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BEST PRACTICES FOR CAPACITY PLANNING IN PROFESSIONAL SERVICES

The heads of professional services firms would love to wake up every day and be able to look forward and create a plan based on the “big picture”. Capacity planning in professional services looks at how companies can secure their own ‘perfect’ resource capacity plan to meet future client demand more effectively. In essence, a resource capacity plan helps to paint that big picture 


Failure to cultivate a thorough and realized capacity plan can lead to the inability to match resources to forecasted work. This can not only mean businesses fail to meet future demand effectively but could mean they have too many resources. This can be a costly mistake as the business won't be bringing in enough revenue to cover the cost of any additional resources. We've compiled a list of the best practices for capacity planning right here and will explore its benefits, challenges, and more.


WHAT IS CAPACITY PLANNING?


Teamstage found that 55% of project managers cite budget overrun as a reason for project failure. By making better decisions around project resourcing, as well as hiring and client onboarding, businesses can streamline operations and increase their profits. This is what capacity planning helps firms do better. Capacity planning can mean different things in different industries, so let’s take a look at how professional services and SaaS firms define capacity planning.


If you’re looking for more information, check out our guide dedicated to answering the question, ‘What is capacity planning?


In professional services


Capacity planning in professional services involves an advanced approach to maximizing resources. This includes anything from internal staff, to contractors on an as-needed basis, to align the most efficient business capacity with customer demand. Professional services firms achieve this by identifying and deploying only the required resources needed to complete a project. This entails matching those employees with crucial skills to the necessary project while also exploring avenues for employee development. Effective capacity planning takes into account successful outcomes for both customers and employees. Professional services firms can leverage capacity planning to corroborate their existing resource supply with forecasted future demand, ensuring they are consistently delivering on promises.


In software & technology


For SaaS businesses focused on growth, they need to be relying heavily on planning to ensure they have the necessary resources to achieve their goals. In the world of software, this is more commonly a sales capacity plan. This is what produces revenue for SaaS businesses. Every single dollar of new ARR begins with a sale, so if you want to grow your ARR, you’ll need to carry out sales capacity planning to work out how many AE’s you’ll need to achieve this growth. Capacity planning in SaaS allows firms to set appropriate quotas, resulting in a high-performing sales team with optimal productivity. Unrealistically high quotas or adopting the mindset of ‘one-size-fits-all’ can lead to AE burn-out and low morale. The SaaS industry is extremely dynamic, so a proactive pursuit is always required. AE’s will naturally miss quotas from time to time, and if you take your finger off the pulse when it comes to monitoring your sales capacity throughout the year, the chance of missing your targets will inevitably grow with every quarter.


Capacity planning or resource planning?


‘Capacity planning’ and ‘resource planning’ are often used interchangeably, but they’re not the same. Let’s explore the difference between these two concepts:


Capacity planning


Capacity planning is a strategic planning process centered around supply and demand. Core activities include:


  • Assessing whether an organization has the necessary production capacity to meet demand

  • Examining resource availability and the skill set of the team

  • Informing the decision of whether to hire further resources or cancel projects

Resource planning


Resource planning is an ongoing activity that sees team leaders or resource managers:


  • Allocating actual resources to projects based on resource requirements

  • Making decisions around which resources should be assigned to which projects and when

  • The central idea of resource planning is resource allocation


Essentially capacity can be made up from a bucket of resource(s) as well as other production requirements in order to complete the project, whereas resource are the tools and staff required to undertake the project.


THE THREE TYPES OF CAPACITY PLANNING


Capacity planning is an incredibly broad area, so there are various different types firms can utilize. Here are the three main types of capacity planning:


  • Product capacity planning helps to ensure companies have the raw materials required to produce and deliver their products. For example, a consulting firm would need to have the skilled consultants, relevant software tools, and collaborative workspaces to meet the demands of upcoming client projects.

  • Workforce capacity planning allows companies to ensure they have the right people needed to carry out upcoming jobs and projects. By forecasting the labor hours required from each business area or discipline businesses can improve their visibility when it comes to hiring more people or downsizing the workforce. 

  • Tool capacity planning ensures businesses have the necessary tools to achieve the desired output. In consulting, this can refer to the availability of essential technology, office infrastructure, and collaboration tools required for effective service delivery.


WHAT ARE THE BENEFITS OF CAPACITY PLANNING?


A clearer understanding of the capacity requirements for each project provides an opportunity to eliminate bottlenecks and maintain an efficient supply chain. Let’s delve into the biggest benefits of capacity planning.


