September 27, 2022
General
Libby Marks

Agile Capacity Planning 101: Theory + Tools

One-third of you say Agile capacity planning is a major challenge. If you struggle to predict capacity for your scrum and sprints, here’s everything you need to know to ace your Agile capacity planning 💪

Agile capacity planning can be challenging. But - just as products are improved iteratively over time in Agile - you can improve your planning too. 

By tracking the accuracy of your forecasts over each sprint, scrum masters can improve their capacity planning over time. This leads to more realistic sprint planning, reduced risk of overcommitment, and - ultimately - better project outcomes.

The adoption of Agile methodologies continues to grow. Digital.ai’s 15th State of Agile Report saw Agile adoption increase from 37% in 2020 to 86% in 2021 in the software sector. And other disciplines are following suit. 

According to the 5th Annual State of Agile Marketing Report from Agile Sherpas - in partnership with Adobe and IBM - 91% of marketers that don’t currently use Agile are planning to implement it in the next 12 months. 

The benefits of Agile are there for businesses to reap. Compared to non-Agile competition, McKinsey and Co research found that

  • 93% of Agile businesses reported better customer satisfaction 
  • 76% of Agile companies reported better employee engagement 
  • 93% of Agile companies reported better operational performance

However, there are challenges. After the top challenge of colleagues reverting to non-Agile approaches, Agile Sherpas uncovered workload and capacity planning as the top pain points for Agile teams. 

  • 33% of Agile teams reported difficulties managing unplanned work 
  • 28% cite problems estimating team capacity and velocity

With that in mind - as more of you adopt Agile approaches - we’re here to give you the lowdown on why capacity planning is essential to your success - and EXACTLY how to do it. We’ll talk a lot about software development but the principles apply to any Agile team. 

What is Agile capacity planning?

Agile capacity planning involves working out the capacity of your scrum team for a particular sprint - then determining how much of the product backlog you can expect to complete. It is sometimes known as capacity-based sprint planning or commitment-based sprint planning.  

The outcome of Agile capacity planning isn’t simply to know how much capacity you have. It’s about knowing how much you can realistically commit to delivering within the timeframe. And that’s not just about people x time. It’s about keeping resources optimally engaged to deliver their best work - so they can create functionality that delights your customers and users.

Agile software development - how it works

Agile software development aims to deliver new functionality faster, cheaper, and to a higher level of customer satisfaction than traditional waterfall processes. 

The waterfall approach follows sequential processes, which can create a long lead time for a finished product. Whereas Agile uses focused, time-limited activity to get a viable product - or feature - into testing fast, allowing for further improvement and iteration.

One of the most common Agile approaches is the scrum process. This is when a team (or scrum) undertakes to clear an agreed amount of work (or product backlog) in a fixed amount of time (known as a sprint).

At the end of the sprint - if the scrum has completed its work - a new product, feature or functionality should be ready to test or release.

Working in this way, Agile teams help their organization stay ahead of digital disruption - and competitors - in a fast-moving industry.

Agile Scrum process

The strategic alignment between Agile and capacity planning 

Agile is gaining momentum because it helps business leaders meet their mandate to create more value with fewer resources - by improving productivity, accelerating the software development lifecycle (SDLC), and increasing customer satisfaction.

In Digital.ai’s analysis of 1,382 survey responses from global software professionals, they found the top reasons for adopting Agile were:

  • 64% enhance ability to manage changing priorities
  • 64% accelerate software delivery
  • 47% increase team productivity
  • 42% enhance software quality 
  • 41% enhance delivery predictability

As experts in all things capacity and resource, this list looks familiar to us, because it maps so perfectly onto the outcomes of proper capacity planning.

We have a beginner’s guide to capacity planning we’d love you to read but - in a nutshell - it's about making sure you have the resources you need to handle your workload and achieve your business goals.

