8 Best Practices of Capacity Planning

At a high level, capacity planning aims to optimize resource constraints and identify gaps and dependencies to maximize the value of your investment decisions. Specifically, the goal is to use the right resources/teams (and resource types), at the right level, and on the appropriate work to maximize productivity and value delivery. In addition, by assessing resource availability during the work selection and prioritization process, your organization has the insight it needs to adjust staffing-levels when necessary.

This article focuses primarily on people/teams doing knowledge work rather than more traditional types of work, such as construction projects. The latter tend to be well-defined and repeatable, while knowledge work often brings a more dynamic set of challenges in that estimates tend to be less accurate, and requirements/needs evolve. This results in the need to regularly monitor and adjust capacity plans based on the underlying work. Of course, the scope of the work can vary as well, providing another dimension as you try to balance demand and capacity. While knowledge work is highly dependent on people/teams, the term “resources” within the context of capacity planning can also include assets, such as hardware, facilities, and equipment.

Organizations in today’s market are in a transition period, with more groups embracing multiple ways of working, a mix of structured projects and agile, for example. Studies show that 69% of surveyed organizations find agile methods help them better manage changing priorities, and 65% experience greater project visibility. Having greater transparency into work and resources and rapidly adapting is fundamental to effective capacity planning.

While companies are moving in an agile direction, most are operating in a hybrid mode with some groups working in more traditional or milestone-driven ways and others using agile methodologies. While the methodologies and terms may differ, the need for capacity planning remains especially as organizations attempt to scale agile throughout the organization. This article will focus on capacity planning best practices that can be applied, while highlighting a few of the key distinctions between the two.

Traditional versus Agile work methodologies

From a capacity planning perspective, there are a few notable differences between traditional and agile methodologies:

• Traditional methodologies tend to focus on the individual “resource” or people while agile methodologies focus more on the cross-functional team (and you’ll see resource/team frequently below when concepts apply to both).
• Traditional approaches are more typically aligned with strategies and portfolios while agile methodologies focus on value-streams and products. While that has been common, we should highlight that the shift from projects to products is happening with both approaches.

In addition, agile approaches focus on short, iterative work delivery while traditional projects tend to have more formal development lifecycle. That said, many organizations are reducing scope and shortening individual project timelines to deliver more incrementally, which serves to mitigate risk more effectively.

Regardless of methodology, capacity planning for knowledge work tends to be challenging because the work is often new and unique adding to the uncertainty on both the demand and capacity sides of the equation.

This challenge is one of the reasons companies are moving to expand the use of Agile methodologies beyond software development teams and into the business-side of their organizations in order to have increasingly flexible capacity and resource planning.

Capacity planning helps your organization decide which demand among a portfolio of investment options to prioritize and when. By understanding the capacity, whether at the resource, role, or team levels, along with the investments, organizations can focus on scheduling the highest priority work and if required, make staffing adjustments to better align with the strategic goals.

Capacity planning helps you avoid saying yes to too many projects

An important benefit of capacity planning is being able to confidently say yes or no to the work by knowing if you have the people/teams to deliver the work. By prioritizing resources based on the highest-value work, you can keep your teams aligned with strategy while minimizing under-or overutilization problems.

Capacity planning gives you data to understand staffing gaps

To achieve balance, you need to fully understand the teams and resources you have, including the skills everyone brings to the table. Companies can waste significant dollars hiring people they don’t need if they do not understand the demand or the breadth and depth of talent they alr eady have. An often-overlooked way to augment staffing needs is to train current employees to develop the skills needed to handle different or bigger roles.

Harvard Business Review says CEOs consistently cite hiring talent as their top concern. Companies spend an average of $4,129 per job on hiring and “many times that amount” for higher-level positions. The publication also reported that outside hires take three years to perform as well as internal hires in the same job and can require seven times the salary.

Capacity planning ensures you stay on track

The consequences of poor or no capacity planning include missed deadlines, cost overruns, and juggling too much work at once, which leads to burned-out team members and lower morale and less confidence in on-time, on-budget delivery. Unless you have reliable, real-time data, you’re likely to overestimate individual team member’s availability, bandwidth, and skills.

