Monday 27th Jul 2020
Resource planning usually involves creating a schedule that details information about those resources – what they’re used for, when, and how. By identifying all the resources you need to deliver a project or product within a specific timeframe, you’ll gain more control over your outgoings and cash flow.
Part 4 of 7 in the Smart Business Planning Series
What is resource planning?
The term ‘resources’ includes everything that might impact your ability to stay in business – equipment for manufacturing products or doing the work, machinery, raw materials, vehicles, staff members… even creativity can, in its own way, be considered a resource.
Whether you have five employees on your payroll or 5,000, a good resource plan ensures everyone in your business can use their time, efforts and assets efficiently. Good resource planning becomes even more important as businesses scale up. The right allocation of resources can make a huge difference to productivity and profitability. It will help to define:
What will you need – in equipment and people?
When will you need it – straight away or later as sales increase?
How much will it cost – to acquire, maintain, and run?
Resource planning helps you to focus
When you’re setting up a business, you may be tempted to concentrate heavily on developing products first, or building strong relationships with customers and suppliers. Those things are very important. But you also need to think about the equipment you’ll need to run the business, such as office furniture, vehicles or manufacturing equipment.
Many business owners try to economise on human resources at the outset, reducing the costs of having specialists on the payroll. Accounting, customer support, sales and inventory management might be easy to manage in the short term if you’re running a small business, but, as an enterprise grows, you may need to delegate some of these processes – either to colleagues or by using software.
The process of moving from ‘hands on’ management of those resources to ‘delegated responsibility’ is much easier when there’s a physical plan to guide your decisions. Setting out a plan in quarters, or by months, enables you to focus on which resources you’ll need to acquire – physical or human – and when.
Managing human resources
It may seem strange to think of people as ‘resources’ at a spreadsheet level, but most of us are comfortable using the phrase ‘human resources’ in context. Good resource planning is about working out which human resources you need to complete a project or run a product line.
People are the most valuable resource in an organisation. Human resource planning is just as important as the management or planning of practical resources. There are important skill sets that should help you to manage your team, create your products and deliver your services. Going through the process of considering your team – it’s sometimes known as resource mapping – should show you which tasks need to be done, which ones aren’t accounted for, and which gaps need to be filled.
Then, at some point, as your business grows, you’ll need to take on more people to help you handle the workload. Recruiting is a specialist skill in itself but plans for increasing your headcount over time can be drawn up quite simply. Human resource planning comes in three simple parts. You need people who can help you:
Handle the governance and administration of your business
Accomplish specific tasks in production and delivery
Provide professional support services
Usually, administration and governance resources can increase to reflect growth rather than enable growth. You might need the efforts of more people to make more products, but the impact of making more sales can often be managed after they happen. Professional human resources include external support, such as financial advisers, accountants and tax consultants; solicitors, payroll managers and recruitment or human resources advisers; and business development services, perhaps from your bank or business lender.
A clear understanding of your short, medium and long-term SMART business objectives should help you to settle on the type of support you need. The more detail you can put into your resource plan, the more confidence you can have in that decision-making process.
If, for example, you can plan a production line in detail over a 12-month period, you should be better placed to create the right job descriptions for employees – and decide at what point part-time employees should need to become full-time members of staff. At the same time, a detailed resource plan should include the allocation of finances to pay salaries, benefits and tax credits.
Managing physical resources
Depending on how your business runs, and what your operations involve, you’ll have to make a decision on whether it’s more appropriate to buy or lease some of your physical resources. In the main this covers production equipment, computers and phones, plant or machinery, and vehicles. Take time to get advice from professionals who have relevant experience with similar businesses.
Should you buy or lease your physical resources?
Usually, when you amortise the value of an asset over time, it works out less expensive to buy a physical resource than it does to lease it, but owned assets do depreciate over time. It is unlikely that you’ll be able to reclaim the amount as a business expense.
If you lease an asset, you are in effect paying rent for the privilege of using it. Leasing means you may never own the asset outright (although some arrangements might let you buy the asset at the end of the agreement). However, leasing often gives you the advantage of being able to update physical resources and equipment without the expense of buying newer models, as technology evolves. Some leases may include maintenance or servicing costs which could mitigate unforeseen outlay.
If you choose hire purchase, you’ll have the reassurance of owning the asset at the end of the payment term. The interest rate on hire purchase is usually lower than the rate applied to a bank loan or overdraft to buy the item outright. Capital allowances may also be claimed throughout the hire purchase contract.
It may be more appropriate to buy physical resources if:
You want complete control over the asset, when it’s used and how it’s maintained
The asset is a critical part of your production workflow – you use it all the time
There is a good second-hand market – for buying or selling the asset in question
You can maintain the asset easily, without the manufacturer’s input
The supplier provides customer support and service at the level you need it
It may be more appropriate to lease or acquire physical resources on hire purchase if:
You don’t want to use your cash reserves or carry a debt
You’re unsure how long you’ll need the asset and you want flexibility to trial its capabilities
The asset needs specialist support that you don’t have in-house
The asset is likely to become obsolete and need replacing relatively quickly
Before you make a decision about the most appropriate way to acquire the resources you need, it makes sense to get informed views on the answers to key questions. Things like, how long will you need the asset for – and what role will it play as your production scales up? Will it be cost-effective to have in your inventory from day one, or will it take time to provide any kind of return on your investment? And how would this outlay impact your other financial priorities – is there another way of achieving the same outcome for your business without this asset?
When you’re creating your first resource plan, it may be helpful to think about how long you need resources for. Will they be part of your business for the long term or will some resources be needed for a short period of time?
Try to keep track of resource projections against realistic timelines. These help you to gauge the impact on your cash flow and understand the implications of ownership. Physical assets need to be insured, and payments for equipment and vehicles can then appear in a budget or business plan. Good resource planning can also help you to pinpoint when or if there’s a chance of going over budget.
Being prepared for change
Even a small change in your supply chain, the market, or your environment might have a big impact on your organisation and the equipment and teams you need to run your business. In-house resources can come under pressure from a surprising variety of external influences.
A winter storm, for example, could have direct consequences for a garden centre. If outdoor plants were damaged by hail, they might need to be moved indoors. You may have two pallet-trucks in your warehouse but need six, quickly, to move those plants somewhere safer – and three extra staff to water them. In a production line, a change in the haulage supply chain might have far-reaching consequences for your business.
Money can be tight when you’re starting out in business. In today’s economy, it’s important to budget as accurately as you can. As a business grows, the right management tools make it easier to manage resources efficiently. Ad-hoc ‘tallies’ of resources might increase the risk of errors, and of customer dissatisfaction due to lower quality and delays. With the right resources in place, and a detailed resource plan to underpin your project management, you’ll be in a much better position to measure your progress commercially.
Review your business’s resource planning against cash flow regularly. Try to see the big picture.
Talk to colleagues about their views on what’s needed. Sometimes insights from the shop floor can inform your purchasing more than an analysis of projected product lines. Keep a list of core suppliers to hand for all the resources you need. This could be manufacturers, distributors or human resources agencies.
Review your decision-making in line with your SMART business objectives. Look at the supplies, equipment and services you need in the short-term – don’t plan too far ahead.
If you’re able to set a reserve to one side, take advantage of sales when you see them – stocking up on everyday office and production supplies, such as stationery.
Pay suppliers on time. Good supplier relationships can reap dividends in the long run, and may even bring you favourable terms in the future.
Tools and templates
Next in the SMART Planning series
Please note that these guides are provided for information purposes only and not as advice or recommendations. Before deciding to undertake any course of action you may wish to seek independent professional advice.