 1. Introduction and Meaning of Resource Allocation 2. Definition of Resource Allocation 3. Resource Allocation at Different Levels 4. Factors Affecting 5. Resource Allocation in Organizations 6. Means 7. Approaches 8. Problems Encountered.

Resource Allocation: Introduction, Meaning, Definition, Factors Affecting, Means, Approaches, Problems and More…

Resource Allocation – Introduction and Meaning

Resources are a must to implement a strategy. A given strategy, however it is effective or sound, has no meaning unless the organisation has the required resources. It depends not only of having those resources but the correct allocation and utilisation of these resources.


Many firms have failed because of inappropriate and non-judicious allocation and ineffective use of resources. What is needed is a strict discipline in the areas of resource procurement, allocation and actual use. The resources include funds, facilities and equipment’s, materials, supplies and services and manpower.

Allocation of resources is both a one-time and a continuous process. The implementation of a project would require the allocation of resources. An on-going business concern would also require a continual infusion of resources. Strategy implementation deals with both types of resource allocation.

The process of resource allocation deals with several issues such as resources to be tapped, factors affecting resource allocation, different approaches of resource allocation and finally the difficulties faced in resource allocation.


The allocation of resources may take place at the corporate level i.e. by the Board of Directors and /or the CEO. This is known as the top-down approach. In the bottom-up approach resources are allocated after seeking recommendations from operating personnel/functional departments. A third approach involves allocating resources through the budgeting process in which allocations are drafted, modified and finalized jointly.

Resources are the means or instruments used by an organisation to make available goods and services of right quality, in right quantity, at right place, time and price. This is a value addition function as it is a conversion process.

The success of an organisation is determined by the quality and quantity and hence, the cost of the available resources, the resource conversion policy and the sound decisions allocating the resources. Decisions bearing on the allocation of resources have vivid and vital importance in the process of strategy implementation.

In a single product firm, it involves assessment of the resource needs of different functional divisions or departments. However, in case of multi-divisional organisation, it implies assessing the resource needs of different SBUs which are otherwise product divisions. This resource allocation a part of strategic planning calls for resource planning.


The first phase of resource planning is to do with the determination of the amount and the type of each resource that is needed to implement the plans and policies under a given strategy and then deciding how much of each type of resource may be available during the planning period.

The second consecutive phase is to do with determining whether there is any need for additional resources in terms of extent of need, and what are the ways of granting it or acquiring the same.

The terminal phase of resource—planning process is related with the actual allocation of resources that are available or to be made available in consonance with the organisational needs with specific reference to units and the operating strategy of the firm.

In a narrow sense, resource allocation is to do with matching the resource availability with the resource needs of departments, divisions and SBUs in the back drop of strategic and operative decisions. In a broader sense, resource allocation relates to investment decisions based on consideration of the rate of return and the risk-return trade off in case of a multi divisional organisation.


It is the nature of strategy that decides as to how to allocate the resources. In case of say stable growth strategy aiming at improving the pace of business operations, resources may be allocated on the basis of a broad formula say, a percentage increase in allocation over the previous period.

Contrary to this in case of strategy combining stability and expansion, the resource allocation is based on the operative strategies relevant to the respective business components which refer as SBUs. Put in other words, resources must follow the strategy—resources must fit the implications of the strategic choice intended.

In addition, the availability of resources for each business segment should match the industry features and the competitor’s deployment of resources in the parallel area. A strategist should remember the long-term implications of current allocations. A growth strategy involving new product development warrants definitely more funds to be invested in research and development activities and consequent heavy doses of investment in plants and equipment facilities.

Similarly, an aggressive market penetration strategy needs more funds to be made available for marketing research, sales promotion and advertising that have both short- term and long-term implications.


Resource allocation, in the final analysis, rests on resource availability for strategy implementation. Therefore, all the decisions having bearing on dividend distribution, retention of profits for reinvestment, and allocation of profits for increasing compensation for managerial and supportive labour force are the internal determinants of resource allocation.

The external determinants are government regulations covering ecology, social responsibility that need resources to be allocated.

Resource Allocation – Definition

Resource allocation is defined as the allocation or division of resources that are used in the implementation of strategy in an organization. According to Churchman, “In organizations, the decision-making Junction is the responsibility of management.

In order to execute its responsibility, an organization’s management requires information about the resources available to it and their relative effectiveness for achieving organization’s purpose. Resources are acquired, allocated, motivated and manipulated under the manager’s control. They include people, materials, plant and equipment, money and information.”


