September 15, 2022
General
Iryna Viter

What is Business Capacity & How to Manage It

Business capacity management is one of the most important aspects of company management — and often one of the most overlooked. 

It's common for managers to assume that their business capacity is fine, or even for them to think that it just magically appears out of nowhere — when really, it's a result of careful planning and consideration.

It's easy to think of capacity as the number of hours in a day or days in a week, but the reality is more complex.

So what is it after all and how can you manage it? 

What is business capacity?

Business capacity is a measure of the amount of work that can be accomplished by a business within a fixed amount of time.

It's measured in terms of the number of resources or staff members that are available to complete a project within a certain period. By doing capacity management, you can ensure that projects stay on track and the work is completed with maximum efficiency.

In project management, capacity is a term used to reference an organization's ability to deliver on a project. It can be determined by the size of the team, the tools and resources available to the team, and any external factors that might hinder delivery on time or to budget. 

Like all things in project management, determining business capacity involves forecasting and planning. The project manager will take into account the number of staff members who are able to work on the project, as well as how long they are able to dedicate their time to it.

Capacity planning is critical to the success of your business. It allows you to maximize the productivity of your staff by making sure that you are fully utilizing the skills available to you.

If you have more work than you can handle with the team, then you risk either not getting everything done on time or having to hire new people to make up for it.

Neither option is very good, so it's important that you always stay at or below your business capacity level.

Examples of capacity planning in business

Let's take an accounting firm.

A smaller firm might have 20 employees (not including any partners) and a business capacity of 25 clients. Assuming each employee works 40 hours per week, then there will be 1000 work hours available each week to work on client matters—1000 / 25 = 40. This means that each client is being allocated one full-time staff member each week.

In a larger firm with 100 employees, the maximum capacity might be 150 clients — again assuming each employee works 40 hours per week — and in this case, the company employees would be getting five hours per week to work on client matters.

It can get more complicated than that, is employees are allocated to several projects at the same time!

Or here's another example.

Suppose you have a graphic designer and you set their capacity for website design at 20 minutes per week.

If that's how much time they need to spend to make an acceptable website, then you know you can take on 20 websites in a given week and be sure they will not fall behind on any of them.

If you take on 21 websites, though, it might cause some delays with the sites that only get 20 minutes of the designer's attention each week.

The truth is, capacity management also means being realistic about what your team can accomplish in a certain amount of time.

Why is measuring business capacity important?

Business capacity planning is the maximum amount of work that a business can take on before either:

  1. Time on the job becomes less efficient because of stress or other issues, or
  2. The business begins to suffer from being overworked.

When it comes to the first scenario, most companies have a "tooth-to-tail" ratio that they strive for. In this ideal situation, there are enough employees to handle all of the front-end work (tasks like marketing, sales, and customer service) while only having a few employees do tasks that require very specific skill sets and usually involve long hours and heavy lifting.

In the second scenario, overworking a company will eventually lead to a decrease in efficiency due to mistakes being made more frequently than they would be otherwise.

It would also lead to things like important emails not being answered in a timely fashion because your staff is too busy with their workloads.

This can hurt your reputation as an organization. It can also lead to decreased morale among your employees, which can negatively affect your company culture and create a less productive environment for everyone involved.

5 steps to better business capacity management

In order to ensure that your employees’ time is being used wisely — and to avoid wasting time and money on overstaffing — you need to have a system in place for tracking everyone's workload and ensuring that everyone stays busy at appropriate levels.

There are many ways to do this, but most companies start with some kind of time-tracking app or software.

It can be as simple as having each employee submit a spreadsheet with their hours each week, or as complicated as giving them devices that track their activity automatically.

But here are some steps that will help you improve your business capacity management regardless of the capacity planning tool you choose.

  • Establish a resource pool

The first step to effective capacity management is knowing what human resources you have available to meet your goals.

This might seem like a simple point, but in business capacity management, it's crucial.

If a company doesn't know how many experts it has available, or if it doesn't understand their roles and responsibilities, it can't understand its capacities.

For example, if you employ a dozen different people whose jobs are all very similar, then you could count them as one person when doing capacity management— if you didn't realize that these dozen people were actually twelve separate employees who each do their own job.

While it might seem like an insignificant detail, knowing exactly how much time one employee can devote to a project is essential when considering whether to take on new projects or manage existing ones more efficiently. 

So in practice, you can start by creating a resource calendar. Try doing it with Runn, or any other resource management tool. The beauty of Runn is that it will automatically generate capacity charts when resources are assigned to projects. And the only thing you might want to do is to set specific filters based on what you want to see.

Getting resource visibility at a granular level can then help you visualize the capacity of specific teams, departments, and roles.

  • Track everyone's workload

One of the best ways to begin managing capacity is by tracking everyone's workloads accurately. If different employees don't know what they're supposed to be doing, they will feel stressed out and overwhelmed.

They also may not know where exactly they should be spending their time and energy if things are chaotic.

Effective managers will track their employees' workloads and make sure everyone knows about upcoming projects or deadlines so no one feels like they don't know what's going on.

  • Compare workload and actual capacity

 It's important to look at how much work you have coming in and how much time your employees have available to complete it. If there are some people who are consistently at capacity, or if some projects are taking longer than others, then this is a good place to start.

Do your people have just enough workload to reach maximum output or is it already a little too much and you are going beyond the capacity of the business?

Trying to squeeze as much value out of your resources as possible can backfire sometimes: they will end up being stressed and overworked. It’s finding that sweet spot between available capacity and maximum workload that you should pursue. 

  • Don't book people for more than 80% of their time

This might come as a surprise to some, but people generally don't work 9 to 5 all day every day. They also don't work every day that's a business day.

All of this comes down to the fact that people take time off work, go on vacation, take sick leave, or just might need a short break in the middle of the day to have a coffee with their colleagues.

Booking people for 100% of their time means setting unrealistic expectations, which, at best, leads to project delays and at worst, to failed projects and dissatisfied customers.

You also shouldn't book people for more than 80% of their time because this means they're working overtime without being compensated for it.

Booking them beyond this mark might not only lead to productivity issues but also make employees feel overworked and exhausted at the end of each day.

  • Bonus tip

Set aside some time each week (or month) to make sure that everyone is on track with their workloads and that they're not being overscheduled beyond reasonable levels.

Meet with them one-on-one to discuss what's going on in their lives as well as how well they're doing at work so that you can figure out if they need more time to work on their tasks or if they're just not performing well.

If you notice that they're having trouble finishing their projects on time, talk with them about how you can help them move forward faster and achieve maximum output.

Trying to manage capacity is a difficult thing for many businesses, but it's necessary if you want to achieve maximum efficiency and meet customer demand.

Without a clear picture of how much effort and resources are being used, it's tough to evaluate whether the organization has what it needs.

And if one area is overburdened while others are underutilized, that presents serious problems down the line. 

Crafting a working plan to manage capacity can keep these issues from happening. See how Runn can help you today!

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