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The Ultimate Guide to Capacity Planning

By Joe Weller | November 30, 2021

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Make intelligent decisions to accurately meet the demand for your company’s goods and services with a comprehensive overview of capacity planning. 

Included on this page, you’ll find a capacity planning worksheet sample , a checklist with the most important capacity planning considerations, and tips from capacity planning experts .

What Is Capacity Planning?

Capacity planning is the ability to make informed decisions on whether you have enough resources available for a project. The goal of capacity planning is to optimize service delivery and meet service level agreements (SLAs).

Why Is Capacity Planning Important?

Capacity planning is important to overall client satisfaction. The process allows a business to match current capacity with future demands, as analyzing capacity data ensures that teams are productive and projects don’t fall behind schedule or run over budget. 

Richard Gimarc , an independent consultant and author who specializes in capacity management, shares the importance of capacity planning: “If a business is providing a service to its customers, capacity planning ensures the customers are receiving a responsive service and there is a full understanding of the cost of the digital infrastructure required to provide that level of service.”

Benefits of Capacity Planning

Capacity planning provides transparency into what the team is working on, skill sets, and availability. The number one benefit of capacity planning is that it enables teams to deliver on-time, on-budget projects.

Below are the top four benefits of capacity planning:

• Cost Savings: Capacity planning helps identify the most cost-effective way to utilize resources.
• Resource Availability: Capacity planning helps organizations identify the most cost-effective way of meeting both human and IT resource requirements.
• Skills Inventory Check: Ensure the team possesses the skills needed to deliver on your strategic initiatives.
• Talent Acquisition: Data-informed staffing decisions can swiftly address critical talent gaps.

Gimarc says, “In the perfect world, capacity planners work with their business partners to predict the impact of business demand on the availability and scalability of their digital infrastructure, and then determine the most cost-effective way to optimize service delivery and meet SLAs. Capacity planning is the single source of truth for the business process in question.”

He offers the following example: “How well is the digital infrastructure supporting SLAs and application availability, and what does the future look like based on business demand? Are we near a digital infrastructure breaking point, are we introducing new business services, or are we continuing business as usual?”

What Are Four Key Considerations for Capacity Planning?

Capacity planning requires collaboration among the business, application, IT, and facilities teams. Communicating across each of these silos tends to be a significant challenge. 

In their research paper, “The Language of Capacity Planning: Business, Infrastructure, and Facilities,” Gimarc and Amy Spellman, Former Global Practice Principal, 451 Research Advisory Services, describe the four key silos to consider as you promote capacity planning and discuss the importance of the capacity planner role in merging communication.

“Today’s capacity planner must work with all areas of an enterprise’s digital infrastructure, which includes the business owners, the application teams, the infrastructure group, and facilities. In a sense, this is good news. As the central point of contact for planning and coordination, the capacity planner is well-positioned to ensure that there is sufficient capacity across the breadth and depth of the digital infrastructure to satisfy business demand cost-effectively.”

How Do You Manage Capacity Planning?

Capacity planning is not a siloed, one-time activity; it is collective and continuous. Business goals and insight into future growth are crucial to managing capacity. To succeed, you need to continually measure, analyze data, and anticipate the future plan.

“The capacity planning group works for the business. Consider starting out with a line of business that is directly associated with revenue, such as sales,” suggests Gimarc. “The best way to manage capacity planning is to focus on a business owner who is willing to work with you. Once you get the business owner on board, look at metrics and infrastructure that is specific to that line of business.”

What Are the Steps Involved in Capacity Planning?

Capacity planning minimizes costly mistakes. Teams can begin by measuring current capacity, then they can forecast demand, analyze gaps, and plan for the future.

• Measure Current Resource Capacity: Calculate the capacity of your current resources. To determine the human resource capacity, multiply the number of hours in a work period by the number of resources, and then subtract the amount of non-work time.
• Forecast Anticipated Demand: Make an educated estimate on the resource needs of each project. To forecast demand, some organizations rely on past demand, but today’s predictive analytics solutions account for unknown variables that can significantly impact demand. 
• Analyze Capacity Requirements: Use the initial measurements to assess whether you have the resources you need to complete the forecasted work. You can do this in a spreadsheet or another tool that will calculate the difference between your current capacity and expected demand. 
• Align Capacity with Demand: If your team cannot meet the anticipated demand, use the capacity planning spreadsheet or tool to determine whether more team members, overtime, or shift work will help get the projects done.

Use these capacity planning templates to measure, forecast, and analyze capacity.

Capacity Planning Checklist

Below you will find a capacity planning checklist to guide you through the six main capacity planning considerations. Use this any time you need to plan for future capacity. 

• Check Current SLA Levels: It is crucial to understand the current capacity and SLAs before looking ahead.
• Analyze Existing Capacity: Review how well your systems meet your current needs.
• Understand Future Needs: What skills are necessary for future projects, and do you have the essential resources in place?
• Identify Consolidation Opportunities: Capacity planning is an ideal time to consolidate workloads.
• Make Recommendations: Use current capacity data to inform decisions on future initiatives. 
• Execute on the Plan: Create an actionable plan with an eye on the future to keep your organization on track. 

Download Capacity Planning Checklist — Adobe PDF

Capacity Planning Example

Capacity planning is a valuable practice, regardless of industry or company size, as it helps with planning human resources, production tools, and IT resources. Below is a worksheet for new practitioners. 

Use this example Agile capacity planning worksheet from Nicole Eiche , a senior Agile consultant and solution engineer at Method, to balance team capacity to iteration load and arrive at team velocity. Eiche suggests that the team “conduct iteration planning before starting each iteration where your team determines goals based on the amount of backlog they can commit to.”

What Are the Types of Capacity Planning?

A business can use capacity planning to ensure critical resources are available to meet project demands. Here are a few common types of capacity planning:

• Product: A product capacity plan involves ensuring enough products are available to meet deliverables. 
• Workforce/Team: An effective workforce capacity plan can ensure that you’ve scheduled an appropriate number of team members and work hours for the project.
• Tool: A tool capacity plan ensures that you have the necessary tools for a project.
• Requirements: Capacity requirements planning (CRP) helps you to establish, measure, and adjust limits or levels of capacity.
• Agile: Agile capacity planning helps teams determine the number of available, productive hours for an upcoming sprint. You will find Agile capacity planning templates in this template roundup . 
• IT: Capacity planning for IT invo lves balancing costs and capacity, followed by supply and demand.
• ITIL: Capacity planning for ITIL services aims to deliver the agreed service level targets under budget and on deadline.
• Rough-Cut Capacity Planning: Rough-cut capacity planning (RCCP) verifies that you have enough capacity to meet the master production schedule requirements.

What Is Capacity Planning in Project Management?

Project management capacity refers to the maximum amount resources can produce or accomplish in a given timeframe. Capacity planning in project management aims to adjust resources to meet demand, with the goal of improving capacity while minimizing cost.

What Is the Difference Between Capacity Planning and Resource Planning?

Capacity and resource planning are related and complementary. Capacity planning balances the future need for resources against the capacity of resources. Resource planning process functions to allocate people and teams to meet the demands of your projects and programs .

Visit this resource planning guide to learn more.

Capacity Planning Best Practices

Companies can benefit from capacity planning, particularly when available resources continually don’t meet the demands of project work. To adequately plan, you must first gain insight into current capacity and future demand. Below, industry experts share their advice from practical experiences.

Cindy VanEpps, a principle consultant at Project and Team , suggests that capacity planning take place as a team: “Capacity planning is more than just the addition of estimates by each team member. Combining the estimates with building high-performing teams that focus on the same product or outcome helps the team collaborate and identify disruptors.” 

VanEpps offers a quote from Donald G. Reinertsen’s book, The Principles of Product Development Flow: Second Generation Lean Product Development : “Operating a product development process near full utilization is an economic disaster.” 

Of this statement, VanEpps says, “Reinertsen is correct; planning at 100 percent capacity is an economic disaster. The team must understand the work enough to account for variability imposed by learning. By working in smaller, more manageable batches, the team can allow for potential variability.”

Additional tips for capacity planning include the following:

• Business Alignment: Align work with business goals to maintain your teams' focus on what matters most.
• Team Forecasting: In order for role-based planning to add up to meaningful teamwork, forecast total demand at the team level. 
• Understand Current Capacity: Analyze current capacity to plan and know if you can meet current and future requirements more accurately.
• Evaluate Potential Scenarios: Scenario planning can home in on the most valuable combination of investments and types of work that align with your organization's strategic goals.
• Consider Distractions: Remain aware of distractions that sneak into the mix. Consistent monitoring can help your teams stay focused on critical work.
• Anticipate Change: Expect change and anticipate adjustments down the line, often as a result of inaccurate estimates. You may need to reassign resources to stabilize workloads and stay away from bottlenecks regularly.
• Continuous Planning Flow: Continuous planning is necessary because change is inevitable. Capacity planning should also be a proactive process.
• Proactive Planning: Remain proactive in reducing multitasking, minimizing distractions, and streamlining processes to increase productivity.

Mistakes to Avoid When Building a Capacity Plan

Lack of historical information and business insights leave capacity planners without the necessary data to make intelligent decisions, and planning will fail without data. Below, industry experts share their advice on mistakes to avoid when creating a capacity plan.

Joao Natalino De Oliveira, Regional Chair and International Officer at Computer Measurement Group , says that the first mistake he sees with startups is the failure to build a capacity plan. “Eighty-five percent of startups fail because they don’t analyze and plan for demand,” he says. “Enterprise companies have dedicated capacity planners. In the early days, these companies preferred to work with large server farms and disk subsystems to sustain during peaks. After several outages, they turned to capacity planning.” 

He gives a specific example: “I visited a digital bank with a large number of cloud resources, but without a dedicated capacity planner. They started seeing elevated costs. They saw drastic improvement with a capacity planner that focused on better appropriation.”

Working in silos is another avoidable mistake. As Gimarc says, “Capacity planning should be a point of intersection for the business, application, IT, and facilities teams. Ignoring technology advances is another mistake. Capacity planners should utilize observability information rather than depending on ad hoc documentation and outdated flow diagrams. Finally, a capacity planner must speak the proper language, translating from the business to applications, infrastructure, and facilities.”

Other mistakes to avoid include the following:

• Not Having Historical Data: Always ask for historical information, not just current requirements.
• Not Understanding Business Objectives: A solid understanding of your organization's capacity is crucial.
• Not Understanding the Impact of Change: Even small changes matter, so plan carefully to minimize employee stress.
• Not Correctly Defining Timelines and Scope: A solid grasp on both timelines and scope will negate the risk of running over time and budget.

Capacity Planning Strategies

There are four main strategies for capacity planning. You will choose a lag, lead, match, or dynamic approach to helping optimize capacity. 

Here’s how each strategy works:

• Lag: Adding capacity only when the actual demand is observable.
• Lead: Adding capacity in anticipation of high demand for the product.
• Match: Adding small amounts of capacity to the anticipated demand signals and current market potential of the product.
• Dynamic: A forecast-driven approach to capacity planning that involves adjusting production in advance.

Capacity Planning in 2021 and Beyond

Having the right resources on hand to forecast and manage customer demand is not a new concept. Capacity planning is more crucial than ever. Fortunately, AI tools are available to accurately bill, optimally staff, and effectively plan for future projects.

Modern tools geared toward capacity planning promise greater visibility into projects, resources, and teams, along with the effective prioritization and management of workloads. Gimarc would not be surprised if a new term arises for capacity planning: “The terms capacity planning and capacity management were introduced over 50 years ago, and they do not always garner positive opinions.” 

As for what the future holds, De Oliveira says, “in the near future, capacity planning means saving money, surviving, and winning in the IT jungle.” He expects to see more AI, deep learning, and machine learning to automate capacity planning: “The instrumentation of business applications that targets capacity and capacity planning will continue to expand from the mainframe arena to other platforms, even edge computing.“

What Tools Do You Use in Capacity Planning?

Experts contend that there is no gold standard tool for capacity planning. Some consider capacity planning to be old and outdated. Still, here are three commonly used tools for capacity planning: Kanban boards, critical path, and Gantt charts.

• Kanban Board : A Kanban board visually displays progress and reduces waste by keeping track of workflow. Kanban boards also help with capacity planning by showing the number of tasks a team has taken on. 
• Critical Path : The critical path method can determine how much computing capacity is necessary to support a service or group of services. The tool aids in analyzing critical application performance and capacity requirements.
• Gantt Chart : A Gantt chart is a bar graph for project scheduling and planning to outline task information. Connect the chart to Google spreadsheets. The tool will pull in data and display it for information sharing, collaboration, or discussion with others.

Get the Most Out of Capacity Planning with Smartsheet for Project Management

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Capacity Planning Strategies: Types, Examples, Pros And Cons

In this article, you’ll learn about the three types of capacity planning strategies — lag, lead, and match. You’ll learn:

• What each strategy means
• Their advantages and disadvantages 
• And a practical example for each strategy

But first: 

Let’s quickly recap what capacity planning is.

Capacity planning is the process of balancing organizational capacity to meet customer demand. 

The capacity planning process is vital for all businesses but crucial for service agencies. Agencies provide services that require a high level of expertise and knowledge. This limitation means they need the correct number of qualified staff available to meet demand.

Capacity planning strategies provide a framework for balancing resource capacity.

Let’s look at each of these strategies in detail.

Lag Strategy

The lag strategy is the most conservative approach to capacity planning . 

It involves waiting until actual demand increases before adding capacity. This strategy can help minimize costs but lead to lost customers and revenue if demand rises quickly.

The lag strategy is a good option for organizations with a stable customer base and demand that will not fluctuate significantly. It is also a good option for organizations with a limited budget or time to add capacity.

Advantages of the Lag strategy

• Minimizes costs: The lag strategy is the most cost-effective approach to capacity planning. You save on resource costs because you only add capacity when needed. As a result, it helps avoid unnecessary expenses.
• Reduces risk: The lag strategy can reduce the risk of excess capacity. Overcapacity reduces because you only add capacity when confident that demand will increase.

Disadvantages of the Lag strategy

• Can lead to lost customers: If demand increases quickly, the lag strategy can lead to lost customers. This loss is because you may not be able to meet market demand, which can lead to customer dissatisfaction and churn.
• Can lead to revenue loss: The lag strategy can also lead to revenue loss. The revenue loss is because you cannot capture all the available demand, which can lead to lost revenue opportunities.

Example of the Lag strategy in action

A content marketing agency that provides content writing services might use the lag strategy. 

The demand for content writing services typically stays the same throughout the year. As a result, the agency could wait until actual demand increases before adding extra staff, which would help cut costs.

In conclusion, this strategy suits capacity management in a content marketing agency.

Lead strategy

The lead strategy is the opposite of the lag strategy. 

It involves adding resource capacity in anticipation of future demand. This strategy can help to ensure that you can meet customer demand, but it can also lead to excess capacity and wasted resources if demand does not increase as expected.

This strategy is a good option for organizations with a volatile customer base or expecting demand to increase. It is also a good option for organizations willing to take on some risk to ensure they can meet demand.

Advantages of the Lead Strategy

• Ensures meeting demand: The lead strategy can help you match the demand, even if it increases quickly. This advantage is because you have already added capacity in anticipation of the increase in demand.
• Reduces risk of lost customers: The lead strategy can help to reduce the risk of lost customers. You lose fewer customers because you are more likely to meet demand, which helps avoid customer dissatisfaction and churn.

Disadvantages of the Lead Strategy

• Can lead to overcapacity: The lead strategy can lead to excess capacity if demand does not increase as expected. This disadvantage can result in underutilized resources and increased costs.
• Can increase risk: The lead strategy can increase risk if demand does not increase as expected. Financial risks increase because you may have added capacity you do not need, which can lead to financial losses.

Example of the Lead Strategy in Action

Event management or tourism agencies might use the lead strategy. 

The demand for event and tourism-related services is typically seasonal. The agency could add additional staff before the season in anticipation of the increase in demand.

Hence this strategy is suitable for capacity management in event and tourism agencies.

Match strategy

The match strategy offers a middle ground between the lag and lead strategies. 

It involves adding capacity in direct proportion to demand. This strategy helps minimize costs while still ensuring that you can meet demand.

The match strategy is ideal for organizations with a moderately volatile customer base and demand. It is also a good option for organizations that want to avoid the risks of both the lag and lead strategies.

Advantages of the Match Strategy

• Minimizes costs and risks: The match strategy can reduce costs and risks. You can achieve this because you add only capacity when needed but also enough to meet demand.
• Increases flexibility: The match strategy can increase flexibility. This advantage is because you can adjust capacity as demand fluctuates, which can help you to avoid overcapacity or lost customers.

Disadvantages of the Match Strategy

• Can be difficult to implement: The Match strategy can be difficult to implement, especially if demand is highly volatile. You need experts to forecast market demand and add capacity accurately.
• Recruiting people on short notice can be difficult: While you can quickly fulfill industrial demand, hiring and onboarding people often takes much more time.
• Can be expensive: This is because you are adding capacity even when demand is not increasing. However, the match strategy can also help you to avoid the costs of lost customers and revenue.

Example of the Match Strategy in Action

An agency that provides consulting services might use the match strategy. 

The demand for consulting services fluctuates depending on the economic climate. In a strong economy, the demand may increase, while demand in a weak economy may decline.

As a result, a consultancy could use the match strategy to add capacity directly in proportion to demand.

Which capacity planning strategy is right for you?

Of the three types of capacity planning strategies — lag, lead, and match — the best strategy for your agency depends on the following: 

• Nature of your business
• Customer base
• Market demand
• Appetite for financial risks

The lag strategy may be a good option if you have a stable customer base and are confident that demand will not fluctuate significantly.

However, the lead or match strategy may be better if you have a slightly volatile customer base or expect demand to increase.

How to implement a capacity planning strategy?

There are four steps in the capacity planning process are as follows:

• Determine capacity. This exercise includes your team members, their skills, and availability. Plus, other resources, such as software licenses, hardware, and office space.
• Estimate demand. Estimating demand includes anticipating future workload. This process includes the number of projects, the amount of work involved, and the deadlines for each project.
• Match resources to demand. This activity involves ensuring you have enough available resources to meet your services’ demand.
• Monitor capacity and make adjustments. The step means regularly reviewing your capacity plan and making changes as your business grows or needs change.

Using capacity planning tools to implement a strategy

Resource management and capacity planning tools, like Toggl Plan, help you plan, track, and manage your team’s capacity. 