Done properly, capacity planning uses past data to inform future decision-making - iteratively improving delivery predictability AND increasing your ability to manage changing priorities. It goes hand in hand with resource management to ensure you’re using your people optimally - so they’re highly productive but never exhausted. Which - of course - means higher quality outcomes from happier people.

As you can tell, Agile approaches and capacity planning are highly strategically aligned. When the two are combined - in Agile capacity planning - it is a powerful tool for transformation.

The challenges of capacity planning for Agile teams

Capacity-based sprint planning can be challenging for even experienced scrum masters. It’s hard to know exactly what your team can accomplish during a particular sprint, especially if your organization uses different sprint lengths or work units (hours vs story points etc).

If you’re not using Agile capacity planning - there’s a risk that you’ll overcommit your scrum team and that undermines project outcomes. When your knowledge workers are overworked and under pressure, they may be forced to rush their work to meet unrealistic commitments. And that goes against the customer-centric focus at the heart of Agile approaches.

the challenges of agile capacity planning

If you are using Agile capacity planning - it can still be challenging to keep your sprint on track. That could be due to factors outside of your control - like ad hoc tasks getting allocated to your team. Or it could be that you’re not using the right techniques and tools to plan capacity accurately. Or trying to balance Agile with non-Agile projects across your organization. 

You’re going to be equipped to solve all of these challenges by the end of this article 💪 But before we dive into how to calculate agile team capacity, let’s look at two key concepts - team velocity and team capacity - and how they differ.

Team velocity vs team capacity: what’s the difference? 

Agile team velocity measures the amount of work an Agile team typically delivers in a certain timeframe. It helps individual teams predict how much of the product backlog they can expect to clear per two-week sprint. And it can be a useful metric for the team to assess their progress. (However, don’t be tempted to use it to benchmark between teams, as velocity isn’t always calculated on the same terms).

Agile team capacity is how much time the team has available within the sprint to complete high-quality work. Note that capacity isn’t simply a measure of the number of team members x the number of hours in their working day x the number of days in the sprint. That assumes an unhealthy 100% utilization rate. Capacity is about how much work they can REALISTICALLY complete, without being burnt out. More on this later. 

Both velocity and capacity can change between sprints. For example, capacity because of factors like holiday, annual leave, and other priorities impacting the project. And velocity because the team may be tackling more or less familiar work, or working on particularly tricky user stories. This is one of the reasons why capacity-based sprint planning is a challenge. 

When does Agile capacity planning happen in the sprint process?

Agile capacity planning features twice in the sprint framework: initially during the sprint planning stage, and again during the sprint retrospective. 

Sprint planning 

Agile capacity planning starts at the sprint planning meeting. The sprint planning meeting is where the team determines which product backlog items they’ll work on during the sprint - and start to formulate their work plan.

This involves:

  • considering different items from the backlog (or ‘candidates’) to work on
  • discussing their priority level and estimating how long each might take
  • forecasting team capacity for this particular sprint 
  • deciding what they’re able to commit to completing

Review and retrospective

During the sprint, the scrum team typically has daily huddles to discuss progress and resolve any problems together. And at the end of the sprint, they have a review (or ‘retrospective’) to assess how things went. 

During the retrospective - among other operational issues - the scrum master will assess:

  • Whether they delivered all of the product backlog items they committed to
  • Whether their forecast was accurate or off
  • If their velocity had changed - and why that might be

This is all essential information to inform the next sprint planning session - to ensure the next sprint is planned with a realistic workload and list of commitments. 

How to plan capacity in Agile teams

  1. Calculate the sprint duration. Most sprints are 2 or 4 weeks but that doesn’t translate directly into 14 or 31 days. Calculate the working days in the sprint - excluding weekends, public holidays, etc.
  2. Calculate the collective number of hours per day. Look at who’s in your team and how they work. You may have three team members available full days and two team members who work half days. If your typical work day comprises 7 hours, that gives you 21 hours from your F/T teammates (3 people x 7 hours per day) and 7 hours from your P/T teammates (2 people x 3.5 hours per day). That gives you 28 hours per day. 
  3. Consider other factors that impact availability. Check whether your teammates have other commitments that will take them away from the sprint - such as working on another project. If so, factor that into your calculation too.
  4. Determine a realistic utilization rate. No one can work at 100% capacity. And no one can focus on sprint work 100% of the time - there’s emails and meetings and loo breaks! Aim for 80% utilization of your resources. Reduce this to 60 or 70% if they lack experience in tasks for this sprint as they may take a little longer than normal.
agile capacity planning steps

You’re now ready to calculate the capacity for your sprint. 

