Capacity Planning: Why It's Important and How to Use It
Managing the growth of your agency and the happiness of your team is hard work.
The success of an agency's workflow hinges on a careful balance of supply and demand. While getting more projects into the pipeline is a plus, not having enough people to get them done can mean overworked team members and late deliveries. On paper, getting the balance right is simple; calculate your billable utilization, track people's hours, and don't overschedule. Job done, right? 🤷
Not so fast.
The reality is the balance requires a mix of profit margins vs. team resources, which is where capacity planning comes into play. Capacity planning paints an honest picture of how much work your team can get done without burning themselves out or compromising on quality.
For most agencies, having a team member dedicated purely to capacity planning is unrealistic, which is why finding a better way to keep your team on track is key. In this piece, we're breaking down:
- What is capacity planning?
- What are the benefits of capacity planning?
- Capacity planning vs. resource planning: what's the difference?
- The 3 principal methods of capacity planning
- 4 steps to building an effective capacity planning process
Let's get planning. 📅
What is capacity planning?
Capacity planning is the process of matching available employee hours against the needs of a particular project. It allows team leaders to calculate the maximum amount of work that their staff is capable of getting done in any given period, while taking into account hurdles like holidays, sickness, availability (including contractors/freelancers), and delivery delays.
The capacity planning process basically boils down to three key areas:
👩💻 How much your team can get done within their physical working schedule (i.e., full-time, part-time hours, etc.) You can then calculate how much work your team can realistically do within their capacity hours.
📋 A transparent pool that takes into account your team's capacity and skillsets. Each team member's availability and skillset is used to make sure their time is scheduled effectively.
⏱️ Effective capacity planning gives team leaders a better look at their resources' availability and schedules. Because of that visibility, team leaders can see what people are working on, and make quick decisions about how many tasks they can take on without burning them out.
The level of detail is what makes capacity planning a secret weapon for agencies. With an effective capacity planning process in place, team leaders can take on more projects without worrying if their staff has the time to get everything done.
What are the benefits of capacity planning?
Capacity planning helps teams create more accurate project plans and resource schedules. A full project pipeline is great, as long as you've got team members with the right skill sets to get it all done. That's the central, simple benefit to capacity planning; it ensures you have team members with the correct skills when you need them.
Beyond keeping your team busy (but not too busy), capacity planning has two key benefits: increasing project efficiency and making it easier for agencies to plan for the future.
Increasing the overall efficiency of a project
Capacity planning goes beyond making sure your team doesn't burnout—it helps you make smarter resourcing decisions to ensure your projects are delivered on budget and scope.
With most agency teams juggling multiple projects at once, managing change requires an effective method of shuffling resources around. Capacity planning makes it easier for team leaders to see who is working on what, as well as what’s upcoming.
For example, let's say you have two designers who have similar skill sets, and your agency juggles multiple projects which both designers are working on. The first project takes up 40% of one designer's time, and they spend the remaining 60% of their time on the second project. Your other designer is also switching between tasks assigned on both projects.
Capacity planning helps highlight that switching between projects cuts into both designers’ productivity. With that knowledge, your team leader can reassign the designers, so one works on the first project at 100% capacity, while the other takes on the second project at 100% capacity.
Improving your long-term strategic planning
Capacity planning is important on a day-to-day level and for long-term strategic planning. A big hurdle for agencies wanting to take on more projects isn't just a fear of burning out their team, but also having enough resources to get the job done.
Imagine that your agency is fully booked for the next 6 months. With capacity planning, it's easy to calculate if you have enough people available with the right skill sets to get your projects finished. By knowing this information in advance, you can hire more staff or look for freelancers and contractors to fill the gap if and when they’re needed.
Jenn DePauw, managing director of digital agency The1stMovement, says agencies can manage the pipeline vs. capacity conundrum by using good data, good communication, and setting realistic expectations.
"Sell realistic lead times whenever possible to allow time to plan resources effectively. Communicate expectations internally, when everyone understands the nuances of the project and the level of service needed, it's easier to identify areas of over-servicing."
DePauw also says agencies must appreciate the value that you provide to your clients. "When everyone is aligned on the value of the service you are selling, managing capacity can be done much more effectively."
Capacity planning is a smart move for agencies to make. You can see where you have skill gaps or where your team is being underutilized and fix “problems” before they become problems.
💡 Pro-tip: How does a 100+ people agency stay on top of their capacity planning? The operations team at MetaLab hold fortnightly meetings where they plan their projects and resources three months into the future. They use resource management software Float to get an accurate view of their team's capacity and make future resourcing decisions. "By being able to see three months ahead, we can give our executives and partnerships team a line of sight into how we’ll staff future projects and our ability to take on additional projects,” says Operations Manager Georgia McGillivray. Read more on MetaLab's resource capacity planning process here.
Capacity planning vs. resource planning: what's the difference?
Capacity planning and resource planning are a bit like a chicken and egg scenario—one can't exist without the other. 🐣
While capacity planning looks at data to see if you've got enough talent available to get a project completed (supply and demand), resource planning is the process of allocating these team members to tasks.
First comes your capacity planning, which:
- Determines if your agency has enough people available based on team levels and skill sets.
- If you do not have enough staff, your team leader will then have to decide whether to cancel/delay projects in your pipeline, or hire more talent.
- If your agency doesn't want to take on more staff, your team leader might look at other options like hiring contractors or freelancers to fill the skill gap.
Once your capacity planning is finished, you can begin your resource planning, which:
- Coordinates and then allocates each team member to tasks within a project based on their skill set.