Toggl Plan’s Team timelines help you visualize your entire team’s workload in one place. Using Team timelines, you can:

• Organize your team members by skills. For example, a web design agency could create Team timelines for designers, writers, developers, etc.
• See who’s doing what and when. As a result, you can prioritize project tasks and rebalance workload as demand increases.
• Plan time off. Schedule your team’s public holidays and vacation days on the timeline to avoid scheduling conflicts.
• Monitor availability. Use the Availability Overview panel to see each team member’s availability during a specific period and match them to demand.
• Identify over and underutilized team members. This helps distribute customer demand when it suddenly increases.

Alternatively, you can use resource planning templates to plan your agency’s capacity. However, most teams rarely update spreadsheets in real time. As a result, your capacity planning process can become time-consuming and error-prone.

Best practices for implementing a capacity strategy

Effective capacity planning is about evaluating and managing your agency’s current capacity to meet market demand.

Following best practices can help:

• Track capacity utilization. Tracking capacity utilization helps you to identify areas where you may need to add or reduce current capacity. 
• Talk to your team. Understand your teams’ existing workload and time off plans. Communicate anticipated demand surges.
• Engage with your existing customers. This engagement helps anticipate demand in case customers have other projects to outsource.
• Work with other departments. For example, you could forecast new demand by talking to your sales team. Similarly, the accounting department could help you understand your financial risk capacity.
• Use capacity planning tools. Capacity planning tools help you calculate resource capacity accurately and balance workloads efficiently.

Effectively plan capacity for your business

Effective capacity planning is critical for all knowledge-based service agencies. 

If agencies don’t have enough staff to meet demand, they lose customers and revenue. On the other hand, margins will suffer if the market demand is not enough to engage the staff.

There are three types of capacity planning strategies — lag, lead, and match.

Using these strategies, you can develop an effective capacity plan, improve efficiency, and achieve business goals.

Jitesh is an SEO and content specialist. He manages content projects at Toggl and loves sharing actionable tips to deliver projects profitably.

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A Comprehensive Guide to Capacity Planning

Capacity planning is the process of determining the resources you need to meet the current and future demands of your business. It helps you optimize your performance, reduce costs, and avoid downtime.

But how do you plan your capacity effectively? What strategies and steps should you follow? And what are the benefits and challenges of capacity planning? In this blog post, we will answer these questions and more.

What is Capacity Planning?

Lead strategy, lag strategy, match strategy.

• Analyze Your Current Capacity
• Forecast Your Future Demand
• Determine Your Optimal Capacity Level
• Identify the Gap Between Your Current and Optimal Capacity Levels
• Develop and Implement a Capacity Plan

Benefits of Capacity Planning

Capacity planning best practices, challenges in capacity planning and how to overcome them.

• FAQs About Capacity Planning

Capacity planning is the process of estimating the amount of resources (such as staff, equipment, space, etc.) that you need to deliver your products or services at the desired quality and quantity levels.

Capacity planning helps you answer questions like:

• How much demand do I expect in the future?
• How much capacity do I have right now?
• How much capacity do I need to meet the expected demand?
• How can I balance the supply and demand of my resources?

Capacity planning is essential for any business that wants to grow, improve efficiency, and satisfy customers. It helps you avoid running overcapacity or under capacity, which can lead to wasted resources, lost revenue, poor quality, or unhappy customers.

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Capacity Planning Strategies

There are different strategies that you can use to plan your capacity, depending on your business goals, industry, and market conditions. Some of the common strategies are:

This strategy involves increasing your capacity ahead of the expected demand. This way, you can take advantage of new opportunities, gain a competitive edge, and avoid losing customers due to insufficient capacity. However, this strategy also involves higher costs and risks of overestimating the demand.

This strategy involves increasing your capacity after the demand has increased. This way, you can reduce your costs and risks of overinvesting in capacity. However, this strategy also involves lower customer satisfaction and market share, as you may not be able to meet the demand in time.

This strategy involves increasing your capacity in small increments as the demand increases. This way, you can balance your costs and risks with your customer satisfaction and market share. However, this strategy also involves higher complexity and uncertainty, as you need to constantly monitor and adjust your capacity.

Steps in the Capacity Planning Process

The capacity planning process can vary depending on your business type, size, and needs. However, a general framework that you can follow consists of these steps:

1. Analyze Your Current Capacity

The first step is to measure and evaluate your current capacity levels. You need to identify available resources, resources currently in use, and how efficiently you are using them. You can use metrics such as utilization rate, throughput rate, cycle time, etc. to assess your current capacity.

2. Forecast Your Future Demand

The next step is to estimate your future demand for your products or services. You need to consider factors such as historical trends, market conditions, customer preferences, seasonal variations, etc. to project your future demand. You can use methods such as trend analysis, regression analysis, scenario analysis, etc. to forecast your future demand.

3. Determine Your Optimal Capacity Level

The third step is to calculate the optimal amount of resources that you need to meet your future demand. You need to consider factors such as quality standards, service levels, customer expectations, etc. to determine your optimal capacity level. You can use methods such as break-even analysis, cost-benefit analysis, simulation modeling, etc. to determine your optimal capacity level.

4. Identify the Gap Between Your Current and Optimal Capacity Levels

The fourth step is to compare your current and optimal capacity levels and identify the gap between them. You need to determine whether you have excess or insufficient capacity and by how much.

5. Develop and Implement a Capacity Plan

The final step is to develop and implement a plan to close the gap between your current and optimal capacity levels. You need to decide which strategy (lead, lag, or match) suits your business goals and budget best. You also need to choose which methods (such as hiring or firing staff, buying or leasing equipment, expanding or reducing space, etc.) you will use to increase or decrease your capacity.

Capacity planning can bring many benefits to your business, such as:

Improved performance: Capacity planning helps improve your productivity, efficiency, quality, and profitability by ensuring that you have enough resources to meet the demand at the right time and place.

Reduced costs: Reduce your operational costs by avoiding overcapacity or under capacity situations that can lead to wasted resources or lost revenue.

Enhanced customer satisfaction: Enhance customer satisfaction by delivering your products or services at the desired quality and quantity levels without delays or shortages.

Increased flexibility: Increase your flexibility by allowing you to adapt quickly and easily to changing market conditions and customer needs.

To plan your capacity effectively, you should follow some best practices, such as:

Involve all stakeholders: Capacity planning is a cross-functional process that requires the input and collaboration of all stakeholders, such as managers, employees, customers, suppliers, etc. You should involve them in the capacity planning process and communicate your goals, expectations, and results clearly and regularly.

Use reliable data: It is based on data and analysis. You should use reliable and accurate data sources and methods to measure your current capacity, forecast your future demand, and determine your optimal capacity level. You should also update your data and analysis periodically to reflect the latest changes and trends.

Consider multiple scenarios: Capacity planning is subject to uncertainty and variability. You should consider multiple scenarios and contingencies when planning your capacity and prepare for different outcomes and risks. You should also review and revise your capacity plan as needed to cope with unexpected events or opportunities.

Balance short-term and long-term goals: Maintain a balance between short-term and long-term goals. You should align your capacity plan with your strategic vision and objectives, but also consider your operational constraints and realities. You should also balance your costs and benefits, risks and rewards, and supply and demand.

Capacity planning is not without challenges. Some of the common challenges that you may face are:

Demand uncertainty: Demand is often unpredictable and volatile. You may face fluctuations in demand due to factors such as customer behavior, market conditions, competitor actions, etc. To overcome this challenge, you should use multiple sources and methods to forecast your demand, monitor your demand patterns regularly, and adjust your capacity accordingly.

Resource constraints: Resources are often limited and scarce. You may face constraints in resources such as staff, equipment, space, etc. due to factors such as availability, cost, quality, etc. To overcome this challenge, you should optimize your resource utilization, prioritize your resource allocation, and explore alternative or complementary resources.

Technology changes: Technology is constantly evolving and improving. You may face changes in technology that can affect your capacity levels or requirements. For example, new technology can increase your capacity or reduce your demand. To overcome this challenge, you should keep up with the latest technology trends, evaluate the impact of technology changes on your capacity, and adopt or adapt to new technology as appropriate.

Capacity planning is a vital process for any business that wants to grow, improve efficiency, and satisfy customers. It involves estimating the resources you need to meet the current and future demands of your business.

To plan your capacity effectively, you should follow a general framework that consists of these steps:

• Analyze your current capacity
• Forecast your future demand
• Determine your optimal capacity level
• Identify the gap between your current and optimal capacity levels
• Develop and implement a capacity plan

You should also follow some best practices such as involving all stakeholders, using reliable data, considering multiple scenarios, and balancing short-term and long-term goals.

By planning your capacity well, you can enjoy many benefits such as improved performance, reduced costs, enhanced customer satisfaction, and increased flexibility.

However, you should also be aware of some challenges such as demand uncertainty, resource constraints, and technology changes. You should overcome these challenges by using multiple sources and methods to forecast your demand, optimizing your resource utilization, prioritizing your resource allocation, exploring alternative or complementary resources, keeping up with the latest technology trends, evaluating the impact of technology changes on your capacity, and adopting or adapting to new technology as appropriate.

We hope you enjoyed this blog post on how to plan your capacity like a pro. If you have any questions or feedback, please leave them in the comments section below.

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Hansani has a background in journalism and marketing communications. She loves reading and writing about tech innovations. She enjoys writing poetry, travelling and photography.

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Strategic Long-Term Capacity Planning for Professional Services

Lucija Bakić

November 17, 2023

If you’re looking to support your agency’s future growth, the time to invest in long-term capacity planning is now.

Keep reading to learn about different capacity planning types and their benefits. We’ll also provide you with tips and best practices to ensure effective capacity planning implementation. To find out more about the best strategies for managing your capacity in a professional services setting, check out our Guide to Capacity Planning .

Key Takeaways

• There are two main types of capacity planning: long-term and short-term capacity planning.
• Strategic long-term capacity planning is essential in predicting future demand and aligning resource capacity, while short-term focuses on allocating current capacity effectively.
• Long-term capacity planning involves processes such as demand forecasting, talent management, contingency planning, and cost management.
• Leveraging technology is crucial for supporting the entire capacity planning process and resource allocation.

What Is Long-Term Capacity Planning?

Long-term capacity planning is a strategic approach focused on addressing future capacity requirements over a period of a year or more. It aims to ensure optimal productivity and efficiency in professional services agencies by aligning resource capacity with future demands. The process of developing a long-term capacity plan usually involves multiple connected stages:

Firstly, the company defines its purpose and more precisely it identifies the target customers’ needs and the necessary technology for meeting them. The second step focuses on determining key areas : market research, innovation, productivity, physical and financial resources, profitability, manager’s performance and development, performance and attitude of non-managerial staff. The third phase includes identifying means for measuring results , while within the fourth stage the constraints and the limits are met or exceeded.

Source: Typology and Characteristics of Strategic Planning

The benefits of capacity planning include more effective allocation of resources with minimized costs, better resilience to both internal and external disruptions, as well as more balanced service delivery. In short, efficiency capacity management has a sweeping influence on all management levels. Related : Mastering Capacity Requirement Planning (CRP): Essential Strategies for Professional Services

Short-Term vs. Long-Term Capacity Planning

While long-term capacity planning focuses mostly on forecasting or looking into an agency’s future, short-term capacity planning resolves customer demand by managing current capacity. It’s usually carried out on a day-to-day to weekly basis, depending on your agency’s capacity planning strategies. Though the specific benefits of the two approaches differ, both contribute to the overall goal of capacity planning — optimizing your capacity according to actual demand. Short-term capacity planning can:

• Enable efficient resource utilization
• Facilitate project management through capacity planning software

Long-term capacity planning can:

• Anticipate and resolve future capacity requirements
• Align capacity planning with business strategy

Without the proper management of immediate needs, it’s not possible for a business to look ahead. The opposite is true, as well — faulty strategy will greatly hamper an agency’s ability to successfully carry out its capacity planning process. Therefore, a balance between the two approaches is necessary.

Strategic Goals and Capacity Planning

In practice, strategic planning and long-term capacity planning are often synonymous terms. They both include gaining an understanding of overarching agency objectives and applying them to your capacity plans. For example, for a marketing agency, strategic capacity planning would include considering factors such as: marketing objectives, target market segments, intentions for positioning, revenue objectives, desired market share in key markets, competitive strategies, etc. By gathering historical data from previous projects, as well as assessing resource scheduling compared to actuals, agencies can create a picture of their future. They can also predict whether certain projects will be profitable, or influence their sales team strategy according to underutilized future services.

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This process allows professional services firms to prepare for future workloads, optimize resource allocation, and avoid potential service delivery issues.

One of the things we do is we go back into Productive and take a look at similar projects that we’ve done before. A similar proposal from the past might have said “this is going to take us 100 hours”, but the reality might have been 60 or 160 hours. That reality is what’s going to drive the new proposal or the lack of even trying for that business.

Lore Hamilton, Program and Scrum Manager AT Rietta

Implementing a Long-Term Capacity Plan

The essential steps of successfully implementing a capacity planning strategy are:

• Leveraging Software : Investing in modern software to support streamlined workflows and advanced agency insights.
• Managing Your Talent : Investing in your human resources through optimized workload scheduling, benefits, training, and retaining initiatives.
• Strategizing Costs and Capital Investments : Evaluating and planning out the financial aspects of agency expansion through best practices.
• Supporting Operational Efficiency and Scalability : Continuously optimizing processes and systems to ensure efficiency and scalability.
• Risk Management and Contingency Planning : Developing comprehensive risk management strategies and contingency plans to address and mitigate potential disruptions.

We’ll discuss each of the steps of capacity planning in more detail in the following sections of the article. But first, let’s discuss forecasting, and why it’s necessary for professional services. Related : IT Capacity Planning: Implementing a Successful IT Capacity Plan

Why Is Demand Forecasting Necessary for Planning in Professional Services?

There are notable differences in capacity management for manufacturing and professional services — the biggest being that, for client-facing agencies, so much of this process is tied to intangible factors, such as time, employee skill, and service quality. This complicates the process of measuring current capacity, not to mention aligning it with market demand. Economic uncertainty and industry volatility don’t help, either. According to recent research, in 2022 as many as 75% of professional services buyers have canceled at least some existing projects or scrapped new ones, while around 60% have paused most existing project work ( Financial Review ). All of this makes accurate demand forecasts necessary. Despite its difficulty, certain methods are available in order to gauge and adjust your capacity to future trends: this is the utilization rate, which measures how efficiently your human capacity is used. Additionally, agencies can lean on the forecasting of multiple financial metrics, including revenue and profit margins as well as other key capacity planning metrics .

We’ve always known, on a monthly basis, how we’re doing as a company. But knowing on a per project level, in real time—we never really had that visibility. You guys do a good job of providing that. If you look at it on a yearly basis, it does give us the ability to look, per client and per project where do we really stand .

Orion Jensen, CEO at Clear Launch

Leveraging Technology for Effective Capacity Planning

Research shows that as many as 8% of agencies use manual, error-prone methods to handle their agency management , such as spreadsheets. Out of the agencies that invest in software solutions, as many as 25% use separate software that only performs one function ( The 2023 Global Data Report on Agency Valuations ).

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Despite this, the impact of comprehensive agency software on your agency can be significant. Take for example Productive, the all-in-one solution for integrated project, resource, and financial management. With one tool, you can marry data across various agency activities and generate extensive reports for simplified single and multi-project management.

We used to have a project management tool, a time tracking tool , a support tool, a way we handled opportunities and sales-driven processes. Those were all separate tools that we had, and it wasn’t good. It also meant that all that data was being lost every time we switched between tools, or we had to find a way to normalize the data between them. And now, the fact that it’s all in one, it’s really a game changer.

Bryan Casler, Vice President of Digital Strategy AT 4SITE INTERACTIVE STUDIOS

By collecting data on your previous projects, software solutions can help you create estimates and forecast future performance more easily. To go back to Productive, you can set up your capacity plan with the Resource Planning feature, and then easily reschedule billable hours and generate immediate insights into how this impacts your project performance (budget burn or overall profit). All of this goes to show that technology is essential for enabling project managers not only to react to immediate issues but also to proactively identify future needs and communicate them transparently to clients.

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Talent Management for Future Capacity Planning

Seeing as people are an agency’s most valuable currency, applying long-term strategies to your talent management is essential to ensuring a balance of capacity with anticipated demand.

The rapidly changing and highly competitive worldwide marketplace is causing firms to turn to their human resources for survival and competitiveness. Because there is a greater understanding that an organization’s workforce cannot be turned around on a dime, long-term human resource planning is gaining currency .

Nowadays, some of the main issues that agencies face are talent churn rates and lack of skilled labor. Research shows that the estimated cost of employee turnover can be steep — about 20% of the employee’s annual salary (American Progress).

PRODUCTIVE HELPS YOUR BALANCE YOUR TEAM WORKLOAD

Some long-term strategies for ensuring employee satisfaction are:

• Ensuring balanced workflows with good resource scheduling
• Providing benefits for a better work/life balance
• Investing time in training and development to grow their skill sets

The latter is an essential part of succession planning or the strategy of identifying and developing key talent to ensure continuous service delivery. In an era of relentless change, a well-prepared team can become an agency’s biggest asset.

Planning Capital Investment Decisions in Service Agencies

Capital investment decisions, especially long-range ones such as international expansion or diversifying into new avenues, can have significant effects on an agency. Deciding which investment strategy is appropriate is only one step of this process — making sure that your strategy is implemented so that it’s aligned with broader capacity planning is key for future success. For example, deciding to invest in a new market due to demand research, only to neglect to support it with the proper resources (i.e. language speakers or appropriate skill sets) can result in failed initiatives.