A project and a procedure would be successfully implemented only if the adequate amount of resources is allocated to them. Efficient allocation of resources, such as – financial, human, and technical, is imperative for strategy implementation. However, allocation of resources does not ensure that strategies will be successful. The efficient plans, projects, and procedures are the main drivers of success. It can be said that resources are required to take action.

Strategy implementation deals with two types of resource allocation, namely one-time resource allocation and continuous resource allocation. A one-time resource allocation implies that resources are allocated and employed in a process only once; while a continuous resource allocation demands a constant inflow of the required resources.

For example, equipments and technologies are implemented only once; thus, it is one-time resource allocation. On the other hand, financial and information resources are needed at the regular interval of time to run the organization. This is an example of continuous resource allocation.

Resource Allocation at Different Levels: Corporate Level and Business Level

Resources planning and allocation occurs at two levels in the organization—first at the corporate level, and second the business level. Resource planning and allocation at the corporate level considers how resources should be allocated between the various divisions, department or business or functions.


At the business level, resource planning and allocation deals with the issues of how resources should be deployed within any one part of the organization so that it best supports the strategies implemented.

In other words, it concerns with the operational aspects of resource planning and the detailed assessment of strategic capability.

1. Resource Allocation at Corporate Level:

Resource planning and allocation at the corporate level relates to the allocation of resources among business functions, operating divisions, geographical areas or service departments and how these parts contribute to the overall strategies. Portfolio analysis and the balance of an organization’s resources are of support in this regard. In large multi-business corporations the allocation process and issues of balance could comprise several stages of resource allocation.

The larger issues of resource allocation to support the implementation of strategies relate to two approaches that can be explained in terms of perceived need for change and the extent of central direction. These issues determine the approach to allocation.

The perception of the degree of change required in the resource base relate to the extent to which the aggregate level of resources might need to change for the success of the strategic change.

The second approach considers the extent to which the corporate level issues detailed directions for the allocation of resources. Alternatively, the resources are allocated according to the plans and needs of the various units of the organization. This depends upon the organization structure and the level where decisions are made.


Generally, three situations occur in the allocation of resources:

1. Few changes in the overall resources base.

2. Growth in the overall resource base, and

3. Decline in overall resource base

In case strategic development requires few changes in the overall resource base, the managers in organization manage resource allocation accordingly. In such a situation resource allocation is made either according to a formula where central direction is high or free bargaining that characterize decentralization.

These methods are considered to be too right that create obstacles in the way of incremental alternations in strategies important to the organization’s development. Many organizations use a combination of formula and bargaining methods. For example, a company’s advertising budget might be 5 percent of sales.


Then there will be some scope for bargaining. The formula approach is criticized for usual disagreements about the validity or fairness of the formula. The attempts to amend or refine the formula may make it more complex by adding additional factors such as weighting. It is also said that this type of formula is arbitrary.

Zero-based budgeting to some extent help to put some check on this process and relate allocations to needs of the business or division or unit marginal shifts in resources. However, some degree of discretion about resource allocation by a department or division itself within its global sum is needed.

The perception of the degree of change determines approaches to resource allocation. The defender organization is more likely to use the formula approach as it tries to minimize the change the organization experiences in seeking out strategic developments that require few changes in resource allocation.

On the other hand, the prospector organizations are more likely to operate closer to the free bargaining approach. Such organizations look for new opportunities by a resource allocation regime that discourages the status quo.

Allocations during Growth:

Strategists may use different approaches to resource allocation in organization implementing strategic changes that require significant changes in resource base. During growth new resources are allocated selectively across the organization and no area suffers a reduction in resources.


Here again two approaches are followed:

1. Priority determination, and

2. Open competition

While adopting the first approach, the corporate level determines the priority areas and imposes the resource allocation. The second approach envisages the center to allocate resources through a process of open competition operating an internal investment bank from which divisions or departments can bid for additional resources.

Most organizations during growth follow constrained bidding a mid-path where departments/divisions of the organization can bid for additional resources but within defined criteria and constraints.

Allocation of Resources in Static or Declining Situations:


Declining situations will necessitate some areas to reduce in absolute terms, to maintain other areas and/or to support new developments.

The management may adopt the following approaches to allocate the resources:

(a) Center may impose reallocation for example, plant closures.

