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Libby Marks

The Beginner's Guide to Capacity Planning for 2024 & Beyond

Struggling to meet new project demand? Enter capacity planning to validate if your people can handle the workloads.

Capacity planning is a great way to make businesses more efficient. When it’s done right, it can help to identify new growth opportunities, increase the return on investments, and keep staff morale levels high.

Resource capacity planning can really help with juggling multiple projects, increasing your chances of completing several of them on time and on budget. At the same time, you can use capacity-based planning in all business areas to reduce costs and maximize the benefit you get from resources.

This article explains the benefits of establishing a solid capacity planning process, and how you can realize those benefits.

get better at capacity planning

What is capacity planning?

Capacity planning, also known as resource capacity planning, is a strategic process that involves matching resources supply to demand. It is about working out how many resources you’ll need to deliver your future work plans. Resources might be people, equipment or materials - anything that determines your ability to deliver a product or service to clients. Without the right number of resources, you can’t meet demand in a timely way, which means disappointed customers and lost revenue. Effective capacity planning helps your business work to optimal capacity and seize every sale.

Supply and demand

Demand comes from your customers - it’s the products or services they want you to provide. Supply comes from you and your supply chain - it’s the resources you need to deliver those products or services.

The exact nature of the resources depends on your business. In a product-based business, resources could mean raw materials, manufacturing equipment, and human resources. Whereas service-based businesses are more likely to focus on the people-side of things. Capacity planning is a periodic management process that predicts resource availability to meet anticipated demand.

Three types of capacity planning

1. Workforce capacity planning

Workforce capacity planning is about making sure you have enough workforce to deliver your future workload. It provides an insight into whether you have the right number of staff – with the right skills and in the right job roles - to meet demand.

Your workforce capacity plan might discover you have too few staff, in which case you have the time and information you need to recruit more. Or it could find you have too many, in which case you’ll have to consider downsizing, or redeploying them elsewhere in the business.

Runn's People Planner helps you gauge the current allocation status of your workforce

Remember, the bigger picture of workforce planning. It isn’t just about making sure you have the staff you need to scrape by. It’s about ensuring you have the right staff in the right place at the right time to achieve your organizational objectives – from delighting clients with exceptional service, to delivering more projects on time and budget.  And to do so without burning out your staff, which leads to higher turnover, more sick days and lower productivity according to Gallup’s State of the Global Workplace Report 2022.

Learn how to build and read a capacity report in our recent guide. 💻

2. Tool capacity planning 

Tool capacity planning is concerned with securing the tools and equipment you need to deliver future work. For example, computer equipment, specialist machinery, vehicles… anything you need to deliver the product or service that you offer to customers.

3. Product capacity planning

Product capacity planning involves planning what products and materials you’ll need to meet demand. This is more relevant in product-based businesses like manufacturing and – increasingly – e-commerce.

In manufacturing, product capacity planning involves raw material management to ensure you have everything you need to create your own product – such as ingredients.

In retail and e-commerce, it’s concerned with securing the products you need from suppliers, to meet customer demand. This might involve forecasting seasonal demand, such as swimsuits in summer and woolly hats in winter, or evergreen demand for products like jeans and trainers. 

Capacity planning definition 

In the context of a service business, capacity planning is the management process that ensures your organization has the skills and resources it needs to complete projects on time, on budget, and to customer expectations.

When properly executed, resource capacity planning answers two key questions for senior leaders:

  1. Do we have the necessary resources to complete work?
  2. When do we have the capacity to take on additional work?
capacity planning example
Runn helps you see your confirmed workload vs capacity across people, roles, skills, or teams.

What is the goal of capacity planning?

The goal of capacity planning is typically to offset two common - and costly - problems:

  • An insufficient amount of resources - leading to performance and delivery issues
  • An environment with excess capacity - which leads to wasted money

Imagine you have plenty of projects on your books and want to know whether you can take on any more. You'll need to work out how long each project will take, what staff and skills they require to complete, and whether you can deliver those projects cost-effectively. Capacity planning provides a framework for working that out and making informed decisions.

Capacity planning helps you answer questions like:

  • Do we have the bandwidth for new projects?
  • What skillsets are the most valuable/used?
  • Do we have enough of those skills on staff?
  • Do we need to hire new people? 
  • Is every resource assigned to the right job?

This is achieved with capacity planning software and can take different views - resource heatmaps or group charts.

Capacity-based planning is all about efficiency and productivity.

  • Efficiency because resources are put to good use - they aren’t idle or overbooked.
  • Productivity because they are utilized as well as they can be - doing as much work as they can without being pushed too hard.