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Some strategies to support your capital investment decisions are:

• Comparing projects to ensure that you’re prioritizing the right opportunities
• Tracking key metrics during all stages of a project’s lifecycle
• Enabling accurate and efficient forecasting for timely tactical shifts
• Implementing a unified approach for progress tracking to simplify reporting, i.e. using a single all-in-one tool
• Adopting a flexible mindset that favors iteration and continuous improvement
• Avoiding and mitigating capacity planning challenges

The Role of Operational Efficiency and Scalability in Planning

Both operational efficiency and scalability are essential factors in ensuring that your agency’s planning strategies are successful. While good strategic capacity planning has a positive impact on both, individual strategies for agency operations and scalability also inform and shape the broader capacity planning process. Operational efficiency includes:

• Optimizing utilization of current resources, meaning that you’re able to get the most out of your resources without building excess capacity
• Cutting down on operational costs with streamlined processes, from high-level initiatives such as hiring to administrative tasks such as client invoicing
• Simplified management of project budgets and overall agency costs with capacity planning tools

While scalability includes:

• Implementing systems for handling increased demand, such as applying different capacity planning methods (lead strategy, match strategy, or lag strategy)
• Supporting resource optimization with initiatives for employee onboarding or skill-building
• Investing in software with extensive features that can support your agency’s growth

Capacity Planning and Risk Management

Long-term capacity planning is associated with a variety of potential difficulties, necessitating efficient risk management and contingency planning techniques. We can categorize potential risks into three categories:

• Internal risks : Caused by employee behavior or high-level mismanagement, can be controlled and eliminated by monitoring organizational processes and establishing rules for desirable professional conduct.
• Strategy risks : These risks are incurred by various strategic initiatives, and are as such impossible to fully eliminate. Project managers and agency professionals should instead work to develop frameworks for preventing risks from materializing or containing them in case they occur.
• External risks : Like strategy risks, external risks cannot be controlled or fully prevented. These include various economic shifts and market changes. Management of external risks should focus on identification, forecasting potential trends on the basis of analogous situations or historical data, and mitigation of their impact with agency resilience strategies.

Specific risk management strategies may vary from industry to industry. For example, for a consulting agency, good practices may include accepting engagements only when you’re certain you have the expertise to deliver high-quality services, determining which professional standards should be applied, and solidifying the scope of work in writing to manage client expectations. Related : Finite Capacity Planning: Techniques for Leveraging Finite Resources

Takeaway: Long-Term Planning Strategies for Agencies

Long-term capacity planning is an essential strategic tool for professional service agencies. It includes developing solid strategies for processes such as demand forecasting, risk management, human resources planning, and daily agency operations. Successful capacity planning ensures that your agency can reach its strategic goals, gain market share, and increase profitability, all while maintaining sustainable practices. Good practices for capacity planning are best supported by specialized software. All-in-one tools that support managing, forecasting, and tracking capacity can significantly improve outcomes on both current and upcoming projects.

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• Project planning |
• What is capacity planning? Tips to appl ...

What is capacity planning? Tips to apply the right strategy

Capacity planning is the process of determining the potential needs of your project. There are three types of capacity planning: lead capacity planning, lag strategy planning, and match strategy planning. Applying the right strategy will help your team feel prepared for changes in needed and available capacity.

Before you start baking a cake, the first step is to make sure you have the right amount of ingredients. If you're short an egg or down a little bit of sugar, your cake is sure to come out tasting a little bit odd. 

The same is true for a big project: If you don't have enough resources to complete the project, it will not turn out as expected. To make sure you have all of the right ingredients when you need it—in this case, team members, skills, and tools—use the capacity planning process.

What is capacity planning?

Capacity planning is the process of determining the potential needs of your project. The goal of capacity planning is to have the right resources available when you’ll need them. Resources could mean individuals with the right skills, time available to add another project, or the necessary budget.

Capacity planning strategies

There are three types of capacity planning that you can use in different scenarios to optimize production capacity.

Lead capacity planning

Lead capacity strategy, or lead strategy, is the process of increasing production capacity when you're in anticipation of a high demand. 

Example: If you’re a retailer, you may need to hire an influx of seasonal workers during the holidays, whether that’s for a whole season or just for a seasonal sale. By anticipating higher customer traffic, you can better staff your team and add additional headcount over a short period of time. 

Lag strategy planning

Lag strategy planning is the process of increasing production capacity when you’re experiencing  a real-time demand.

Example: Lag strategy planning is often used in medical care, social work, or the restaurant industry when someone is "on call." Depending on how busy your team is, you may call additional team members in to make sure there are enough resources (in other words, team members) to cover all the customers’ or clients’ needs. 

Match strategy planning

Match strategy planning is a combination of lead capacity planning and lag strategy planning. The process of match strategy planning requires slowly increasing capacity in small increments until you reach the desired resource utilization.

Example: Let’s take the previous example of the restaurant industry—as a floor manager, you may have several different employees on call for the night. If you get an unexpected large party in, you may decide to call in more than one server to cover until crowds die down.

The capacity planning process in five steps

The capacity planning process can vary from company to company, but there are a few core steps that happen in every process: 

1. Forecast your anticipated demand

If you know you have a new project coming up, make an educated estimate on what work needs to be done for these projects. This will give you an idea of the capacity that you’ll need to complete the project and you can compare that to the current capacity you have on hand.

2. Determine required capacity

For example, engineering managers estimate capacity planning according to the number of hours needed to complete a project.

3. Calculate the resource capacity of your current team

If you’re adding another project to your team’s plate, you want to make sure they have the capacity to handle it so they don’t burn out.

If the average person can do approximately 30 hours a week and they currently have projects they are working on, see how much capacity they have in a week by subtracting their current workload in hours from the average 30.

4. Measure the capacity gap

Based on the capacity needed for a project, measure how your current resources compare to the anticipated demand.

5. Align capacity with demand

Look at the previous gap in capacity and optimize current and available capacity so they are balanced. If your team is currently at capacity and can’t take on additional work to complete the project, add more team members in the short term to get the project done. If you have excess capacity, consider adding another project to effectively optimize your available resources.

Benefits of capacity planning

As a project manager , one of the best things you can do to support your team is to create a capacity plan . Knowing the capacity requirements for different projects can help prevent bottlenecks and keep a supply chain flowing. Here are the most important benefits of capacity planning:

It prepares you for different scenarios

A well-strategized capacity plan can help prevent scope creep and take pressure off of your team. If you know the steps you have to take for each type of capacity—whether that’s excess capacity or a lack of resources—you’ll be able to meet demand during any given period.

It optimizes team bandwidth

Effective capacity planning aligns your current team’s skill sets with their availability for new projects. If there are not enough available resources for a project, you’ll know that you need to add more resources to your team. 

Understanding your team's skill sets and knowing their capacity for additional work is crucial. It can speed up the decision-making process when it comes to staffing and prevent burnout—which 71% of workers experienced at least once in 2020 .

It minimizes production costs

When you manage your team's capacity, you're optimizing your resources for the scope of work that you need to complete. This means that you're not paying for more resources than you need, ultimately minimizing production costs.

For example, if you have 12 members on a team working on Project A that only needs nine members, you can allocate three of those team members over to Project B, minimizing the spend on Project A.

It makes planning for the future easier and more accurate

Capacity planning isn’t just helpful for your current projects, it can also help you scope out capacity needs for the future. When you create a capacity plan for one project, you can use that as a template for a similar project in the future.

That template will be a useful starting point and you don't need to forecast capacity requirements from scratch. This can save your team time and expedite the capacity planning process.

It creates transparency

Your capacity plan will highlight any inefficiencies that you can optimize. This kind of data is highly valued by stakeholders who like to be in the know when it comes to how they invest their resources and money.

What's the difference between capacity planning and resource planning?

While they are sometimes used interchangeably, capacity planning and resource planning are similar but slightly different project planning strategies. 

Capacity planning focuses on the supply and demand of your resources. The idea is that a strong capacity plan can forecast when you’ll have an increase in demand for more resources so you can anticipate that gap. 

Resource planning focuses on the resources that you already have and where you can allocate those resources . Resource capacity planning is a combination of the two: anticipating the need for more resources in the future.

Capacity planning tools

There are many different capacity planning software and tools on the market, and finding the right one depends on what you want to prioritize for your team. Some resource management tools are highly specific and focus only on capacity planning or resource management.

Using a work management tool like Asana can help you manage resources, monitor your team's workload, and streamline communication—all in one platform. Take the team at Hudl for example. They regularly monitor workload in Asana so they can easily reassess their team’s capacity and reassign work before anyone burns out. 

Because they can view their work in one shared space, no one is overbooked.

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What is Capacity Planning? (Strategies, Process, and Best Practices)

A manufacturer wants to determine the number of machines and workers that are required to produce products on a certain day.

Similarly, retailers want to make informed decisions about how much inventory they should stock, in order to meet customer demands.

What do you think can help them plan and manage their resources, tasks, time, and manpower?

It is here that capacity planning can be implemented and achieve great profits, reduce overspending, and have happy customers. It plays a major role in the success of growing industries.

It determines how much resources and production capacity an organization needs. This process happens over and over again. It starts with a forecast and then reviews what happened in the past.

It ensures that an organization can constantly provide services while controlling costs and risks.

This blog post will help you understand how to plan for how much work your business can do. In addition, you will learn capacity planning strategies, goals, process steps, best practices, tools, systems, and who is involved in capacity planning.

Evaluate Capacity Planning using our Capacity Planning Calculator

Key Insights

• Capacity planning involves forecasting future business needs and ensuring resources are available to meet demand effectively.
• Its primary goal is to optimize resources, manage costs, and mitigate risks while meeting current and future demands.
• The four main strategies in capacity planning are lead, lag, match, and adjustment, each with distinct approaches to meeting demand efficiently.
• Capacity planning comprises resource capacity, production capacity, capacity requirements, and excess capacity planning, addressing different aspects of resource allocation and management.
• Challenges in capacity planning involve timing the increase in capacity correctly, avoiding unnecessary costs or lost opportunities, and effectively managing excess capacity.

Definition of Capacity Planning

Capacity planning is estimating how much business your company will have in the future and ensuring you have the resources you need to meet that demand.

First, you look at how many resources you currently have and then predict how much you will need in the future. After that, ensure you have enough resources by either getting more or not using all of your help at once.

Capacity planning is integral to resource management because it helps a company meet demand without going over or under budget.

The capacity planning process is crucial in project management. It is related to project management knowledge areas like:

• Work Management
• Resource Management
• Time Management
• Team Management

The Goal of Capacity Planning

Capacity planning is crucial because it helps an organization be efficient and scalable. This means that the organization can meet its current and future needs. That involves:

• Assessing how much capacity an organization currently has.
• Predicting how much capacity will be needed in the future.
• Ensuring the necessary resources are available when needed.

A few related terms that we need to know before proceeding are:

Resource Planning and Resource Management

Resource capacity planning is forecasting future resource needs and allocating current resources to meet those needs.

It includes forecasting the demand for people, money, materials, and machines and then assigning those resources in a way that will meet projected requirements.

Resource management is the process of managing resources in an enterprise. Resource management ensures the enterprise has enough resources to meet its current and future needs.

6 Steps in the Capacity Planning Process

Effective capacity planning involves the assessment of existing capacity and the identification of later requirements. It also includes developing plans to ensure that sufficient resources are available when needed.

The steps involved in capacity planning are:

• Assessing current production capacity
• Determining future requirements
• Planning for anticipated growth
• Meeting current and future demand
• Reviewing and adjusting plans as needed
• Celebrating success!

1. Assessing current capacity

It is the first step in any capacity planning process. Next, you need to understand what resources you have at your disposal and how they’re currently used in resource planning. This can include everything from people and equipment to office space and data storage.

2. Determining later requirement

It may seem daunting, but planning for growth is essential. Whether your business is expanding or anticipating more traffic on your website, you need to know what capacity you’ll need down the road.

3. Planning for anticipated growth

It is essential, but it’s also important to be realistic about potential needs. It’s better to overestimate than underestimate, so don’t be afraid to think big!

4. Meeting current and future demand

It is the ultimate goal of capacity planning. Of course, you want to ensure you have enough resources available at all times, but it’s also important not to waste money on excess capacity.

5. Reviewing and adjusting plans

Reviewing and adjusting plans as needed will help your business grow steadily instead of haphazardly. No matter what kind of changes come up — whether they’re related to growth or anything else — you should always be willing and able to adapt!

6. Celebrating success

It may seem like an odd part of a process that requires so much focus and attention, but everyone deserves recognition after doing such hard work.

Whether this means throwing a party for employees, taking time off with family, or rewarding yourself another way, don’t forget to pause and appreciate all you’ve accomplished!

Different Capacity Planning Strategies

What is strategic capacity planning.

Strategic planning is the proactive part of capacity planning, ensuring that the enterprise has the resources to meet its long-term goals.

There are four common capacity planning strategies: the lead strategy, the lag strategy, the match strategy, and the adjustment strategy.

Lead strategy

Lead capacity planning is when you increase your capacity ahead of anticipated future demand to meet that demand as soon as possible.

In lead strategy, you can either add resources to your current system or expand your system. Adding resources is the most common way to increase capacity. However, you can do it as part of resource planning.

Lag strategy

The lag strategy is when you delay expanding capacity until after experiencing demand.

A lag strategy can be problematic since you may find yourself in a situation where demand has increased, and there’s no capacity to meet the demand.

Match strategy

The match strategy is adding capacity only after the ongoing capacity matches the current demand. This is the best for budgeting because you will only be buying capacity when needed.

However, this strategy does not work well with fast-changing demand. If the whole industry is changing, your capacity might not be enough to meet that change in demand, and you will have a bad customer experience.

Adjustment strategy

The adjustment strategy is gradual changes to either capacity or demand based on past performance.

For example, if you notice that you come close to or exceed your capacity during your busiest months, you will adjust by increasing your capacity in preparation. This strategy is an excellent method because it’s gradual and doesn’t have a lot of negative consequences if it fails.

Some more strategies

Forecasting.

Forecasting is a common capacity planning technique used by many organizations to help anticipate future needs and plan for changes in demand.

By analyzing past trends and considering predicted future events, organizations can build models that help them predict more accurately how much they need to produce.

Anticipation model

A technique used for capacity planning is anticipation modeling, which focuses on forecasting future demand using historical data and then adjusting existing resources in advance of actual requirements to ensure smooth operations when demand increases suddenly or decreases substantially.

Outsourcing

In some industries, outsourcing is becoming an increasingly popular capacity planning strategy.

Typically, companies will identify the services and processes critical to their success and then leverage an outside vendor or partner who can execute those processes more efficiently than they currently do.

Demand management

A related approach is demand management, which focuses on reducing expectations for a product or service to decrease overall demand and thus reduce capacity requirements.

While this may seem counterintuitive, many companies find that it improves customer satisfaction because lower-quality products delivered at a lower cost lead to more satisfied customers than higher-quality products delivered at a higher price.

Different Types of Capacity Planning

There are different types of capacity planning. Understanding which one will work best for your project management is essential.

Resource Capacity Planning (Part of resource planning)

Resource planning is forecasting future resource needs and ensuring enough resources are available to meet demand. First, you need to identify the resources you need and then determine how much of those resources you will need.

You also need to plan for future growth and ensure that you have the resources to meet that growth.

There are a few different ways it can be determined:

• Observation:  You can observe how your resources are used and calculate their maximum capacity based on that information.
• Interviews:  You can interview your team members or other stakeholders to understand their maximum capacity.
• Surveys:  You can create surveys to obtain feedback from your team members or other stakeholders about their maximum capacity.
• Historical Data:  You can look at your historical data and use that to calculate capacity.
• Capacity Planning Software:  You can utilize software like SmartrTeam to help determine capacity.

Production Capacity Planning

This is the process of forecasting future production needs and ensuring enough facilities to meet demand. This includes planning for both short-term and long-term demand.

But first, you need to identify production capacity and ensure that you have the resources to meet that capacity.

Capacity Requirements Planning

Capacity requirements planning is the process of assessing future capacity needs and determining whether or not current capacity is sufficient to meet future demand. Capacity requirements can vary significantly from enterprise to enterprise.

However, some common factors need to be considered in all cases. You must identify present capacity and determine how much additional capacity you will need to meet future demands. You must also ensure that you have the resources to meet those demands.

Excess capacity planning

This is identifying and securing excess capacity to meet future demand. This may involve adding more resources or finding alternative ways to produce the product. Therefore, it’s essential to plan for short-term and long-range planning.

Difference between capacity plan and resource plan

Tools and Systems

Businesses can use various tools and systems for capacity planning. One standard tool is Microsoft Excel, creating graphs and tracking data. Another tool that planners can use is Microsoft Projects. Project managers can use this software to create timelines and track resources as project management.

Other capacity planning tools that project managers can use include:

• Capacity Planning Toolkit
• Performance Scorecard Builder
• Capacity Planning Template
• Capacity Planning Worksheet
• Capacity Planning Spreadsheet
• Performance Scorecard Template
• Portfolio Management Toolkit
• Project Resource Planner (for project management and resource planning)

The company can use several third-party software products for capacity planning. Here is an example of some common ones:

Datastage Capacity Advisor

IBM’s Capacity Advisor is a tool used to help with capacity planning. The Capacity Advisor can predict subsequent requirements and help prevent capacity issues. The Capacity Advisor also helps with the identification of excess capacity.

IBM InfoSphere Optim Solutions Enabler Capacity Manager

IBM InfoSphere Optim Solutions Enabler Capacity Manager is essential for capacity planning. It helps you to understand and optimize your resource utilization. The Capacity Manager feature provides information on the following:

• Present Capacity
• Meet Demand

The Capacity Manager also helps you identify and plan for future requirements.

CA Technologies Workload Estimator

CA Technologies Workload Estimator is a tool that helps you plan for the future capacity needs of your enterprise. The tool uses historical data to make predictions, giving you a realistic estimate of your capacity needs.

The Workload Estimator considers workload growth, the number of users, and resource utilization.

Dell ClearApp Enterprise Edition

Dell ClearApp Enterprise Edition helps organizations manage their resources and capacity. The software can optimize the performance of applications by identifying and resolving potential resource contention.

Dell ClearApp also provides performance and capacity planning for virtualized and cloud-based environments. Dell ClearApp Enterprise Edition is a part of Dell’s Integrated Cloud Application and Infrastructure Management (ICAM) solution.

The list goes on and on, though! But, again, this is because so many different tools are available to help with capacity and project management.

This makes it easier to take advantage of the benefits of effective capacity planning strategies! However, it’s important to note that there is no “one size fits all” solution for capacity planning.

The best approach is to identify the tools that will work best for your specific situation and then use them to their fullest potential.

Who is Involved in Capacity Planning

The roles involved in capacity planning can vary depending on the organization but typically include members from different enterprise areas, such as human resources, information technology, marketing, and manufacturing.

It is strategic planning that a company should regularly undertake to ensure the organization can meet its current and future demands.

Roles involved in it are :

Capacity Planner

Responsible for the collection and analysis of information, as well as for creating an actionable capacity plan. They work closely with business managers to understand their requirements and translate those into a technical context.

