What is resource allocation in project management (and how to ace it)

For IT companies, resource allocation has a massive impact on their profit margins. Striking a balance between underutilization and overallocation of your employees is just one side of the coin. The other is being able to choose the best available resources for your projects and keep these projects profitable at the same time.

Arkadiusz Terpiłowski

Co-Founder

Resource Planning

04/05/2021

Table of content

Many COOs and resource planning managers use resource allocation to their advantage today. There's no reason why you should memorize which employee is assigned to which project (and hope that it all works out). No matter how big or small your company is.

This article explores all the essentials of resource allocation to help you understand what it's all about and how it helps others to run super-efficient software companies.

What does resource allocation mean?

Resource allocation means choosing the best resources for the job, assigning them to a project, and monitoring their work throughout its duration. 

By the best resources, I mean then people who have the right combination of skills and seniority level. And - naturally - who are available for the job. 

Sounds tricky, right? But all of these things are really easy to find if you have the right resource allocation tool at your disposal.

What are the objectives of resource allocation?

The main idea behind resource allocation is to increase the effective use of resources available at your company to maximize their utilization.

Different approaches to allocating resources can influence key company metrics like project profitability. That's because success in resource allocation directly translates to metrics such as employee utilization and capacity. 

Take Future Mind as an example. By implementing Primetric, the software company could allocate team members more easily thanks to smart filters. Finding a Senior Python developer with excellent English and analytical skills was a matter of a few clicks. This allowed Future Mind to reduce the bench time by smashing 3,500 billable hours per year (equaling $200k per year)!

What are the types of resources in project management?

  • Labor / People - this is your most important and costly resource: the team members who contribute to the project with their various skill sets.
  • Equipment and tools - this can be anything from software to a standing desk.
  • Facilities - this resource refers to the environment required to do the job (most of the time, it's office/meeting room space).
  • Materials - all the consumables your teams need to create outputs, from sticky notes to fuel that they need to travel to the customer's site.  
  • Budget - the actual money you need to purchase all of the resources I listed above.

What are the most important metrics for resource allocation?

  • Scheduled utilization - the utilization rate planned for employees to be realized during the project against their total capacity.
  • Tracked utilization - the actual utilization rate based on the working hours logged by employees.
  • Capacity - total employee capacity equals an employee’s total available working hours from which you subtract public holidays and the employee’s holiday or sick leaves.
  • Availability - the total amount of time that an employee is available to work.
  • Employee FTE - the number of hours a full-time employee spends working for your company.
  • Billable / non-billable hours (scheduled & tracked)

How bad allocation can hurt your software company

Software companies that fail to effectively use their precious resources are bound to experience several problems that have a negative impact on daily operations, financials, and even long-term development strategies.

Badly organized resource management carries risks like: 

  • Poor team performance
  • Reduced team morale
  • Waste of potential and skills
  • Unstable and inefficient work environment 
  • Unrealistic project estimation and planning (which might translate into low project profitability)

Benefits of smart resource allocation

1. Data transparency

Data about resource allocation is visible to the sales department, PM/delivery department, financial department or executives. They’re all on the same page - everyone knows what’s going on, who will be available soon, who is busy, who often has over time, and which vacancies are needed.


2. Reducing project costs

Resource allocation means finding the best-fit resource instead of a resource you just stumble upon randomly or see first. You get to pick a resource that matches the expected financial performance of the project, keeping its profit margin at the desired level. For software development companies, this is usually 30%.


3. Maximizing resource utilization

Assigning all the available resources randomly doesn't ensure profitability. Your best resources might end up working on non-billable or boring operational tasks. Resource allocation helps to identify the best opportunities, all the while helping you to avoid under or overallocation in advance. IT companies usually aim for 70-80% utilization.

4. Finding the right people for the job

By using a resource allocation tool like Primetric, you can capture all the resource-related information in real-time and consolidate these insights in a centralized panel. This ensures that you assign people to projects based on skills and experience - but also costs (measured in hourly rates) and other selection criteria. Thanks to real-time updates, you avoid discrepancies that might lead you to double booking resources.

5. Delivering projects within budget and on time

While underskilled resources may cause delays, overqualified team members are bound to increase costs and pose a risk to a project's profitability. Resource allocation in project management helps to avoid assigning under or over-skilled resources to projects.

6. Improving employee engagement

By assigning resources to projects based on their skills and interests, you build a productive environment that serves self-development and skill-building - not to mention keeping up with the latest technology trends. Give your talents the right opportunities, and you'll see them flourish (and delight your clients with their work).