(b) The reallocation is done in an openly competitive way

Earmarking a proportion of the total organizational resources for reallocation to new ventures and diverting resources from one area to another achieve

(c) Constrained bidding.


The difficulties in reallocating resources could be solved in the following ways:

1. By amalgamating related areas or activities,

2. Creation of new units outside the normal structure,

3. By closing down one part of the organization.

Allocating Shared Resources:

The issue of allocation of shared resources relates to the extent to which overlap, sharing or duplication of resources take place between the various parts of the organization. This issue is linked to the structure and systems of the organization.

The issues of sharing and overlap will partly determine the extent to which the corporate level is willing to decentralize the process of resources that require a high degree of coordination or cooperation between departments/divisions will need more central direction.

On the other hand strategies, that require largely independent divisions or subsidiaries, detailed direction from the center is not so important. Where sharing or overlap does exist, three ways can be adopted to allocate shared resources.

1. Indirectly by an overhead recovery charge from the center to the division

2. Directly by charging-out for services taken (either from central services or from other divisions

3. Directly by passing managerial responsibility to a designated division which then cross-charges other users.

The direct methods places in the same hand the accountability and responsibility for resource management, but create a new bureaucracy to administer the charging out system.

1. Internal services which can be delivered in a genuine supplier-customer relationship (e.g. computer services, personnel), for example through service- level agreements.

2. Major items of overhead where an incentive is needed to encourage divisions/ departments to think more strategically (e.g. floor space).

2. Resource Allocation at the Business Level:

The value chain is a means of analyzing the way in which an organization’s strategic capability can be understood. An organization must understand what particular value activities most contribute to the success of the strategies. For example, cost advantages or differentiation from competitors. The way in which linkages between the value activities is managed also determines an organization’s strategic capability.

When planning the implementation of new strategies the two issues are of central importance in the resource planning.

i. Planning must establish which value activities are of greatest importance to successful implementation of the selected strategies and ensure that these are planned with particular care.

ii. Planning must address resource requirements throughout the value chain, including linkages between value activities and with the value chains of suppliers, channels or customers.

Resource planning at the business level is essentially detailed, it is nonetheless important to understand how the detailed operational resource plans underpin the strategies of the organization.

It is, therefore, helpful to put the detailed plan in a strategic framework by ensuring that three central issues are considered:

1. Resource identification

2. Fit with existing resources

3. Fit between required resources

1. Resource Identification:

Resource identification addresses the question exactly what resources will a strategy require and how should these resources be configured? The resource to be effective requires that the planner clearly knows the detailed resource needs.

Both at individual and at a corporate level managers manage very much on the basis of their past experience. Therefore, it is likely that new strategies will be considered in the light of old expectations or existing bases of operating rather than in view of future requirements.

The resource requirements of specific strategies will essentially vary in detail. For example while a low-price strategy will emphasize cost-efficient plant and processes, simplicity of operating processes and low cost distribution systems; a strategy of differentiation requires different kinds of skills and resources with particular emphasis on strengths in marketing, research and creativity, product development and engineering. Therefore, there is a need to identify value activities that are critical to the success of particular strategies.

i. The effective planning of resource requirements of separate value activities and the matching between the management systems and the approach determine the competitive position of an organization.

The planning processes labor supervision not only emphasize the cost efficiency but also ensures that management systems support these plans and deliver cost efficiency. This is likely to involve tight cost control, detailed reporting, highly structured quantitative targets.

In contrast differentiation strategies are likely to involve ‘looser’ systems of reporting and control, but a strong emphasis on coordinating the separate value activities to ensure that they are genuinely adding value in the process of creating and delivering the product or service.

The planning of value activities and management systems support strategy implementation faces these problems:

a. New strategies may require organizations to shift their approach.

b. Pursuing a differentiation strategy does not absolve management from any need to plan cost efficiency

c. Diverse organizations are likely to position different products and businesses in different ways.

2. Fit with Existing Resources:

Another important issue in resource allocation is achieved the match between the existing resource configuration with the required resources. The organization must reconfigure the current resources that they support the new strategies and the new resources also fit with the existing resources.

For example, a company may decide to produce and market a new product range through a new division or even a new company to avoid problems of conflict or incompatibility with existing operations. So the planning and allocation of resource also lead to the structural considerations and issues of managing change.

3. Fit between Required Resources:

The way in which the linkages work between the value-activities including suppliers, channels and customers is an essential ingredient of successful strategies. There must be consistency in the way that the various value activities are planned in order to support the strategy.