This includes identifying future demand patterns based on industry trends, sales forecasts, or any other factor that can help predict changes in resource usage (e.g., product growth, new initiatives, workforce increase).

The capacity planner gathers information throughout the organization to give decision-makers insight into current performance levels and what might happen in the future.

Operations Staff Member

An Operations Staff Member is an individual involved in the business’s day-to-day operations. They are responsible for ensuring that resources are available when needed and those production goals are met.

Business Manager

The individual is ultimately responsible for the success or failure of the business unit/department. Therefore, they must understand their capacity requirements to make informed decisions about future growth or initiatives.

Information Technology (IT) Staff Member

They are involved in supporting and managing the technology infrastructure within the organization. This includes evaluating current systems, recommending upgrades/changes, and working with vendors to procure necessary hardware/software .

In some cases, they may also be involved in designing and building new applications or modifying existing ones to meet organizational needs better.

Marketing Staff Member

Part of the organization that is responsible for marketing and brand development. They understand current demand patterns, evaluate how new initiatives may impact future capacity needs, etc.

Human Resources (HR) Team Members

They guide hiring plans/targets, training requirements, etc. Therefore, they need to be consulted when assessing future resource demands.

Checklist for Identifying Resource Management Team Members

The following questions can help you determine which roles should be included as your team members:

• Who knows the business’ production goals? How often will these change or remain stable? What factors might cause them to fluctuate?
• Which staff members have daily visibility into operations – e.g., manufacturing plant managers, logistics supervisors, and supply chain project managers?
• Who is responsible for decisions about future growth or initiatives – business managers, project managers, product development teams, etc.?
• What capacity constraints most impact areas of the organization?
• Do we have any IT staff members who can help us model resource requirements? How about marketing or HR staff who can provide input on forecasting future demand patterns?

By considering the answers to these questions, you should create a team with representatives from all key areas of the enterprise. This will ensure that all relevant perspectives are considered when making your capacity plan.

Capacity planning allows businesses to forecast future production needs and ensure they have the resources to meet demand.

• It helps businesses optimize their resources and avoid costly overages or shortages.
• It enables businesses to plan for future growth and expansion.
• Effective capacity planning can help businesses manage their current resources more efficiently.
• It can help businesses react quickly to changes in demand.

Resource management software can automate much of the capacity planning process, making it easier and faster for businesses to accurately picture their current and future needs.

Best Practices

Among many best practices, we are listing effective practices.

• Ensure you have a clear understanding of your system requirements. That includes understanding your desired uptime, peak loads, anticipated growth, etc.
• Work with vendors to understand their capabilities and limitations. Make sure you know what they can provide regarding resources and assistance.
• Run load tests on your systems to get a realistic picture of performance under real-world conditions. That will help you identify potential bottlenecks and capacity issues before they cause problems in production.
• Utilize monitoring tools to track key performance indicators (KPIs) in your production environments.

How to Determine Your Production Capacity?

To determine your production capacity, you must first understand your available resources. This includes understanding the amount of space you have, the number of workers you have, and the amount of equipment you have.

You also need to understand the time it takes to produce your product. Once you have these numbers, you can begin calculating your production capacity.

The production capacity is the maximum number of units your company can produce in a given period. It includes all resources, including labor hours and machines.

You can calculate the production capacity by multiplying the number of workers by the number of hours available and then multiplying that by the amount of time it takes to produce the product.

For example, let’s say that you have five workers available eight hours a day, and it takes two hours to produce your product. So the production capacity would be 40 units per day (five workers multiplied by eight hours multiplied by two hours).

It’s important to note that the production capacity is not a fixed number. It can change depending on the demand for your product. For example, if there is a high demand for your product, you may need to increase the number of workers or the time it takes to produce.

Developing a Capacity Plan

When developing capacity and resource plans, there are many factors to consider to ensure that the plan is effective.

The first step is to assess the current capacity of the organization. This entails studying the currently available resources and determining how the organization can use the capacity to meet current and future demands.

Once the live capacity has been assessed, strategies must be implemented to expand or contract production. The excess may be available and can meet future demand in some cases. However, it’s important to remember that excess can lead to inefficiencies and be used judiciously.

Use the right tools and software to ensure an accurate capacity plan.

Managing Future Requirements

It is essential to have adequate capacity planning to ensure an enterprise can meet later requirements. We can use several strategies for it.

One way is to figure out how many things can be made. This is called resource capacity . The other way is to figure out the number of things being made. This strategy is called production capacity .

In addition, it is also vital to consider excess capacity. A company can use excess capacity to meet demand spikes or cushion future growth.

What are the major problems of capacity planning?

One of the most critical challenges in capacity planning is determining when and how much capacity should be increased.

Increasing capacity too soon can lead to unnecessary costs, while doing it too late can result in lost sales and frustrated customers. So, getting the timing and the amount of capacity expansion right is essential for the success of a business.

If capacity planning is not done properly, it can lead to the loss of customers and business opportunities. This happens when a company doesn’t have enough capacity to produce what customers want, causing them to look for alternatives.

On the other hand, having excess capacity can be a drain on a company’s resources. It ties up money and other resources that could be used for more profitable ventures, such as new products or expanding into new markets.

Capacity planning is forecasting future business needs and ensuring that resources are available to meet those demands. It ensures that your enterprise has enough resources to meet current and future needs.

Capacity management involves a variety of capacity planning strategies, systems, processes, and input from various roles in the organization.

By doing strategic planning and considering factors such as production capacity, resource capacity, and impending requirements, you can create an effective capacity plan to help you meet demand now and in the future.

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Route Optimization and Planning

Types of capacity planning & how it keeps your products stocked and customers happy.

April 21, 2020 8 min read

In an ever-changing world, it might feel like you need a crystal ball to plan for your company’s future. How could you know how much product you’ll need to order in three months, six months, or a year if orders haven’t come in yet? How do you adapt to evolving customer expectations? Or scale your business fast to avoid stock-outs if a surge of orders comes in?

The answers to these questions are simpler than you might think. Successful businesses of all types use capacity planning to answer similar questions every day.

What Is Capacity Planning?

Capacity planning is a type of production planning that involves determining production capacity and workforce needs to make sure your supply chain is equipped to meet demand. Capacity planning lets businesses know how and when to scale, identify bottlenecks, create better design capacity, and mitigate risk, within a planned period of time.

The 3 Types of Capacity Planning

The three types of capacity planning make sure you have enough, but not too much, of three major resources for both the long- and short-term. You’ll want to plan weeks, months, or even a year in advance.

1. Product capacity planning

A product capacity plan ensures you have enough products or ingredients for your deliverables. For a florist, this would be flowers, vases, and cards. For a pool maintenance company, this would be things like chlorine that are required to do the job.

2. Workforce capacity planning

Workforce capacity planning ensures you have enough team members and work hours available to complete jobs. This type of planning will also help you communicate overall business, resource & manpower needs to relevant stakeholders, show you when you need to hire more employees and help you determine how far in advance you need to start recruiting based on the length of your onboarding process.

3. Tool capacity planning

Tool capacity planning ensures you have enough tools to complete jobs. This includes any trucks, assembly line components, or machinery you need to manufacture and deliver your product.

How to Start Capacity Planning

There are three basic steps to capacity planning.

First, you’ll need to measure your resource capacity. How many deliveries can each of your drivers make in a given period? How many orders can fit onto each of your trucks? How many hours does it take your fleet manager to plan 50 deliveries? It’s important to answer these types of questions as accurately as possible because the rest of your plan will be based on these numbers.

Once you have accurate measurements, you can spend time analyzing this information and determining whether or not you have insufficient capacity or excess capacity, or if you’re fully utilizing all available resources. Making graphs will help you understand the numbers and make demand forecasting easier.

3. Formulate

The final step is taking all of the information you’ve gathered and formulating a plan. You can make calculations to see how much it will cost to fund new projects or hire a full-time employee vs. bringing on seasonal part-time workers. You could also calculate the ROI for upgrading a piece of machinery or adding assembly lines to your production facilities. The formulation stage helps you see what the likely outcomes are for various options, so you can make the best decision.

How Is Capacity Planning Different From Resource Planning?

Resource and capacity planning sometimes get confused with one another, but they are different things – and you need both. Capacity planning is more high level and helps you determine what and how many resources you need to meet demand. Resource planning is more about analyzing resource utilization: you use it to takes the number of resources available (as determined by your capacity planning) and allocate them to individual projects.

For example, let’s say you run a flower shop like The Little Posy Co. , and Valentine’s Day is your busiest time of the year. You would use capacity planning to determine if you need to hire more employees, bring on seasonal workers, or increase your stock of flowers before February 14. Once you’ve determined how many workers and how much stock you’ll have in February, you would use resource planning to allocate those resources. So, if most of your demand is for vases of red and pink posies, you could allocate the largest portion of your resources to creating those floral arrangements.

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3 Strategies for Using Capacity Planning

There are three methodologies behind capacity planning. In order to choose the right strategy, you’ll need to consider the type of business you run, the level of risk you can safely assume, and the lifecycle of your products.

1. Lag strategy

Lag strategy is planning to have enough resources to meet true demand (not projected). Lag strategy is a conservative method of capacity planning that ensures your costs are as low as possible. The potential downside to this strategy is that it can create a lag in the delivery of products or services to customers, which is where the name comes from. If you get a sudden surge in orders or land a large new client who wants fast turnaround times, lag strategy may prevent you from meeting due dates.

2. Lead strategy

Lead strategy is planning to have enough resources to meet your demand forecasts. Lead strategy assumes more risk than lag strategy. For example, if you hire new workers and don’t wind up with the orders you were predicting, you could lose money paying employees to sit around. The major benefit of this strategy is that if you do have a sudden uptick in orders, you will most likely be able to keep all of your customers happy and meet due dates.

3. Match strategy

Match strategy is the middle ground between lag and lead strategy. Using match strategy, you do strategic capacity planning more frequently. You closely monitor true demand, projected demand, and market shifts/trends. Based on this information, you adjust your capacity management to meet demand in increments. This strategy offers the most flexibility with less risk than lead strategy, but it has more ability to scale than lag strategy.

The Benefits of Capacity Planning for Modern Business

The goal of capacity planning is to ensure that your supply chain is always ready and able to meet demand. Incorporating this type of strategic planning into your process will help you meet due dates, effectively scale your business, and increase your bottom line.

☑ Reduces stock-outs

Customers don’t like to wait, and if they don’t have to, they won’t. The internet has made it easy for consumers to find products somewhere else if you’re out of stock, so you need to reduce stock-outs if you want to minimize customer churn .

You could lose a third of your potential sales for an item if it’s out of stock and, worse yet, that customer may never come back.

In 2004, the Harvard Business Review published the results of a global study where they assessed the behaviors of more than 71,000 customers faced with stock-outs. Depending on the retail category, 21% to 43% of consumers went to another store to purchase an item if it was out of stock. You could lose a third of your potential sales for an item if it’s out of stock and, worse yet, that customer may never come back.

Capacity planning can help you avoid stock-outs and improve profitability. And the more you do it, the better you will understand your unique demand. The capacity planning process will help you see how demand fluctuates during different seasons (such as holidays) or how it is affected by events (like kids going back to school). You’ll be able to use this insight as a guide for overall decision making and supply chain management. 

☑ Increases delivery capacity

McKinsey and Company published a 104-page compendium that illustrates the importance of delivery capacity in your retail distribution strategy . Shoppers not only want to be able to have products and food delivered to their door; they want quick turnaround times, which means your delivery process needs to be operating at maximum efficiency. McKinsey’s report explains that e-commerce has made up more than 40% of retail sales growth in the United States since 2016, and it isn’t showing any signs of slowing down.

As online sales grow ever more popular, delivery capacity is becoming an essential component for many businesses. In another global consumer study conducted by Oracle Retail, 92% of retail shoppers said they would like or love “free one-day delivery by whatever means is most expedient.” Capacity planning ensures you have the workers available to deliver products whenever needed, keeping your business competitive.

☑ Identifies process inefficiencies

When you start capacity planning, you have to ask, “what is the maximum capacity of this resource?” It’s easy to lose sight of these limitations in real-time when you’re struggling to patch together a supply chain. By taking a moment to assess available capacity and capacity requirements, you’ll gain insight into what factors limit capacity, and you’ll be able to easily spot bottlenecks that can be fixed or improved.

For example, let’s say you run a delivery business. Capacity planning reveals that the amount of time it takes your fleet manager to plan routes is preventing your business from being able to take on more deliveries. You realize that even though you have the trucks, drivers, and products to deliver more orders, your fleet manager requires a lot of lead time in order to effectively plan routes for new orders. You could use this insight to replace your manual planning system with route optimization software. In fact, one of our clients doubled their scheduling capacity by doing just that.

Southern Star is in charge of transporting natural gas to seven states in the U.S. In a single week, Southern Star’s 250 technicians can perform up to 2,500 maintenance activities on pipelines that span 5,800 miles. Capacity planning helped Southern Star spot inefficiencies in their scheduling process. As a result, they started using OptimoRoute, and now they are able to fit 100% more tasks into pipeline maintenance and service schedules.

☑ Facilitates risk management

At its core, effective capacity planning is a roadmap for your business. Both short- and long-term capacity planning help businesses understand their strengths, weaknesses, and limitations. You’ll be able to make informed decisions about how fast you should scale your business, when is the best time frame to launch a new product, and when you need to hire new employees.

Capacity planning will better prepare you to overcome obstacles, too. No matter how much planning you do, you’ll still need to be able to respond quickly when unexpected challenges arise. If your supplier suddenly goes out of business or three of your 10 drivers come down with the flu, you’ll need to have high-level plans in place to use as a guide, so you can make smart adjustments quickly. 

Capacity, Route Planning, and Scheduling: An Efficient Trifecta

Once you’ve got your high-level (capacity) plan in place, you can use it as a guide for scheduling and route planning. You’ll want to use all three together to achieve the highest level of logistical efficiency.

We are here to help with all three. From high-level planning to managing drivers in the field, route optimization software can help you refine your delivery process and increase overall efficiency. OptimoRoute enables businesses to do delivery and route capacity planning up to five weeks at a time. You’ll be able to easily adjust the number of drivers, orders, and constraints to see where you can save money or take on more orders.

Learn more about scheduling and route planning in the deep-dive articles on these subjects on the OptimoRoute blog . 

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A practical capacity planning guide: process & strategies to optimize your project resources

Learn how capacity planning keeps projects on track while making the most of your team’s time.

Assign the best team for the job, every time

Stella Inabo,   Content Marketer

• resource management

Capacity planning ensures that you’re matching what you need with what you have before your project kicks off. It helps you deliver work on time, budget, and scope.

Imagine receiving a request from a high-profile client for a new app development project. It has a tight deadline, so you need to check your team’s availability before committing to the project...

...but you quickly realize that understanding your team’s current capacity is near impossible. You have team members working on multiple projects simultaneously, and it’s challenging to determine who has the bandwidth for new work. You find yourself relying on vague estimations, hoping everything will turn right.

“Guesstimations“ are a common approach to planning capacity for many teams. In the 2022 State of Resource Management Report , 75% of respondents recognize the need to develop better capacity planning processes. In short: if you want to consistently deliver projects on time, keep workloads balanced, and have happier teams, capacity planning (and accurate project estimation ) should never be left to chance. In this guide, you’ll learn how to create capacity plans based on data and find the right people for your high-impact tasks and initiatives.

What is capacity planning?

Capacity planning involves determining the amount of work that can be accomplished within a given timeframe by evaluating team availability and forecasting business needs . The process ensures that a project has the necessary resources and capabilities to meet its objectives effectively and efficiently; it also aims to prevent uneven use of resources so the correct projects receive priority and have sufficient staff .

Emily Feliciano

Creative Resource Manager at Atlassian

To me, at a high level, capacity planning is a strategic approach to understanding and actioning supply vs. demand to help maintain and grow the business. 

It is understanding the nuances of what a company’s needs are, who the resources available are, what skill sets we have at our disposal, and which micro and macro timelines or budget constraints we are limited to.

Project managers and resource managers who master capacity planning have a comprehensive understanding of their team’s true capacity. They understand that capacity planning is a team effort and they involve team members in the process. This approach enables them to prioritize projects effectively and allocate the right people to high-impact tasks and initiatives.

3 types of capacity planning

Capacity planning can be long-term, medium-term, or short-term. Usually, organizations use a combination of three types. 

• Long-term planning: this is planning based on your organization’s project growth and expansion. For example, your organization’s goal is to increase your customer base from 50 to 500 in one to two years. To get there, you might need to also increase your headcount and hire for new skills. 
• Medium-term planning: this horizon focuses on incoming projects and ongoing initiatives. For example, you might have two new projects set to start in the next quarter and a backlog of three projects, and you’d need to plan how to schedule resources across them all. 
• Short-term planning:  this is the day-to-day planning required to keep projects running smoothly. It could be fulfilling a resource request for a website project that needs two new backend developers.

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Rated #1 for resource management on G2, Float gives you the most accurate view of your team’s capacity to plan projects and schedule tasks with confidence.

Lead, lag, and match: top 3 strategies in capacity planning

Organizations use the following strategies for resource capacity planning: 

1. Lead strategy

Lead is increasing available capacity in anticipation of increased demand. It envisions that you’re going to be filling your project pipeline quickly.

The lead strategy is aggressive. It assumes that you will have more projects than you currently do (or have in the past), which requires you to hire more staff so you can take on more work. For example, you hire more customer service folks for the Black Friday/Cyber Monday season. 

✅ The benefit of this strategy is that you’ll have a team ready to take on the work when it comes in.

⛔️ The downside? If those extra projects never materialize, your business will have made a large investment in excess capacity you don’t actually need.

2. Lag strategy

This strategy is more cautious: capacity is increased after the demand for resources surpasses availability. For instance, an agency that only hires new staff when the team is 100% allocated is operating a lag strategy. 

✅ Lag is a safe capacity planning strategy that cuts the risk of hiring staff you don’t need.

⛔️ However, it can lead to overworking your team, increasing burnout , and delivering projects late.

3. Match strategy

The match strategy considers your team’s current availability while keeping an eye on the future. It tracks your capacity and resource utilization and gives you the option to increase capacity when you have resource constraints .  

For example, if your team is working at a utilization rate of 80%, it’s a sign they’re handling their tasks without being overworked. However, if that utilization rate creeps up to and beyond 90%, your agency can hire freelancers to ensure the workload doesn’t impact your team or clients.

