What are the dangers of misallocation of funds?

Answer 1

Misallocation of funds is the worst of all the wrongs that the management might commit. Misallocation means faulty allocation. Wrong project choice is a total waste of all resources and efforts. It does not contribute to the organizational goals. Even it enlarges to the risk to which the whole organization is exposed. Profitability falls, liquidity dries up, solvency vanishes, mismatch in assets and liabilities creeps in. Eventually the organization goes sick. It is the social liability and it affects adversely all the stake holders in the organization.

Over allocation or under allocation are the other forms of misallocation of funds having lots of dangers as well. Over allocation leads to wastage and ideal capacity whereas under allocation brings less returns on investment and gives opportunities to the competitors.