Capacity Planning: Strategies, Benefits, and Best Practices

Updated Oct 15, 2022.
capacity-planning

Effective capacity planning is crucial to the success of your production line or project. It is hard to determine how much resource planning, production capacity, and capacity management you need for a certain task or project. 

How many employees will you have in two years? 

How many products will you produce in a year? 

How much capacity do you need to assemble 1,000 car parts monthly? 

Although there is no way to know the exact answers to these questions, capacity planning can help you get close to the answers.

This article will teach you everything you need to know about capacity planning and how to prevent excess capacity that drains valuable resources.

What is Capacity Planning?

Capacity planning is balancing the available capacity to ensure it is sufficient to meet customer demand (resource capacity requirements). In other words, it refers to the process of finding out the total resources needed to meet future demand. 

The goal of capacity planning is to use efficient resource management strategies to ensure there are available resources to meet demand over a given period.  

In project management, the capacity planning process cuts across key project management knowledge areas such as resource management, risk management, cost management, and procurement management. 

Strategic capacity planning centers on resource planning and management, the project team’s capacity and time management, the entire organization team, and work management processes. 

Capacity Planning Template
Source: Smartsheet

One benefit of capacity planning is how it helps improve design capacity and identify bottlenecks in the supply chain. 

Production capacity, strategic planning, resource planning, scheduling, and project planning are all interrelated. It ensures that the resource schedule and team’s workload add to the available employee hours. 

Resource Management Process
Source: Kelloo

Types of Capacity Planning

You can subdivide capacity planning into three major segments. When used with the necessary skill sets and capacity requirements, it guarantees the available resources meet short and long-term requirements. 

1. Workforce Capacity Planning

The main aim of this capacity planning strategy is to ensure the workforce capacity is the maximum to meet demand. 

Workforce capacity planning involves having the right number of team members and hours required to efficiently complete tasks. 

This capacity planning type helps you make adjustments ahead to accommodate the increase or downsizing of your workforce. It helps you calculate how long the onboarding process for new workers will take.

The Workforce Planning Process
Source: Personio

2. Production Capacity Planning

The production capacity planning strategy ensures the maximum capacity of products and resources are readily available to meet customer demand and deliver on set project deliverables

An example of product capacity planning is when a grocery shop restocks more groceries such as milk, meat, butter, cheese, bacon, and canned foods ahead of a holiday season. 

Capacity planning for product
Source: SlideTeam

3. Tool Capacity Planning

Tool capacity planning is one of the best strategies to ensure you use the needed capacity planning tools in the business capacity plan. 

They can be in the form of vehicles, machinery, or any crucial addition that team members can use to help increase efficiency and the available capacity delivery time frame. 

When Is Capacity Planning Required?

Capacity planning is a moderate strategy to ensure the supply chain is equal to demand. 

A rule of thumb around capacity and resource planning is to do it each time you try balancing demand with supply. The timeframe to carry out capacity planning varies, depending on your needs. You can do it weekly, monthly, quarterly, or yearly.

For many businesses and new projects, project managers have a lot on their sleeves in ensuring individual project resource planning and production capacities. 

Such capacity management responsibilities include:

  • Keeping tabs on the project team and ascertaining their full capacity,
  • Gathering real-time data on constantly changing priorities, 
  • Determining how many hours are available for both full-time employees and their remote counterparts

As a project manager, embarking on set tasks in your capacity without a plan is a recipe for disaster. Every project requires strategic planning and a conservative strategy. 

This capacity management strategy allows project managers to be a step ahead of incoming bottlenecks. It helps them manage time and resources much more efficiently to increase the overall process efficiency. 

When the need to embark on more projects arises, project managers must implement an effective adjustment strategy to deal with an increase in demand.

How Does Capacity Planning Help in Sprint Planning?

Sprint planning is an effective strategic planning tool that uses different capacity planning strategies to help maintain a high level of orderliness in individual projects. 

Working on large and complex projects can be tiring. You can use agile sprints to break down these projects into smaller bits, such as milestones and deliverables.  

Each team member gets assigned specific tasks based on their effective capacity and skill sets required in sprint planning to complete jobs. 

Most of these tasks are interdependent on one another. The successful completion of one task guarantees the start of another task for another individual. Capacity planning reduces the likelihood of this occurrence to the barest minimum in sprint planning. 

Sequence of Activities During the Spring Planning
Source: Scrum.org

The presence of an effective capacity plan helps shore up your sprint planning as it becomes more efficient and less porous to bottlenecks such as:

  • Missed task deadlines, 
  • Increase in actual costs, 
  • Lack of enough resources and employee hours, or in cases where demand increases, leaving a huge deficit in the supply chain. 

Your capacity plan is usually designed to make flexible tweaks in dealing with arising issues that disrupt the smooth overall process. 

A better design strategy is to create a capacity plan that provides a full picture of the capacity requirements of the project without upsetting the project team’s normal working schedule.  

Benefits of the Capacity Planning Process

There are many advantages that businesses stand to gain from adopting the right capacity planning strategy. 

1. Helps Reduce Stock-Outs

Stock-outs occur as a result of the outright failure of the project team to deliver or meet customers’ demands. 

Unavailability or lack of product delivery capacity, be it goods or services, can lead to the loss of valuable customers as demand must always meet supply. You can lose customers to your competitors due to insufficient supply to meet their demands.

One of the stand-out advantages of capacity planning is that you get prior knowledge when demand increases or supply reduces. 

Your capacity planning process will help you easily predict changes to your customer’s demand and increase supply to match it due to demand forecasting.  

2. Helps Identify Business Processes Inefficiencies

Capacity planning helps a company know its minimum and maximum resource capacity by identifying capacity limiting factors early enough to tackle them before it affects the project. 

