Capacity Planning: Strategies, Benefits and Best Practices

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Production capacity planning is an issue of supply and demand: one that can decide the fate of your project or production line. Read on to learn about the capacity planning strategies and capacity management best practices you can use to plan your resources, and make sure your team members are working on the right task at the right time.

What Is Capacity Planning?

Capacity planning is a process that balances the available resources to meet customer demand or the project capacity requirements. Capacity, in project management and manufacturing terms, is the most work that can be done over a certain timeframe.

In project management, the capacity planning process is very important because it’s related to critical project management knowledge areas such as:

  • Resource management
  • Time management
  • Team management
  • Work Management

Production capacity, strategic planning and project planning obviously go hand-in-hand. Planning is how one schedules the hours of the team members so that the work gets done in time. Capacity management is not a rigid process. All companies are different and demand can be volatile, so there are different capacity planning strategies that project managers can use to adapt to different scenarios.

ProjectManager is the one project management software that has everything you need for project and capacity planning. With robust Gantt charts and resource management tools, you can build a project schedule that incorporates real-time team availability. Your team can then execute the work in multiple views, and you can track what matters with dashboards and project reports. Get started today for free.

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Capacity Planning Strategies

There are three capacity planning strategies to help you meet demand, cover your resource requirements and increase your team members’ productivity.

Lag Strategy

The lag strategy consists in having enough resources to meet actual demand, not projected demand estimates. This capacity planning strategy is beneficial for smaller organizations that have low capacity requirements.

Lead Strategy

The lead strategy consists in having enough resources to meet demand planning forecasts. This capacity planning strategy is beneficial when demand increases, as your excess capacity can cover the increased demand.

Match Strategy

This strategy is a mix of the lead and lag capacity planning strategies. In this case, project managers need to monitor actual demand, demand planning forecasts and market trends to adjust capacity accordingly.

Capacity Planning Benefits

Production capacity planning is an important strategic planning process for many reasons. Here are some of the main benefits of effective capacity planning.

  • Reduces costs
  • Prevents Stock-Outs
  • Reduces Production Lead Time
  • Eliminates Excess Capacity
  • Helps with Supply Chain Management: A clear understanding of your project capacity requirements will help you get the right amount of resources, which is beneficial for your supply chain.
  • Helps with Resource Management: Having the right production capacity to meet your capacity requirements is key to optimizing resource planning and resource allocation.

Capacity Planning vs. Resource Planning

While the terms “capacity planning” and “resource planning” are sometimes used interchangeably, they are not the same. To understand the differences, we’ve listed them below.

Capacity Planning

  • It’s a strategic planning process designed to help you determine if the organization has the production capacity required to meet demand.
  • It looks at resource availability at the skill set/team level.
  • Then it facilitates the decision-making process to hire resources or defer/approve/cancel projects.
  • Capacity planning is about supply and demand.

Resource Planning

  • It’s a strategic planning process that coordinates and allocates actual resources to project tasks based on resource requirements.
  • It provides a plan to project managers, which resources they can plan to use for their projects and when.
  • Resource planning focuses on resource allocation.

Related: Free Resource Plan Template

Capacity Planning vs. Capacity Requirements Planning

Capacity requirements planning is the step before capacity planning. It’s the process when an organization decides how much it needs to produce and whether it has the production capacity to be capable of doing so.

Capacity Planning Best Practices

Here are some tips and capacity planning best practices to help you manage your resources and teams.

  1. Establish Cross-Functional Team: To collaborate and communicate about production capacity and resource management, you want a cross-functional team with different levels and different functions.
  2. Calculate Resource Capacity: Before you can create a production capacity plan, you need to have an idea of your current capacity and your available resources.
  3. Determine Resource Requirements: For each project, look at the scope and what resources are required to do the task for the project.
  4. Prioritize Projects: Which projects are most important, and which can be put aside for the time being? You can’t do everything at once.
  5. Allocate Resources Based on Project Priority: Now allocate those prioritized projects and make sure that they are aligned with the goals of the organization.
  6. Keep the Lines of Communications Open: Communicate between executives, project management leaders and stakeholders.
  7. Document Known Risks: Monitor risks such as union strikes, weather, government regulations that stop a project or create new ones unexpectedly.
  8. Plan for How to Handle Too Much Capacity: Understand where it is and how to resolve it (such as reassigning), or not enough capacity (again, where/how).

ProjectManager Is a Great Capacity Planning Tool

Capacity planning requires the right resource management tools to give managers insight into their production capacity. ProjectManager is a cloud-based project management software that gives them real-time data to make real-smart business decisions.

Our resource management tools provide a window into your team’s resources and help you plan better on our online Gantt charts. To get a full picture of the costs involved, you can add hourly rates for your teams and contractors across your project or portfolio. As team members log their hours, their actual costs are automatically calculated and can be compared to the costs that were planned.

Gantt shart showing planned hours, actual hours, costs and so on

Capacity Planning Video

Want to learn more about capacity planning? Watch the video below from Jennifer Bridges, PMP. Although her video focuses on IT teams, the capacity management lessons can be applied to any industry.

Here’s a screenshot for your reference!

how to create a capacity plan

Thanks for watching!

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