To stay on track, you must be able to easily answer questions, such as:

• Do we have enough people to do the work?
• If not, which work should we do to get the most value?
• How should we prioritize work and resources?
• What skills will we need for upcoming projects, and do we have them already?
• Beyond prioritizing work based on current capacity, should we increase staffing or develop our people?

The goal of capacity planning is to become increasingly efficient, organizing teams capable of consistently delivering on commitments within budget and timelines. Whether that requires saying no to new work (especially when lower in value to the business than current investments), hiring new people, developing current employees, or augmenting with contractors, capacity planning reveals capabilities, limitations, and opportunities. Organizations can use capacity planning to remain competitive in the market and successfully achieve strategic initiatives.

Capacity planning is not a one-time activity, nor is it accomplished by a single group. It is a collective effort conducted at multiple levels. Executives help ensure that the corporate objectives and strategies are kept aligned with the work by focusing on both short- and longer-term staffing needs, along with the strategic directives. Portfolio managers tend to focus more on the alignment of work with the available capacity while resource managers tend to focus on the more granular day-to-day activities (and of course team members do the work!). With this collective effort, facilitated by good tools and communication, organizations can better adjust staffing-levels as needed to deliver on key investments.

Capacity planning and resource planning are inter-related and complementary concepts. At a high-level, capacity planning focuses on understanding the available resource capacity when deciding which demand or investments to undertake. Resource planning (or resource management) is the more granular assignment and management of individuals and teams, along with the maintenance of key resource information such as skill, roles, availability, and cost center to name a few.

While organizations often start at the more tactical resource management level, substantial benefits can come from capacity planning only due to the long-term outlook and common challenges associated with adjusting staffing levels.

Little these days can be set in stone, making planning and forecasting a challenging endeavor. A recent Planview study revealed 49% of leading companies plan to improve their speed in realigning resources to new priorities as a top focus for faster responsiveness to change.

And it goes without saying that capacity planning is no longer an annual event. Companies need to become more proactive and continuously iterate and refine capacity and resource plans. Software can seamlessly tie capacity planning with resource planning, automating how you gather and analyze data, such as team utilization rates, capacity hours, current projects, and forecasted work.

The Project Management Institute (PMI) says that both the wrong resources or the right resources at the wrong time can “cripple project momentum – and send shock waves across the project portfolio, even threatening the organization’s bottom line” further highlighting the need for capacity planning.

While there is overlap between capacity planning and resource planning, we’ll focus on eight foundational best practices around capacity planning.

Best practice #1: Prioritize work based on strategy

To achieve on-strategy delivery, start by aligning work with corporate strategies to maintain your teams’ focus on what matters most. Begin with the broader missions, objectives, and strategies, and work your way down to associated programs and more granular levels of tactics. Within an agile framework, strategic themes provide a mechanism to align business strategies to work.

Best practice #2: Understand overall demand

When capacity planning, understanding the total demand on your teams is critical to avoid overcommitting. At a high-level, work can be looked at in two general categories: maintain the business and grow the business. A common challenge while capacity planning is focusing too much on the growth side, which is honestly where the excitement is, but understanding the maintenance portion of the work will help you plan accurately.

Some of the art in understanding demand is recognizing the level of uncertainty and adjusting according to which can be done by applying different methodologies if teams tend to have one type of work or another.

Specifically, agile approaches recognize that with certain types of work, such as software development, estimating the work and the capacity is a challenge, particularly in large organizations. To address this uncertainty, individual resource, or role-based estimating moves to the team level. The work is broken up into smaller deliverables to allow for faster estimates, often with story points.

Conversely, waterfall approaches work extremely well when you know the requirements upfront, and the work has less uncertainty. For instance, the waterfall (or traditional) methodology is ideal for building something similar to what has already been done, such as a new interface using existing patterns.

