What is resource allocation? Why it’s important and best practices for maximizing efficiency

In this article, we’ll answer the question "What is resource allocation?", explore the impact efficient resource allocation can have on your firm (and what could happen if it’s inefficient), discuss some of the challenging factors that influence resource allocation, and reveal the best practices for maximizing resource allocation efficiency in your business and overall project management process.

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What is resource allocation? 

Resource allocation is the process of identifying, managing and scheduling resources (be they internal or external) to projects in order to deliver on your client’s and your firm’s objectives and strategies.  

It’s all about matching the right resource to the right project based on their specific goals and requirements, ensuring resources are utilized efficiently to maximize productivity and achieve desired outcomes. 

Resource allocation is a fundamental element of project management and resource planning. Effectively allocating resources is crucial for ensuring projects are delivered within a specific timeline and budget—as well as increasing client satisfaction, boosting employee engagement, and keeping a close control of your greatest asset: your people. 

The resource allocation process often starts long before your project does, and can often make or break a project, impacting its quality, speed of delivery, and profitability, with spiralling effects on the satisfaction of both your own staff and your clients… so, it’s not really one to overlook! 

Why is resource allocation important? 

We’ve already touched on why resource allocation is so important in your resourcing strategy, but now we’ll go into more detail.  

Let’s take a look at some of the benefits of an effective resource allocation strategy (and the consequences of poor resource allocation). 

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Maximizes productivity 

First and foremost, effective resource allocation is one of the best ways to increase productivity and efficiency within your project team. Project managers can maximize their firm’s resource utilization by matching the specific needs of each project to resources based on availability and skills, getting staff ‘off the bench’ and minimizing non-billable time. 

Ensures profitable delivery 

With fixed fee projects, where a scope and price is agreed on day one, resource allocation plays a crucial role in ensuring resources are allocated to projects in such a way as to ensure profitable delivery.  

Resource allocation decisions should be taken in the context of the overall budget agreed on the project, how the project is tracking against that budget (‘actuals’ from timesheet data) and the varying costs of different resource grades that could be used. 

When resource allocation decisions are made with budget and cost considerations factored in, asking questions like “Can this be delivered with a lower cost resource?”, there’s a much higher chance of profitable delivery. 

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Increases client satisfaction 

If resources aren’t allocated appropriately, multiple projects may experience bottlenecks and shortages which can delay completion and ultimately the overall project delivery timeline. 

When you effectively allocate resources, project managers can ensure projects are adequately staffed and managed, which means projects and services are much more likely to be delivered in a timely, efficient manner. Projects delivered on (or even ahead of) time = happy clients. 

Additionally, when people with the right set of skills, capabilities and knowledge are matched to the right projects, the quality of the work produced is likely to be high. When your clients receive high-quality deliverables, they’ll be left feeling satisfied—and one step closer to becoming a repeat client for you. 

Boosts employee morale & engagement 

Poor resource allocation can lead to either overutilization or underutilization of your resources. When your people are overutilized, they’re much more likely to experience burnout. This can lead to poor performance and even poor retention.  

On the other side of the coin is underutilization, and this can also have negative effects on your people, not just your profitability. Without enough satisfying work that utilizes their skills and specialisms, underutilized people may feel unappreciated and unmotivated.  

When you allocate resources effectively, you massively reduce these risks, minimizing the possibility of overloading or neglecting your staff. 

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Factors that affect resource allocation 

There are a number of factors that can affect the resource allocation process; it’s therefore important to consider some of the factors that will impact your efforts, as well as the potential challenges these may present. 

Project requirements and timelines 

If the requirements of the project scope are unclear or constantly changing, then it’s going to be difficult to accurately allocate the most suitable resources. This lack of clarity can lead to misalignment and inefficiencies, which can in turn lead to significant delivery delays, knocking project timelines off-course.  

Strategic goals and priorities 

When you have multiple projects running concurrently, a conflict of priorities can arise. Project managers must be able to carefully balance overlapping project timelines, priorities and resource demands, minimizing conflict and ensuring optimal utilization. 

Resource availability 

When demand for a certain role or skill rises and demand exceeds capacity, project managers must be able to decide how to most effectively allocate their available resources. If specific expertise is required for a particular project, yet this is in short supply, then this may lead to delays or compromises in project delivery—or the need to leverage external resource. 