7. Predicting vacancies

Another benefit is the ability to predict who you’ll need to hire in advance. This is especially valuable for IT companies that struggle with the lack of specialists on the market.

Common resource allocation challenges in software companies

Client changes 

In agile development projects, the team needs to be prepared to face constant changes clients might demand due to the evolution of the target market or customers. It's important to have a strategy for allocating over long-term and transforming these allocations into specific sprints to support agile projects.

Inability to predict resource availability 

This problem stems from a lack of proper resource allocation tooling. Today, using Excel spreadsheets isn't enough - even if you're running a small company. To make the most of your resources and control their utilization, you need to have visibility.

Keeping data in spreadsheets and disorganized will take a toll on your business sooner than later. Software for resource planning is the right solution to this lack of visibility because it takes into account the dynamic nature of software development projects.

Limited resources in a multi-project environment 

Resource allocation can show you that you have limited resources for the projects at hand. But you need to make sure that your recruiters or the HR department can access these insights. Otherwise, how can they plan to fill these vacancies? 

Project dependencies 

This challenge occurs in a waterfall project with a set scope where delivering the next project stage depends on finishing the previous one. This impacts the allocation method directly - for example, by having to delete resources from one project and re-allocate them to one that needs more attention.

Project uncertainties 

Just because you're not sure about something, it doesn't mean that you can't plan it. Primetric allows planning resources in the form of reservations for tentative projects. You can also create a draft assignment. This will also help you in forecasting your resource needs and control project profitability.

Priorities across the company 

When an important client or task emerges, we're all prone to dropping everything and running to take care of the task. So if you end up with one specialist required in two projects at the same time, you need to know where their assignment makes the most sense - both in terms of your priorities and the project's profitability.

Use of unscalable solutions (spreadsheets) 

Spreadsheets involve manual work. And we all know that this carries certain risks - not to mention the lack of scalability when your company grows. 

Here's what Alexandra Ardelean, Resource Planning Specialist at Monterail, told us about her experience with spreadsheets before switching to Primetric:

"When I joined Monterail, understanding the planning overview required compiling data from a few Excel spreadsheets, this inevitably, made me often wonder whether I didn't forget anything. In the end, this means that I was keeping all the key info in my head anyway and relied on remembering various non-standard situations that just weren't formally documented in any of the files" 
Alexandra Ardelean - Resource Planning Specialist at Monterail

Step by step guide to resource allocation in project management

1. Create initial project estimations

Prepare a rough project quote - how many hours are needed to deliver the entire project or a specific phase of the project, e.g., the Discovery Phase.

Define the competencies required to implement the project.

At this stage, you can also take into account the hourly/daily/total cost that you don’t want to exceed, as well as the estimated revenue.

2. Identify resource requirements for the project 

The first step to effective resource allocation is learning what specific skills and experience the project requires. You can't assign three junior Python developers instead of one senior developer and hope all of their skills add up.

Consider not only the hard and soft skills but also the level of seniority and other relevant requirements (for example, geographical location and time zone if you run distributed teams).

3. Find available resources with matching skillset

Once you know the minimum time required to complete the project, you can use your resource allocation to get a Gantt-chart view. Now you're ready to find the right people for the job.

At this point, you know the skill set, seniority, and availability that you're looking for. You can choose from your pool of matching skills and experience combinations to find the right candidates or report vacancies if no resources are available.

Let's say that you found two junior JavaScript developers who have the same skills and experience. But one is a salaried employee with an hourly rate of $45, while the other is a contractor who charges $55 per hour.  

It's time to take a look at the project's finances. Which person fits your financial estimations better? By assigning the first candidate to the project, you will increase its profit margin.

At this stage, you can see that initially this person suits you both because they have the right:

  1. skills and experience
  2. availability
  3. the cost rate (hourly rate)

What I recommend to do now is create a so-called "soft allocation" - i.e. a reservation of an employee. Thanks to this, you can initially allocate them to the project, but know that the booking isn’t 100% sure yet. Many of our clients also create so-called draft allocations dedicated to uncertain projects.

This allows you to later create different predictions depending on the variables. For example, you can check the availability of employees without tentative projects or soft allocations.

P.S. In Primetric you can do all of that easily.

