Leadership and Business Wisdom - Resource-Allocation Decisions.

The allocation of capital and people determine whether the organization will do well or poorly.

The allocation of capital and performing people converts into action all that management knows about its business - they determine whether the organization will do well or well or poorly. An organization should allocate human resources as purposefully and as thoughtfully as it allocates capital. To understand a capital investment, a company has to look at four measures: return on investment, payback period, cash flow, and discounted present value.

Each of these four measures tells the executive something different about a prospective capital investment. Each looks at the investment through a different lens. Decision makers should not evaluate capital investments in isolation, but as part of a cluster of projects. They should then select the cluster that shows the best ratio between opportunity and risk. The results of capital spending be assessed against expectations in the post audit procedure...