4 Main Factors Affecting Resource Allocation – Organization’s Objectives, Preference of Dominant Strategists, Internal Politics, External Influence and More…

Resource association involves the commitment and distribution of resources between divisions, units, businesses and departments. Since resources are generally scarce, the process of resource allocation is quite complex.

The factors that affect resource allocation are discussed as follows:

1. Organization’s Objectives:

It requires allocation of various types of resources. The priority of tasks is judged by the amount of resources allocated to them. Thus, the top management should ensure that the high-priority work should be given more resources so that it is achieved in a stipulated time and cost.

For instance, the top management announces that the priority objective for market research department is to research the consumers’ buying pattern for a particular product through survey, which involves filling up the questionnaire by customers and telephonic interviews with customers.

However, if an organization fails to provide the resources for the research process, it cannot be considered as the priority objective. Therefore, the resource allocation should be according to the priorities of objectives.

2. Preference of Dominant Strategists:

It affects the process of resource allocation. The strategists having high authority dominate the decisions regarding resource allocation. The departmental heads try to attract the resources to their respective departments by creating interest in the dominant strategists.

3. Internal Politics:

It influences the distribution of resources within an organization. Internal politics leads to securing greater resources by the influential heads/departments of the organization. These heads or departments are considered to be more effective.

4. External Influence:

It includes the influences of government, financial institutions, shareholders, and public. Government laws related to labor or pollution may require additional investment by organizations to implement related measures. Similarly, financial institutions may impose high interest rates on loans, which may affect the budget of the organization.

Thus, it can be said that if there are no clear strategies, the process of resource allocation could be distorted. Every organization should ensure that the resources are in balance with the stated objectives.

In addition to these factors, there are various difficulties that are faced during allocation of resources, which are as follows:

i. Scarcity of Resources – It implies that there is a lack of financial, human, and technological resources. The major problem faced by organizations is to make a choice out of scarce resources. Thus, scarcity leads to a problem of choice.

ii. Overstatement of Resource Needs – It takes place in case of bottom up approach. The departments with more authoritative employees may ask for more resources than they need, which may hamper the budget and strategic planning process.

iii. Tendency to Imitate the Competitors – It leads to lower capability to develop competitive advantage. Sometimes, organizations imitate the resource allocation pattern of its competitors even if different strategies are followed by the competitors.

Resource Allocation of an Organization – Explained! (Point-Wise)

The main responsibility of the top management is to allocate resources to each functional area of management to ensure that the plan, policy, strategy, and procedure are implemented effectively. An organization must continuously monitor the resources to avoid any kind of redundancy and scarcity.

Following points explain resources allocation of an organization:

i. Time:

It refers to the most important aspect, which should be distributed properly to avoid any delay in deadlines. Managers should guide their respective team members about how to plan the time allotted and how to utilize the time provided judiciously. They should overview the progress made within a specified time and provide with appropriate feedback along with the required time management skills. For example, providing a planner to team members and ensuring that the team members work as per the planned schedule.

ii. Finance:

It defines the budgets for each department of an organization. Managers should plan and work on the finances along with the top management. Proper planning is required at the time of budget allocation to ensure the adequate allocation of finances in all the departments. After the respective departments receive the allocated budgets, proper actions should be planned and implemented to ensure that wise investments are made, which would result in profits for the organization.

iii. Support System:

It implies the potential support required by any department of the organization to perform its work effectively. The support can be in the terms of IT, personnel, and training.

iv. Equipment:

It implies materials and machinery required at any level of functional area to maintain the flow of work in an organization.

The resource allocation is done by the process called budgeting, which helps in matching the resource availability with the resource needs to plan the total expenditure. Resource allocation through budgeting involves three approaches.

Top 6 Means of Resource Allocation

1. BCG-Based Budgeting:

The BCG matrix can also be used for resources allocation. In a BCG matrix, SBUs or products are identified as ‘stars’, ‘question marks’, ‘cash cows’ and ‘dogs’. Investment and cash flow decisions can be made on the basis of the type of SBU. For instance, resources can be diverted from a ‘cash cow’ to a ‘questions mark’ or a ‘star’. The BCG matrix, can, therefore, play a useful role in a multi-SBU-division or department company where resources have to be allocated.