Without effective capacity planning, you risk failing to deliver client projects on time or to their satisfaction. You may go over budget having to pay overtime to get a project over the line. You may hit bottlenecks because key team members aren’t available at the right time. Or you may use resources inefficiently, for example, paying for more senior staff than a task requires.

Capacity planning examples

Here are two examples of capacity planning in practice. Notice how - in both examples - capacity planning ensures the organization can confidently seize opportunities for business and revenue growth.

Capacity planning example 1 - IT agency

One example of capacity planning is when an IT development company wants to know whether it can take on additional projects. Management knows that new projects will require additional DevOps Engineers as they’re always in demand. And they know that they need one Project Manager per four projects, so they’ll need another PM too. But what other resources might be required? And how can they secure them in good time? 

Capacity planning answers that question. The managers can use one of numerous frameworks (see below) to predict the resources they’ll require to take on additional work. And use that information to start the process of acquiring them. 

For example, briefing the HR team on the people, skills and competencies they need to recruit for (workforce capacity planning) and asking the purchasing team to prepare additional workstations for the new staff (tool capacity planning). 

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Capacity planning example 2 - Food manufacturer 

Another example of capacity planning is food manufacturer that has the opportunity to supply a new retailer. They need to understand the impact of increasing production capacity on their resource requirements. 

They will need to secure more raw materials to produce a higher volume of product (product capacity planning). They may also need to add production line equipment if there’s no spare capacity on the existing line (tool capacity planning), as well as recruit more people to operate the equipment (workforce capacity planning).

Key capacity planning concepts 

There are two key concepts you need to understand if you’re going to impress with your capacity planning prowess. 

Critical paths in capacity planning

A critical path is a concept from project management. It determines the tasks that need to be done - and the order in which they need to be completed - to deliver a project.

A critical path identifies the longest duration of dependent activities and measures them from start to finish, to give an estimated timeframe for essential activities. 

If any task in the critical path is delayed, it can have a knock-on effect for all future tasks, so a critical path is often presented via a Gantt chart, that allows you to recalculate the critical path if any element of a project changes.

The concept of the critical path is important in capacity planning. If you consider that capacity planning is the process of making sure you have the ‘supply’ to meet business ‘demand’, then critical paths demonstrate the demand. 

You can see what’s needed - and when it’s needed - and you can then match that with the supply of resources you have available. Without this roadmap for resource requirements, your project plans will be a guess at best.  

critical paths in capacity planning

Bottlenecks in capacity planning 

A bottleneck is something or someone that impedes planned work. It could be the availability of raw materials, equipment, or individuals. 

For example, imagine you're building a house. You need the frame to be erected before you can put on the roof, install the wiring, or tile the bathrooms. Once the foundations are laid, there is very little else that can be done until the frames are up. If you were to have other resources on site during this time - such as electricians or roofers - they wouldn’t be able to achieve anything. This is known as ‘latency’ or resources being ‘idle’.

By planning capacity and mapping it to a project’s critical path, you can identify these periods of latency in advance. This means you can avoid having resources standing idle. You could choose to only bring resources on-board exactly when needed - thus avoiding overspend on underused resources. Or you could redeploy those resources to other projects until they’re needed again. This ensures they’re being utilized to their optimum capacity and other projects get to benefit from them. 

Sometimes, an individual employee can become a bottleneck in a project. Their skills are in high demand and several projects revolve around their expertise. With only a limited number of hours in the day, tasks can stack up waiting for their input. When these vital resources are overutilized, it doesn't matter whether everyone else is available. It is these ‘bottleneck’ individuals who determine the flow of work and the capacity to complete project tasks on time.

Capacity planning is about making sure you have enough resources to follow the critical path of your projects, avoiding bottlenecks, and delivering projects in the most efficient way possible. 

If this doesn't happen in your organization, your capacity management may need work. Capacity planning will allow you to:

  • Anticipate and mitigate against these resource clashes
  • Prioritize projects if clashes are unavoidable
  • Make the case for recruiting more staff with the same in-demand skills

Capacity planning vs resource planning: What’s the difference? 

Capacity planning and resource planning might seem like very similar concepts. And people often use the terms interchangeably. But there’s an important difference between the two that you need to understand.

  •  Resource planning is about assessing the capacity of a specific resource
  • Capacity planning is planning the capacity of a whole workplace or department

At the risk of oversimplifying things, it might help to think in terms of projects and tasks, or strategy and tactics.

Capacity planning is strategic - it takes an organization- or department-wide overview of all of your projects and everything that’s needed to deliver them. Read our article on strategic capacity planning for more info.

