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Libby Marks

Strategic Capacity Planning - And How to Improve It

It’s all about supply and demand. Match your resources to your future needs to see your business grow.

Strategic capacity planning is about forecasting - and meeting - the future resource needs of your business. For the purpose of this article, we’re talking about human resources. The talented team you need to deliver exceptional outcomes for your customers. 

By strategically planning capacity in your project-oriented business, you can ensure your resources are perfectly aligned with your plans and pipeline. This rightsizes your workforce for optimal productivity, minimal waste, happy customers, and high ROI. And who doesn’t want that?

Whether you’re new to the concept of capacity planning strategy or want ways to improve your existing capacity planning process, here’s what you need to know. 

What is strategic capacity planning?

Strategic capacity planning is a management process that forecasts the people and skills your business needs to meet future customer demand. It’s about working out how much capacity you have to take on new work.

By matching the size and makeup of your workforce to the work you have in your pipeline, you can deliver great results in the most cost-effective way possible. Capacity forecasting means that - if you need to hire more workers, downsize your team, or retrain people in redundant roles - you can do so in good time.

This minimizes resource risk to your business - such as having too few or too many staff, having excess capacity you’re not using, or failing to meet customer demand because you have staff shortages.  

Sense check: What is capacity?

Capacity means the amount of work that can be completed in a specific timeframe. Business capacity can be limited by various factors - including the availability of people or equipment needed to do the work.

In project-based businesses, resources are one of the main constraints on capacity. People can only do a certain amount of work in a certain amount of time. And it isn’t as simple as scheduling people to 100% capacity because you’ll break them.

Workforce capacity planning is about predicting how much good quality work your team can reasonably be expected to deliver in the time available. And, if you have more work than capacity, about formulating a plan to fix that.

Capacity planning vs strategic capacity planning: What’s the difference?

Resource capacity planning can happen at an operational or strategic level. It’s a useful process to carry out whenever you need to check you have the capacity to deliver work. The difference is how far ahead you’re looking - and what you use the information to do. 

Operational resource capacity planning is concerned with the capacity you have to deliver your short-term objectives - such as delivering a specific project or program of work. It looks at the availability of people immediately - or in the near future - to complete known work. 

You might think of this as team capacity planning. It’s key to how you allocate resources to projects. It surfaces capacity among your existing workforce, so you can make maximize their utilization rate. And lets you schedule projects based on the capacity available, to minimize delays or risks to delivery.

Try Runn's People Planner to understand who's available to take new projects. Consider time available, skills, seniority, rates, and employee preferences.

Strategic resource capacity planning looks further ahead. It’s concerned with your future direction of travel and forecasting your workload over a longer term. It deals with the unknown - the projects you hope to win - and predicts the skills and roles you’ll need to meet that demand. This then informs a resourcing strategy - including hiring, training, recruitment, and retention - to match resource supply to future needs. 

What are the benefits of having a capacity planning strategy?

Workforce capacity planning rightsizes your people to your projects and plans. This means you have the right number of people - and the right distribution of skills - to deliver your projects on time, on budget, and to customer satisfaction levels. All of which are key drivers of business success and growth.

Here are five problems that strategic capacity planning can prevent.

Embarrassing under-delivery - Having the right people in the right place at the right time helps you deliver projects well. By well, we mean on schedule, on budget, and to a high standard. If you don’t deliver on these three factors, you could end up with unhappy clients, a tarnished reputation, and less profit than you planned for. It’s about having the capacity to meet customer demand.

Costly hires -  A capacity management strategy tells you who you’ll need and when lets you recruit people in a timely way. Recruiting people last minute can be more expensive, which undermines your profit margin. And that’s assuming you can secure the people you need in time. In the global talent market, it can be hard to find the right candidate and then onboard them. This could lead to project delays.

Burnt out staff - If you don’t have the resources you need to deliver your projects - but you still try to push them to do it - you risk burning out your staff. Burnout is when people work too hard for too long. The result is lower quality and higher turnover. Both of which can cost you dearly. Effective capacity management contributes to better resource management overall.

Redundant roles - Redundancy happens when you have job roles that were historically valuable but which are now underused. When this happens, you are paying for staff that isn’t delivering ROI. This isn’t their fault. Business is fast-paced and your needs change. To prevent redundancy from becoming a risk to your business efficiency, you need a way to identify them and a strategy for retraining/reallocating staff.

Missed opportunities - Fortune favors the brave. In order to seize opportunities when they arise, you need capacity. You need a way to quickly understand current capacity and surface any that is unused - as well as look to the future and see what you have coming up. Without these insights, you don’t have the agility you need to act quickly and confidently. 

