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How smart capacity planning can save projects from disaster

Georgina Guthrie

Georgina Guthrie

September 09, 2022

It’s no secret that project managers have a lot on their plates. But what many people don’t realize is that one of the most important tasks for PMs is planning how to use their team’s time effectively.

Planning isn’t just about assigning tasks and hitting deadlines. It’s also about making sure your team has the capacity to complete those tasks, knowing when to add or remove resources to keep the project on track, and managing all of this as efficiently as possible. This balancing act is known as capacity planning.

Organizations that ignore this important step are at a serious disadvantage. They’re more likely to experience project delays, cost overruns, and scope creep. In fact, a study by the Project Management Institute found that just 56% of projects are completed on time and only 61% within budget. Poor capacity planning is most likely at the root of this.

Several strategies can help project managers with this challenge. But before we get into the how-tos, let’s first discuss what capacity planning is and why it’s an essential skill.

What is capacity planning?

Capacity planning is critical for making sure you complete projects on time and within budget. It’s the process of determining how much work you can do in a given period and ensuring there are enough resources available to do that work.

If you underestimate the amount of work you need to do, you’ll end up with delays, stretched budgets, and an overworked, stressed-out team.

On the other hand, if you overestimate the amount of work, you’ll have team members sitting idly and not working to their full potential. Obviously, this is a big waste — not to mention demotivating for the bored staff.

In short, capacity planning is about making sure you have the supply to meet the demand and that you’re using those resources as effectively as possible.

Capacity planning can help you answer the following questions:

  • How much work can the team do in a given period?
  • What is the ideal mix of full-time, part-time, and contract resources?
  • When do you need to add or remove resources to keep the project on track?
  • What skills do you have, and which do you need to add to your team?
  • How can you optimize your resources for better results?
  • Do you need to hire more people?
  • Do you have the bandwidth to take on more projects?

Capacity planning vs. resource planning: what’s the difference?

Two similar sounding names, two different functions. Resource planning is the process of acquiring and managing the resources needed to complete a project, while  capacity planning is the process of determining how much work the team can complete in a given period.

Capacity planning helps you understand the limitations of your team so that you can better manage expectations and avoid problems down the road. Resource planning, on the other hand, helps you acquire the resources needed to complete the project.

The advantages of capacity planning

Here are some of the main advantages of capacity planning.

1. It lowers the chance of project overruns

First, it can help you manage costs and avoid project delays. Both outcomes are common when projects are under-resourced and you’re forced to keep redistributing resources or hiring new contractors without adequate planning.

2. It helps you avoid scope creep

Scope creep is when a project starts to grow in size and complexity beyond what was originally planned. This can be costly and time-consuming, so it’s important to have a plan in place to prevent it from happening.

When you have a clear understanding of the amount of work and the resources available to do it, you can better manage expectations and keep the project on track. As a result, tasks won’t be assigned to team members until there’s room for them in the schedule. It also means you won’t take on more work than your team can handle.

3. It helps you optimize resources

By knowing how much work the team can complete in a given period, you can better match tasks with team members’ skills and strengths. You can also use this information to identify which team members need more training or development and which resources you need to add or remove from the team.

4. It improves communication

Capacity planning creates better communication within the team. By understanding the work and its various demands, team members are able to plan their time and communicate what they need from others. Everyone yields benefits in the form of less confusion and stress and, ultimately, a more productive team.

5. It improves project predictability

By knowing how much work you can do in a given period, you can estimate timelines more accurately and avoid unpleasant surprises down the road. This helps you manage stakeholder expectations with more precision and authority.

6. It helps you track progress

Tracking progress makes it easier to identify potential problems early on before they have a chance to cause serious delays. By monitoring the amount of work done versus the original plan, you can spot areas where things are starting to go off track.

7. It provides solid reasoning for your decisions

Additionally, it provides a solid rationale for the decisions you make about your project. When stakeholders or upper management question the need for additional resources or changes to the scope of the project, you can provide them with data supporting your position.

8. It enhances transparency and builds trust

Capacity planning also enhances transparency and builds trust between project managers and stakeholders. When stakeholders can see the data driving project decisions, they’re more likely to trust the project manager and be more supportive of the project.

9. It helps prevent bottlenecks

Bottlenecks are caused by a lack of resources, such as staff, time, or money. When demand for these resources exceeds supply, it leads to delays and disruptions in the workflow. Capacity planning can help you avoid bottlenecks by ensuring you have enough resources to meet demand.

What goes into capacity planning?

