Capacity planning is assessing how much time team members have available to meet customer demands, and then making decisions on how to address any gaps.
While we often lack decision-making authority in our project manager roles, participating in capacity planning is another way for us to have a positive impact on our teams and the business. Let's take a look at your role in this process.
What Is Capacity Planning In Project Management?
Capacity planning in project management involves assessing and allocating resources, including personnel, time, and budget, to ensure that a project can be successfully executed within its specified constraints.
The goal of capacity planning is to predict whether your existing supply of resources will be sufficient to achieve project objectives.
As part of this assessment, you’ll need to consider resource availability–and that includes both physical resources and the people who will work on the project. You’ll also want to evaluate whether these team members have the appropriate skills to execute the expected work.
Once you’ve got your production capacity figured out, compare that supply with your expected demand, and make a plan for how you’ll balance the two.
What Are The Benefits Of Capacity Planning?
Capacity planning benefits project stakeholders, the project team, the business, and you as the project manager.
- Accurately forecasting demand and rightsizing your supply in real-time to meet it keeps stakeholders happy and ensures you don’t lose out on potential business if new requests pop up.
- Team members are working on projects that align with their skill sets and career interests. Like Goldilocks, they have just enough work to do—not too much and not too little. An engaged workforce is less susceptible to burnout.
- Conducting capacity planning helps pinpoint bottlenecks in the team’s existing processes. Project managers can use the data collected to push back against stakeholder requests that may be out of scope. They can also more easily justify requests for new headcount.
Capacity Planning Strategies
Once you’ve calculated expected supply and demand, what are your options for addressing gaps? Project managers can employ three types of capacity planning strategies:
- Lag strategy: Only maintain enough resources to meet real-time demand. If a new project comes up, you
hirebeg, borrow, and steal to meet the needs of that project. The time it takes to find a resource can slow down production capacity—in other words, there’s a lag. - Lead strategy: Maintaining excess capacity to meet expected demand. In consulting, we called this having a bench. This strategy lets you respond quickly to new stakeholder requests, but if your forecasted demand is not realized, you risk negatively impacting profitability and the bottom line.
- Match strategy: A hybrid approach in which you frequently revise demand forecasts in response to new capacity requirements. You then hire incrementally to meet expected demand.
Which strategy is best?
While it can be risky, I prefer a lead strategy. It keeps stakeholders happy and is the most agile. If you’re managing your projects well (like the rock star you know you are) it’s usually not too challenging to convince stakeholders that they need more of your great support. Continuous process improvement frees up budget to take on these tasks.
Matching is likely the ideal capacity management strategy, but it’s not always practical. The appetite for hiring tends to follow boom/bust cycles, so it’s best to take advantage of the booms. Planners will find it time-consuming to revise forecasts incrementally.
Pro tip: Maintain a running list of the in-house tasks that your team wishes they had time to complete. Dust it off when new team members start and unleash the combined powers of your bench to standardize project documentation, revamp team onboarding, and reorganize the shared drive.
Capacity Planning Process
The capacity planning process includes three steps:
A Capacity Planning Example
Let's work through an example. Here's where you're starting:
- Imagine you're leading a team of data engineers to acquire and ingest data records onto a large analytics platform.
- These records span various work streams and need to be ingested weekly.
- Your stakeholders are planning next quarter’s budget and want to know of any changes to staffing costs.
How do you proceed?
1. Assess Supply
To calculate your team’s existing resource capacity, you’ll need to answer the following questions:
- How many data engineers are performing this work today?
- How many hours per week do they have available to dedicate to this project?
Let’s say you have a team of 10 data engineers that are each dedicated to this project full-time. It might be tempting to calculate team capacity as 10 data engineers ✖ 40 hours/week, for a total of 400 hours.
Realistically, these people won’t be spending 8 hours a day on project work—what about meetings? Coffee breaks? Resource utilization of 5 hours/day is probably more reasonable.
Your supply is therefore 10 data engineers ✖ 5 hours/day ✖ 5 days/week = 250 hours/week.
2. Forecast Demand
Now that you know your supply, you’ll need to forecast demand. Let’s break out the spreadsheets!
- How many work streams do you have today? How many work streams do you expect to add in the next quarter?
- Today, how many records do you acquire and ingest weekly within each workstream? Do you expect that number to increase in the next quarter for any of your existing workstreams? How many records do you expect for new workstreams?
