July 10, 2016

More Resource Allocation Issues (and solutions)

As mentioned before, allocating resources is a difficult and important process every organisation has. I would like to mention a few more issues I have encountered:

Keeping habits: Humans practice habits. It can be very helpful, like waking up every day 6:00 a.m. sharp to start studying... but what if the habit isn't good and we just repeat it as an inherited custom. For example, allocating our resources on X or Y... maybe X and Y aren't profitable for the company but they are still there.

This happens often in companies. I had a few projects that to be honest although we weren't sure they still work we still did them because they were part of the Status Quo. To stop it, we need to acknowledge where are we putting the company's resources. A good proposal from Goedhart, Smit and Veldhuijzen (2013) is to track the resources of each year versus the last one in order to make comparisons. That way I will know if I have been just re-allocating the resources because tradition or because a more intelligent move.


Another important issue I have found is what I've already mentioned in a post... Individual Benefits. I liked much the unorthodox solution given by Lovallo and Sibony (2010). After analysing the proposals, give a pile of poker chips to each participant and ask them to bet on projects they deserve the funding. This is a fun way to concentrate the minds on the big picture and avoid the individual issues


The last issue I would like to mention is something that is difficult for most of us: Letting Go. It is in our nature to hold the things we possess. Just as it happens in private life, it does in the professional. It is very difficult to leave a business that has served well a company in the past. An approach recommended by Horn and Viguerie (2006) is to imagine the company isn't ours and ask whether the market fundamentals would make investments in each of them. That way it is probable to have a more honest view of the resource allocation.


These are some of the issues we can encounter when allocating resources. It is important to address them to improve the quality of the process.


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