2. Strategic Budgeting:

Budgeting is a common technique used as a planning coordination, and control device in management. Its use is widespread in organisations. The topic of budgeting is covered exhaustively in texts in the area of financial management. But apart from traditional budgeting where stress is on accounting, a budget increasingly being used as a dynamic management tool.

The difference lies in the way budgeting exercise is carried out in an iterative manner between different managerial levels and the assumptions made before the formulation of budgets. Position papers on different aspects such as environment, distinctive competence, marketing, past performance, etc., are prepared and presented to the top management which uses them in formulating corporate policy guidelines and stating long-and short-term goals.

The operating management meanwhile prepares operational plans and sets targets which are coordinated with the corporate objectives through the executive management. Based on resources availability and corporation guidelines the strategies budget is prepared by the executive-level committee and presented to the top management for approval and sanctions. The strategic budget then communicated down the line and the tasks of implementation taken up.

Strategic budgeting is an iterative process involving a multi-level, organisation-wide effort and, therefore, needs to carry the approval of all concerned. More importantly, it takes into account strategic factors such as environmental changes and their likely impact on the implementation of strategies, and the corporate distinctive competencies and their probable effect on the objective achieving capability of the organisation. This is the reasons why it is termed as a strategic budget. Besides, this type of budgeting, there are also other means of resource allocation.

3. Zero-Based Budgeting:

Zero-based budgeting is an operation planning and budgeting process that requires each strategist to justify resource allocation demand not on the basis of previous years’ budget but on “ground zero”, which is based on a fresh calculation of costs each time a plan is to be implemented. The strategic plan is divided into operational plans, goals and activities, and resource requirements are calculated every time a budget is prepared. ZBB can be used for effective resource allocation among competing units on the basis of strategic priorities since costs are related to benefits for each strategic task undertaken.

4. PLC-Based Budgeting:

Resources allocation could be linked to the different stages in a product’s (or SBU’s) lie cycle. A product in the introduction and growth stages may attract more resources and these resources may be diverted from the high-profit yielding products that have reached the maturity stage of their life cycle.

5. Capital Budgeting:

Resources allocation for new projects or products could be done on the basis of capital budgeting. Existing projects, in cases of restructuring and modernisation, could also use capital budgeting for resources allocation.

6. Parta System:

The parta sysem is an indigenous form of control device used for exercising management control. Though essentially, parta is a control tool used for the daily assessment of net cash inflow from operations before tax and dividends, the budgeted parta is a pre-determined amount agreed upon between the chairperson of the company and the business unit in charge. The total parta system is a daily budgeting and reporting system.

3 Broad Approaches to Resource Allocation

The experts think of three broad approaches to sound resource allocation:

1. Using analytical conceptual models used for strategic choice.

2. Product life cycle system of budgeting and

3. Strategic budgeting.

1. Use of Analytical Conceptual Models:

These are- growth share matrix, stop-light and directional policy matrix models are widely used for resource allocation especially in case of multi- SBUs firms.

The rationale behind resource allocation is governed by the factors of competitive capabilities, market share, business strengths on one hand and growth prospects and industry attractiveness of business segments on the other.

2. Product Life System of Budgeting:

This approach suggests that resource allocation is expected to match the stages in the life cycle of a product. The resource requirement vary with each stage of product life cycle as these stages have their own characteristics and implications.

For instance, when the firm wants to go in for retrenchment strategy in case of a product division, one might think of “Zero based” budgeting that means that resource allocation should depend on budget requests are justified right from its scratch where previous year reference will not come at all. The other ways are traditional capital budgeting and performance budgeting.

Let us touch these in brief for better understanding:

i. Capital Budgeting:

Capital budgeting is the planning of development of financial resources of an organisation with a view to maximise long-term profitability or profitability of the firm. Capital budgeting is the process of making investment decisions in expenses of capital nature. A capital expenditure is an expenditure the benefits of which are expected to be revived over a period of more than a year.

In other words, capital expenditure is incurred for acquiring or improving the fixed assets, the benefits of which are expected to accrue over a long-term period. Capital expenditure involves non-flexible long-term commitment of funds.

According to G.C. Philippatos, “Capital budgeting is concerned with the allocation of the firm’s scarce financial resources among the available market opportunities. The consideration of investment opportunities involves the comparison of the expected future streams of earnings from a project with immediate and subsequent streams of-earning from a project, with the immediate and subsequent streams of expenditures for it.”

