08.27.07
Resource Allocation 101
This could easily become Basic Economics or Introduction To Organizational Management. However, each of those subjects is far greater than I can cover in a short little blog article. We will attempt to give a very basic idea of what and how. If you need more, contact your nearby community college or state university. In my area, that would be Victor Valley Community College or California State University, San Bernardino.
Resource Allocation
Limits On Resources
Even though it may sometimes seem as though there is no limit on resources, there is indeed a limit. Humans generally live into the area of seventy years of age. Some may live an extra fifty years, while some may die fifty years earlier than seventy. But the median in the United States is somewhere in the seventies. This serves as a hard limit. Everything you are going to do or say or think or experience has to occur before your life ends. After that, it is too late and you just miss out on whatever you have not experienced. Ignoring issues of eternity for the time being, this puts an upper cap on your life and the time resource that you can invest in any particular task.
There are other limits as well. If you desire to accomplish any particular task, assuming that you have the basic skills and abilities that are required, there are limits on the amount of time you can invest in achieving that goal. For example, if you are sleeping, you are probably not learning to speak Italian. If you are watching Numb3rs, you are probably not practicing to win the Tour de France. With only 24 hours in a day, how you choose to use your time weighs heavily on what you can accomplish.
Mozilla gets promotional funding from Google for Firefox. A good portion of Mozilla’s paid development effort therefore goes into the browser, despite the fact that Mozilla has several other worthy projects that also need resources. For example, the Thunderbird e-mail client, the Sunbird & Lightning calendaring solutions, the Camino Macintosh browser and the Minimo mobile browser. A recent discussion about resource allocation pointed out that T-bird has a better chance of getting resources allocated if it goes into its own organization.
The reasons are probably many, but the number of current and the number of potential users for T-bird in its current state is far smaller than the number of current and the number of potential users for Firefox.
Sometimes in larger companies, it seems like no idea goes unfunded. That is when a company winds up with dozens of completely unrelated divisions that the senior management cannot summarize into a comprehensive “this is what we do and why we do it” statement. In SLOBs (Small, Locally-Owned Businesses) and OMBs (Owner-Managed Businesses), there aren’t that many unneeded staff members or unused funds available for such empire-building.
In smaller businesses, as in Mozilla, we have to make choices as to what our limited resources will be spent upon.
It isn’t just in our business lives—we have to use the same principles in our personal and family lives, too. You can imagine my surprise when I get a call from home that starts this way: kid: “Can you send me $600? The camera that I want is on sale.” Now consider this in the context that I just bought a camera (a $99 digital snapshot camera with 4X zoom, the same model I bought myself, but still a camera). In all the years that digital cameras have been out, I just bought for the first time in June. Now in August, I’m being asked for double what I’ve spent on digital cameras in my lifetime for one camera!
Do I spend more on project A, which brings in most of my revenue and growth? Do I invest some funds in project B, which will bring in less revenue than project A for the foreseeable future? Do I invest in a project C, which will start out slowly, but is expected to grow rapidly?
If you have a product that suddenly takes off the way Twitter has, but which has no sustainable business model (yet), do you give it all the resources it wants and hope the revenue issue works itself out later?
The only way that makes sense is to evaluate each competing alternative use of your resources according to your estimate of the value of the expected return from investing in that alternative, with the variability of return factored in. This is freshman business administration, but it is something that even experienced managers may fail to do. In the corporate world, with all the back-stabbing that goes on, a manager may resort to patronage, rewarding those who support him and his projects and punishing the opposition. The business may have enough resources to survive such activities, whereas in a smaller business, mis-allocation may be the end of the company.
Begin by heading over to Amazon or Barnes & Noble to pick up a couple of business and economics books. You want to understand the practical and theoretical implications of resource allocation, you really do. This can be the difference between writing a book that tells how you made it and writing to your old friends from high school asking them to send you enough money so you don’t have to live in your car.
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