3. Helps with Resource Planning and Management

Proper capacity planning helps in the allocation and management processes of already limited company resources. It helps you know if you have enough resources or if your team’s capacity is sufficient to cater to your new customers or projects. 

Project managers can use resource management software to better track and manage their limited project resources. 

4. Increase in Delivery Capacity

The faster the product delivery rate to customers, the more successful the business will be. Capacity planning helps the business considerably improve its turnover time as it prioritizes consumer satisfaction above all other factors.    

Capacity Planning Strategies

For your capacity plan to be effective, three strategies are key to ensuring you deliver on-demand, meet crucial resource requirements and improve the team member’s productivity.

1. Lag Strategy Planning

The lag strategy is effective for small businesses with low capacity requirements. It projects its available resources to be sufficient to meet its actual demand against projected demand estimates.

2. Lead Strategy Planning

The lead strategy covers slightly more areas than the lag strategy. It ensures excess resource capacity to deal with the increase in demand at any time.

Lead capacity planning helps companies adequately plan for an evolving market. The lead strategy is the most radical of the three capacity planning strategies. 

3. Match Strategy Planning

The match strategy is a hybrid of the lag and lead strategies. Project managers closely monitor the actual demand, projected demand estimates, and supply market forecasts to implement necessary adjustment strategies when needed. 

Capacity Planning Best Practices

Capacity planning effectively ensures improved efficiency through effective resource capacity planning and management to deliver on set project deliverables.

 Even at that, the capacity plan for your organization needs to conform to global best practices that make its use case more effective. 

Here are some best capacity planning practices that help better manage the project team and available resources.

1. Establish Cross-Functional Teams 

Collaborating and communicating with a cross-functional team concerning improving production capacity and resource management more than your regular project team is much easier. 

The design of a cross-functional team is to perform a wide variety of functions at different levels. Team members have dynamic and adjustable skill sets and are only constrained by the resource or project schedule.

You can boost your cross-team collaboration by choosing the right team, assigning clear responsibilities, and providing employees with the right communication tools. 

Functional vs. Cross-functional team
Source: UpTech

2. Calculate Resource Capacity

In creating a capacity plan, there must be prior and calculated knowledge of the current production capacity of the company and the level of resources available to meet production requirements.

3. Determine Resource Requirements

Each project comes with its requirements as regards resources and production capacity. These requirements are detailed in the project’s scope and each set task resource requirement.

4. Prioritize Projects

There are situations where you may have more projects than readily available resources to see them through to completion. It is the responsibility of the project manager to prioritize these projects based on their level of importance or scheduled completion date. 

Prioritizing projects and planning for project dependencies ensures key projects are not left abandoned halfway for less important and time-sensitive projects.  

5. Allocate Resources Based on Project Priority

After grouping projects you want to embark on based on the priority index designed, the project manager must ensure the availability of resources to see each prioritized project to completion in the listed order. 

Creating a list of prioritized projects is not enough. The project manager must double back and ensure they conform to the organization’s strategic goals and objectives. 

6. Maintain an Open Line for Communication 

There should be open and free communication among all key stakeholders involved in the organization's business operations. 

Maintaining an open line for communication ensures everyone is updated with real-time data on happenings surrounding project processes.

Project Communication Plan
Source: Venngage

7. Document Known Risk Factors

No matter how detailed and well-defined your project plan is, every project has certain bottlenecks and risk factors

As much as you can not entirely exempt these risk factors, you can effectively manage to ensure they do not negatively hinder the company from delivering on strategic objectives and goals. 

Risk Register - Common project risk
Source: StakeholderMap

What are the Steps in Capacity Planning?

Creating a proper and effective capacity plan ensures you have access to an overview of your organization's overall capacity to deliver on set deliverables. 

Follow the created capacity plan to minute details to ensure its efficacy during implementation.

1. Confirm Regularly Your Current Capacity Level Status

When making plans for your company regarding what is expected of it, it is important to maintain a regular background check on the organization's current capacity concerning available resources. 

Plans are less effective if the necessary means to execute them are not readily available. With an idea of the available resources at the company’s disposal, the project manager can now make a well-calculated guess on the production capacity in delivering products to customers.

2. Analyze Existing Capacity

Several performance monitoring tools such as project tracking software measure your current capacity if you do not want to opt for the less accurate calculated guess method. 

This step is where all the permutations are done regarding the available resource capacity and how they meet the project's strategic objectives and goals.

3. Determine The Future Needs of Your Business

With an idea of your organization’s current production and resource capacity, the next step is to see ahead of the future capacity requirements of the company. 

This step cuts beyond the mere company growth forecast for the business. Your future business needs should include how the existing resources available stand against a future increase in demand. 

4. Consolidate On Opportunities As They Arise

Capacity planning provides a unique opportunity for businesses to consolidate their workload or improve significantly on areas that do not turn out the expected results. 

Removing these resources from draining and straining infrastructure and finding better and more efficient replacements is one of the biggest positive steps in capacity planning. 

5. Act On Your Capacity Recommendations

Your capacity plan outlines steps to help improve and support the business process now and beyond. 

Recommendations are often formulated from the data gathered from the current resource capacity of the business. These recommendations help to support the capacity requirements of the business. 

The timing of implementing these recommendations is equally as important as the recommendations themselves.

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Anastasia Belyh

Editor at FounderJar

Anastasia has been a professional blogger and researcher since 2014. She loves to perform in-depth software reviews to help software buyers make informed decisions when choosing project management software, CRM tools, website builders, and everything around growing a startup business.

Anastasia worked in management consulting and tech startups, so she has lots of experience in helping professionals choosing the right business software.