There are three main components to consider when capacity planning: people, processes, and tools.

People

The first component is people. When capacity planning, you need to consider the skill sets and experience of your team members, as well as their availability. You also need to think about how much training or development they may need in order to complete the tasks assigned to them.

Processes

Consider the processes that define how the team works. This includes things like project management methodology, software development methodology, communication procedures, and so on. You also need to think about how you’ll implement these processes and what tools the team will use. If any processes are slowing things down unnecessarily, now’s a good time to consider how you can implement change in your upcoming project.

Tools

Tools have the power to make your team’s lives easier — or much, much harder. So, put some real thought into your current toolkit. Explore resources like project management software, task tracking software, chat apps, videoconferencing, diagramming tools, and so on. You also need to think about how the team will use these tools and what training or development team members is necessary to use them effectively.

Capacity planning strategies

Before you begin, you need to choose which type of capacity planning strategy you want to implement. Generally, there are three to choose from:

  • Lag strategy: this approach is useful when there’s uncertainty about the future. Essentially, you wait until you know your resource demands before you start allocation. It’s not ideal and can lead to delays in the project if the demand is higher than expected. But if there’s uncertainty, it’s your only option.
  • Lead strategy: short on time, but have a little flexibility? This one’s for you. With this approach, you allocate resources before you know the demand. On the plus side, it means you start early; on the downside, it can lead to over-allocation and wasted resources if the demand is lower than expected.
  • Match strategy: this approach involves allocating resources based on an estimate of future demand. This approach strikes a balance between the lag and lead strategies and can help you avoid delays and wasted resources. Just like Goldilocks and her three bowls of porridge, this is the ‘just right’ approach. Aim for this if you can.

How to create a capacity plan: a step-by-step guide

Now that we’ve covered all the essentials, let’s take a look at how to create your own capacity plan.

Here are the five key stages of capacity planning:

  1. Identify projects and tasks
  2. Determine metrics and KPIs
  3. Build a realistic schedule using time estimates
  4. Choose a capacity planning tool
  5. Update capacity as the project progresses

Let’s unpack these in more detail.

1. Identify projects and tasks

Step one? Identify the projects and tasks you’ll work on in the near future.

Look at the project requirements, and break them down into smaller tasks. Remember to run this past your team. They’ll have extra visibility and will be able to tell you whether your timeframe is accurate. If you find you don’t have full availability, think about how you can stagger the work or bring in extra help.

Knowing demand plays a key part in scheduling. If you know how much of a certain product or service you’ll need, you can determine the resources needed to meet that demand.

How to accurately forecast demand

There are a number of different methodologies to help you forecast demand. Below we’ll outline a few of the most popular methods.

  • Trend analysis: this involves looking at past data and trying to identify any patterns. You can then use this information to predict future demand.
  • Forecasting by analogy: with this method, you compare current data with data from a similar period in the past. This will give you an idea of how much demand has changed (or is likely to change) over time.
  • Market analysis: this approach involves studying market trends in order to predict future demand levels. For example, if you notice more people are buying online versus in-store, you can assume there will be more online orders in the future.

2. Determine metrics and KPIs

Measuring progress is the key to defining success (or failure). So, for your next step, you’ll need to define your project baseline and note down your measurable metrics and KPIs. You’ll use these figures to track progress and make adjustments as necessary.

Some common metrics used in capacity planning include the following:

  • Task completion rate
  • Number of tasks completed per day/week/month
  • Time taken to complete a task
  • Number of errors made during a task
  • Efficiency
  • Backlog
  • Total hours
  • Gross profit margin
  • Earned value
  • Customer satisfaction
  • Employee performance
  • Cost performance

3. Build a realistic schedule using time estimates

Once you know what you need to do, it’s time to build a schedule using time estimates.

Start by looking at the project requirements and estimating how long each task will take. And remember to be realistic with your estimates here. If you find you’re consistently underestimating the time it takes to complete a task, it’s likely that you’re too much of a ‘glass-half-full’ kinda person — which is lovely, but not always helpful when it comes to project management.

It can be helpful to break down the time estimates into smaller increments, such as days or weeks. This will make it easier to be precise and track progress.

What is a critical path?

A critical path is about identifying your project’s dependent tasks and using the longest chain of those to estimate how long the project will take. And by dependent, we mean tasks that require the completion of a prior task before you can start them.

The critical path is the longest sequence of activities in the project, and any delays in these tasks will cause delays in the overall project.

When it comes to mapping out your critical path, an online Gantt chart is the best way to visualize the longest sequence of tasks and track progress.