✅ Whether it’s looking for external contractors or making more permanent hires, the match strategy means you aren’t hiring talent without a need for it. 

✅ It also gives your organization room to grow. If the work is there, you can comfortably accept it and be confident your team can deliver it.

To make informed decisions about capacity, you can plan projects in advance by creating tentative projects in Float . You can schedule a project and set all its phases, milestones , and resources—and quickly see if the right resources would be available when you need them or you’d need to course-correct. 

Why is capacity planning important?

Planning your team’s capacity is key to achieving successful project deliveries and avoiding disappointing clients and overstretching team members. 

1. It supports proactive planning

Effective capacity planning enables you to proactively plan for changes in your team’s workload. 

According to Jacqui Ford , Head of Operations at ThinkerBell, “Capacity is critical for understanding your resourcing needs. Understanding capacity means you’re going to be on the front foot when you need to either scale up or down based on volume and forecasts.” 

You are always prepared to adjust resources based on varying volume and forecasted demand.

2. It helps avoid overwork

In a Gallup survey of employees in 2021, 41% of respondents worked up to and more than 44 hours per week (and the situation probably hasn’t changed much in the following years).   

Overloaded employees often stay back at work to complete their tasks, which leads to high rates of stress and eventual burnout. Planning your team’s capacity ensures that people are allocated work they can realistically do within their work hours, leaving them time to rest and destress.

3. It leads to realistic schedules

Sixty-six percent of organizations regularly miss their deadlines—and a common culprit is unrealistic timelines set at the beginning of a project. This happens when capacity is not considered and due dates are set arbitrarily with the expectation that team members will magically deliver their work. 

Capacity planning ensures that all schedules are grounded in reality, increasing the chances of finishing projects on time.

4. It improves hiring decisions

A big hurdle for businesses and agencies is having enough resources to get the job done well, on time, and with minimal stress.

Imagine your agency is fully booked for the next six months. With capacity planning, it’s easy to calculate if enough people are available with the right skill sets to complete projects. 

Knowing this information in advance gives you time to hire more staff or look for freelancers to fill the gap.

Try the #1 resource management software for capacity and resource planning

Float manages your team’s capacity on autopilot. Get a high level view of your team’s workload, availability, and project pipeline to plan resources with confidence.

The most common capacity planning challenges

Capacity planning involves determining your team’s availability at any given moment, identifying business needs, and making smart decisions to optimize resource allocation . It’s a complex process, and challenges are bound to arise— especially when you use disparate spreadsheets and tools to keep track of everything.

No visibility into future capacity 

One of the most common challenges project managers face is the uncertainty surrounding their team’s future capacity. 

Forecasting becomes arduous when you are unaware of factors like scheduled time off or upcoming projects. This lack of clarity often comes from decentralized scheduling and isolated planning, where capacity information is scattered across different sources.

Using spreadsheets

Tracking capacity in spreadsheets is like trying to roll a boulder up a hill—it’s unnecessarily hard work. Spreadsheets are not made to handle the dynamic nature of projects where schedules and timelines frequently change. And because manual updates are slow and prone to errors, the information is not as reliable as it should be. 

Also, spreadsheets often live in isolation, disconnected from other project management tools, calendars, or resource management software . The lack of integration means they do not provide live and up-to-date information about resource capacity or project requirements. This makes it impossible to make the right decisions or allocate resources correctly. 

Inaccurate expectations of capacity

Capacity is often misunderstood. For instance, in an organization with a 40-hour work week, the expectation might be that everyone is available to work for 40 hours. In reality, though, people typically spend less time on actual project work.

Consider the various factors that occupy their time, such as time off, meetings, administrative tasks, and other work-related activities. These responsibilities can significantly reduce the available work hours for project-related tasks. Additionally, unexpected events like sick days and family emergencies can further impact their work time.

Michael Luchen

Director of Product at Float.com

It’s important to understand your organization’s baseline capacity when it comes to planning projects . Think of admin and management tasks they might have to do. For example, if the design lead has to do admin work for an hour or two a day and then meet with team members for another hour, that should be allocated on their schedule.

When resource managers fail to consider these factors, their baseline capacity calculations become inaccurate, leading to skewed schedules and unrealistic expectations.

The unpredictability of projects/environments

Some industries have unpredictable customer demand. For example, if you are running an agency, you might experience periods of dry spells with minimal incoming work. Conversely, there will be other times when you have a waitlist of potential clients, but you are unable to onboard them because your team is working at capacity. 

In other cases, you may also encounter projects that have never been attempted before, requiring the rapid hiring of new skills to meet the project’s anticipated demands. The absence of a reference point for expected demand makes capacity management and planning exceedingly difficult.

Get live updates on your team capacity

The schedule in Float is designed to give you the most accurate view of your team’s present and future capacity, so you can plan resources with confidence.

Creative Resource Manager

Emily is an experienced Resource Manager in the creative design, brand, and advertising industries. She’s an expert at managing rhythmic chaos and a gel pen enthusiast. What are some tips you could share about capacity planning?

I know capacity planning seems like science, but it truly is an art form to me. Expect change and build trust. The key to my success has always been getting to know my team on a personal level. Most people aren’t in the room when the project plans or budgets are being committed to, so being trusted as an advocate for both the individual and business is a huge privilege. That, in turn, allows my strategic recommendations on resource allocation, team dynamics, or hiring needs to be more impactful.

The software and tools for capacity planning are relatively interchangeable. What works is being highly organized, adept at multitasking, understanding business goals and impact, quantifying utilization, and a willingness to take risks.

What mistakes have you noticed people make when making capacity plans?

I would say not considering team cohesion is one. You can’t always ensure everyone will like each other, but it does impact project health, speed, and delivery. Also, understand that change is inevitable. Capacity planning is a constantly ongoing process; sometimes, people are unhappy with how tumultuous it can be. You can’t be too precious with outcomes because inevitably something will shift, whether that’s a new higher-paying client taking priority, turnover in the org, or changes in deliverables. You have to be flexible.

How to plan your resource capacity in 5 steps

To plan the capacity of your team, follow the steps below:

• Determine existing and incoming project work 
• Determine the current and future capacity of available resources
• Determine the difference between demand and resources available 
• Decide how best to close the gap
• Take into account your people’s needs

1. Determine existing and incoming project work

What work is your team doing right now? What work would they need to be doing in a week, a month, or a year? Determining both the current and future demand on your resources is key to understanding their existing commitments and upcoming responsibilities. 

To find this information, you can look in several places:

• First, speak directly to team members about their ongoing tasks and immediate future projects
• Second, review your project management tool to identify ongoing projects and their timelines
• In larger companies, where speaking to individual team members might be impossible, meet with managers and department heads to gather insights about ongoing projects.

Once you have a grasp of current and ongoing work, the next step is to gather information about potential future projects or tasks:

• If you work in an agency or service-based business, consult the sales department or account managers to find out what upcoming deals are in the pipeline
• If you work in a product-led company, speak with the product team to learn about upcoming feature releases

Additionally, consider any backlog of tasks that might be postponed for later execution, as these could resurface in the future. Don’t overlook tasks within ongoing projects slated for the future; these should also be accounted for in your capacity planning.

Finally, consider your company’s plans for growth and expansion. Find out if there are plans in place to increase customer acquisition, develop additional features, or capture a new market segment. Such ambitious plans could lead to an increase in demand for your team’s time.

2. Determine the current and future capacity of available resources

Next, determine your team’s availability and assess the type of work they can do. 

Examining time constraints and skillsets ensures the allocated work matches your team’s capabilities. You want to avoid situations where team members have availability but lack the skills to do the work, or vice versa. 

Look into your resource pool to understand your team's roles, skills, and specializations. For instance, in Float, you can filter team members by tags, such as location, department, role, or specialization.

Next, look at your project schedule to see how much time your team is allocated to tasks. Here are some useful things to consider:

• How many hours are allocated to projects?
• What are their utilization rates?
• Is anyone overbooked?
• Are team members on the bench waiting to be assigned work?
• Who has a public holiday coming up?

Float’s visual schedule displays all this information so you can tell who is available and who is not at a glance. You can also choose specific time durations to see capacity, now and in the future.

When considering your team’s time, it’s best to take a holistic approach by considering project and non-project work.

Meetings, lunch breaks, email and Slack communications, and administrative duties can consume a significant portion of their workday. According to Asana ’ s 2022 Anatomy Of Work Global Index , these non-project activities account for approximately 58% of a typical workday (!).

Additionally, consider factors like scope creep , project delays, team dynamics, and accelerated timelines, as they can impact the duration of current projects and reduce your team’s availability.

This process should involve your team members too. If you lead a small or medium-sized team, speak to them in 1:1s or have async conversations about their availability. For larger teams, speaking to department heads and managers to get an idea of team capacity would be more practical.

3. Determine the difference between demand and resources available 

Start by quantifying the resource demand based on the capacity requirements of ongoing and upcoming projects. This involves identifying the specific roles, skills, and time commitments needed for each project. 

Next, assess the availability of resources within your team. This includes evaluating the skills, expertise, and time availability of each team member. Consider factors such as vacation time, training schedules, and other known commitments that may impact their availability and workflows. For instance, one of your developers might be on vacation for two weeks next month, reducing their availability during that period.

Once you have quantified both demand and resource availability, calculate the variance between the two. This involves subtracting the total demand for resources from the total available resources. A positive variance indicates you have more resources available than needed; a negative variance indicates a stockout or shortage of resources. 

You can use capacity metrics like these to streamline your real-time capacity planning strategies. For example, if the demand for developers exceeds the available capacity by 20%, you have a resource shortage that needs to be addressed.

4. Decide how best to close the gap 

Your analysis might reveal an imbalance between the available resources and the organization’s needs. If your team is overwhelmed with an excessive workload, you may need to prioritize high-impact projects and allocate resources accordingly. 

For instance, when a new project comes in and the team is already swamped with work, Feliciano tries to determine the project’s priority. She asks questions like:

• What is the priority of this work? 
• Is there a huge budget attached? 
• Are we mending a broken relationship with a client we really want to salvage? 
• Is this a new opportunity to partner with a client we have been seeking for a long time? 
• What is the level of importance of getting this work accomplished? 
• Is there flexibility in the timeline for us to deliver?

If the project must proceed, Feliciano identifies the best-suited team members and negotiates timelines for ongoing work. “9 times out of 10, I am able to push out project timelines to accommodate new work. Especially if I have leadership backing or I can explain the client is paying a lot of money for the work,” she says. 

Suppose your team faces resource constraints and they are stretched beyond capacity. In such a situation, one option to consider is hiring freelancers to ease the workload and meet project deadlines . Feliciano explains: “If there is no option or wiggle room with the current staff, then I turn to freelance/contract options. But I always try to make it work with internal staff first.”

Conversely, if your team is experiencing underutilization , you have the opportunity to take on more work to maximize their time and productivity.

5. Take your people’s needs into account

When it comes to planning capacity, remember that your team members are not just resources but individuals with unique needs and preferences. Feliciano emphasizes the significance of considering factors such as individual working styles, communication preferences, time zones, personal commitments like family, and opportunities for career growth and development:

“When I am planning our team’s capacity, I know some people have kids they like to be home and have dinner with after work. When I’m considering a project that might require late night work or unexpected weekend work, I try to ensure that we aren’t constantly stacking work on those people.”

Why do teams need tools dedicated to capacity planning?

Capacity planning can be quite challenging as it involves assessing the team’s capacity and forecasted demand , and making decisions to balance demand with supply. Adding disparate spreadsheets into the mix only complicates matters, making it harder to keep track of who is working on what and who is available for new projects. This is where resource management software like Float comes in. Float provides a visual view of capacity, offering a quick glance at team members’ availability, overbooked situations, and utilization rates. You can easily view your team’s capacity for any given time period, making planning more efficient.

It also gives you a live view of your team’s resource availability, integrating meetings, planned work, time off , and custom work hours into the schedule, allowing you to gauge their true capacity accurately.

With Float, you can import public holidays and add custom public holidays along with your leave policies. This enables your team to request time off while considering the scheduled work and their leave balances. Time off approvals can be managed directly on the Float schedule.

Reports in Float also give a comprehensive overview of your team’s available hours (capacity) compared to their scheduled hours (assigned tasks), empowering you to make data-driven resource decisions.

If you’re ready to start planning your team’s capacity more effectively, give Float a try for free .

Some Frequently Asked Questions (FAQs) about capacity planning

What is the difference between capacity planning and resource planning.

Capacity planning is a broad, strategic process focusing on managing and balancing resources with business demands. In contrast, resource planning is the more specific and tactical process of allocating and scheduling resources for individual tasks and projects to ensure successful project delivery.

How often should you do capacity planning?

The frequency of capacity planning depends on factors such as your industry, market conditions, and the organization’s growth trajectory. In general, capacity planning should be conducted regularly, with ongoing monitoring of capacity utilization to ensure that resources are effectively utilized and adjustments are made as needed. Major capacity expansion initiatives may require more comprehensive planning efforts and occur less frequently, while routine adjustments to capacity may be made on a more frequent basis.

How does capacity planning differ across industries?

Capacity planning can vary significantly across industries given the differences in demand patterns, production processes, and resource requirements. Despite these differences, the underlying goal of capacity planning remains consistent: focusing on aligning resources with demand to optimize operational performance.

Related reads

Resource allocation and capacity planning: what’s the difference, resource allocation: how to manage project resources in 2024, the ultimate guide to resource management for 2024.

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What is Capacity Planning? Types, Strategies & Best Practices

April 3rd, 2024

Effective capacity planning plays in the success of any organization, regardless of its size or industry.

Capacity planning is all about figuring out how much work your organization can handle, whether producing goods or delivering services, to meet the demands of your customers.

It’s like planning how many ingredients you’ll need to bake a cake – you don’t want to run out halfway through!

Without it, businesses risk falling short of demand, resulting in missed opportunities, dissatisfied customers, and ultimately, a loss of revenue.

Where agility and responsiveness are paramount, capacity planning has become an indispensable component of operational excellence . 

By accurately forecasting demand and proactively managing resources, organizations can optimize their operations, minimize waste, and maximize profitability.

Key Highlights

• Understand the fundamental concepts of capacity planning, including strategic resource planning, and supply and demand dynamics.
• Differentiate between capacity planning and resource planning, 
• Explore its three primary types: workforce capacity planning, tool capacity planning, and product capacity planning.
• Recognize its critical importance for businesses.
• Learn the three capacity planning strategies: lead strategy, lag strategy, and match strategy.
• Master the step-by-step process, from forecasting demand and determining required capacity to calculating current capacity, and identifying gaps.
• Gain insights into the latest capacity planning software and resource management tools.

What is Capacity Planning? Strategies, Types, and Processes

Capacity planning is a strategic process that aligns an organization’s available resources with its projected demand. 

It involves a comprehensive analysis of an organization’s workforce, tools, and production capabilities to ensure that the right resources are available at the right time to meet customer requirements. 

Strategic Resource Planning

Capacity planning falls under the broader umbrella of strategic resource planning, which encompasses the proactive management of an organization’s resources to achieve its long-term goals and objectives. 

By continuously monitoring and adjusting resource allocation, businesses can maintain a competitive edge and respond quickly to changes in market dynamics, customer demands, and industry trends.

Supply and Demand

The fundamental principle behind capacity planning revolves around the delicate balance between supply and demand. 

On one side, demand represents the products or services that customers require, driven by market forces, seasonal fluctuations, and emerging trends. 

On the other side, supply refers to the resources an organization possesses, including its workforce, tools, equipment, and raw materials..

Lead Capacity Planning

It is a proactive strategy that involves increasing production capacity in anticipation of higher demand. 

This approach is particularly beneficial for organizations that experience predictable seasonal fluctuations or can accurately forecast future demand based on market trends and historical data. 

Lag Strategy Planning

In contrast, lag strategy planning involves increasing production capacity only when a real-time increase in demand is observed. 

This reactive approach is often employed in industries where demand patterns are unpredictable or highly dynamic, such as healthcare or emergency services. 

Match Strategy Planning

The match strategy planning approach combines the strengths of both lead and lag strategies, offering a balanced and dynamic solution to capacity planning.

This strategy involves continuously monitoring actual demand, market trends, and forecasts, and adjusting capacity incrementally to match the observed patterns. 

Capacity Planning vs. Resource Planning

There is often a lack of clarity regarding the distinction between capacity planning and resource planning. 

While these two concepts are closely intertwined, it is crucial to understand their fundamental differences to ensure effective operational planning and execution. 

Capacity Planning Definition

Capacity planning is a strategic, forward-looking process that aims to align an organization’s resources with its projected demand. 

It involves a comprehensive analysis of workforce capabilities, tool availability, and production capacities to ensure that the right resources are in place to meet future customer requirements. 

Resource Planning Definition

Resource planning, on the other hand, is a more tactical and short-term endeavor. It focuses on the efficient allocation and utilization of existing resources within an organization. 

Resource planning involves assigning specific tasks and projects to available resources, taking into account their skills, availability, and workload. The primary objective of resource planning is to maximize the productivity and efficiency of an organization’s current resource pool, ensuring that tasks are completed on time and within budget. 

Key Differences

While capacity planning and resource planning are complementary processes, they differ in several key aspects:

• Scope : Capacity planning takes a strategic, organization-wide view, considering the overall resource landscape and future demand. Resource planning, on the other hand, is more focused on the tactical allocation of specific resources to individual tasks or projects.
• Time Horizon: Capacity planning is a long-term endeavor, often spanning months or years, as it involves forecasting future demand and adjusting resource levels accordingly. Resource planning, however, typically operates on a shorter time horizon, dealing with the allocation of existing resources over weeks or months.
• Objective : The primary objective of capacity planning is to ensure that an organization has the necessary resources to meet projected demand, enabling growth and maintaining a competitive edge. Resource planning, on the other hand, aims to maximize the efficiency and productivity of an organization’s current resource pool.
• Resource Types : Capacity planning considers a broad range of resources, including workforce, tools, equipment, and raw materials. Resource planning, while encompassing these elements, often focuses primarily on the allocation of human resources and their associated skills and availability.

By understanding the distinct roles and objectives of both, organizations can develop a comprehensive strategy that incorporates both processes, enabling them to proactively manage their resource landscape while ensuring efficient utilization of existing resources.