In the words of Mr. Richard and Greenlaw- “Capital budgeting is acquiring inputs with long-term return.” Mr. Lynch says “Capital budgeting consists of planning development of available capital for the purpose of maximising the long-term profitability of the concern.” To borrow the words of Professor Charles T. Horngreen, “capital budgeting is the long-term planning for making and financing proposed capital outlays.”

The process of capital budgeting has some logical steps that are followed to arrive at capital expenditure decision. These sequential steps are- (a) Identification of investment proposals. (b) Screening the proposals. (c) Evaluating the alternative proposals. (d) Arriving at priorities (e) Final approval and preparation of capital expenditure budget. (f) Implementing the proposal and (g) Review of Actual performance.

The methods used for evaluating invest proposals are—both traditional and modern. The traditional methods include- (a) Pay back method (b) Improved pay-back period method (c) Accounting rate of return method.

The modern methods or ‘time adjusted’ methods are- (a) Net present value method (b) Internal rate of return method (c) Profitability index method.

ii. Performance Budgeting:

The performance budgeting is one that enables a judicious use of resources, creates a healthy competition between the internal divisions and departments and helps in evaluating the adequacy or otherwise of the existing policies and procedures. In other words, performance budgeting is an input-output or cost-result budgeting.

Performance budgeting lays more stress on non- financial measurement of performance that can be related to financial measurement in explaining changes and deviations from the planned programmed performance.

Historical comparisons of non-pecuniary measurements of an activity are of much help in justifying budget proposals and in showing how resources are being used. These measurements are the base for evaluating past performance and planning the future course of action.

iii. Zero-Based Budgeting:

Very popularly known as ZBB, it is a very simple and fine device for planning and controlling the expenditure of an organisation. ZBB is a system whereby each governmental program, regardless of whether it is a new one or the existing one, must be justified in its entirely each time a budget is being formulated.

Thus, the budget so formulated makes no reference or justification to the level of previous appropriation. In other words, ZBB is not based on the past budget or budgets.

Under ZBB concept, budgets are prepared from Scratch or zero level notwithstanding the historical background of expenditure. The rationale behind this technique is to divide the enterprise programs into “packages” composed of goals, activities and needed resources and then to calculate costs for each package right from the bottom.

By Starting the budget of each package from zero base, costs are calculated afresh for each budget period, thus avoiding the common tendency of considering only changes from the past period.

This novel concept was introduced by the then president of America Mr. Jimmy Carter, in 1976 in the administration of White House. However, it was introduced at Texas Instruments in the USA in 1969 by Mr. Peter Pyrth who is considered to be the father of ZBB.

It is a technique generally applicable to support or service areas rather than actual production areas-like marketing, research and development, personnel and finance. Different alternative programmes are costed and reviewed individually in terms of their benefits to the enterprise. They are ranked in accordance with those benefits and selected on the basis of which package yields the desired benefit or benefits.

ZBB is a total departure from traditional mode of budgeting as it starts each year a fresh; The whole exercise critically examines each project independently and deals with all the aspects of fresh budget preparation and not just increment or changes over the past period. It provides, as such a wide range of choice to the management for setting financial priorities.

3. Strategic Budgeting:

This is the third and the more comprehensive approach to strategic management decisions where resources are allocated in the light of chosen strategy. As a tool of resource allocation among the different SBUs and the units of an organisation, Strategic budgeting is much newer concept. Under this strategic budgeting process, two questions need to be answered while determining the resource needs of an organisation or an organisation unit.

These are- one is fundamental that is to do with the exact nature of performance and results which are expected to be produced. Second one is collateral that is to do with determining the exact Key activities, organisational units, tasks, and jobs are needed to be set up and organised to produce the expected results. To achieve these, two steps are involved in strategic budgeting namely, preparing position papers and finally preparing the budget.

i. Preparing the Position Papers:

Strategic Budgeting is a comprehensive approach- It involves two steps- Preparing the Position Papers, Preparing actual budget.

The position papers prepared in right perspective will prepare the necessary spade-work that helps in preparing strategic budget. These positions papers are related with environment, organisational constraints and resources, past performance and the future direction of activities. It pays to know these in brief.

a. Position Paper on Environment:

Organisation is a sub-system of a supra-system namely environment. Environment is made up of economic, regulatory, political, technological, ecological, marketing and competitive forces. This paper covers the possible trends of each force as to how it is likely to affect individually and all forces in together collectively.

