Types of business resources and optimising them
A resource is anything a business uses to make and sell its goods or services. There are four main kinds.
- Human resources: the people who work, with their skills and effort.
- Physical resources: things you can touch, such as machines, shops, raw material and stock.
- Financial resources: money, from owners, sales and loans.
- Information resources: facts and know-how, such as customer lists, sales data and market news.
Optimising means using each resource in the best way, not just the most. You match the amount to the need, avoid waste, and keep the four in balance. In the 3D, the work done equals the shortest tower, so adding more to a tall tower does nothing. First find the bottleneck (the weakest resource), then fix that.
Human resource management
People are the only resource that can think and improve the others. Human resource management (HRM) looks after them through a cycle:
- Plan: how many people, with which skills?
- Recruit and select: find and choose the right people.
- Train and develop: teach new skills so they grow.
- Pay and reward: fair wages, bonus, thanks.
- Keep and care: safe workplace, good talk, fair rules.
Happy, skilled workers stay longer. This saves the cost of hiring again.
Managing physical resources
Physical resources include equipment, buildings, raw material and stock (goods waiting to be sold). Good care means:
- Right amount: too little stock means lost sales; too much stock costs money to store and may spoil.
- Maintenance: service machines before they break.
- Safe storage and tracking: count stock and write it down.
- Reorder level: a stock number at which you place a new order, so you never run out.
Managing financial resources
Money keeps the whole business moving. Cash flow is the money coming in minus the money going out. A business can sell a lot and still fail if cash runs out before the bills are due.
- Make a budget (a plan of income and spending).
- Keep a cash reserve for surprises.
- Choose the right source: own money (equity) or borrowed money (loan, which must be repaid with interest).
- Keep proper records and check them often.
Managing information resources
Information turns guesses into decisions. A shop that knows which item sells best can stock more of it. Good management of information means:
- Collect the right data (sales, complaints, prices).
- Store safely and keep it correct and up to date.
- Share it with the people who need it.
- Protect private data, such as customer details, from being lost or misused.
Today computers and apps help, but the aim is the same: the right fact, to the right person, at the right time.
Try it
Try it in the 3D: before you move any slider, predict which tower is the weakest. Then raise only a tall tower and watch the output stay the same. Now raise the weakest tower and watch the red line go up.
Try it at home: plan a small birthday party with four lists: who helps (people), what you need (things), how much money (money), and who is coming and what they eat (information). Which list has the weakest point?
Key formulas and definitions
- Key idea: output is limited by the weakest resource (bottleneck).
- Cash flow = cash in - cash out
- Reorder level = daily use x days the supplier takes to deliver
- Four resources: Human, Physical, Financial, Information
Worked examples
1. A bakery has these resource levels (out of 10): people 8, things 4, money 7, information 6. Which resource should the owner improve first and why?
Things (4). It is the lowest, so it is the bottleneck. Adding more people or money will not raise the output until the ovens, flour or space improve.
2. A shop uses 20 packets of rice each day. The supplier takes 3 days to deliver. Find the reorder level.
Reorder level = 20 x 3 = 60 packets. When stock falls to 60, place a new order.
3. A small firm starts the month with Rs 50,000 cash. It earns Rs 70,000 from sales and pays Rs 32,000 salary and Rs 28,000 for stock. How much cash is left?
Cash in = 70,000. Cash out = 32,000 + 28,000 = 60,000. Cash flow = 10,000. Cash left = 50,000 + 10,000 = Rs 60,000.
4. Name the HR step for each: (a) writing job advertisements, (b) teaching a new billing software, (c) giving a yearly bonus.
(a) Recruitment. (b) Training and development. (c) Pay and reward.
Common mistakes
- Thinking more of every resource is always better. Extra stock or idle staff only costs money.
- Forgetting information as a resource because you cannot touch it.
- Mixing up profit and cash. A business can show profit but have no cash left to pay bills.
- Looking only at the strongest resource instead of the weakest one.