The Cost of Poor Resource Management

One of the main reasons projects fail is due to discrepancies regarding economic resources, labor, and material. Organizations unable to manage resources properly experience many problems that affect their day-to-day operations and their long-term strategies, as well as financial standing.

Here’s more information on how poor resource management techniques could be hurting your organization.

One of the simplest ways to see that resources are being mismanaged is by examining departmental performance. Organizations that don’t properly manage resources can’t accurately forecast capacity when selecting and prioritizing projects.

If companies can’t properly manage resources, they don’t know which of their assets are available. This leads to resources that are spread too thin, causing projects to be understaffed and underequipped, and creates a system of inefficiencies that leads to:

• Teams that put in longer hours to meet project goals
• Tight deadlines and heavy workloads that put teams under unnecessary pressure
• Increased likelihood of human error as labor becomes overcommitted

A good resource management process is essential for planning projects and ensuring they run smoothly and efficiently. From top-level executives to project and resource managers, decision makers within an organization need to know what available resources can be allocated to various projects before they can come up with an action plan. Poor resource management prevents department managers from making informed decisions and executing well-planned strategies, creating an inefficient and unstable working environment.

Inadequate resource management leads to:

• Logistical errors when coordinating with outside vendors: Without an accurate representation of resources, managers don’t know what materials or equipment to order or re-order.
• Improper use of labor: Without an understanding of available team members, teams may get incorrectly assigned to projects that don’t fit their skillset.
• Unnecessary business expenses: Spending excessive money on overtime and last-minute purchases from third-party vendors can easily send a project over budget – sometimes by as much as 50% or more.

Ultimately, these setbacks cause financial strain that can seriously inhibit the company’s workflow and revenue as projects become delayed or dropped completely. This is especially likely in situations where multiple departments rely on shared resources, as the mismanagement of resources could lead to even more inefficiencies and setbacks across departments.

As you already know, poor resource management can lead to numerous problems that impact an organization’s performance and budget. While some of these problems become major issues that must be addressed and remedied for the project to continue, others are less obvious.

In many cases, ineffective resource management doesn’t create a catastrophe, but a series of small problems that seem minor but create a significant budget crisis.

Scope creep is when several unplanned decisions affect the goals, outcomes, and execution of a project. From a financial standpoint, it can cause projects to exceed their budgets. Labor expenses exceed the budget due to poor time management, resources to be reallocated, and project goals to veer off course – all because of unexpected changes.

But how does this relate to resource management?

Improper resource management makes it harder for departments to stay within a project’s budget. When an organization can’t track its resources, they’re unable to inform team leaders about the current budget status. This means that department managers aren’t mindful of the company’s expenses and can’t take a proactive approach to reducing costs.

What makes scope creep particularly dangerous is that it’s easy to miss. Each problem looks small by itself, but as a collective, they can ruin a budget and bring projects to a grinding halt. In fact, nearly 65% of the organizations polled in 2016 admitted that scope creep was their biggest source of lost revenue. Of that same group, roughly 40% claimed scope creep was the reason why their projects go over budget.

Poor resource management creates a system of inefficiencies that compromise the stability and success of organizational workflow. It can impact every aspect of an enterprise, from interdepartmental relations to top-level planning and execution.

Working with an effective resource management solution gives companies the tools necessary to access risks and organize manpower and plan accordingly. An essential part of an organized workplace, resource management ensures that skillsets are optimized, equipment is available, and projects run smoothly.