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What is Capacity Planning and Why Is It Important?

10 Dec, 2020 | Business Tips

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Every business owner wants their company to grow, but it can be hard to track and manage growth in a manner that both pushes the company forward and doesn’t overwhelm your staff. Of course, getting extra projects on your schedule is a good thing, but if you don’t have the time or manpower to handle all this extra responsibility, you’ll wind up becoming frazzled, disorganized, and overwhelmed, which can lead to dissatisfaction in those new clients you just worked so hard to bring on.

So, what is a small business to do to make sure that they can continue to grow at a pace that works for them? One of the best tools is capacity planning. Capacity planning allows you to show what your team can realistically get done while still maintaining the quality and deadlines that your clients expect. Here, we’ll talk about what capacity planning exactly means, how it can benefit your business, and how to do it effectively, no matter how big your company is or what industry you work in.


What is Capacity Planning?

When you hear the term “capacity planning,” it refers to the process of matching up the available hours of your team to the needs of the project at hand. Capacity planning takes several elements into account, such as the physical working schedule of your team (how many hours do they work per week? Part-time or full-time?), which team members have the skill sets to take on the project, and any other tasks at hand that may take time away from the particular project you’re focusing on.

Essentially, capacity planning allows those in a leadership role to figure out which employees are up for the task, what their availability is in, and if there are any obstacles that can get in the way like sickness, delivery delays, and the like. When done correctly, capacity planning allows team leaders to use their staff to the best of their abilities and ensure that the company moves forward without getting burnt out or overwhelmed.


Capacity Planning vs. Resource Planning

In the same vein, you may have also heard the term “resource planning.” While resource planning and capacity planning are quite similar and they always go together in a successful business, they are two distinct processes. Whereas capacity planning looks at the data behind your employees and their availability, resource planning actually puts those employees up to the task.

When a new project comes across your desk, you always want to start with capacity planning. This step helps determine if your company can handle the project in the first place by assessing the number of team members you have and their various skill sets. If you decide that you don’t have the adequate staff to complete the project, you can either decline the opportunity, cancel other projects you might be working on (or push them to the side for now), or hire additional people to help you with the task at hand.

After capacity planning, you can move on to resource planning. This step allows you to coordinate the team members that you need to ensure they have the same availability to get the task done. Resource planning also involves setting deliverables to ensure that the task stays on track from start to finish, as well as utilizing resources so that the project is completed in a productive and efficient manner that prevents overwhelm.


Benefits of Capacity Planning

The benefits of capacity planning truly cannot be overstated. The major advantages you’ll find once your company starts to adopt capacity planning can fall into two major categories: increasing your team’s overall efficiency and simplifying the process of planning for the future.

Chances are that your team is working on multiple projects at once. Bringing too many tasks onto your team at once can be harmful in more ways than one; it can stress out your team members and stretch them too thin, impacting the quality of all the projects at hand. Plus, you run the risk of not being able to complete the project within the time frame or the budget that you set with your client, leading to a shaky business relationship from the start.

However, when you turn to capacity planning, you can determine the proper course of action before you ever even get start on the project. Capacity planning helps you adapt to the skill set, availability, and productivity habits of everyone involved, therefore using your team members to their fullest potential.

Another huge benefit to capacity planning is its impact on your long-term strategies. If you know your team gets busier around the holiday season, for instance, you can account for the projects you already have on your plate and see whether or not you have the people you need to handle those projects in the busy season. If it doesn’t look like you’re going to have the talent or availability you need, you’ll know that ahead of time and can start looking for extra help early on.


3 Main Methods of Capacity Planning

Capacity planning is an incredible tool for any company, but this seemingly simple concept can actually be performed in three different ways. You might know right off the bat which one would work best for your team, or it might require a bit of experimentation before you decide which path is best.

The three main approaches to capacity planning are lead, lag, and match.

In a lead scenario, you’re operating with the impression that you’re going to be getting a bunch of new projects coming at your team soon. So, you take the steps to hire additional people to get the job done. While this can be an effective way to ensure your team is ready to hit the ground running with these new projects, you do run the risk of being overstaffed (and having wasted the time and money to secure that staff) if these new projects don’t actually come to fruition. This strategy is often preferred by companies that are actively growing.

Second, we have the lag scenario. As the name implies, this situation occurs when a team has to lag behind because they didn’t predict their project flow accurately, so their staff members wind up getting booked solid or overextending themselves. In this situation, you have saved the money on hiring extra staff members, but you very well might burn out the team members that you do have. Additionally, your team won’t be able to take on any more projects for a while. This strategy often works best for those companies who are satisfied with their current status and aren’t actively looking to grow.

Finally, there’s the match scenario. This situation is basically your best case scenario when it comes to capacity planning; you’re simultaneously considering what your team can handle right now while also looking forward to the needs your company might have down the road. You can decide on the utilization rate where you want to keep your team (75% utilization might be perfect for your team, but once you creep up to 85%, it might be time to slow down), and you’ll only be bringing on new talent if you know you need it.


Creating Your Capacity Planning Process

Creating the best capacity planning process that works for your team can be done in five basic steps:


  1.     Look at everything on your plate
  2.     Select a strategy
  3.     Build a realistic schedule
  4.     Track it all
  5.     Evaluate what happened


You’ll start by outlining every single thing your team is currently working on and is expected to work on within a set time period (3-6 months is a good buffer). Then, go down your list and determine how long each project and its individual tasks will take. Share your outline with your team and get their feedback; after all, they’re the ones actually working on these projects!

Next, pick a strategy from the three we outlined above (lead, lag, or match). Selecting your strategy will help you move into the next step and will give you an idea of whether or not you can take on any extra projects over the time period you’re looking at.

Then, build your schedule. Above all else, keep things realistic. You don’t want to overstretch your team before they even start, and you want to have a bit of a buffer in case something comes up. Again, remember to match your team members’ availability and schedules with their skill sets and other projects. This step might be tedious, but it’s worth it!

Once you’ve planned and scheduled, it’s time to get to work. As projects go on, track everything that happens, exactly as it happens. Keeping an accurate log is vital for your final step to go as it should. This step is where high-quality ERP software can work wonders.

Finally, at the end of the period, take a look back at what worked and what didn’t. Do you need to pick a new strategy for this upcoming quarter? Have any of your team members had schedule changes that impact what they can do moving forward? Consider the past, tweak what’s needed, and start all over again!


Capacity Planning with DEAR Systems

Capacity management is a vital part of running any successful company, but it can seem overwhelming to try to keep track of every department at once. With Cloud-based ERP software from DEAR Systems, you’ll have every sector of your business and all of their data in one convenient place, so you can get the most accurate reports right at a glance. We’re proud to serve clients from around the world who work in virtually every industry, so no matter what your company does, our ERP software can make capacity planning work for you. Contact us today to learn more about our system and to start your 14-day free trial!

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