Types of Capacity Planning

To ensure that businesses can navigate its complexities and achieve sustainable success, it is essential to have a comprehensive grasp of the three primary types: workforce, tool, and product capacity planning. 

Workforce Capacity Planning

It is arguably the most critical component of the capacity planning process, as it directly impacts an organization’s ability to deliver its products or services. 

This type of planning involves a thorough analysis of an organization’s human resources, including their skills, availability, and workload. 

The objective is to ensure that the right individuals with the appropriate expertise are assigned to the right tasks at the right time, while also preventing burnout and maintaining a healthy work-life balance.

Tool Capacity Planning

The availability and utilization of tools and equipment play a crucial role in an organization’s ability to meet customer demand. Tool capacity planning involves a comprehensive assessment of the tools, machinery, and equipment required to support an organization’s operations. 

This type of planning is particularly critical in industries such as manufacturing, construction, and engineering, where specialized tools and equipment are essential for production or project execution.

Product Capacity Planning

It is primarily applicable to organizations that produce physical goods or products. 

This type of planning involves a detailed analysis of the raw materials, components, and resources required to manufacture or assemble products to meet customer demand. 

In industries such as retail, e-commerce, and manufacturing, product capacity planning is essential for ensuring that sufficient inventory levels are maintained to satisfy customer orders and avoid stock-outs.

By recognizing and addressing the unique challenges and requirements of each type of capacity planning, organizations can develop a comprehensive strategy that ensures the efficient allocation and utilization of resources. 

Enabling them to meet customer demand, maintain competitive advantage, and drive sustainable growth.

Why is Capacity Planning Important for Businesses?

Effective capacity planning can have a transformative impact on an organization’s success. 

Where customer expectations are constantly evolving, and market conditions are subject to rapid change, the ability to align resources with demand is no longer a luxury but a necessity for survival and growth.

Key Benefits of Capacity Planning

Implementing a robust capacity planning strategy can yield a multitude of benefits for businesses, including:

On-time Project Delivery

By accurately forecasting resource requirements and ensuring the availability of the necessary workforce, tools, and materials, capacity planning enables organizations to deliver projects on time, meet customer expectations, and foster long-term relationships built on trust and reliability.

Cost Reduction 

It helps organizations optimize resource utilization, minimizing waste and unnecessary expenditures. 

By aligning resource allocation with demand, businesses can avoid the costly implications of excess inventory, underutilized personnel, or idle equipment.

Resource Utilization 

Through capacity planning, organizations can maximize the productivity and efficiency of their resources, ensuring that they are utilized to their full potential. 

This not only enhances operational performance but also contributes to increased profitability and a competitive advantage.

Skill Management

It enables businesses to identify and address skill gaps within their workforce, facilitating targeted training and development initiatives. 

By ensuring that the right skills are available when needed, organizations can maintain a competitive edge and adapt to evolving market demands.

Employee Retention

By proactively managing resource allocation and workloads, capacity planning helps to prevent employee burnout and foster a positive work-life balance. 

This, in turn, contributes to increased job satisfaction, improved morale, and lower employee turnover rates, ultimately enhancing productivity and preserving institutional knowledge.

Impact on Business Operations

The benefits of capacity planning extend beyond individual projects or departments, permeating throughout various aspects of an organization’s operations:

Project Management

Capacity planning is an integral component of effective project management , ensuring that project timelines are realistic, resource requirements are adequately addressed, and potential bottlenecks are identified and mitigated proactively.

Supply Chain Management

By aligning production capacity with customer demand, capacity planning enables organizations to optimize their supply chain operations, reducing lead times, minimizing inventory costs, and enhancing overall supply chain efficiency.

Production Planning

In manufacturing environments, capacity planning plays a crucial role in optimizing production schedules, ensuring that the right resources are available at the right time to meet customer orders and minimize downtime or production delays.

Resource Allocation

Capacity planning is about effective resource allocation, ensuring that the right resources – whether human, technological, or material – are allocated to the right tasks at the right time, maximizing productivity and efficiency across the organization.

By recognizing the critical importance of capacity planning and implementing a comprehensive strategy tailored to their specific needs, businesses can unlock a multitude of benefits,

Capacity Planning Strategies

While its fundamental principles remain consistent across industries, the specific strategies employed must be carefully tailored to the unique characteristics and demands of each business. 

In my experience, three primary capacity planning strategies have proven to be effective in various contexts: the lead strategy, the lag strategy, and the match strategy.

Lead Strategy

Anticipating Demand

The lead strategy is a proactive approach to capacity planning that involves increasing production capacity in anticipation of higher demand. 

This strategy is particularly well-suited for organizations that operate in industries with predictable seasonal fluctuations or those that can accurately forecast future demand based on market trends and historical data.

By proactively scaling up resources, such as workforce, tools, and raw materials, businesses employing the lead strategy can position themselves to respond swiftly to increased demand, minimizing the risk of missed opportunities or customer dissatisfaction.

Examples and Use Cases

One of the most notable examples of the lead strategy in action can be observed in the retail industry, particularly during the holiday season. 

Retailers often anticipate a surge in consumer demand and prepare by increasing their workforce through seasonal hiring, securing additional inventory from suppliers, and ensuring that their distribution and logistics networks are primed to handle the increased volume.

Similarly, in the manufacturing sector, companies may ramp up production capacity in advance of anticipated spikes in demand, stockpiling finished goods or raw materials to ensure a seamless supply chain and uninterrupted delivery to customers.

Lag Strategy

Responding to Real-time Demand In contrast to the proactive nature of the lead strategy, the lag strategy is a reactive approach that involves increasing production capacity only when a real-time increase in demand is observed. 

This strategy is often employed in industries where demand patterns are unpredictable or highly dynamic, such as healthcare or emergency services.

While the lag strategy may reduce the risk of underutilized resources, it can also result in delays and potential customer dissatisfaction if demand surges unexpectedly, as the organization scrambles to acquire and allocate the necessary resources.

The lag strategy is commonly employed in industries where responsiveness to real-time demand is paramount. 

For instance, in the healthcare sector, hospitals and emergency services may rely on a pool of on-call personnel who can be rapidly deployed in response to surges in patient volumes or emergencies.

Similarly, in the service industry, companies may maintain a flexible workforce that can be rapidly scaled up or down based on fluctuations in customer demand, ensuring that resources are allocated efficiently and effectively in real time.

Match Strategy

Combining Lead and Lag

The match strategy represents a balanced and dynamic approach to capacity planning, combining elements of both the lead and lag strategies. 

This strategy involves continuously monitoring actual demand, market trends, and forecasts, and adjusting capacity incrementally to match the observed patterns.

By employing a match strategy, organizations can maintain a responsive and agile approach while minimizing the risks associated with excess capacity or resource shortages.

Dynamic Capacity Adjustment

A key advantage of the match strategy is its ability to adapt to rapidly changing market conditions and demand patterns. 

Through continuous monitoring and data-driven decision-making, businesses can dynamically adjust their capacity levels, scaling up or down as necessary to ensure an optimal balance between resource availability and customer demand.

This dynamic adjustment capability is particularly valuable in industries characterized by rapidly evolving market trends, disruptive technologies, or unpredictable consumer behavior, where the ability to respond swiftly to changing conditions can mean the difference between success and failure.

By carefully evaluating the unique characteristics of their industry, market dynamics, and customer expectations, organizations can select the capacity planning strategy that best aligns with their goals and requirements.

The Capacity Planning Process: A Step-by-Step Guide

To truly harness the power of capacity planning and unlock its full potential, organizations must embrace a structured and disciplined approach that seamlessly integrates with their overall business strategy and operational processes. 

Forecasting Demand

The first step is to accurately forecast the anticipated demand for your products or services. 

This involves a thorough analysis of various factors, including

Analyzing Historical Data

By examining past sales data, production records, and customer order patterns, organizations can identify trends and cyclical patterns that can inform future demand projections.

Market Trends and Seasonality

It is essential to stay attuned to broader market trends, industry dynamics, and seasonal fluctuations that may influence customer demand. 

This may involve monitoring economic indicators, consumer behavior, and competitive landscape analysis.

Determining Required Capacity

Once you have a solid understanding of the anticipated demand, the next step is to determine the required capacity to meet that demand. 

This involves:

Estimating Resource Needs

Based on the forecasted demand, organizations must estimate the necessary resources, including workforce, tools, equipment, and raw materials, required to fulfill that demand effectively.

Critical Path Analysis

In complex projects or production processes, it is vital to identify the critical path – the sequence of interdependent tasks that determines the overall project duration. 

By analyzing the critical path, organizations can pinpoint potential bottlenecks and allocate resources accordingly.

Calculating Current Capacity

With a clear understanding of the required capacity, the next step is to evaluate your organization’s current capacity levels. This involves

Resource Availability 

Assessing the availability of existing resources, including the number of skilled personnel, operational equipment, and raw material inventories.

Utilization Rates 

Analyzing the current utilization rates of available resources to identify potential areas of underutilization or overutilization can inform capacity optimization efforts.

Identifying Capacity Gaps

By comparing the required capacity with the current capacity, organizations can identify potential capacity gaps, which may manifest as:

Excess Capacity 

A situation where the available resources exceed the requirements, potentially leading to inefficiencies and increased costs.

Capacity Shortage

A scenario where the available resources are insufficient to meet the projected demand, potentially resulting in missed opportunities, delays, or customer dissatisfaction.

Aligning Capacity and Demand

The final step in the capacity planning process is to take corrective actions to align capacity with demand effectively. This may involve:

Strategically allocating available resources to priority areas, projects, or processes to maximize efficiency and minimize bottlenecks.

Capacity Planning Tools

Leveraging specialized software or tools to model various scenarios, optimize resource allocation, and continuously monitor and adjust capacity levels in response to changing conditions.

By following this structured and iterative approach, organizations can effectively navigate the complexities of capacity planning, ensuring that they have the right resources in place to meet customer demand. 

Capacity Planning Best Practices and Tools

It is crucial to recognize that capacity planning is not a one-size-fits-all endeavor. 

To truly unlock the full potential of this strategic process, organizations must adopt a tailored approach that takes into account their unique business needs, industry dynamics, and operational complexities.

Cross-Functional Collaboration

Effective capacity planning requires a concerted effort that transcends departmental silos and fosters collaboration across various functional areas within an organization. 

To this end, it is essential to establish a dedicated capacity planning team comprising representatives from key stakeholder groups, such as operations, finance, sales, and human resources.

This cross-functional team can leverage the collective expertise and insights of its members, ensuring that capacity planning decisions are informed by a comprehensive understanding of the organization’s goals, constraints, and operational realities.

Prioritizing Projects

In an environment where resources are finite, organizations must prioritize their strategic importance and potential return on investment (ROI). 

By aligning its efforts with high-impact, high-value initiatives, businesses can maximize resource utilization and ensure that critical projects receive the necessary support and resources.

This prioritization process should take into account factors such as revenue potential, customer demand, competitive positioning, and long-term strategic objectives, enabling organizations to make informed decisions that drive sustainable growth and profitability.

Continuous Monitoring

Capacity planning is not a static endeavor; it requires continuous monitoring and adjustment to ensure alignment with evolving market conditions and organizational priorities. 

To facilitate this ongoing process, it is essential to establish a robust framework for tracking key performance indicators (KPIs) and metrics related to capacity utilization, resource availability, and project performance.

By regularly analyzing these metrics, organizations can identify potential bottlenecks, inefficiencies, or capacity gaps, and take proactive measures to address them, ensuring that resources are optimally allocated and utilized.

Capacity Planning Software

Resource Management Tools

Organizations can leverage a wide array of specialized capacity planning software and resource management tools to streamline and optimize their capacity planning processes. 

These tools often incorporate advanced analytics capabilities, enabling organizations to model various scenarios, visualize resource utilization, and make data-driven decisions regarding resource allocation and capacity optimization.

Scenario Planning

One of the key advantages of capacity planning software is its ability to facilitate scenario planning. 

By inputting various assumptions and variables, such as demand forecasts, resource availability, and project timelines, organizations can simulate multiple scenarios and evaluate the potential impact on capacity levels.

This capability empowers decision-makers to proactively identify potential risks or opportunities and take corrective actions before issues arise, enhancing the overall agility and resilience of the organization.

Integration with Other Systems

Project Management Software

To maximize the effectiveness of these efforts, it is essential to integrate capacity planning processes with other core business systems, such as project management software. 

By seamlessly integrating the data with project schedules, resource assignments, and task dependencies, organizations can ensure that capacity planning decisions are directly aligned with project execution, minimizing the risk of resource conflicts or capacity constraints.

ERP and Supply Chain Systems

For organizations operating in manufacturing or supply chain-intensive industries, integrating capacity planning with Enterprise Resource Planning (ERP) and supply chain management systems is crucial. 

This integration enables real-time visibility into inventory levels, material requirements, and supply chain dynamics, allowing for more accurate capacity forecasting and resource allocation decisions.

Parting Notes

As I reflect on the insights and best practices shared, I am reminded of the immense value that effective capacity planning can bring to organizations across industries. 

By aligning resources with demand, optimizing utilization, and fostering agility, capacity planning serves as a cornerstone for operational excellence, enabling businesses to navigate the ever-changing landscape of customer expectations and market dynamics.

However, it is important to recognize that capacity planning is not a one-time endeavor; it is an ongoing journey that requires unwavering commitment, cross-functional collaboration, and continuous improvement .

As organizations embrace the principles and strategies outlined in this guide, they will be well-equipped to unlock new levels of efficiency, productivity, and competitive advantage, paving the way for sustained success in an increasingly complex and demanding business environment.

By fostering a culture of continuous learning and embracing the power of data-driven decision-making, organizations can achieve unparalleled levels of resource optimization, customer satisfaction, and long-term growth.

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3 types of capacity planning strategies (with examples)

You know that capacity planning can help your attraction ensure it has enough resources — such as employees and equipment — to meet guest demand. But where do you start?

Every business has different revenue goals and growth projections, meaning that capacity planning isn’t a one-size-fit-all strategic process. 

That being said, there are a few different strategies that most companies use for identifying their current capacity and tracking utilization.

In this post, you’ll learn about the three most common capacity planning strategies that can help you sell more tours and reduce capacity gaps due to lack of resources. 

• What is capacity planning?

What are capacity planning strategies?

• Some benefits of capacity planning  
• Capacity planning vs. resource planning  
• Why does this matter for travel and tourism companies?
• What does the capacity planning process entail?  
• 3 types of capacity planning strategies
• A helpful capacity planning tool 

What is capacity planning? 

Capacity planning, also known as yield management , involves strategically managing and allocating resources, such as staff, space, and equipment, to meet fluctuating customer demand while ensuring an optimal visitor experience. This process is crucial for balancing operational efficiency,  maintaining proper resource allocation, maximizing revenue, and maintaining high levels of customer satisfaction by avoiding overcrowding or underutilization.

Businesses can approach capacity planning in different ways. The goal of capacity planning strategy is to help operators decide what resources are needed to meet customer demand over a given period of time.

While some companies might play it safe and refrain from hiring until their staff is working at full capacity, others might take a more aggressive approach. For example, an attraction that’s planning for an extra busy year might hire lots of new employees to prepare for an influx of bookings. Another operator may wait to see how the year starts before increasing their current capacity.

Both of these approaches can be effective capacity planning strategies. Which one should you choose? Let’s delve into the different capacity planning strategies and how they may best meet your company’s needs.

Short-term vs. long-term capacity planning

Your attraction will likely experience both short-term and long-term fluctuations in guest demand.

Short-term capacity planning focuses on the seasonal and irregular fluctuations you might see, such as an influx of bookings during school vacations or a holiday weekend. This involves tracking capacity in real-time and adjusting your resource pool according to that change in consumer demand.

For example, a food tour company might hire a couple of freelance tour guides for the busy summer season.

Long-term capacity planning, on the other hand, is the process through which a company prepares for future growth and expansion.

Can your current staff, equipment inventory, or supply chain handle your projected growth?

Effective capacity management will give you a better understanding of what needs to be done before adding new tours or expanding to new markets.

Some benefits of capacity planning 

Here are some of the top benefits for having a capacity strategy in place: 

• Optimized resource availability. This ensures efficient use of staff, space, and equipment in relation to market trends.
• Better guest experience. When demand increases, this helps prevent overcrowding, reduce wait times and improve customer satisfaction.
• Increased revenue. You can maximize earnings by aligning capacity with demand.
• Reduced operational costs. This also avoids wastage of resources and lowers expenses.
• Improved resource capacity planning and forecasting. You can facilitate better future resource allocation and management.
• Maintain operational flexibility. You can adjust or pivot quicker to changing demand patterns.
• Risk mitigation. You’ll also reduce the likelihood of service disruptions and customer dissatisfaction.

Capacity planning vs. resource planning 

As we alluded to earlier in this post, capacity planning focuses on determining the maximum level of tours or experiences that be sold in a given period, considering the limitations of available resources. In the context of tours and attractions, this involves managing visitor numbers as well as tour and guide schedules to optimize the use of space and facilities, ensuring a high-quality experience without overburdening the resources.

Resource planning, on the other hand, deals with the allocation and management of specific resources needed to achieve business goals. This includes staffing, equipment, and materials. 

While capacity planning is about the volume of work or visitors that can be accommodated, resource planning is about efficiently managing the assets required to support that capacity. Both are crucial for smooth operations and customer satisfaction but address different aspects of operational readiness.

Why does this matter for travel and tourism companies? 

An attraction can only operate as well as its resources allow it to. If you don’t have enough staff or equipment to run your tours, you risk overworking your staff or missing potential bookings. An overworked staff can be grumpy and tired, which can negatively impact guest experience.

Capacity planning helps attractions avoid this. It helps guide your business in its resource planning so that you’re prepared for changes in demand.

Instead of blindly hiring new employees, for instance, your attraction would make informed staffing decisions based on your team’s current capacity. In the short term, you can use this technique to prepare for seasonal highs and lows. Thinking long-term, you’ll be able to set yourself up for expanding into a new market.

Tourism companies can also use capacity planning to monitor their team’s capacity based on available work hours. You can then make schedule adjustments to ensure your staff is working as efficiently as possible.

Finally, attractions can also keep track of their tour inventory through capacity planning. Do you have time slots or listings that aren’t operating at full capacity? Or, do you have excess capacity like equipment that’s not being used?

You can make strategic pricing decisions like offering discounted rates to fill those less desirable spots. For example, you can set up an automatic Lightning Deal for 15% off all Monday and Tuesday tours for any customer that visits your website over the weekend.

