6 Capacity Planning Best Practices (With Benefits And Tools)
Updated 27 December 2022
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Capacity planning often helps organisations balance available resources against the demand for those resources, which may help them successfully complete initiatives. This process can often influence the outcome of a project or production line. If you are planning a career as a project manager or supply chain manager, you can benefit from knowing how capacity planning works. In this article, we discuss what capacity planning is, explain its purpose, outline six capacity planning best practices and share some strategies for implementing capacity planning in an organisation.
What Is Capacity Planning?
Capacity planning is a process that helps determine the resources required for the operational changes in production or other processes. Capacity refers to the most amount of work an organisation can complete over a specific amount of time. The primary goal of capacity planning is to use the right resources, including labour, at the correct level on the right projects or tasks to maximise productivity.
This process also aims to increase the efficiency of a business by identifying new growth opportunities, increasing the returns on the investments and refining existing resources. This can help organisations make good investment decisions or adjust staffing levels as necessary. In addition, companies may verify whether their workforce can effectively manage the workload associated with an initiative.
Related: What Is A Business Cycle? (Definition And Important Stages)
6 Capacity Planning Best Practices
Capacity planning best practices may contribute to higher company efficiency and happier employees. Some of these practices are:
1. Understand the overall demand of teams
Understanding the overall demand on an organisation's teams can ensure that they fulfil them effectively. Work typically involves two categories, which include growth and maintenance. When using capacity planning practices, maintaining a balance between the two is essential for planning business operations and growing as a company. Understanding demand also involves recognising uncertainty within the business and adjusting to the best plan of action based on different situations to maximise company output.
Related: How To Calculate Growth Rate Using Different Methods
2. Evaluate the business's current capacity
Companies may use both traditional and agile methodologies to evaluate their teams' current capacity. A traditional methodology may include viewing working hours, time-off and unplanned work such as interruptions or administrative activities. An agile methodology may include viewing the amount of work a team delivers on story points. This also involves all interruptions and absences. These approaches to understanding capacity in different time lengths may help organisations learn how to make more accurate plans and learn if they can meet future requirements.
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3. Use scenario planning
Scenario planning is a process some companies can use to create flexible long-term plans. It involves making assumptions about the future and how the business may change over time in that future. One benefit of using scenario planning is gaining a better understanding of the trade offs of different options, as there usually is not a single correct answer.
Consider using scenario planning with capacity planning by reviewing multiple investment options and evaluating their applicability to the current or future capacity. The objective of scenario planning is to find the best combination of reasonable work and investments that match the organisation's goals. For example, a scenario's value may depend on gathering and evaluating important metrics, like financial costs and risk tolerance.
4. Expect change
Priorities often change, and some estimates may require readjusting when companies complete any work for the first time. Even a minor change may alter a plan. A waterfall strategy may make it slightly easier to plan resources because organisations know the start and end dates, but it may become less flexible than agile frameworks. Many companies reallocate resources to balance workloads. An agile approach usually adjusts the scope but may cause delays when attempting to achieve a minimum viable product for a product.
5. Implement a resource pool
A resource pool often includes all resources in the business and their available capacity, but organisations may not always track every single one simultaneously. Consider focusing on the most important resources first and creating estimates for them before moving on to other, less critical resources. Many companies often focus on a few teams or individuals in high demand across many projects or initiatives. These are some of the most important resources of the company. Creating resource estimates for a smaller resource pool still typically creates great value while determining workflow and the capacity to complete projects on time successfully.
Related: What Is Resource Planning? (With Benefits And Techniques)
6. Determine allocation granularity levels
Companies require knowing the exact workload each team member can complete at any point in time. This also includes employee availability and other resources and their skill capabilities. Learning this information may help companies build project plans that team members can easily follow and avoid resource conflicts. Understanding this at a company level also means deciding how and how often the organisation can track allocations for both large projects and small assignments.
The Purpose Of Capacity Planning
The purpose of capacity planning is to help companies prepare for any demand well in advance so that they can successfully complete their projects. Companies can confidently determine if they possess the right resources to deliver adequate work. Prioritising resources depending on the value of work often contributes to reducing over or under-utilisation of resources. Here are several other purposes of using this process in an organisation:
Understanding staffing gaps
Capacity planning can assist an organisation with understanding the skill and talent of the workforce it currently employs. Learning about the teams and resources available may help them understand what skills or resources the company still requires for performing effectively or achieving a certain goal. This may allow them to hire the right candidates who possess those qualifications. Companies may even learn how to train existing employees to manage new or bigger responsibilities.
Staying on schedule
Using capacity planning practices can also contribute to on-schedule, on-budget deliveries by providing reliable, real-time data regarding capabilities, limitations and opportunities. This can also include the availability and skills of resources, such as team members. Team members sometimes gain better confidence in their abilities and increase their morale when the company ensures they can complete only tasks they can effectively manage.
Burnout often contributes to higher employee turnover, but capacity planning can help reduce this. Using this process often helps companies determine the demand for certain people and skills so they can hire more team members to deliver projects and prevent existing employees from over utilisation. This can contribute to higher morale, which can cause a lower attrition rate.
Strategies For Using Capacity Planning
The strategies helpful for capacity planning at an organisation are:
The lag strategy involves planning the company's capacity to meet the actual demand for resources, not the projected demand. This means having the exact number of resources required for current projects and objectives. It usually helps companies optimally utilise the resources available. This works best for companies that typically experience predictable demand.
Related: What Is A Bottleneck? (And Tips To Resolve One Successfully)
The lead strategy involves planning for the projected future for demand instead of the current demand. This strategy typically works best for companies that may experience less predictable changes in demand. When a company experiences additional demand, it can use extra resources to meet it. Some resources may remain idle if forecasted resources are excess than the actual future demand.
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The match strategy uses elements from both the lag and lead strategies. This strategy focuses on reducing resource idleness while still maintaining the capacity to meet additional demand by matching' supply and demand as close as possible at the earliest possible. When companies employ this strategy, they monitor the actual demand versus seasonal and market trends. They regularly predict demand and adjust the organisation's capacity and resources as and when required.
Capacity Planning Tools
Here are some tools that may help organisations use capacity planning processes:
Resource utilisation report: This report neatly organises everyone's utilisation and allows companies to view the demand for certain resources.
Capacity planning charts and dashboards: Automated reports can reveal a company's entire capacity against a confirmed workload whenever someone requires knowing it for business operations.
Variance charts: Variance charts help organisations review differences between budgets, timelines and other organisational plans against emergencies or other external factors that may affect the production efficiency of a company.
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