4. Compare your initial projects estimations to actual allocations

After you have created your initial / soft allocations, you can compare them to your initial estimates and optimize them to make the data accurate. When you’re sure about these allocations, you can change them to "active" (the so-called hard booking - 100% confirmed)

P.S. Sometimes you only need to allocate people to some % of their capacity, or to certain days for a specific number of hours (or a total number of hours). The tool you’re using should allow you to handle these use cases without any problems

5. Allocate resources as per demand

Once you identify your resources, it's time to assign them to specific project tasks. Remember to always have a backup plan if a resource suddenly becomes unavailable (for example, due to illness), or a new hire gets a better last-minute offer.

For critical positions, make sure that a new hire joins a little earlier to make sure they're available when the project starts. And if you assigned an existing employee, have a backup resource in place that could do the job for a week or two as the project kicks off.

After identifying the right resource, it’s a good idea to allocate them roughly in the long term (not applicable to short projects). You don’t allocate people per task, but per the commitment to the project within a given period of time.

Example scenario:

Developer A has task A, task B, tax C, task D, and task E to complete in one month. From the human allocation perspective, this doesn't matter so much. But it’s important that to implement the above tasks, they need 50 hours - so we allocate a developer to this project for 50h.

This makes the process faster and easier, giving you more clarity. This helps to focus not on specific tasks, but on the disposal and availability of the employee.

6. Track and monitor resource usage 

Once the project starts, you can monitor the actual resource utilization rate. You'll be able to see how your plans are realized and instantly identify any discrepancies. For example, you may have overestimated the number of hours required for completing a project phase, or someone forgot to log time (trust me, this happens!).

7. Adjust your plans to requirements

In most cases, projects are dynamic and change frequently. So, after creating a long-term allocation, make sure to adapt it to the expectations of the team and the client. You can do that during weekly / monthly meetings.

In this case, we "cut" the allocation for a given week/month from the long-term assignment and adjust it to the requirements.

Thanks to this, we gain greater data accuracy.

So, it's all a continuous process that works best:

  1. for weekly meetings,
  2. at the beginning/end of the month when the customer places another order.

Best practices for resource allocation at software companies

Consider professional development 

Keep an eye on the needs of your employees when assigning them to projects. It's good to use a project management tool that allows storing information about the technologies a developer wants to master. This is something you can't add to your spreadsheet.

Organizational matters 

Your mode of allocating people to projects can change depending on your specialization. 

Some companies create fixed teams allocated to one project - for example, a Flutter mobile development team or a blockchain development team. Allocating these resources to projects is much easier. The same goes for body leasing companies. 

But if you have teams created dynamically based on the project requirements, a resource allocation tool is a must-have (though it helps a lot in all cases, of course).

Client rates and employee rates 

Always consider these two financial items in your project estimations. Compare client rates to the hourly rates of your employees to find the best match that brings the profit margin you want.

Mode of employment 

When allocating resources, pay attention to their employment status. Are they a contractor or a fixed employee that's been part of your team for years? Choose employees rather than contractors for more important projects.

Measure utilization and capacity

Don't forget to monitor your utilization and capacity rate. This helps to understand the accuracy of your estimations, compare plans to reality, and get better at forecasting.

What are the must-have features of resource allocation software?

Today, you can make resource allocation smooth and easy with the help of tools that include a bunch of helpful features like time trackers, calendars, and custom reports.

How to tell that the software you're eyeing has everything an IT company needs? Here are the must-have features of resource allocation solution:

  • Gantt-style views and availability heatmaps - this helps to identify team members who have nothing to do and ones overloaded by work.
  • Drag & drop scheduler - use it to apply changes to employee schedules.
  • Calendar view - ideally, the calendar should be customizable to match your unique needs - for example, changing the perspective between people and projects.
  • Different types of bookings - tentative projects, drafts, or reservations help to run simulations and predict demand. 
  • Centralized skills database - this is how you find the best-suited people for projects based on their availability, skills, and hourly rate.
  • Reporting - reports that show utilization rate per employee help to compare plans with reality and take action quickly.
  • Public holidays and time-off management - the solution you pick should support you in managing leaves and data about public holidays. 

Give Primetric a spin to see what it's like to allocate resources with the help of a modern solution. Sign up for a demo and take the first step towards smart resource allocation.

Arkadiusz Terpiłowski

Co-Founder

Arkadiusz is Head of Growth and Co-founder at Primetric. Prior to that, Arkadiusz was at the helm of his own software development company where he oversaw operations. A great enthusiast of process improvements, his personal mission is to make software companies more profitable and efficient on their path to growth.

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