11 min read

What Is Capacity Planning? Strategies, Benefits, and Process

Sarah M. Hoban

Last updated on Oct 1, 2024

QUICK SUMMARY

Orgs often juggle several projects and priorities at once, so project managers don't always have the final say in resourcing. Capacity planning helps PMs make sure they have enough team members to get their projects done. Here are some pro tips from someone who's been there.

TABLE OF CONTENTS What Is Capacity Planning? Benefits Types When To Do It Strategies Capacity vs. Resource Planning Example Tools Best Practices Agile Capacity Planning

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. This is typically done using capacity planning software or resource management software.

While we often lack decision-making authority in our project manager roles, participating in capacity planning is one 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 as a project manager.

What Is Capacity Planning?

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 workload 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 want to evaluate whether these team members have the bandwidth and appropriate skills to execute the expected amount of work.

resource capacity planning in Runn — *Here's what capacity planning looks like in the tool Runn—you can see how many hours your team has scheduled and where they have open schedules.*

Once you’ve got your production capacity figured out, compare the supply of available resources against 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.

Types of Capacity Planning

When you’re embarking on capacity planning for your organization, consider the full spectrum of organizational needs, which may require multiple types of capacity planning:

Workforce capacity planning assesses whether you have the appropriate workforce (in terms of size and skillset) to complete your organization’s expected volume of work.
Tool capacity planning analyzes whether your organization has the appropriate supplies (e.g., software or other equipment) to deliver services to customers.
Product capacity planning considers products or other resources needed to generate deliverables (e.g., if you are selling a product, do you have enough widgets of that product in stock?).

When To Do Capacity Planning

Ideally, you want to reach a stage of organizational maturity where you are performing capacity planning on a continuous basis. Until then, it’s good to take a refreshed look at key moments in project planning, such as:

Strategic planning at the end of a quarter or fiscal year (as you look ahead to the next quarter or fiscal year)
In advance of an upcoming new project or portfolio of projects that you expect will materially change your resource outlook or current capacity

There is no one right time to perform capacity planning; assess the needs of your organization and tailor your approach accordingly.

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 ~~hire~~ beg, 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, 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.

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 and allocating the resources needed for a project and then managing those resources.

Resources in this context can include:

Human resources
Equipment
Technology
Budget

Capacity Planning Example

The capacity planning process includes three steps:

Assess supply
Forecast demand
Determine the capacity planning strategy

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.

resource guru utilization — *Tools like Resource Guru can keep track of resource utilization for individual team members automatically.*

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.)

Workstream	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

This table forecasts demand in hours per week.

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. Determine Capacity Planning Strategy

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 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 workstreams take longer to acquire and ingest data than either the finance or the projected facilities workstreams. Get curious about that. For example:
1. Could you automate onboarding to increase throughput?
2. 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.

Recommended Tools For Capacity Planning

Here’s a list of tools I’d recommend using for capacity planning. They have specific resource management features to help you calculate utilization and assign your team members to work automatically, so you’re not doing everything manually in an Excel spreadsheet.

Capacity Planning Best Practices

There are a few resource planning best practices you should have up your sleeve to ensure effective capacity planning:

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 past 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.
Get your tech in order: Use capacity planning software to make your life easier. These tools 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.

How To Do Capacity Planning In Agile

As you’ve been reading this article, you may have been asking yourself: “what about agile?”

Consider that sprint planning is a mini version of capacity planning—on a condensed time frame! 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.

runn team utilization report — *Tools like Runn allow you to pull utilization reports for your whole team over specific periods of time.*

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?

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