How Resource Allocation is Done in Organization?

Resource Allocation strategy:

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

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, 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 organization 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 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.

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