Future pipeline 

When you have a really strong pipeline of work coming through, your resource allocation decisions need to solve for today and tomorrow. It’s common practice to reserve or ‘soft book’ resources to future projects, even if they aren’t due to start for a few weeks or months, to build up a more holistic resource picture and potentially factor into any future hiring. 

Best practices for effective resource allocation 

Now that we understand what exactly resource allocation is, what advantages it offers, and the challenges that may be faced during the process, let’s take a look at some of the steps you can take to maximize efficiency in your resource allocation strategy. 

1) Assess your current resource allocation practices 

A good place to start is by evaluating the existing resource allocation practices used within your business. Is a holistic approach taken, taking into account all projects? Do certain partners circumvent the resource allocation to process to ‘reserve’ favorite staff? Are both live and pipeline projects factored into how you resource? These are all important questions for project managers to consider before beginning to allocate resources.

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2) Define clear goals and priorities 

Once you’ve identified the areas in which you can improve resource allocation efficiency, you can begin to establish clear objectives that will help you achieve this. Consider the specific outcomes you want to achieve, such as better utilization rate or aligning staff to projects based on their own interests and development areas, and use this as a framework for future resource allocation efforts. 

3) Analyze resource needs and priorities 

Now that you know what needs to improve, you need to know which resources will fulfil your objectives by analyzing the project scope. By routinely building out a detailed plan for each project in regular resourcing meetings, factoring in the timelines, stages, tasks and skills needed, an accurate view of resource demand will be created, and comparing this to your current availability of resources, you’ll be able to accurately determine resource allocation priorities.  

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4) Leverage resource management software 

Getting all of your resource-related information in one centralized location is one of the most effective ways to improve coordination and efficiency when allocating resources, and resource management software is the best way to achieve this. 

Resource management and resource planning tools will give your firm invaluable visibility and transparency over your resources, with live data giving you the insights and future visibility you need to make the right calls. It’s particularly valuable when project management is tied into resourcing, giving you and your project team the full scope. 

Functionality like resource utilization reporting, resource allocation tools, and skills & competencies tracking will give you and your project team everything you need to match the right people to the right projects, maintain a clear view of resource capacity vs demand, and ultimately achieve your broader business objectives (utilization, development of staff, work life balance etc). 

Centralized, all-in-one systems like PSA (professional services automation) software integrate resource management, project management, capacity planning tools, CRM, BI and more which will help you streamline your resource allocation efforts and make data-driven decisions that improve productivity, efficiency and profitability across all areas of the business. 

Robust tools like PSAs have shown to generate 7% higher resource utilization than spreadsheets, so it's no wonder more and more firms are choosing PSA software to grow their businesses.

5) Promote communication and collaboration 

To get a good understanding of your resource allocation priorities and capabilities, you’ll need to align your different teams and departments. Whilst a ‘bottom up’ project-by-project view is important, don’t forget the ‘top down’ perspective too – across project teams and departments. Encourage knowledge sharing, cross-functional discussions and feedback loops to help identify your resource needs across the whole firm and improve overall coordination and alignment.  

6) Monitor, optimize, review and adapt 

 If you’ve implemented some or all of the recommended practices above, you should start to see significant improvement in your resource allocation process. But don’t just sit back and watch—resource allocation is never “done”, as the combination of people, projects and pipeline is in a constant state of flux.

You’ll want to review any new strategies you implement and assess the impact they’ve made, and most importantly whether they’ve helped to achieve your desired outcomes. It’s a constant process of tweaking and refining your efforts, capturing lessons learned, and sharing this with the rest of your team. 

Conclusion 

Resource allocation first comes into play at the beginning of scoping a project, yet it can make a significant impact on project and business outcomes well beyond delivery. With effective resource allocation, you’ll see happier clients, happier staff, and higher profitability for your business. 

Resource allocation is something that needs to be constantly monitored and optimized to achieve optimal performance, so it’s important that you always keep your finger on the pulse. Make sure to give your entire organization visibility over your resources and project pipeline—especially when you’re rapidly growing and resource demand has the potential to outstrip resource capacity.  

When your resource management, project management, CRM and more are all available in one centralized location, you’ll have all the tools and data you need to start making the right calls—and seeing the right results.