Resource planning is more tactical - it looks at tasks within projects and the availability of specific resources to complete them.

When we talk about ‘resource’ here at Runn, we typically mean human resource (even though we aren’t crazy about reducing talented individuals to such an impersonal phrase). 

In this context, resource planning relates to planning the capacity of an individual employee needed to complete tasks within specific projects. Whilst capacity planning relates to planning the capacity of your whole team to deliver all of your projects. 

Resource planning typically flows on from capacity planning. Senior managers will assess capacity and make decisions about whether they need to move projects or hire more staff. Then individual project managers will assign resources to projects and allocate tasks. 

capacity planning vs resource planning

Why is resource capacity planning important?

Capacity planning can greatly increase the productivity and efficiency of your organization. It helps you deliver priority business projects on time and on budget. And it’s a great way to make businesses more efficient by ensuring you use resources in the best way possible.

When it’s done right, it can also help identify new growth opportunities by demonstrating when you have the capacity to take on more projects. Plus it can increase staff morale and retention, by reducing burnout or boredom.

In the current climate of remote working and geographically dispersed teams, capacity planning also provides enhanced transparency across departments. With people working away from the office, it can be more difficult to gauge how much capacity your business has. Capacity management greatly enhances visibility within your business, so you can make more informed, data-based decisions about workload planning.

The problems of poor capacity planning

Some of the problems with poor capacity planning include:

  • Over-scheduled staff
  • Staff who are burnt out by overwork
  • Or bored by being assigned junior tasks
  • Low staff morale and high turnover
  • Ad-hoc tasks and multitasking
  • Poor prioritization of resources and projects
  • Missed deadlines and customer dissatisfaction

On the flip side, businesses can reap a lot of benefits from effective capacity planning.

The benefits of capacity planning

1. Increased project margins

Capacity planning allows you to build project timelines that utilize the most affordable resources as much as possible. For example, you may be planning to start a project next week, when only a senior developer is available. With a capacity plan, you would be able to see that you could start the project the following week, assign a junior developer still capable of doing the job, and not risk delaying the project or overservicing the client.

2. Project reliability

In project management, resource availability has a large impact on the time it takes to complete certain projects. It’s much better to know at the start that you can utilize the resources you need at a given period. A capacity plan is essentially an aggregated resource plan, taking the availability of each resource and making it visible in one place. As a project manager, it’s a huge help to know that your project plan is reliable.

3. Skill management and hiring

By planning capacity, you can anticipate and manage the skills you have on your team. For example, if your DevOps Engineer is consistently in high demand and causing bottlenecks, you know you either need to clone them - or hire more people like them! Capacity planning tools can provide information on skill utilization so you can make data-informed hiring decisions.

4. Intelligent resource allocation

Being able to allocate and book resources in advance is a huge advantage because you know they'll be available when they’re needed. Not only that, but you can allocate scarce resources according to business priorities - making sure your MVPs are working on your top projects. On top of that, you can identify bottlenecks, clashes, periods of resource over- or under-utilization, or any other resource risks that may require addressing. Doing this ahead of time saves costs and allows you to come up with a resource management plan that minimizes lost productivity.

5. Staff retention

One reason staff leave service firms is burnout. According to Deloitte, 77% of professionals have experienced burnout at work and 50% of millenials have left a job because of burnout. 69% of employees feel their employee doesn’t do enough to combat burnout - with two of the main reported causes being unrealistic deadlines and workload (30%) and consistently working long hours (29%).

6. Avoiding project management pitfalls

Capacity resource planning helps project managers avoid three of the biggest pitfalls that can undermine project success.

  • Over-estimating resource availability - Over-estimating resource availability is problematic because it causes bottlenecks, delays projects, and can lead to burnout. 
  • Mismatching skills and tasks - Another pitfall is matching tasks to people that don’t have the necessary skills. This can reduce project quality and customer satisfaction.
  • Overservicing contracts - The last pitfall is overservicing client contracts. Without capacity planning, it is very easy to spend too long and too much time on client deliverables. This undermines the profitability of your projects.

There are three strategies that organizations use to plan capacity. We'll look at those next, before going on to a step-by-step guide on how to plan capacity.

The three capacity planning strategies

When it comes to capacity planning, organizations typically have one of three strategies: lag, lead, or match. You’ll need to decide which capacity planning strategy works best for your organization. That will depend on your risk appetite, as well as the type of risk you’re most comfortable with. 

capacity planning strategies

1. Lag strategy

Lag strategy is planning capacity to meet actual demand, not forecasted demand. That means you have the right resources for the projects you have booked in.

