What is Capacity Planning and Why it’s Crucial to Your Business

September 28, 2021 - 9 minutes read
What is Capacity Planning and Why it’s Crucial to Your Business

Capacity planning is an integral part of owning and operating a business, but far too few business owners know what this planning truly entails. Business decisions are crucial, yet only 20% of companies feel like they excel in this area.

With the age of urgency, you have to know when to say “yes” or “no,” quickly.

Capacity planning can help.

What is Capacity Planning?

The idea of capacity planning may not be something you excel at now, but it’s something that you’re likely already doing in your business to some extent. Capacity planning is used to determine if you have the skills and resources to meet demand.

In short, does your business have the capacity to perform a particular task?

As an owner, you also have capacity. Perhaps you’re spreading yourself too thin because you always say yes. Capacity planning can help you understand what you can say yes to or no to based on what’s best for your business.

Another way to look at capacity planning is from the view of a project manager.

  • Do you have enough team members to complete a task?
  • Do you have enough employees or resources to complete a project?

If you’re always saying yes to new projects, chances are you’ll spread your capacity too thin and either pay more in overtime or have a lot of unhappy clients in the process. In the service industry, in particular, capacity planning is essential.

What Value Does Capacity Planning Bring to a Business?

It may be difficult to see the inherent value of capacity planning, but the value is experienced in many ways:

  • Forecast problems: Scope creep is a major problem, especially in the service industry. When you plan capacity properly, you can remain on budget, on time, and avoid potential problems along the way.
  • Hiring: When hiring, it’s often a scary, costly decision. It costs employers over $4,100 to hire a new employee and even more when accounting for employee training. Through proper planning, you’re able to make hiring decisions that are backed by data.
  • Reduce waste: Capacity planning helps reduce the risk of projects having too much or too little capacity. Proper planning allows you to optimize projects, save time and ensure the right people are assigned to the job.
  • Improve transparency and accountability: Transparency is essential for productivity and employee morale. Capacity planning indicates how much capacity each team member can contribute, which fosters transparency and accountability. 
  • Increase project efficiency: Capacity planning can help you make better resourcing decisions, which can help you meet deadlines within budget and scope. Team leaders can easily see which team members are working on what and upcoming tasks. With this information, leaders can make strategic, smart resourcing decisions that ensure projects are completed more efficiently. When team members aren’t juggling multiple assignments at once, they can stay focused and improve their productivity.

Capacity planning helps businesses improve the efficiency of their projects while avoiding bottlenecks. Additionally, companies can use capacity planning to make smart hiring decisions and improve their long-term strategies.

Capacity Planning: When to Say “Yes” and “No”

Since every business and its capacity are different, it’s impossible to say when you can say yes or no in decision-making without knowing the whole story behind your business. However, you can and should do the following to understand your capacity.

  • Create cross-functional teams. These are teams that you’ll utilize across projects to help determine the level of resources that you have available to you.
  • Calculate your resources. You can’t make a plan without knowing what resources you have available. Determine your total resources, what resources are taken up and if there’s a gap in resources that needs to be reduced.
  • Examine resources by project. Certain projects have higher resources – it’s natural. Determine the true scope of a project and what resources you’ll need to dedicate to fulfill the project requirements.
  • Ensure the project fits into your vision and company goals. This is especially true for service based companies, where they can be tempted to take on projects that are out of their area of expertise or what make sense for their business to take on. Ensure you’re taking on projects that don’t divert your focus. 

Once you’ve worked through the points above, you can then prioritize projects and allocate resources as necessary.

Finally, you can now determine when to say yes or no to a project. Diversity is critical in business, so it would be unwise to dedicate 100% of your resources to a single client unless it was for a short duration.

If a single client goes out of business and your business will fail as a result, you must build up your project pipeline.

Businesses that analyze the scope of a project and use capacity planning tools can make confident decisions. 

You’ll have times when your resources are stretched too thin. When you cannot maintain a high level of quality and meet the customer’s demands, it’s better to say “no” than to tarnish your brand’s image. 

Low capacity may also mean that it’s time to hire new employees. You never want to take employee hiring lightly. It costs a lot of money to bring an employee on board and train them to be part of your team. You also need to dedicate resources to this training, which you may or may not have available.

However, one of the situations that businesses come across that isn’t always black-and-white with capacity planning is when hiring. For example, let’s assume that you run a restaurant and a 5-star chef walks through the door and is looking for a job.

In most cases, your finances would dictate whether or not you hire this chef.

If you know that your business will need to hire a chef soon or this chef could really help your reach your business’s long term goals, you may want to jump on this opportunity. After all, how often is a 5-star chef going to walk through the door asking for a job?

Even if you’re not 100% ready, there are rare occasions when you can break free from the capacity planning norms and go with your gut. If you know that hiring this individual brings a true asset to your team, do it. It’s difficult to attract the right talent this easily.

Final Thoughts

Capacity planning is an art that you’ll learn over time. It’s far too easy to say “yes” because you want to make other people happy or aren’t looking at your long-term goals. However, over the years, you’ll begin to learn to say “no” more often when a decision doesn’t work in the best interest of your business.

Feeling as if you could use some support on capacity planning? Click here to book a call with us to discuss your capacity planning needs.