What does the capacity planning process entail? 

The capacity planning process entails:

• Estimating future customer demand to determine the required capacity  
• Allocating resources like staff and equipment and setting timelines to align with the anticipated demand 
• Continuously tracking actual demand and resource utilization against initial forecasts and schedules 
• Analyzing and documenting performance, identifying discrepancies, and assessing resource usage to inform future decisions. 

3 types of capacity planning strategies 

Every company will choose the capacity planning process that works best for them. Strategic capacity planning involves a deep understanding of your company’s capacity requirements as well as accurate demand forecasting.

Let’s take a look at the top three capacity plans used by tour and attraction operators today.

Lag strategy

The lag strategy is a capacity planning process that involves working your staff to its full potential. With this approach, an attraction will stretch its staff, equipment, and production capacity to the limit before investing in more resources.

For example, an escape game company that’s operating at 95% capacity continues to do so with the same number of staff and rooms available. Instead of adding new time slots or expanding to a bigger facility, the company prefers to play it safe and keep operational costs down. It continues operating at near maximum capacity until there’s a visible increase in demand.

There are a few considerations to keep in mind with the lag strategy.

When you’re operating at or near 100% capacity, you run the risk of overworking your staff. This can lead to employee burnout and negatively impact your guest experience. You also likely won’t be able to accommodate an increase in booking volume.

Still, the lag strategy is a safe approach to capacity planning because it cuts down the risk of hiring extra staff you don’t need — a problem you can run into with the lead strategy.

Lead strategy

The lead strategy is the most aggressive approach because it involves an upfront investment to increase capacity. For an attraction, this might translate to hiring more staff or buying more equipment before an actual increase in guest demand.

This strategy is based on the assumption that your attraction will have a larger booking volume than you currently have or have had in the past.

For example, a whitewater rafting company is feeling bullish about its growth next year. They decide to buy two additional rafts and hire two new tour guides to be able to accommodate more excursions in 2022, even though actual demand doesn’t call for that just yet.

The benefit of this strategy is that the rafting company will have the resources needed to cover an influx of bookings and tours. Yet if the anticipated demand doesn’t prove to be true, the operator will have extra employees that it doesn’t necessarily need.

Match strategy

The match strategy takes both current demand and future demand expectations into account.

It’s a middle ground between the previous two strategies. Instead of increasing your resource capacity ahead of time or waiting until the existing capacity is exhausted, you’d make small changes based on real-time demand.

This means you can increase your capacity — like hiring more guides — when your current guides become overwhelmed with your booking volume.

Let’s say a helicopter tour company notices its capacity utilization rate is nearing 90%. Nearly all of its helicopters and pilots are booked at every time slot available. The company wants to ensure that things continue running smoothly if more bookings come in, so they decide to invest in a new helicopter and pilot.

The benefit of the match strategy is that it gives attractions room to grow.

A helpful capacity planning tool 

It’s never too late to start running your company more efficiently. There are several capacity planning features and reports available right within Xola.

When you sell tours or experiences, you want a booking software, like Xola, that can help you with capacity planning. For instance, you can use Xola’s Capacity Utilization Report to identify your most popular and least popular tours and see the time slots that fill up fastest.  You can use this information in a variety of ways.  Let’s say you know your business is slow mid-week. You might want use Xola’s lightning deal feature to attract your most price-sensitive customers to get those tours operating at capacity. 

On the other side, for your most popular tour slots, you can enable a waitlist in Xola for those tours. So, if you have a last-minute cancellation, you can fill the space from the waitlist.   

Writer Carla Vianna

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Capacity planning

Stop making assumptions about your bandwidth and start planning your capacity, as a team. 

USE THIS PLAY TO...

Understand your team's true capacity

Take the guess-work out of estimation and prioritization exercises 

Running the play

Prior to the session, ask everyone to observe and consider writing down what activities, formal and informal, make up their weeks. This will help with accuracy and expedite the first part of the activity.

Whiteboard or butcher's paper

Set the stage (5 min)

Introduce this exercise as a way to improve overall team health so the team feels comfortable honestly reporting their weekly hours and availability. Share how the output of this exercise will be used – for example, many teams at Atlassian review and update their individual capacities in their bi-weekly sprint planning. Poll the room (if you're doing this with your team) and ask them what problem you're here to analyse. Write all responses down on a whiteboard.

Be ready for intentional and unintentional bias in the answers you discuss here. Make sure the room doesn't try to steer away from an uncomfortable truth, or try to reach an easy consensus.

If there isn't one clear problem, you'll need to agree on which problem to work on – which on it's own should be pretty revealing! Once you're agreed, write the succinct problem statement on the board.

Build out a typical week's work for each individual (5 min)

Ask everyone to independently write down all the things they do in a typical week, along with an estimate of how much time you spend on it, expressed as hours per week. Look at your calendar, email inbox, Jira tickets, and chat channels to ensure you're painting the full picture.

Then, calculate the percentage of time they are spending on this project by dividing the weekly on hours spent on this project by the total weekly hours.

Make sure to include time spent on bug fixing, incident response, administrative tasks, recurring meetings, coffee runs, unplanned hallway chats, 1:1s, etc. and make sure to separate out the hours you spend on different projects.

Summarize how much time is being spent on this project (15 min)

Summarize the team's capacity in a table. First group all people in the same role. For each role, record each individual in a row and include their total weekly hours spent on this project. After you've recorded every individual in the same role, add up the total hours available for that role.

Repeat until you've recorded all roles and team members in your table.

For example...

Your capacity plan table should look something like this. (But if it doesn't, y'know... we won't judge.)

Agree on next steps (5 min)

Now that you have a capacity baseline, how often will you review your team allocation? Are there responsibilities with no owners? We'd recommend using the output of this session to guide your estimation and prioritization exercises for your team's upcoming projects.

Be sure to run a full Health Monitor session or checkpoint with your team to see if you're improving.

An express 10-minute version of this exercise can be done as part of a  IT Project Kick-Off . For the express version, ask team members to come prepped with a list of activities and give five minutes for individual calculation and five minutes to summarize the team's capacity. 

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The team is making  incremental progress  by shipping concrete iterations to stakeholders (and even better to production), learning along the way, and implementing  lessons learned , resulting in greater success. 

Table of Contents

What is capacity planning, capacity planning strategies, types of capacity planning, when is capacity planning required, how does capacity planning help in sprint planning, what is capacity planning in operations management, types of capacity planning in operations management, capacity planning benefits, capacity planning vs. resource planning, capacity planning vs. capacity requirements planning, capacity planning best practices, master capacity planning and scrum methodologies today, what is capacity planning definition, top methodologies, and more.

It’s hard to plan how much capacity you’re going to have or need for a certain task, project, moment, or scenario in most areas of life. Many people adjust as they go, making room where they can. 

While this is a somewhat unfortunate truth of life, it doesn’t have to be one in business. Though there’s no way to know for sure how much product to order in six months or how many workers you’ll need in a year, there is something that can get you as close to these answers as you can possibly be: capacity planning.

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A capacity planning process involves determining how much production capacity is required to meet changing demand for products. Design capacity refers to an organization's maximum capacity to accomplish work over a given time period in capacity planning.

Capacity planning process is used by organizations to determine their production capacity in order to meet the changing needs of their products. A design capacity is an organization's maximum ability to complete a specified amount of work in a given time period, in the context of capacity planning.

Capacity planning is the act of balancing available resources to satisfy customer demand or project capacity needs. In project management and production, capacity refers to the amount of work that can get completed in a given amount of time.

The capacity planning process is crucial in project management knowledge areas such as:

• Resource management
• Time management
• Team management
• Work Management

Production capacity, strategy planning, and project planning go hand in hand. Planning is the task of scheduling the team members so that the work gets completed on time. Capacity management is not a set procedure. Because every company is distinct and demand keeps fluctuating, project managers can employ various capacity planning methodologies to respond to different conditions.

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There are three capacity planning methodologies to assist you in meeting the demand, covering your resource needs, and boosting the productivity of your team members.

1. Lag Strategy

The lag method entails having sufficient resources to fulfill demand rather than planned demand estimations. This capacity planning technique is advantageous for smaller firms with limited capacity requirements.

2. Lead Strategy

The primary strategy entails having enough resources to satisfy demand estimates. The lead strategy planning technique is beneficial since your extra capacity can accommodate the rising demand.

3. Match Strategy

This technique combines the lead and lag capacity planning approaches. In this instance, project managers must monitor actual demand, demand planning estimates, and market developments to modify capacity.

Capacity planning itself can be split into three types: workforce, product, and tool. Together they ensure that you have the right amount of three main resources for the short- and long-term. 

Workforce Capacity Planning

This capacity planning strategy ensures that you have the workforce needed to meet demand. It’s all about having the right number of workers and hours available to not just complete jobs but complete them well. Should you need to hire more workers (or possibly downsize) you’ll know how far in advance you need to start making changes to accommodate the length of the recruiting and onboarding process.

Product Capacity Planning

This capacity strategy ensures that your business is equipped with the right number of products or resources needed to fulfill deliverables. For example, a pet store needs things like food, pet toys, and equipment like carriers, leashes, and cages. These are all things which are required to fulfill demand.  

Tool Capacity Planning 

Finally, this type of capacity planning strategy ensures that your business is equipped with the necessary tools. Such tools may include machinery, vehicles, assembly line parts, and anything else needed to create and deliver your product or service in a timely manner.

Capacity planning is useful and required any time you’re trying to ensure that your supply meets demand. This means whether it's a week, month, quarter, year, or more, capacity planning is always a good idea and rule of thumb to stick to. 

For many businesses, leaders and managers have a lot to handle. Among some of their responsibilities are:

• Keeping track of autonomous teams
• Being aware of changing priorities
• Preparing for unpredictable tasks 
• Matrix structures
• Handling remote workers
• The space between actual work and planned work (i.e., the reality of the situation)

With so many moving parts, it doesn’t make sense to go forward without a plan. Having a capacity planning strategy is a great way to get ahead of the challenges that are sure to arise. 

Capacity planning is a great way to invest your time because it helps you address possible future issues, take advantage of the benefits that come with planning, improve team performance , and streamline your business tasks for increased efficiency. 

To keep things organized, many companies practice sprint planning . Sprint planning refers to organizing and assigning all tasks to the right team members in a certain period of time. 

In many cases, sprint planning is dependent on each team member doing their part. This means that once a task is done, another team member can start their task, and so on. If one team member falls behind, it could derail the process to some degree, but this is where capacity planning comes in.

With capacity planning, sprint planning is made tighter, more efficient, and achievable. When you prepare for possibilities like missed deadlines, not having enough workers or product, or even bottlenecks in the supply chain, you’re better equipped to handle such issues should they come up. 

In a way, capacity is like having a Plan A and a Plan B in one: you have your main course of action as well as several contingency plans should anything go wrong, become delayed, or need extra attention.

Capacity planning is an integral aspect of operations management . It refers to the system of maintaining a balance between the demand-supply of goods and products. It involves evaluating all aspects of production, such as the machinery, the staff, and the work centers, to know if a specific organization or the manufacturer can meet the customers' current demand and in the future. The capacity management analytics market shows a favorable growth rate in the projected 2020 to 2027 , owing to the changing business environment and workload. This creates the demand for the coming of much higher technologies to evaluate growth. Capacity management analytics work by predicting the changes in the operations and independently balancing the workloads in real-time accordingly. Thus, it helps minimize performance problems in business operations and adds to overall productivity.  

Knowing how fast your production system works with capacity planning becomes easier. You need to examine a project and the workforce to tell if the project is delivered as fast as possible. Most importantly, if you coordinate with your team, you may wonder if more options are available to do the work efficiently. In such situations, capacity planning helps you explore more options. Through capacity planning, you will know if the extra workforce handles one project or if fewer people handle a project .  

Another benefit of capacity planning is that it not only helps you to know the present condition of your business but, at the same time, will let you know the future scenario of your business. Usually, business owners reduce the workforce according to the workload to avoid paying unnecessary wages, especially when fewer orders are coming from customers. One disadvantage of this hasty decision is that it might affect your business in the long run. Because you may find it challenging to handle the work with a smaller workforce when the workload increases.

The following types of capacity management planning will evaluate your overall strategies. 

Resource Capacity Planning

Resource capacity planning helps you maximize the capacity of existing resources. It will help you choose which resources to be added and which are to be eliminated or downgraded. Mathematically it works by calculating the total number of employees and multiplying it by the weekly billable hours. Most organizations look for skill sets, utilization rates, management and sales pipeline work, etc., to better understand capacity planning.  

Project Capacity Planning

It takes a closer look into the project at hand in an organization and the resources and time it requires to complete. Project managers are assigned for this purpose. They calculate the estimated time the assigned team will work on that project. This evaluation aims to balance the workload concerning the project delivery milestone points. This type of capacity planning works in coordination with sound resource management to ensure that your staff is well-rested, which could lead to extreme stress and burnout or underworked, which could also lead to fewer profits. 

Team Capacity Planning

This is helpful for businesses that operate together. For example, a team works together in the IT sector on multiple projects. Here the project managers will check with the help of capacity planning how much work can be accomplished weekly and how such efforts will impact the project timeline. 

HR Capacity Planning

This is like resource planning. However, it is conducted by a human resource manager who will examine various additional factors such as the ability to recruit, onboarding new staff, professional performance, and the estimated budget for new recruitment apart from evaluating capacity. 

If you’re looking for the main benefit of capacity planning, there are actually quite a few! Businesses who adopt a capacity planning methodology to increase efficiency and meet demand may find themselves enjoying some or all of the following benefits:

Reduce Stock-Outs

Stock-outs occur when you fail to meet customer demand. It’s no secret that customers don’t like to wait, and you being “out” of a product or service will only push them onto the next business that can meet their demand. Thankfully, one benefit of capacity planning is that you can reduce stock-outs and even avoid them altogether. Throughout your planning process you’ll see how the market and demand fluctuate, making you better able to predict supply and demand changes. 

Identify Inefficiencies in Your Business Process

Another benefit of capacity planning is knowing your minimum and maximum capacity of resources. Whatever you’re looking at (be it product, people, equipment, or resources), you’ll know what factors may limit capacity and how to avoid them to ensure you always have what you need.

Increase Delivery Capacity

Today’s customers want their products immediately. Quick turnaround times for deliveries can spell success for a business, while slower delivery times can lose business. Capacity planning is a great way to gauge your delivery capacity so that you know you have the workers available to deliver your products as soon as they’re purchased, making you a contender among the market competition.

Confirm Availability 

Another notable benefit of capacity planning is ensuring future availability. Before you sign a new contract or send another proposal to a potential client, capacity planning helps you know for sure that you have the workforce and resources needed to take care of your new customers, projects, and more.

While "capacity planning" and "resource planning" are sometimes used interchangeably, they are not synonymous. We've listed the distinctions below to help you comprehend them.

Capacity Planning

• It is a strategic planning procedure meant to assist you in determining whether your business has the necessary production capacity to satisfy demand.
• It considers the availability of resources at the skill set/team level.
• It helps the decision-making process for hiring resources or deferring/approving/canceling initiatives.
• Capacity planning is concerned with supply and demand.

Resource Planning

• It is a strategic planning procedure that coordinates and assigns resources to project activities based on resource needs.
• It gives project managers a strategy for which resources to employ and when to use them for their projects.
• Resource planning is concerned with resource allocation.

The stage preceding capacity planning is capacity requirements planning. It is the process through which an organization determines how much it needs to produce and if it has the production capacity to do so.

Here are some pointers and best practices for capacity planning to assist you with your resources and teams.

• Form a Cross-Functional Team: A cross-functional team with varied levels and roles is required to cooperate and communicate regarding production capacity and resource management.
• Determine Resource Capacity: Before you develop a production capacity plan, you must first determine your present capacity and available resources.
• Determine the Resources Needed: Examine the scope of each project and the resources necessary to complete the project's task.
• Project Prioritization: Which projects are most vital, and which can go on hold for the time being? You can't do it all at once.
• Allocate Resources Based on Project Priority: Now, allocate those priority projects and ensure they are in sync with the organization's goals.
• Maintain Open Lines of Communication: Communicate with executives, project management leaders, and stakeholders.
• Document Known Risks: Keep an eye out for risks like union strikes, bad weather, and government laws that might put a project on hold or introduce new ones unexpectedly.
• Plan for Dealing with Excess Capacity: Understand where it is, how to handle it (for example, reassignment), or insufficient capacity (again, where/how).

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Getting Started With Capacity Planning in Operations Management

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What is Capacity Planning in Operations Management?

Planning for supply and demand effectively is the basis of effective operational management and can increase delivery capacity, bring to light inefficiencies and mitigate risk. Ultimately, understanding and effectively managing capacity can mean the difference between a profitable business and one that is out of business.

In manufacturing, capacity planning in operations management involves understanding how many items can be produced in a given period based on materials and equipment available. Take a bakery, for example. Understanding how many pies can be made and baked in a given day using existing equipment and staff (capacity) allows the bakery to plan for how many pies they can sell and what they need for resources (staff, apples, etc.).

For project-based organizations that don’t have equipment, just people, capacity planning involves understanding the scope and timing of all current and planned work and the availability and skill-sets of the people who will do the work.

Services organizations and their project teams have a true challenge: trying to optimize their project staffing and  resource management  to generate as many billable hours as possible while avoiding burning out employees, delaying project delivery or missing revenue targets. Operating a services organization requires this balancing act take place on an ongoing basis, and means that capacity planning in operations management be done in several ways to truly achieve operational efficiency.

The 4 Types of Capacity Planning in Operations Management

There are several types of capacity planning in operations management that can inform your overall strategies. Four capacity planning types include:

• Resource capacity planning  is the lifeblood of a services firm’s visibility into what work can be sold and delivered. Resource capacity at a high level is simply a calculation of number of employees multiplied by expected billable hours available in a given week. For most organizations, there has to be at least a few more considerations for optimal resource capacity planning, things like skill sets, utilization targets and work under management and in the sales pipeline create a complete understanding.
• Project capacity planning , by contrast, takes a view of a given project within an organization and the time and resources it needs. Project managers estimate the amount of time their assigned team can work in a given timeframe to balance workloads against  project delivery  milestones.  Project capacity planning strategies  need to be balanced with strong resource management, ensuring staff aren’t overworked (leading to burnout) or underworked (leading to lower profits).
• Team capacity planning  is useful for groups that typically operate or work together. IT teams with specialized skills, for example, may perform work together on one or more projects. Project managers will use team capacity planning to understand how much work can get done from week to week and how those efforts will affect the project timeline.
• HR capacity planning  is similar to resource planning but  conducted by an HR group  who may take into consideration other factors around professional development, ability to hire and onboard new staff and budget for new hires when determining capacity.

