Resource Allocation

Topics: Budget, Project management, Zero-based budgeting Pages: 13 (4175 words) Published: July 21, 2013
RESOURCE ALLOCATION
Resource allocation refers to the distribution of resources, and in particular finance, from the centre to peripheral levels. It generally concerns broad levels of aggregated financial resources. Budgeting implies the more detailed determination of precisely how these funds are to be used. Given the importance we have placed on planning as a process that leads to action, budgeting and resource allocation are major planning instruments. Basis for Resource Allocation

* Public goods and the rationale for public intervention. * Marginal utility and cost effectiveness.
* Allocative efficiency and cost benefit analysis.
* Citizens’ preferences and collective decision making. * Equity, incidence and targeting.

    WHAT IS A BUDGET?

A budget is an amount of money an organization plans to raise and spend for a set purpose over a given period of time. It is a chart of numbers representing the amount of income and costs allocated for the chosen activity.  

Budgets are usually prepared in advance of receipt of income and of expenditure on costs. There is an agreement between investor and implementer on the appropriate allocation of monies before implementation begins. To make this allocation more specific, expenditure is subdivided into separate "line items" of the budget, representing all the types of costs that are expected to be incurred in the chosen activity.  

Five budgeting methods

There are also five typical methods to budget a design project. The first four methods are most common, and the fifth reflects what happens typically. Consider using as many of the four budgeting methods as possible on every project.  At a minimum, use at least two methods. This creates “checks and balances”— the hidden pitfalls in each method are compensated for by the strengths of the others. 

1. Upward or zero-based budgeting – starts at the most detailed level and moves upward. The estimator typically uses the project plan task outline, estimates staff hours required to complete each task, estimates direct hourly labour rates and multiplies those estimates to calculate direct labour costs. Next, the estimator adds the overhead costs as a percentage of those direct labour costs, estimates other direct costs (such as airfare, printing, and sub consultants) for each task and adds appropriate contingency costs. Finally, the estimator adds the desired profit.Zero-Base BudgetsThe conventional budgeting process does have one major disadvantage. Managers tend to prepare new budget requests by adding an incremental amount to their previous year's budget requests, rather than re-evaluating the need for things already included.Zero-base budgeting (ZBB), in contrast, enables the organization to look at its activities and priorities a fresh. Zero-base budgeting assumes that the previous year's budget is not a valid base from which to work. It forces department managers to thoroughly examine their operations and justify their departments activities based on their direct to the achievement of organizational goals.The U.S. Department of Agriculture was the first to use zero-based budgeting in 1960s. ZBB was adopted by Texas Instruments in 1970 and by many government and business corporations during the 1970s and 1980s.The specific steps used in zero-based budgeting are as follows: 1. Break down each of an organization's activities into "decisions packages". The decision package includes written statements of the department's objectives, activities, costs, and benefits; alternative ways of achieving objectives; plus the consequences expected if the activity is not approved. Managers then assign a rank order to the activities in their department for the coming year. 2. Evaluate the various activities and rank them in of decreasing benefits to the organization. Rankings for all organizational activities are reviewed and selecting by top managers. 3. Allocate resources. Budget resources are distributed...


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