Best practice #3: Analyze your current capacity

A common challenge is simply getting a realistic view of your teams’ capacity. This is an area where traditional methodologies and agile methodologies diverge a bit, but the underlying goal is the same – to understand how much work can be done within a period of time. On the traditional side, this understanding of capacity can be done by looking at working hours minus time-off and unplanned work whether it be common interruptions or administrative activities that all of us undertake. The agile side seeks to simplify this a bit by looking at velocity, that is how much work is a team delivering – often in story points. This inherently considers all the day-to-day interruptions and absences, although managers/teams need to maintain awareness of seasonal types of activities which may impact velocity (e.g., seasonal holidays and/or longer-term time off of individual(s)).

These approaches to understanding capacity in the long-term, medium-term, and short-term should help you more accurately plan and know if you can meet current and future requirements.

Best practice #4: Consider your options with scenario planning

Balancing your priorities with available capacity is both an art and a science. With so many combinations to consider, some of which may require significant staffing changes, understanding and properly evaluating the options through scenario planning is important. One benefit, beyond pure capacity planning, is to better understand the tradeoffs of various options because there typically isn’t a single ‘right’ answer. The reason is there are both objective and subjective factors involved.

With this in mind, you can incorporate scenario planning into capacity planning to look at a variety of investment options and the alignment with the available or potential capacity. While balancing demand and capacity is an important step, the value of each scenario can be determined by capturing and analyzing metrics that are important to your organization, such financial costs and benefits, strategic alignment, as well as risk tolerance to name a few.

The ultimate goal with scenario planning is to find the most valuable combination of investments/work that aligns to your organization’s strategic goals and that can be delivered.

Best practice #5: Watch for distractions

While a formal intake process is common with larger initiatives, it’s possible for smaller efforts to sneak into the mix. As more and more of these smaller efforts get added to the pile, often in the form of a tweak here or a tweak there, they distract your team from higher value, strategically aligned work. Awareness and simply monitoring this loss can help your teams stay focused on the right work.

Best practice #6: Expect change

While changing priorities will happen, you’ll also need to adjust to inaccurate estimates, which are inevitable when performing new, unique work for the first time.

In some ways, it can be slightly easier to plan resources for waterfall work because you know the start and end dates. Because everything happens in a sequence, however, even small changes can throw off the plan, making the waterfall model less flexible and iterative than agile frameworks. You may need to regularly reallocate resources to balance workloads and avoid bottlenecks.

Agile approaches minimize this need to reschedule by adjusting scope but achieving the MVP (minimum viable product) for a product/feature can certainly result in delays and similar challenges.

Best practice #7: Capacity planning is an ongoing process

While you should expect change as mentioned above, you should also consider capacity planning to be an ongoing process. Not so long ago, companies performed a formal capacity planning exercise on an annual basis. With the level of uncertainty in today’s environment, discovery associated with digital transformation, and agile now at the forefront, it is beneficial to utilize a continuous planning process that enables you to factor in changing priorities and strategies in a more proactive way when possible.

This proactive look will allow you to pinpoint gaps and dependencies in your team. You may also find that you lack bandwidth or certain skills needed to complete key deliverables.

Best practice #8: Look beyond capacity and demand

While we’ve focused on capacity and demand, resource workload should not be forgotten. To clarify, resource workload also includes those less direct activities that can slow progress such as high levels of multi-tasking, too many handoffs or approval steps, and general distractions. While there is no simple recommendation as this is a highly complex challenge, attempting to reduce multi-tasking, minimize distractions and streamline processes can further increase productivity to better meet those strategic goals.

With knowledge work, capacity planning will never be easy or perfect, but it is essential to ensure your organization is getting the most value from its people and teams. This iterative planning exercise plays an important role in the decision-making process. Regardless of the work methodology, the effort is about balancing capacity and demand in light of constant change.

The point to remember is that capacity planning is an ongoing process that involves regularly monitoring your existing capacity and comparing it to your future requirements. With greater visibility into both work and resources/teams, you will be better able to prioritize and manage workloads so that you can deliver on your strategic goals.

A modern project portfolio management (PPM) solution will equip you with powerful tools to balance capacity against demand, prioritize work, focus resources, and empower your teams to deliver. No matter the work methodologies employed or your teams’ structure, PPM software will help your organization adapt to changing market needs and accelerate at on-strategy delivery.