The challenge with strategic capacity planning

With so many benefits, you might expect capacity planning to be something all project-orientated organizations do regularly. But the fact is, it’s tricky. Without the right tools or skills, it can be a challenge. Here are four problems you might face.

  1. Some businesses are stuck using spreadsheets for their resource and capacity planning. This makes everything more difficult - not just capacity planning. You’re working with dead data and relying on fiddly formulas to extract insights. Depending on the size of your organization, you may need a data analyst to work out fairly easy answers - and this can cause a bottleneck to decision-making. 
  1. Strategic capacity planning needs cross-functional collaboration - and often teams and data aren’t structured to allow this. You need to involve your senior leadership team, project managers, HR/talent team, and more. If they all use different data sources, this can make collaboration more difficult.   
  1. Human resources aren’t predictable like equipment. You can’t schedule human resources to work at 100% capacity. They’d break. So you need to plan people with more care and attention than numbers in a cell might suggest.
  1. Work is unpredictable too. You don’t always know what work is coming up. And even if you do, it can change on a pinhead. A project withdrawn, another extended… As a result, strategic capacity planning involves a fair bit of educated guesswork - as well as the willingness to change direction when needed. This can make some businesses reluctant to invest the time. 

However, the benefits of capacity planning - and the agility it creates - are undeniable. Research from McKinsey champions dynamic allocation and reallocation of resources to areas that create the most value to the business - and that can only be done with effective capacity planning and management. 

With that in mind, here’s our step-by-step Runn-down on how to get started with strategic capacity planning. Already know how to do it? Skip ahead to the final section: how to improve your capacity planning processes.

How to strategically plan capacity: Step-by-step 

Step 1: Start with your business strategy 

A capacity planning strategy is informed by your overarching business strategy - or perhaps forms part of it. The first step is to understand what your business strategy is for the period you’re planning for - for example, the next 18 to 36 months. 

The overarching business strategy should set out your organization’s direction of travel, objectives, financial projections etc. These will all inform your strategic resource capacity planning.

For example, imagine you’re a construction company. If your business plans to focus less on domestic builds and more on commercial, this may inform the skill sets you need. Perhaps it will make some current roles redundant and require you to retrain a segment of your workforce.

Or maybe your design studio plans to move from graphic design to a full-service agency. This means your organization will be pursuing different project opportunities. It will require you to recruit a wider range of skills and work out a strategy to secure the top talent you need.  

Step 2: Forecast future demand

Remember, strategic capacity planning is about the work you haven’t won yet - the best-fit projects you want to pursue, to fulfill your business strategy. The following questions should already have been answered:

  • What type of projects do you need to fill your pipeline with?
  • How many of them do you need to achieve your intended revenue and profit goals?
  • How much time and resources did previous similar projects require?

These should help you start to understand whether your current capacity - and capabilities - are sufficient to meet future demand.

If your strategy is business-as-usual, you can make a fairly reliable forecast of capacity requirements based on previous years of trading. But if you’re new in business, growing, or moving into a new area, you may need to make an educated estimate. 

When you know you’ll need a certain type of resource but not the exact people you want to allocate, you can add placeholder resources - Developer, Graphic Designer, Project Manager, or other. This lets you plan the project and estimate resource requirements and costs, even if you don’t have specific people in mind yet. It also helps flag resource constraints and recruitment needs in advance.

placeholders in demand planning

Step 2 and a bit: Use your resource management software 

If you have a resource management platform, you’re going to find this stage so much easier. You’ll have all the data and insights you need for accurate strategic planning. 

You can look at reports from past projects to see exactly how long projects took, the resources they required, whether they ran to budget and schedule. This will help you forecast future projects more accurately and avoid overruns in future. 

You can also view historic and current resource utilization rates. This shows you how much you’re using different teams, skills, or individuals. Are some roles consistently over-utilized? This means there’s more demand than supply. That signals that you need to recruit more people with this skill set or upskill existing staff. Conversely, if some roles are underutilized, you can plan how to reduce their number and retrain your people. Or find projects that will put their skills to good use. 

The other big benefit of resource planning software is that you can quickly create project plans - with phases, milestones, etc - to understand what resources you’ll need to deliver them. Spend a day building your ideal project pipeline in Runn, for example, and you can view the impact of different project combinations on capacity and availability at a glance. 

Runn’s capacity reports can be granular (looking at specific teams or projects) or bird’s eye (lookng strategically at your entire organization).