Examples of Agile capacity planning calculations 

There are various formulas for calculating sprint capacity. Ours is this one 👇

Sprint duration in days x Number of available hours per day x Utilization rate 

Let’s say our team above - with three F/T and two P/T members - is going to work on a two-week sprint. There are no holidays or other commitments to consider - and they’re confident in the work. The sprint capacity calculation would look like this.

10 days x 28 hours x 0.8 utilization rate = 224 hours capacity 

Now let’s imagine all five team members are working F/T on a two-week sprint. But there’s a Bank Holiday to account for. And the tasks are new to them. A realistic capacity calculation could look like this.

9 days x 35 hours x 0.6 utilization rate = 189 hours capacity 

With this understanding of team capacity for the forthcoming sprint, the scrum master and team members can begin to choose which product backlog candidates to complete. For example:

  • Task A - 80 hours
  • Task B - 30 hours
  • Task C - 60 hours 
  • Task D - 70 hours
  • Task E - 20 hours

Our 189-hour team knows they don’t have time to commit to completing all of these tasks. However, they could comfortably complete the following within capacity.

  • Tasks A, B, and C - totaling 170 hours 
  • Task B, C, D, and E - totaling 180 hours

Armed with this knowledge - and knowing which tasks are the highest priority / will deliver the most value to the customer or user - they can begin to plan their sprint. 

Of course, Agile capacity planning is only part of the picture. Agile resource planning is also key. These connected processes can be jointly managed using appropriate capacity and resource planning software.

The benefits of Agile capacity planning

Improved forecasting and predictability

The main point of Agile methodology is the ability to analyze performance and learn from past experience. So it makes sense for scrum leaders to embrace the data that Agile capacity planning provides. Not only to improve performance in their next sprint but to increase delivery predictability overall.

Using data from previous sprints improves commitment confidence, knowing what your team can deliver in a given period. Improved forecasting ensures each task gets the time it deserves to be delivered well - no rushed work to meet unrealistic expectations - which drives up product quality. Higher delivery predictability also reduces the risk of overrunning schedules and budgets. 

Psychological safety, staff morale, and retention 

Another benefit of Agile capacity planning is managing your team workload - to maximize productivity while minimizing the risk of burnout. It keeps your resources optimally employed without being overworked. This creates a culture of psychological safety, where your team knows they’re respected, protected, and trust your judgment. This promotes higher staff morale and supports strategic staff retention goals.

Improved ability to pushback and prioritize

42% of respondents in Agile Sherpa’s State of Agile Marketing Report cite difficulties managing unplanned work. Agile capacity planning creates evidence-based expectations of what your team can achieve. Their time is meticulously mapped to desired outcomes and progress is assessed on an (often) daily basis. This provides a firmer foundation to push back against unscheduled work. 

By conveying data-based capacity concerns to senior managers, Agile team leaders can foster a culture of realism and respect for their resources’ time. This can support proper prioritization and scheduling of ad hoc work that sometimes jumps the queue - which leads to improved project outcomes for both planned and (previously) unplanned work. 

Software for Agile capacity planning   

Now you’ve discovered the correct technique for Agile capacity planning, it’s time to discover the tools. 

Capacity-based sprint planning is quicker, easier, and more accurate with capacity planning software like Runn. 

Runn software is perfect for Agile resource planning. At an individual team level - and at scale across your entire organization - it lets you

And you can try it for free today. Sign up for your 14-day trial today.

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