Capacity Planning Process

The most effective capacity planning process starts with these steps:

• Understand current capacity.  What projects, using what people do we currently have under management? What extra time do people have to do more work?
• Project future demand.  What projects are in our sales pipeline, how certain are they to close and when will they start. What skills will be required for those projects?
• Identify where additional capacity could come from.  Can we work extra hours, develop new skills? Should we hire more people?
• Assess your risks.  Will people burn out if we load in more work? What happens if we don’t meet demand? Calculate and quantify the risk of lower customer satisfaction if a project can’t start on time, or the cost of hiring and retraining employees if people quit. And don’t forget the lost opportunity costs associated with not having capacity to sell your services when demand is high.

Navigating Staffing Shortages With Smarter Capacity Planning

While the upsides to effective capacity planning in operations management include the ability to take on more projects, avoiding employee burnout and better customer service in a tight labor market it can make or break a company.

Considering that  trends in staffing  continue to point to fewer skilled workers available and increasing demand for their services, it is critical that companies are proactive about understanding their upcoming labor needs. Visibility into capacity translates to more time to plan for spending wisely, whether that means upskilling current staff and/or hiring contractors or full-time employees.

Capacity Planning Tools and How to Get Started

The proper capacity planning tools required depend on the size and maturity of your organization. Smaller organizations will likely get by with time reports, project plans and CRM data to understand when they can take on more work and or staff.

As your company grows, however, the need to become more operationally efficient rises and data management and processes become more important.  Capacity planning software  is necessary to manage more complex forecasting that relies on many data sets throughout the organization. That’s when most firms turn to a PSA tool.

PSA software provides visibility into continual long-term, medium-term and short-term capacity planning in operations management. This functionality allows for operational agility and optimized staffing and utilization.

This type of capacity planning software is used to create a roadmap for everyone in the organization, from project managers to resource managers to high-level executives. The right PSA for your organization will be the one that allows you to scale your business efficiently, taking advantage of demand while controlling for operational costs.

Where to Get Help With Capacity Planning in Operations Management

Ready to get more help for your capacity planning? Consider downloading our white paper,  Capacity Planning for Scalable Growth . Or read our post on resource  capacity planning for better customer service . And as always, reach out at any time if you’d like to  see a demo  of BigTime Software, the leading PSA software used by customers worldwide to scale and grow their services business.

Frequently Asked Questions About Capacity Planning in Operations Management

What is capacity planning for operations management.

Capacity planning in operations management is the process of balancing demand for a good or service with the ability of a manufacturer or organization to produce enough to meet demand.

What is capacity planning for professional services?

For project-based or professional services organizations, capacity planning, or service capacity planning, involves understanding the scope and timing of all current and planned work and the availability and skill-sets of the people who will do the work.

What are the four steps of capacity planning?

The four steps for capacity planning are:

1. Understand current capacity. 2. Project future demand. 3. Identify where additional capacity could come from. 4. Assess your risks.

Why is capacity planning important in operations management?

The goal of effective capacity planning in operations management is improved and more efficient business operations. Capacity planning allows businesses to optimize project staffing and resource management to generate as many billable hours as possible while avoiding burning out employees, delaying project delivery or missing revenue targets.

What are types of capacity planning in operations management?

Four capacity planning types include:

1. Resource capacity planning – Resource capacity planning at a high level is simply a calculation of number of employees multiplied by expected billable hours available in a given week. 2. Project capacity planning – Project managers estimate the amount of time their assigned team can work in a given timeframe to balance workloads against project delivery milestones. 3. Team capacity planning – This type is useful for groups that typically operate or work together. Tracking and forecasting at a team level is useful for project managers to take a “whole person” look at the group. 4. HR capacity planning – This is similar to resource planning but conducted by an HR group who may take into consideration other factors around professional development, ability to hire and onboard new staff and budget for new hires when determining capacity.

What are capacity planning tools?

The proper tools for capacity planning in operations management depend on the size and maturity of your organization. Smaller organizations will likely get by with time reports, project plans and CRM data to understand when they can take on more work and or staff. As a company grows, however, capacity planning software is necessary to manage more complex forecasting that relies on many data sets throughout the organization. That’s when most firms turn to PSA software.

What is resource capacity planning?

Resource capacity planning provides services firms with visibility into the amount of work that can be sold and delivered to meet customer demand. Resource capacity at a high level is simply a calculation of number of employees multiplied by expected billable hours available in a given week.

What is capacity planning process?

Capacity planning is the process of balancing demand for professional services with the resources and skills necessary to meet customer demand.

What is capacity in operations management?

The term capacity in operations management refers to the highest level of goods or services that a company can produce to meet demand.

What is project capacity planning?

Project capacity planning is the process of project managers estimating the amount of time their assigned team can work in a given timeframe to balance workloads against project delivery milestones.

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Capacity Planning: Strategies, Benefits and Best Practices

Production capacity planning is an issue of supply and demand: one that can decide the fate of your project or production line. Read on to learn about the capacity planning strategies and capacity management best practices you can use to plan your resources  and make sure your team members are working on the right task at the right time.

What Is Capacity Planning?

Capacity planning is a process that balances the available resources to meet customer demand or the project capacity requirements. Capacity, in project management and manufacturing terms, is the most work that can be done over a certain timeframe.

In project management, the capacity planning process is very important because it’s related to critical project management knowledge areas such as:

• Resource management
• Time management
• Team management
• Work management

Production capacity, strategic planning and project planning go hand-in-hand. Planning is how one schedules the hours of the team members so that the work gets done on time. Capacity management isn’t a rigid process. All companies are different and demand can be volatile, so there are different capacity planning strategies that project managers can use to adapt to different scenarios.

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Capacity Planning Template

Use this free Capacity Planning Template for Excel to manage your projects better.

Capacity Planning In Operations Management

As defined, capacity planning is used to determine the amount of work an organization can do over a specific time period. Operations management is about the planning, organizing and controlling of resources to deliver products and services.

Therefore, capacity planning is a critical aspect of operations management as it helps determine what must be done to meet the demand for that product or service. It also sets up a company to grow, while avoiding idle resources and underused capacity.

Capacity Planning In Project Management

Project management is the planning, managing and controlling of work over a determined time that results in a deliverable. This is achieved through the execution of tasks that require both human and non-human resources.

Capacity planning is a critical component of project management as a project schedule and budget are created. It helps project managers figure out the necessary capacities in terms of those resources, especially team members, to meet the project deadline and stay within budget.

ProjectManager is the one project management software that has everything you need for capacity planning. With robust Gantt charts and resource management tools, you can build a project schedule that incorporates real-time team availability. Your team can then execute the work in multiple views and you can track what matters with dashboards and project reports. Get started today for free.

Capacity Planning In Production Management

Production management is the process of turning raw materials, human resources and capital into a production output. It involves planning and controlling industrial processes to make sure production runs smoothly.

Capacity planning fits into this process in three ways. There’s production capacity planning to make sure you have enough product or materials for deliverables. Workforce capacity planning deals with your human resources and work hours, while tool capacity planning ensures that your workers have what they need to do their jobs.

Why Is Capacity Planning Important?

Capacity planning is important as it ensures a business has what it needs when it needs it to fulfill demand. It allows for flexibility to help make a wide range of products and, done properly, it’ll make sure that no extra money is spent on the effort.

Budgeting and scaling are both guided by capacity planning, which helps to identify optimal levels of operations. For example, you can determine who services are offered and what the timeframe and staffing requirements will be so you can cover your operational costs.

Beyond those reasons, capacity planning helps managers make more informed decisions. It also helps employees by avoiding burnout or boredom on the job. As mentioned, it’s crucial to help a company grow and assists in making better staffing decisions.

What Is a Capacity Plan?

A capacity plan is used to achieve the goals of the overall capacity planning of an organization. One of the purposes of a capacity plan is that it can help to avoid scope creep in a project. Scope creep is when the requirements of a project increase over time.

When you create a capacity plan for one project, it can often be used as a template for other projects you’re planning. It helps you quickly identify what you do and don’t need, rather than trying to always go back to forecasting capacity requirements from scratch.

Since capacity planning is about the supply and demand of resources, your capacity plan can help you know when demand will increase or decrease so you can adjust the plan accordingly. Your capacity plan and resource plan will be very much related.

Free Capacity Planning Template for Excel

Kick off capacity planning for your projects with this free template . Use it to track all your resources, their hourly rates, their availability and even their utilization rate. It’s not as good as software, but it’s a good place to start your capacity planning process.

Capacity Planning Process

We’ve explained what capacity planning is and why it’s important. The next step is to understand the process. Capacity planning is done differently from company to company and industry to industry, but it always follows these four basic steps.

Capacity Forecasting

The first step is to understand the demand in order to start planning your capacity to meet that demand. You’ll need to make estimates on what needs to be done for an upcoming project. Use expert advice, historical data and anything else that’ll help you know the capacity you need to complete your project .

Capacity Scheduling

Once you’ve forecasted capacity, you’ll begin the process of creating a production plan . It should include all operations needed to meet customer demand. To do this means scheduling resources, whether raw materials, labor, machinery, etc., to ensure you have the resources needed to complete the project.

Capacity Tracking

To keep to your capacity schedule, you’ll need to track your resources as you go into production. This involves monitoring your non-human resources and making sure you have the inventory needed for the jobs coming up, but also knowing the availability of your human resources so they can be assigned work to complete those orders.

Capacity Reporting

To help with tracking and keeping stakeholders informed of progress, capacity reporting is necessary. A capacity report shows the capacity to deliver and take on new work. These metrics are shown in hours or as a percentage. Reports will also compare your planned capacity with your actual capacity to help you stay on track.

Types of Capacity Planning

There are three types of capacity planning: workforce capacity planning, product capacity planning and tool capacity planning. Each focuses on a different aspect of your project resources. The definition of each of these is listed below.

Workforce Capacity Planning

Workforce capacity planning deals with your human resources. It requires you to figure out the total hours you’ll need to work on a project per week. To find this number, multiply the number of workers you have on the project by the number of hours they work per week. Use this capacity planning formula: (Workers) x (Shifts) x (Utilization) x (Efficiency).

Product Capacity Planning

Product capacity planning is used to figure out production capacity to meet the changing demand for a product. It allows you to make sure you have the materials and labor on hand to create the number of products necessary to respond to the market demand and change production to respond as demand goes up or down.

Tool Capacity Planning

Tool capacity planning helps to forecast how many resources you’ll need and how to allocate those resources at the right time. In short, it makes sure you have the right tools and the right amount of tools necessary to do your job. These tools can include machinery, vehicles, assembly line parts, etc.

Capacity Planning Example

To get a better handle on capacity planning let’s imagine that you’re a retailer and the holidays are approaching. You’ll need to plan in accordance with the expected increase in demand. That will mean a number of things.

First, you’ll look at past seasons to see how many items you sold and compare that to market demand presently to forecast your expected demand. Once you have that figured out, you’ll need to reach out to suppliers and make sure you have access to the increased amount of items you need to stock for that demand.

Now, you’ll want to look at your labor force. You may need to increase workers. It’s not uncommon for retailers to hire seasonal workers to handle the expected influx of customers over a holiday period.

Finally, you’ll want to make sure you’re tracking the items sold and the items you have warehoused. This will help you get a more accurate reading on demand and will help you restock before you run out of inventory, which could lead to lost sales.

What Does a Capacity Planner Do?

Capacity planning is usually the responsibility of a capacity planner. They’re the ones who plan, analyze, balance and allocate resources as needed to meet the requirements and priorities of the organization. They also respond to customer demand, determining the workforce and timeframe of production to meet that demand.

Depending on the size of the organization, this position can be folded into a project manager’s responsibilities. If it’s a standalone position, however, the capacity planner works with the executive team and other stakeholders. They require excellent communication skills to work well with these different departments.

The capacity planner is a results-oriented person, with strong statistical and reporting skills. They have to collect and understand project data as well as know the trends that are impacting their industry to do their job well.

Capacity Planning Strategies

There are three capacity planning strategies to help you meet demand, cover your resource requirements and increase your team members’ productivity.

Lag Strategy

The lag strategy consists of having enough resources to meet actual demand, not projected demand estimates. This capacity planning strategy is beneficial for smaller organizations that have low capacity requirements.

Lead Strategy

The lead strategy consists in having enough resources to meet demand planning forecasts. This capacity planning strategy is beneficial when demand increases, as your excess capacity can cover the increased demand.

Match Strategy

This strategy is a mix of the lead and lag capacity planning strategies. In this case, project managers need to monitor actual demand, demand planning forecasts and market trends to adjust capacity accordingly.

Capacity Planning Benefits

Production capacity planning is an important strategic planning process for many reasons. Here are some of the main benefits of effective capacity planning.

• Reduces costs
• Prevents stock-outs
• Reduces production lead time
• Eliminates excess capacity
• Helps with supply chain management : A clear understanding of your project capacity requirements helps you get the right amount of resources, which benefits your supply chain.
• Helps with resource management: Having the right production capacity to meet your capacity requirements is key to optimizing resource planning and resource allocation.

Capacity Planning vs. Resource Planning

While the terms “capacity planning” and “ resource planning ” are sometimes used interchangeably, they’re not the same. To understand the differences, we’ve listed them below.

Capacity Planning

• It’s a strategic planning process designed to help determine if the organization has the production capacity required to meet the demand
• It looks at resource availability at the skill set/team level
• Then it facilitates the decision-making process to hire resources or defer/approve/cancel projects
• Capacity planning is about supply and demand

Resource Planning

• It’s a strategic planning process that coordinates and allocates actual resources to project tasks based on resource requirements
• It provides a plan to project managers, which resources they can plan to use for their projects and when
• Resource planning focuses on resource allocation

Related: Free Resource Plan Template

Capacity Planning vs. Capacity Requirements Planning

Capacity requirements planning is the step before capacity planning. It’s the process when an organization decides how much it needs to produce and whether it has the production capacity to be capable of doing so.

Capacity Planning Best Practices

Here are some tips and capacity planning best practices to help you manage your resources and teams.

• Establish a cross-functional team: To collaborate and communicate about production capacity and resource management, you want a cross-functional team with different levels and different functions.
• Calculate resource capacity: Before you can create a production capacity plan, you need to have an idea of your current capacity and your available resources.
• Determine resource requirements: For each project, look at the scope and what resources are required to do the task for the project.
• Prioritize projects: Which projects are most important, and which can be put aside for the time being? You can’t do everything at once.
• Allocate resources based on project priority: Now allocate those prioritized projects and ensure they’re aligned with the goals of the organization.
• Keep the lines of communication open: Communicate between executives, project management leaders and stakeholders.
• Document known risks: Monitor risks such as union strikes, weather and government regulations that stop a project or create new ones unexpectedly.
• Plan for how to handle too much capacity: Understand where it is and how to resolve it (such as reassigning), or not enough capacity (again, where/how).

ProjectManager Is a Great Capacity Planning Tool

Capacity planning requires the right resource management tools to give managers insight into their production capacity. ProjectManager is online project management software that gives them real-time data to make real-smart business decisions.

Our resource management tools provide a window into your team’s resources and help you plan better on our online Gantt charts. To get a full picture of the costs involved, you can add hourly rates for your teams and contractors across your project or portfolio. As team members log their hours, their actual costs are automatically calculated and can be compared to the costs that were planned.

Capacity Planning Video

Want to learn more about capacity planning? Watch the video below from Jennifer Bridges, PMP. Although her video focuses on IT teams, capacity management lessons can be applied to any industry.

Here’s a screenshot for your reference!

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• Corporate Finance

What Is Capacity and How Does a Company Maximize Output?

What Is Capacity?

Capacity is the maximum level of output that a company can sustain to make a product or provide a service. Planning for capacity requires management to accept limitations on the production process .

• Depending on the business type, capacity can refer to a production process, human resources allocation, technical thresholds, or several other related concepts.

No system can operate at full capacity for a prolonged period; inefficiencies and delays make it impossible to reach a theoretical level of output over the long run.

Understanding Capacity

Capacity ties into the fact that all production operates within a relevant range. No piece of machinery or equipment can operate above the relevant range for very long. Assume, for example, ABC Manufacturing makes jeans, and that a commercial sewing machine can operate effectively when used between 1,500 and 2,000 hours a month.

Key Takeaways

• Capacity is the maximum output level a company can sustain to provide its products or services.
• Some larger or highly technical companies may hire specialized managers to manage capacity.

If the firm sees a spike in production, the machine can operate at more than 2,000 hours for a month, but the risk of a breakdown increases. Management has to plan production so that the machine can operate within a relevant range.

Capacity Level Differences

Capacity assumes a constant level of maximum output. This production level assumes no machine or equipment breakdowns and no stoppages due to employee vacations or absences. Since this level of capacity is not possible, companies should instead use practical capacity, which accounts for repair and maintenance on machines and employee scheduling.

How the Flow of Manufacturing Cost Works

Managers plan for production capacity by understanding the flow of costs through the manufacturing process. ABC, for example, purchases denim material and ships the material to the factory floor. Workers load the material into machines that cut and dye the denim. Another group of workers sews parts of the jeans by hand, and then the jeans are packaged and sent to a warehouse as inventory.

Capacity Managers

Sometimes, especially at larger companies or those with a highly technical focus, dedicated capacity managers who often have specialized education and training in logistics, handle capacity management.

A capacity manager might deal with external goods or services like outgoing and incoming freight; they might manage a more technical type of capacity, like knowing the output capacity of a computer network; or they could manage employees on hand at any given time for a large customer service provider. 

Factoring in Bottlenecks

A manager can maintain a high level of capacity by avoiding bottlenecks in the production process. A bottleneck is a point of congestion that slows the process, such as a delay in getting denim materials to the factory floor or producing flawed pairs of jeans due to poor employee training.

Any event that stops production increases costs and may delay a shipment of goods to a customer. Delays may mean the loss of a customer order and possibly the loss of future business from the client. Management can avoid bottlenecks by working with reliable vendors and properly training employees.

Every business should budget for sales and production levels and then review actual results to determine whether production is operating efficiently.

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