Step 3: Know what questions to ask

With an accurate idea of the projects you want and the people you’ll need, you can start getting strategic about your resources. You can begin to build a capacity model that answers questions like:

  • What resources, roles, and skill sets do we need to meet future demand? 
  • Do we have these in-house already? Do they have enough capacity between them?
  • If not, what is the most cost-effective and efficient way to get these resources?
  • Do we have obsolete roles or skills we’re paying for but don’t use?

Step 4: Work out who you have

You’ll need to audit your current resources to understand what you currently have in-house. Ideally, you’ll already have a centralized resource pool that shows you exactly who works in your organization. 

This should include information on:

  • Their role
  • Their skills
  • Their seniority
  • Their cost to the business
  • Their working hours (capacity and availability)
  • Their utilization rate

Step 5: Work out who you need

Your resource audit will help you understand if you have the resources and skills you need for your future plans. If you don’t, you can start working out how to get the resources you need. Your options include:

  • Recruiting new permanent staff 
  • Hiring temporary contractors/freelancers 
  • Retraining/upskilling existing staff

Step 6: Work out your strategy - lag, lead, or match

There are three capacity planning strategies to rightsize your workforce to your pipeline: lag strategy, lead strategy, or match strategy. We cover this in more detail in our guide to capacity planning

As a quick recap:

  • Lag strategy means you win the work THEN recruit people to deliver it - this reduces the risk of being overstaffed but means you may not have capacity exactly when you need it 
  • Lead strategy means you hire the people THEN go pursue work to fill their time - this means you’ve got capacity to pursue new projects, but there may be times when your staff doesn’t have enough work 
  • Match strategy means you try to balance work and workforce - so your capacity and demand are well-matched

Effective strategic resource capacity planning should make it possible to achieve a match strategy, which is the least risky of the three.

How to improve the strategic capacity planning process

Pro tip #1: Use your crystal ball regularly

You don’t have to wait to engage in capacity planning. This is a process you could - and should - be performing regularly. 

You should definitely align it to your overarching strategy-setting processes - for example, setting your three or five-year plan. But you should also revisit it regularly. Perhaps annually for strategic capacity planning and on a rolling basis for operational capacity planning. 

This is easier to do if you have the right capacity planning tools to make the process as painless as possible. 

Pro tip #2: Involve the right people

Capacity planning is something that benefits from different expertise and points of view. 

  • Senior leaders can help ladder resource plans up to the overarching organizational strategy
  • Project managers understand how resources work on a day-to-day basis (for example, common roadblocks and challenges)
  • Subject matter experts/team leads can advise on what skills you realistically need
  • Your HR team can tell you the best way to recruit, retain and retrain talent

It may be helpful to involve your sales team leader/s too. The disconnect between sales and delivery can lead to organizations overcommiting to clients. Getting your sales team involved in capacity planning can help them understand the broader context. 

Pro tip #3: Improve accuracy with resource planning software

As we’ve shown above, using resource planning software can make the process of capacity planning much easier. You’ll have access to historic data on resource utilization which makes the process much more accurate. And at-a-glance charts will make it easier to make decisions quickly and confidently. 

You’ll be able to build out provisional project plans to understand the resources you’ll need. And engage in scenario planning which helps you see the most profitable combination of projects you could onboard. 

Your resource planning tool should also include a centralized resource pool which makes your resource audit much more straightforward.

If you don’t already have this invaluable tool in your arsenal, check out our list of eight capacity planning tools you should consider.

Software that visualizes capacity limitations can make deciding what to do much easier

Pro tip #4: Remember, people aren’t robots 🤖🤖🤖

When looking at resource capacity, it can be tempting to try to fill every hour with productive work. While this might work for machinery or AI, people don’t work that way. 

The common wisdom is that people have about 4 hours of focus in them per day and you shouldn’t schedule people for more than 80% of their hours. Within that, only 80% should be billable time - the other 20% being work-about-work. (According to McKinsey, people spend 28% of their workday checking and answering emails).

Overscheduling leads to burnout, lower productivity, and reduced professional acuity. So do it at your peril.

Runn a more profitable project-based business 

If you want to implement or improve strategic capacity planning in your business, Runn can help.

Sign up for your free 14-day trial today to see for yourself how easy Runn makes it to:

  • Plan projects
  • See and surface capacity
  • Identify and allocate resources
  • Optimize resource utilization rates
  • Plan capacity operationally and strategically 

Sign up now with just your email address. No credit card needed.

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