Economies of Resource Over Allocation
February 22, 2012 Leave a comment
Co-written by Dan Ahern
“I am not worried about the deficit. It is big enough to take care of itself.”
What the former President expressed in jest brings attention to a long-standing issue. We are decades past Regan’s time and you still cannot listen to news for long without hearing a story about the national deficit, the growing deficit, or reducing the deficit. You do not need an economics degree to understand that a deficit means that spending is in excess of what one has. In other words, the government is committing to do and spend more than it has the capacity to do. And no matter what side of the political spectrum you sit on, all can agree that a large deficit is a bad thing.
The same idea applies to the management of resources within a company, specifically its people. An organization uses a mix of employees and contractors to complete work to meet its commitments. That work may include both non-discretionary activities that support day-to-day operations and discretionary initiatives that should go through a demand management process to be vetted, estimated, and prioritized. Balancing the right amount of committed work to the supply of resources available is typically not a simple undertaking. The result of the allocation process can generally be described in two ways: a surplus or a deficit.
A surplus exists when there are more people available than the amount of committed work. In this scenario, the available resource capacity can be used to do “extra” projects or take on work not yet committed to by the team. A benefit of running a resource surplus is having resources available to react to shifts in the business strategy which may lead to unplanned initiatives.
A more common scenario is a resource deficit. This occurs when the work commitments exceed the available resource pool. We see this more often since today’s economy drives organizations to “do more with less.” The negative impacts of running a deficit for a long period of time can be significant and should be addressed. Here are a few of the negative impacts of resource over allocation and suggestions to mitigate them.
1. Need for supplemental contractors to cover deficit demand:
Impact–Using contractors as a way to resolve resource gaps in capacity and/or skill sets can be a good tactic when properly planned. But an ad-hoc response to sudden resource deficits can result in unnecessary contractor costs.
Mitigation–Get better visibility into your demand horizon. Understanding your specific resource needs in advance may allow time to develop internal resources and reduce the need for high cost, short-term contractors.
2. Inadequate time for process and tool improvements:
Impact–“You can’t put up smoke detectors if you’re always running around putting out fires.” Improving the efficiency of an organization is critical for its long-term success. By not investing in initiatives to improve efficiency, delivery organizations find themselves less able to deliver against increasingly challenging requests.
Mitigation–Build a business case for your internal process improvement initiatives and include them in the discretionary demand management process. Leadership must also understand the importance and prioritize initiatives that increase internal efficiencies.
3. Cost of poor quality/lack of customer confidence.
Impact–If resources are asked to produce more in less time, a common consequence is the reduction in quality. This affects the relationship with the customer, whether internal or external. Missing a customer’s expectations can affect their confidence and willingness to work with your organization in the future.
Mitigation–Invest in quality and execute a thorough quality control process. Quality should be allowed to be the fall guy of resource overallocation. The downstream financial costs of poor quality will far outweigh the time it takes to perform quality control.
4. Inadequate time spent on support activities
Impact–If too many discretionary initiatives have been committed to, a typical response is to reallocate time from non-discretionary activities. However, the loss of time committed to non-discretionary (e.g., Support) operations can cause slower processes, reduced service levels, and/or dissatisfied customers.
Mitigation–Track the effort required to adequately support to day-to-day operations of the business. Understand and commit to the staffing levels required to keep service levels where they are needed to maintain customer relations. Once the line has been drawn, it will be much more difficult to reallocate resources and let operations fall below expected levels.
The “costs” of resource overallocation may not always be easily discussed in dollars, but they are always real. And while Ronald Reagan was jokingly commenting about the country’s deficit, a company’s management team must take their resource deficit seriously. The cost of running a deficit while trying to “do more with less” is substantial enough that it will not take care of itself.
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