Backlog Gantt chart example
Example of a Gantt chart in Backlog

To create a Gantt chart in Backlog, simply enter the name of the project and the start and end dates. Backlog will then automatically generate a timeline of the project. You can then add tasks to the timeline by clicking on the plus sign and entering the details. You can also specify dependencies between tasks, add notes, and more.

4. Choose a capacity planning tool

Speaking of project management software…

There are a number of tools you can use to make capacity planning that little bit easier. But the most important thing is to choose a tool suited to your needs. PM software is a must, but you may want to consider a range of collaboration tools, especially if your team is hybrid or remote.

5. Update capacity as the project progresses

Don’t look at capacity planning as a one-and-done situation. You’ll need to update your capacity plan to reflect the actual amount of work completed as the project rolls along. If you find that things are falling behind, you need to identify the cause and make changes to the plan.

Capacity planning mistakes to watch out for

Now that you know the basics of capacity planning, let’s take a look at some common pitfalls so that you can spot them before things go downhill.

Mistake number 1: overestimating an employee’s capacity

Just because someone is good at their job, it doesn’t mean they can work long hours without taking a break. Everyone has their limits, and if you push your team too hard, you’ll end up with frustrated, burned-out team members. To overcome this, pay close attention to timesheets. This will give you a good idea of how much time each team member is actually working and how productive they are.

Mistake number 2: not factoring in buffer time

Things always take longer than you think they will; it’s just a fact of life. So, factor in buffer time when you’re creating your schedule. This way, if there are any delays, you won’t have to scramble to make up for lost time. And if you don’t need the extra time? Well, it’s better to be over-prepared than under-prepared.

Mistake number 3: not monitoring progress

As we mentioned earlier, it’s important to monitor the progress of your project and make changes to the plan as necessary. This way, you can keep things on track and avoid any surprises down the line.

Mistake number 4: mismatching tasks and skills

Make sure you assign tasks to team members based on their skill set. If you assign a task to someone who doesn’t have the right skills, it’ll take them longer to complete the task. They’re more likely to make mistakes, feel frustrated, and end up backtracking.

Capacity planning best practice

Now that you have a handle on capacity planning, let’s take a look at some best practices.

Use data

As we mentioned earlier, looking at data can be a big help when forecasting future demand. By studying historical data, market trends, and similar projects, you can identify patterns and use this information to make more accurate predictions.

Involve all stakeholders

From other team members to bosses, investors, and customers, get every external and internal stakeholder involved and communicating. This way, every relevant party will be on the same page, and there will be no surprises down the line.

Establish a cross-functional team

Collaboration is key, so get your teams working together. Your meetings should include representatives from all the different departments involved in the project. When everyone has accurate information, it’s easier to plan project stages. Most importantly, you’ll avoid doing tasks that have to be rolled back or stalled because you can’t move forward until another part of the project is done.

Define the scope

Before you start making any changes, it’s important to define the scope of the project. Make sure everyone knows what’s expected from the outset. Any changes down the line should be realistic and in line with these predefined expectations.

Prioritize projects

Sometimes, it feels like everything is top-priority, but some tasks will have a higher priority than others. When capacity planning, it’s important to prioritize projects so that you can complete the most important things first.

Monitor and adjust

After you implement the changes, it’s important to monitor the situation and make adjustments where necessary. This way, you can ensure the changes are having the desired effect and the project is on track.

Document risks

When capacity planning, it’s important to document any risks that may derail you. Learn to spot problems and come up with potential solutions to make sure the project doesn’t veer off track.

Keep the lines of communication open

Collaboration is the foundation of all teamwork. And to make capacity planning work, it’s important to keep the lines of communication open. Have a range of channels for communication, whether you have an in-person or remote team. Also, be mindful of common barriers to communication that could be getting in the way of work.

Be flexible

Things change, and so do plans. When capacity planning, it’s important to be flexible and make changes as necessary. Review and update your plan regularly, and keep on the lookout for incoming risks.

Finally, use the right tools

From project management software to chat apps and beyond, there’s an array of tech out there to do the heavy lifting when it comes to capacity planning. With this in mind, do some research and equip your team with the right tools for effective collaboration.

The tools you use will depend on your own unique needs. Whatever you go for, make sure it’s easy to use, cloud-based (so everyone can access it, including external stakeholders), offers automatic notifications (because email updates are a pain for everyone), and can automatically calculate things like project baselines, timelines, and critical path. The simpler, easier, and more collaborative you can make capacity planning, the more efficient your project will be.

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