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 …show more content…
Contingency, direct expenses and overhead factors are then subtracted until you have the direct labour dollars to pay for the project team to do the actual work.
This is the critical point in the downward budgeting process. In this case, the dollars available for direct labour costs dictate the scope of work that can be performed. Too often, the tendency is for PMs to squeeze a scope of work, determined by their assessment of what the project requires, into a budget that has been determined by subtracting the non-direct labour costs from a client-imposed maximum fee.
Projects undertaken for fees based on this method require careful planning and control. The PM must understand that he or she is starting with an assumed fee, and it is critical that the scope of work be developed to match this fee — not the reverse.
The major advantage of downward budgeting is that it does establish a project budget that will meet all the firm's financial goals as long as the scope of work complies with the client’s requirements. In addition, it is based on the client’s fee requirements and should therefore meet those expectations.
The primary disadvantages of downward budgeting revolve around its tendency to not match the final budget and the scope that the project team believes is required.
Here are some things the PM can do to avoid these pitfalls: * Ensure a high degree of