Why is the efficient allocation of resources compulsory?

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gsenviro | College Teacher | (Level 1) Educator Emeritus

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In business, raw material, equipment and human beings are all resources and unless these resources are efficiently utilized, a business will experience losses (or smaller profits). Resources are limited and hence should be utilized optimally. A good business will not have an abundance of such resources and any, if present, should therefore be used to the best ability. Resources cost capital. In the simplest terms, nothing is free, material has to be bought, employees have to be paid and equipment has to be bought and maintained (or rented). If a business is spending capital on these, it is obvious that the maximum benefit or profit from them would be sought. In a competitive market, businesses exist to earn profit and how can that be possible if its resources are not optimally utilized? Resources can only be allocated to one process at a time and cannot be committed elsewhere, so unless that distribution is done efficiently, losses could occur.

Hope this helps.

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