It also makes clear as to what presumptions or postulates are made while arriving at the nature and extent of trend. This facilitates designing of annual plain which relates organisation with environment. That is, a perfect relation is developed between strategic plan and the annual plan.

b. Position Paper on Constraints and Resources:

This paper highlights the position regard both physical and human resource as to what extent they are available. It also pin points the possible constraints that the organisation is facing and will be facing. It is important that these two things are known exactly to match the strategy and the resource constraints.

c. Position Paper on Past Performance:

Future has its roots in the past. Hence this position paper gives clear cut picture about the past performance in quantified form. The total performance is broken into number of SBUs or responsibility centres.

Again each SBU or responsibility centre is divided into final stage of branching out. This helps in perfectly coordinating and aligning the resource allocation among the SBUs or products or markets.

d. Position Paper on Future Direction of Activities:

This paper lays down clearly both short-term and long-term targets. These targets are to start with for different SBUs and responsibility centres finally culminating into organisational targets.

These targets are set after taking into account the factors involved in papers on environment, resource constraints and the past performance. This paper suggests the policies and tactics to be followed to achieve the desired results.

These papers are either prepared by the planning division or the respective executives in charge of SBUs or responsibility centres. This exercise starts at operational level and then at functional level and finally at corporate level.

Once, the green signal is given by the top level authorities, the Planning Division or respective executives in charge of SBUs or responsibility centres are empowered to go ahead with preparation of actual strategic plans.

ii. Preparing the Budget:

The final strategic budget is prepared via the interaction between the corporate and SBU levels in the back-drop of the four papers prepared.

The process of preparing strategic budget configures as under:

Actual budget preparation starts when the managers in-charge of SBUs are communicated about the likely course of future action in the back-drop of the papers on position of environment, organisational resources and constraints and the past performance.

It pays to initiate budget preparation—from the bottom. Preparation of budget is not an exercise of taking part figures and updating them with some additions and subtractions.

Each and every one down the line is expected to have resource allocations with detailed tasks and activities, SBU wise that will contribute to the attainment of organisational objectives. These operational level and functional level resource allocations are integrated into a master allocation plan for the entire organisation.

Master budget is the blueprint that high-lights the allocation of different resources according to the requirements and significance of different functions products or businesses because the budget intake at each level is based on chosen strategy of the organisation. Such an integrated master budget leads to better utilisation of organisational resources finally reflecting in the achievement so aspired or plotted.

3 Major Problems Encountered in Resource Allocation

The strategists are to be well aware of the specific problems that crop up in the area of resource allocation. These problems arise because, the resources are limited, there is a clamor for getting much larger share than others in this limited supply and there are commitments of the past on the past of organisation. This makes the resource allocation as not optimal but sub-normal.

The problems that crop up are:

1. Power Play to Get More Powerful:

In an organisation, each and every unit tries to have the larger share of the resources that are at the command of the organisation. The unit feels stronger than others if it has more resources as compared to other rival internal units. Added to this what each unit does is that it wants to have more flexibility in its operations so that it becomes a shield to hide its inefficiency.

This is possible by snatching away more resources. This dirty power politics between the interdependent departments is due to lack of clear objective priority setting. This problem can be done away with by asking what contribution each unit makes and based on its quantum and quality of contribution, the resources can be optimally allocated and used.

2. Commitments of the Past:

Past Commitments on the part of organisation with regards to resources that acts as a hurdle in the optimal resource allocation, unless it is not sorted out and dismissed. Some attempts are made through ZBB and strategic budgeting, it is not that easy through these techniques, the resources can be moved from those units that they do not need to the units that they are badly in need.

It is because, the managers, in-charge of those departments where the resources are excess or not used properly, oppose such transfer in the same organisation as they feel that they are forced up on or neglected. It is only the sound communication and the motivation that reduces such resistance.

3. Organisational Resistance to Change:

Because of false ideology, the organisation may turn resistant to change even though it is a loser under changing circumstances. On many occasions, the organisation place best managers to manage a product that is fast declining because of false prestige and sentimental ways of approach.

It is like pouring more and more water and manures to ‘bonsai’ and waiting to see whether the plant grows faster. Sometimes, some organisations want to capitalise on the past glory and get hold over larger resources even though other areas are much more profitable now than in the past.

The solution lies in developing a sense of smelling the change and acting accordingly. It is the change of attitude that makes the difference where the resources need not be under utilised.