- How long does it take you to acquire and ingest these records? (For simplicity, calculate a rate based on a certain number of records. Let’s say 10,000.)
| Work Stream | Number of Records to Acquire and Ingest Weekly | Number of Hours to Acquire & Ingest 10,000 Records | Estimated Hours Per Week |
|---|---|---|---|
| Finance | 500,000 | 2 | 100 |
| Retail | 200,000 | 4 | 80 |
| Pharmaceuticals | 175,000 | 4 | 70 |
| Facilities (forecasted) | 100,000 | 2.5 | 25 |
| Total: 4 | Total: 975,000 | Total: 12.5 | Total: 275 |
Supply vs. demand gap = 250 hours/week ➖ 275 hours/week = -25 hours/week.
Note: In this example, I’m assuming that engineers don’t require any special skill sets based on the workstream. In reality, you might need to forecast demand based on role to ensure you are engaging people with the appropriate skill set to complete the work.
3. Capacity Planning
You’ve determined that project demand exceeds capacity by 25 hours/week. Now, you have to decide what you’re going to do about it.
If your budget permits, it might be worth adopting a lead strategy. Hire 1 full-time employee now to buy you some lead time in advance of the upcoming facilities need.
What if your stakeholders refuse and/or the money isn’t there? You’ve got a couple options:
- Prioritize across the four workstreams based on available capacity—you’ll have to cut something because you won’t be able to support everything
- Focus on optimization of your existing operations. You may have noticed that the retail and pharmaceuticals work streams take longer to acquire and ingest data than either the finance or the projected facilities workstreams. Get curious about that. For example:
- Could you automate onboarding to increase throughput?
- Could you configure an acquisition checklist to streamline information gathering?
If you highlight the impacts of failing to pursue projects that are deemed lower priority AND use metrics to demonstrate that your existing workflow is becoming more efficient, you may be able to make the case for adopting a lead strategy in future quarters.
Capacity Planning Best Practices
There are few tricks you should have up your sleeve to make this process go smoothly.
- Confirm your project scope: This may sound obvious, but it's important. Be crystal clear about what your project's all about—lay out the scope, goals, and what you're aiming to deliver. The clearer the picture, the easier it is to figure out what you need. Be sure to confirm expectations and deliverables with stakeholders.
- Look at post projects: Take a peek at old project data. It's like your project's history book—see what worked, what didn't, and use those lessons to get a leg up on your resource estimates.
- Dig deeper in your team assessment: Ensure that the skills of your team members align with the project requirements. Try to get an understanding of their workloads, skills, and availability. But take it one step further: Find out what people are interested in working on. You'll have a better outcome if you can match assignments with things people are passionate about working on.
- Get your tech in order: Use project management tools to make your life easier. They help do resource planning, tweak plans in real-time, and stay on top of how everything's going. Watch how your project's rolling along and keep an eye on resource use. Be ready to shuffle things around if the project takes an unexpected turn.
- Don't skip the retro: Once your project's in the bag, take a look back. Ask your team for input on what worked and what didn't. Use those lessons to make your next project even smoother.
Capacity Planning vs. Resource Planning
Resource planning is a subset of capacity planning. Capacity planning provides a strategic overview of a project, and resource planning deals with the details of resource allocation and utilization.
Capacity planning aims to ensure that the project has the necessary resources to deliver a successful project. Resource planning, on the other hand, specifically focuses on identifying, allocating, and managing the resources needed for a project.
Resources in this context can include:
- Human resources
- Equipment
- Technology
- Budget
How To Do Capacity Planning In Agile
As you’ve been reading this article, you may have been asking yourself: “what about agile?” It’s still possible to perform capacity planning when working on an agile vs. a traditional project.
Consider that sprint planning is a mini version of capacity planning. Every sprint (which can range from 2-6 weeks in duration), the team evaluates the demand for project work (tickets) against the available resources to execute those tickets. You’re using a matching strategy to continuously reassess demand.
Rather than matching on a two-week cadence, which may be excessive, I’d recommend performing capacity planning via a quarterly roadmapping or OKR setting process. Focus on using the products you intend to develop as a way to forecast your resource needs during this period of time. Then, adjust hiring plans based on your chosen strategy—lagging, leading, or matching—to meet those needs.
What’s Next?
Remember that selecting the right tool for the job can go a long way toward reducing work time. Check out our capacity planning software guide for more information.