Lag strategy is popular because it means you aren’t spending more than you need to on resources and you are less likely to have resources standing idle.

But if you get a surge in demand, there’ll be a delay whilst you get more resources in place. This could mean you’re unable to meet client deadlines and either lose the business or disappoint the customer. That’s why this strategy is called ‘lag strategy’ – because it can cause a lag in delivery for unexpected demand.

Lag strategy can work for businesses that experience more predictable demand – or those where increased demand doesn’t dramatically increase required resources.

2. Lead strategy

Lead strategy is forward-looking. It’s about planning capacity to meet forecasted demand, not current demand.

Lead strategy means that if you experience additional demand, you have the resources to meet that demand almost immediately. However, the flip side is that you may have resources standing idle if demand doesn’t meet forecast levels.

3. Match strategy

Match strategy is somewhere between lag and lead strategies. It aims to avoid idle resources whilst maintaining the capacity to meet the extra demand, fast. It is called ‘match’ strategy because your supply matches demand as closely as possible. 

It involves monitoring actual demand, seasonal and market trends, forecasting demand regularly, and adjusting capacity accordingly. This means investing more time in capacity and resource planning, but the benefit is increased agility and lower risk to your budget. 

How to create a capacity plan 

Now you understand more about capacity planning, it’s time to start creating one.

You’ll need to know exactly how much work your resources can take at any point in time - that includes the availability of staff members and exactly what they’re capable of. This information is key to avoiding resource clashes and being able to build project plans you can stick to. 

Here are seven steps to get you started. 

1. Calculate current capacity

Start by looking at your team. What can they collectively get done in their available hours? Don’t assume every hour is available for project tasks. Remember to account for day-to-day activities like admin, emails, and attending meetings. Plus people have holidays, are off sick etc.  Estimate how much time you realistically have for project work across the different individuals in your team. 

2. Record staff skills

It isn’t just staff availability that determines whether they’re part of a project. It’s also their skills. So you’ll need to understand the strengths and level of expertise of all available resources. This will let you select the right people for each project. Between points 1 and 2, you’ll understand the ‘supply’ side of the capacity planning equation.

3. Analyze project requirements 

Next you need to work out what projects your team will be working on. If you have a lag strategy, look at the projects you currently have on your books and create a realistic critical path for all of them. If you’re using a lead strategy, look at future projects and forecast their likely resource requirements as well. This gives you the ‘demand’ side of the equation. 

4. Create visibility 

Once you understand both the supply and demand side of the equation, you can start to assess whether you have enough capacity to complete your projects. Senior managers need a way to view project requirements and available resources, in order to match them up. If there isn’t capacity to deliver particular projects, managers will need to make some decisions. For example, do they move, delay or decline particular projects? Or do they recruit more staff to accommodate the work? 

5. Choose what to use

You can use individual Gantt charts, Kanban boards, and spreadsheets to plan capacity. But the most effective way to plan capacity is to use dedicated software. Projects are made up of lots of moving parts. It only takes a staff member being off sick, or a change to project scope, to completely change the critical path. And with resources often shared between multiple projects, this can have a knock-on effect for more than one body of work. Manually adjusting plans in such a complex environment is time-consuming and prone to human error. Whereas resource planning software can automatically adjust capacity plans in just a few clicks. 

6. Allocate resources

Knowing available resources, project requirements and business priorities, you can then look at allocating resources. Don’t forget this is an ongoing, dynamic process. When things change, your plan may have to as well. If you have a match strategy for capacity planning, you’ll be reviewing your forecast and allocations frequently, to match demand as accurately as possible. 

7. Capture KPIs

You can’t manage what you don’t measure. So it’s important to establish the Key Performance Indicators you’ll track, to check whether your capacity plan is working. We’ll talk more about those next. 

Capacity planning best practices

There is a lot of context and nuance that goes into team capacity planning. It involves a lot of moving parts, such as project planning, resource analysis, resource management, and strong communication. At its core, capacity planning includes the following tasks:

• Analysis of current utilization of resources

• Forecasting of future demands on resources

• Comparison of forecasts with budgeted funds

• Identification of problems in advance so they can be addressed before they occur

The best capacity planning process for one project may not always be best for another project. However, generally speaking, the following tips can help if you’re looking to improve it across all projects.

1. Acquire multi-functional resources

Resources that can perform a range of different tasks give you more options when it comes to making project plans. This is particularly relevant when it comes to your staff. It helps to upskill staff wherever you can, in order to grow the capacity of your business and foster their own professional development.

2. Set up a resource pool

Typically, your resource pool will include all the resources in the business or at least the project portfolio and their available capacity. However, it doesn’t mean you should track it all. Before looking into every corner and attempting to figure out who works on what, it’s best to focus on highlighting resource estimates for your most critical resources.

