Allocating funds and resources to various spheres of the organisation is an essential task taken up by HR managers. However, it is also quite difficult, considering the vastness of the organisation, and the number of projects it has taken. Therefore, the HRs must be vigilant in budget planning and allocating funds to ensure that work is done within the time and the budget decided by the organisation.
In this article, we will understand everything about HR resource allocation, and how HR can conduct an efficient and optimal allocation of funds based on the organisational budget.
What is Resource Allocation in HR?
Resource allocation or scheduling is the process where HR allocates resources to projects, tasks and other financial costs. It involves understanding your resource availability and budget and scheduling them to adhere to the project guidelines. Resource or fund allocation can be done for the project and non-project activities, including administration, support, operations, extensive equipment, etc. When the project incurs changes, the allocation of funds must also alter to accommodate these changes.
Resource or fund allocation is the process that occurs in the planning stage of any project or is mentioned in the annual budget. With a proper allocation of budget, the costs and expenditures stay down while the productivity and morale of the team stay high. Also, the best outcome is achieved, which helps the organisation procure client satisfaction.
Developing an HR Budget
Budgeting is a critical resource planning activity that involves the collection and structurisation of information and data so that the organisation’s finances can be projected. It begins with identifying the annual goals and objectives of the organisation. Initially, the budget for each department is set for current activities and later is concluded in the comprehensive budget of the firm. An HR budget can also be created with the help of an HR management software. The two most widely used budgeting methods include-
The budgeting process starts with the collection of data by HR, which includes-
After analysing the essential reports and the data acquired from multiple sources using HRMS software, HR has to consider the expenses and the tasks on which the costs occur. These include the following costs-
Selection and Placement Costs- which include-
Training Costs- which include-
Compensation and Benefits costs- that include-
Health, Safety and Security costs- which include-
Other expenses- which may include-
It is after considering all these costs and expenditures that an optimal budget can be prepared. Also, a planned budget makes it easy for HRs to allocate funds and resources to different departments and their tasks. This way, HR can take up all the essential activities within the organisation’s budget.
Importance of Optimal Allocation For HR
Having a somewhat fixed budget and availability and designation of resources for all the departments is necessary for the smooth functioning of an organisation. Here are a few reasons why optimal allocation of funds is necessary for an HR-
The primary goal of creating a budget and allocating resources and funds according to it is to ensure that the organisation has enough resources to meet each of its goals. Also, HRs can fixate a budget for each department, project, or task, such as payroll etc to ensure that they have sufficient funds. Along with this, HRs maintain a surplus budget, which is utilised for emergency or unforeseen expenditures. Thus, having a budget and allocating it optimally ensures that the organisation experiences financial stability with planned spending.
The budgeting process involves determining the prospective revenue for achieving the company goals. Thus, you can use budgeting to set organisational goals and align with them. When you create achievable goals, set your budget, and allocate funds accordingly, you can track the success of the goals at each stage. You can attain the financial goals and update the employees and the management on their progress. Tracking progress helps you stay in alignment for the current year, and plan growth and budget for the next year.
With documented budgetary information, you can attract outside investors. This is highly beneficial for startups, who run their businesses on a small scale and wish to expand. With a proper budget for the present and the previous periods, showing actual income and costs for employers, you can show the investor your capability to handle the finances of the business and allocate funds adequately. Also, some investors are ready to invest, considering your predicted performance and priorities.
With the help of a streamlined budget, you can set priorities in terms of your projects and tasks. You can identify the return on investment for each project, and give more significance to the more profitable ones. You can understand how they align with your company’s values and in what ways they can impact broader financial goals.
This way, you can highlight the value proposition of projects for your business, and consequently prioritise tasks and larger initiatives.
There are multiple other benefits of optimal allocation of funds for the projects, which include-
With a proper budget and optimal allocation and utilisation of funds, the managers and HRs can run the business with precision and efficiency and launch recognition programs for the employees.
This keeps the managers and the employees happy and satisfied with the workflow and reduces employee turnover rates. They do not have to ask for funds separately to conduct expense reimbursements for each project and can work within the budget of the organisation, which creates a fruitful revenue system for the company’s long-term growth.
How Can an HR Conduct Optimal Fund Allocation?
From the previous section, we can conclude that the optimal allocation of funds is an essential task. The entire process is often taken up by HR for the enhancement of the company’s operations and finances and thus is a part of effective HR management. But how does optimal fund allocation take place? Let us read about it.
The first step to creating a budgeting strategy and allocating a budget is identifying the needs of each budget. For this, you must understand the scope of each project first. You should consider the mandatory tasks of the organisation, such as the costs of hire, staff salary, inventory, supplies, expenses of recruitment, costs of items, etc.
Also, you must forecast the expenditure to be made on the projects and tasks taken up by the company. Accordingly, you can set a limit to the fund requirements of each department, project, development program, or task This helps you allocate appropriate funds accordingly. This eliminates the scope of shortage and surplus of funds.
To set a human resources budget, the organisations must first determine the sources of revenue. Therefore, you should begin by calculating the average revenue from the past few years, the amount to be received from the investor, the company partner or any other source. If you have enough resources and surplus income, you can enlarge the budget of specific departments of projects. However, if the revenue sources are crunched, you will have to cut down on certain non-mandatory expenditures.
For optimal funds allocation, you must stick to the budget you have created out of research and estimates. If you go out of the budget, it is possible that you might end up conducting irregular fund allocation. This is bad for the financial health of the organisation. You must carefully calculate the funds using certain metrics, and previous to ensure you are on the right track.
The HR and the finance teams must regularly monitor the budget. This ensures that the finances are being utilised adequately and the spendings are justifiable. This will also promote accountability, and the departments and the employees will make judicious use of the budget provided to them.
While humans can make errors, the use of tools can eliminate or reduce the scope of errors. Therefore, even experienced HR leaders must use tools for the proper allocation and regulation of funds. With the help of tools such as attendance management systems, online payroll software, mobile HRMS etc, you can get data regarding the expenses of each task. You can also track the money spent on each project. Accordingly, you can decide to increase or decrease the funds allotted to that project, or alter your next budget.
Mostly due to poor planning or the inability to refuse, HRs often over-allocate the budget. This makes them incapable of finishing the project on time and within the budget. Therefore, you should never over-allocate resources and funds to a single project, task, or department. Your decisions should be wholly data-driven and not biassed.
Analysing, planning, implementing, and monitoring are the four most important steps in allocating funds for any organisation and its HR. The HR must carefully plan and effectively implement the budget of the organisation, to bring continued growth and success to the organisation. It helps generate the best outcomes from the resources and the funds and ensures the fulfilment of organisational goals.
1. How is the HR budget allocated?
After understanding the business goals and the requirements of each department or project, HR allocates the budget.
2. What amounts to a typical HR budget?
A typical HR budget used for all HR activities is somewhere between 2% to 4% of the total revenue.
3. How can you optimise budget allocation by HR?
By prioritizing tasks and proper planning and implementation, you can optimise budget allocation.
4. How can HR planning be affected by its budget?
With an adequate budget, the HRs can prevent over-hiring and understaffing.