- Sets deliverables for tasks to keep a project on track.
- Utilizes resources so your team will work efficiently and productively (but not burn out).
💡 Pro-tip: Capacity planning software makes this process easy by calculating areas like resource utilization automatically. For example, Float's reporting feature crunches numbers like overtime, team utilization, capacity hours, and billable hours. To get an idea of your team's capacity hours, Float takes the total working hours per day multiplied by the number of working days for each person in the time period. If your team is working a 40 hour week, Float will take that number and multiply it by the number of viewable people.
The 3 principal methods of capacity planning
There are three ways agencies can approach capacity planning: lead, lag, or match. Each strategy has its strengths and weaknesses and can be used depending on how ambitious your agency is and how many projects you're willing to take on.
Strategy #1: Lead
A lead strategy is most often used in agencies that are growing. This strategy envisions that you're going to be filling your project pipeline quickly.
A lead strategy is aggressive. By predicting your agency will have more projects than you currently do (or have in the past), this strategy requires you hire more staff so you can take on more work. The benefit to this strategy is that you'll have a team that's ready to take on the work when it flows in and spur your agency's growth.
The downside? If those extra projects never materialize, your agency will have made a large investment in staff that you don't need.
Strategy #2: Lag
Lag is where your agency works its staff at full capacity (or worse, over-capacity) because you didn't predict and plan for an influx of projects.
Although lag means that you didn't take on staff when they weren't needed, it can be a problematic strategy for agencies. For one, your agency is at risk of overworking your team, risking burnout and late project deliveries. The other downside is that as your agency is operating at 100% capacity, and your team is too busy to take on any new projects.
On the plus side, if you are happy with where your agency is at growth-wise, lag is a safe strategy that cuts down your risk of hiring staff that you don’t need.
Strategy #3: Match
Finally, match takes into account your agency's current capabilities while keeping one eye on the future.
This strategy tracks your capacity and utilization rates, and gives you the option to increase your capacity when you hit a resource ceiling. For example, if your team is working at a utilization rate of 80%, it's a sign that they're handling their tasks without being overworked. If that utilization rate creeps up to 90%, however, your agency can build a plan to make sure the workload doesn't impact your team or your clients.
Whether that plan is looking for external contractors or making more permanent hires, the match strategy means that you aren't hiring talent without the need for them. It also gives your agency room to grow—if the work is there, you can comfortably accept it and be confident that your agency can get it done. ✅
4 steps to building an effective capacity planning process
To leverage the power of capacity planning, your agency needs to build a process. That process is a simple set of four steps:
- Identify all projects and tasks
- Build a realistic schedule using time estimates
- Pick your capacity planning strategy
- Track everything
Step 1: Identify all projects and tasks
Before you can begin capacity planning, you need to know exactly what it is you're planning for.
A detailed outline of what your agency needs to get done, not only now but in the future, is essential. Take a look at what projects are in your pipeline and what you have coming up in the next 3-6 months. Then, start to outline how long each task will take by breaking each project down into single tasks and estimating their length.
Next, run the outline past your team. They're the ones doing the work, and can tell you if your outline is accurate or not. It’s important to also keep the scope of each project in mind in order to estimate how many team members you'll need to get each task completed.
Step 2: Pick a strategy
Lead, lag, or match?
Only you know which strategy is best for your agency and your budget. Although a lag strategy is less risky, a match strategy lets you use capacity planning to your advantage.
Whatever strategy you pick will determine how you approach your capacity planning, and whether you'll be able to take on extra projects and staff without making risky investments.
Step 3: Build a realistic resource schedule using estimates
Next, you need to take the outline you created in step 1 and use it to build a realistic working schedule for your team.
As capacity planning is linked to both your team's availability and skillsets, the schedule needs to take into account other aspects like project type, budget, tasks, and hours needed. For example, you might have 20 front-end developers who can dedicate 50% of their schedule to a big project over the next 3 months. Your team leader can then use that availability to calculate how many full-time equivalents can work on the project (20 team members working at 50% capacity = 10 full-time front end developers available).
A little more math will show that 10 full-time developers working a 40-hour week for 3 months leaves you with 4800 hours to use on the project. Using the available capacity of your team, you can then begin allocating tasks to developers based on their skills until you reach your team's capacity!
Step 4: Track everything
Capacity planning is an ongoing process.
Your agency needs to monitor how projects progress to make sure capacity doesn't exceed your ideal utilization rate. Without the right software to help you out, you'll need to rely on manual tools like spreadsheets. 🤯
Adding software to your tech stack means your capacity planning efforts will be tracked automatically. Using Float, your team's capacity and scheduled hours are calculated automatically to ensure you're not over-allocating tasks:
Float also gives an accurate view of your team's availability through work hours, public holidays, and time off, so it's easy to know when you need to enlist extra help (hello contractors! 👋).
Capacity planning helps you get stuff done and keeps your team happy
There's a balancing act between getting projects delivered on time and making sure your team's schedule stays full. If you're planning your team's week or trying to decide if you can take on another project using just spreadsheets, that balancing act can become too difficult to manage.
For capacity planning to work, team leaders need to have a firm grasp on what their team is working on, who is assigned to what, and how much wiggle room exists in your overall workload.
Capacity planning gives you a clear road map on when you should be hiring more staff—and if your agency can handle that huge project that's just landed in your pipeline. 💰 With the right capacity planning process in place, your team will be focused and working on projects where their skills are most needed. What could be better than that?