It would be a waste of time if project managers were required to predict the utilization of each individual for each project. Typically, there are a small number of people who are in high demand across several projects, your subject matter experts that are being pulled in different directions. These are your most important resources (also known as bottleneck resources) .

Capturing resource estimates for this narrower resource pool will still deliver great value while filtering out noise with minimal effort. When these vital resources are overutilized, it doesn't matter whether everyone else is available. They truly determine the flow of work and the capacity to complete project tasks on time.

3. Decide on the level of allocation granularity

You need to know exactly how much work your resources can take at any point in time. That includes the availability of staff members and other resources, and exactly what they’re capable of. This information is key to avoiding resource clashes and being able to build project plans you can stick to.

Being able to understand resource availability at a company level means that you have to decide how you want to track allocations - on a task or a project level, and how often you want to do it - weekly, monthly, or quarterly. Let’s take a look at project and task allocations separately.

Project allocations

If you don't know what tasks your current and future team will be working on right away, but you want to book a team member for, say, 200 hours over the next five weeks, you'll want to assign your team members to a project. This would mean that your resource management strategy is high level.

Task allocations

Task allocation is just a list of tasks that you allocate to your team. It works best when you have a list of detailed customer requirements that can be turned into tasks ahead of time.

At Runn, we recommend collecting resource projections at the project or phase level. Attempting to obtain more detailed data at the task level is a tad utopian. To forecast resource availability in advance using task allocations, you’d need to know who would work on what tasks in a month or two beforehand. Most likely, this projection won’t be very accurate, but will take a lot of time to plan and re-plan further down the line.

4. Block out operational time

Because relatively few employees spend 100 percent of their time on project work, you must account for the amount of time each person spends on operational activities to achieve a somewhat realistic resource picture (e.g. day to day work, emails, meetings, etc.). It’s best to generalize time for operational work, you don’t want to track how your resources spend every minute of their day.

5. Determine the roles for each project

Knowing the resources required by each project means you can now look at acquiring these resources. As part of this step, it’s important to involve your team members in helping the client estimate how much time it will take to complete the underlying package of work.

6. Prioritize projects

When you’re allocating resources, it helps to know which projects are the highest business priorities. Concentrating on the projects that make the biggest impact on your business just makes sense.

7. Allocate resources

Knowing available resources, project requirements and business priorities, you can then look at allocating resources.

This capacity planning process allows you to focus on the most important projects, delivering them the resources they need at the right time. With so many variables at play, it helps to use a specific capacity planning software to make the process easier and reduce the chance of human error.

Capacity planning tools

Now that you have an effective capacity planning process you can follow, let's look at capacity planning tools.

Runn software uses a range of tools to help you to schedule and manage projects and resources efficiently.

  • Resource utilization report. By getting a quick, easy view of everyone’s utilization, you can see which resources are in demand and make better hiring decisions. The higher the utilization rate, the more critical the resource becomes. Runn allows you to see the percentage of someone’s time that’s been allocated, as well as the number of hours they’ve been assigned to on a given day.
  • People planner. Track resource allocations, vacation time and placeholders in a calendar view to avoid heavy workloads or anyone sitting on the bench.
  • Capacity planning charts and dashboards. Automated reporting shows you the entire capacity of your organization against confirmed workload at any given time. You can also split reporting into business units, locations or a range of other factors for real-time understanding and future planning.
  • Assignment transfer. Drag-and-drop assignment allows you to re-plan and task the appropriate staff members. You can also use placeholder assignment to test project timeline variations and come up with the most efficient plan.
  • Filtering. Quick-time visibility over people in certain roles, with availability, in certain teams or with other tags to make capacity planning much more straightforward.
  • Budget overview. See project phases and milestones in real time. Budget tracking allows you to be dynamic with project roll-out, matching your spend with times where you can afford it.
  • Tentative bookings. See how potential projects would impact your resources before locking them in.
  • Variance charts. See the difference between reality and your budget, timeline and other plans. This impacts your future capacity planning and allows you to make decisions in advance to avoid clashes or bottlenecks.

Capacity planning can greatly impact the productivity and efficiency of your organization. It helps you to deliver priority business projects to time and budget, which is a core function for any project manager.

With a smart, intuitive and visual tool like Runn, capacity planning has never been easier. Save money by reducing cost overruns, ensure vital projects get the resources they need and increase staff satisfaction by ensuring team members are assigned productive workloads.

Talk to Runn today about how to implement capacity planning for the benefit of your business.

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