Capacity planning prevents overcommitment


One of the key benefits of capacity planning is enabling you to accept or decline work with confidence by knowing straight away if you have the people available to deliver the work. By prioritizing resources according to high-value tasks, you can ensure your teams remain in alignment with strategic business goals, mitigating issues of both underutilization and overutilization.


Capacity planning provides insights into staffing gaps


If you want to achieve balance, you need to know and understand the teams and resources you have at your disposal like the back of your hand, including the skills each member brings to the table. An often underestimated approach to addressing staffing needs is to train current employees to develop the skills required for different or more extensive roles. Failure to grasp the demand or the full spectrum of talent already within a company can result in significant financial waste through unnecessary hires. 


Capacity planning ensures you remain on course


There are often severe consequences as a result of poor capacity planning which include cost overruns, missed deadlines, and employee burnout caused by overworking. Without accurate, real-time data, there's a high likelihood you’ll overestimate availability, bandwidth, and skill sets.


Capacity planning helps you reduce production costs


As we’ve established, capacity planning optimizes resources based on expected workloads. By ensuring you only use the materials, tools, and people you need, you avoid paying fees for surplus resources. For example, if you have 10 members working on a project that only requires eight members, you can allocate those two extra members to another project, which would minimize the spend on the initial project. 


Capacity planning helps prevent project overrun by aligning resource allocation with actual project needs. By accurately estimating and optimizing resources, such as personnel, materials, and tools, you reduce the risk of surplus and associated fees.


Future planning is made more accurate


Once you’ve created a capacity plan for one project, you can then use that as a template for similar projects in the future. Templates means you won’t need to forecast requirements from scratch, accelerating the capacity planning process.


FIVE CAPACITY PLANNING BEST PRACTICES TO REMEMBER


Now we have a deeper understanding of why capacity planning is critical to success in professional services, the next step is understanding the best practices to guarantee a seamless transition when capacity planning is implemented. If you’re looking for the best steps for capacity planning, check out our blog.


Let’s take a look at these best practices.


Understand demand


Project managers need to understand the overall demand, which includes both growing business and maintaining business. Occasionally, the need to sustain current business operations may be overshadowed by the emphasis on demand for products that drive growth. However, recognizing the significance of both aspects is essential for the overarching success of the company.


To avoid falling short, it’s important to address key questions, such as:


  • How should work and resources be prioritized?

  • Do you have enough people to carry out the work?

  • What skills will be required for projects in the pipeline, do these currently exist within the organization?


Assess current capacity with precision


Analyzing current capacity is a very important part of capacity planning, so it’s crucial that it is done as accurately as possible. When calculating the capacity of each team, it’s worth noting that you need to account for and plan around vacations or seasons that can hamper a team’s productivity. Under-assessing your current capacity can be a costly endeavor. Take a look below at our summary of the cost of failed implementations. 



Adopt an ongoing process for capacity planning


Exactly how often you undertake capacity planning depends on your needs; some organizations complete this task quarterly, and others monthly. Nevertheless, it’s by no means a one-time endeavor but an ongoing process. Taking an iterative approach to capacity planning allows companies to adapt to changing plans, limit waste, and develop efficient systems over time.


Embrace a strategic approach to prioritizing work


To ensure on-strategy delivery, begin by aligning work with business goals, allowing your team to focus on the most crucial aspects. Start with the overarching missions, objectives, and strategies, and progress into associated programs and finer details. In an agile framework, strategic themes serve as a means to synchronize business strategies with operational tasks.


Be prepared for change


Although capacity planning enables your business to become a well-oiled machine, estimates can be inaccurate, and plans can change. Anticipated projects may drop out of the pipeline, team members may quit, or unprecedented market fluctuations may disrupt progress. Expecting the unexpected can help managers adapt more swiftly to last-minute changes, avoiding bottlenecks and balancing workloads.


CAPACITY PLANNING CHALLENGES AND WATCH-OUTS


Despite all the good things we’ve said about capacity planning, it’s important to note its potential challenges so firms can address them and find success.


Granular data requires more effort


When creating resource forecasts, project managers must consider a few things, including: 


  • Organization: At what level should resource data be collected? By team, role, or by name?

  • Project schedule: Should you gather resource data at the project, phase or task level?

  • Timeframe: Over what timeframe should resource data be collected? Quarterly, monthly, or weekly?


Professional services businesses need to be clear about the level of data needed to properly capture capacity and utilization. Data with a high level of granularity can provide a deeper understanding, but it also demands increased effort for data collection and maintenance. 


Keeping up with changes


In short, things change. It’s cutting-edge insights like this which have made us the well-regarded thought leaders we are today! On a serious note, project environments can be volatile. The external competitive landscape changes, strategic goals are realigned, employee turnover is common, and there can be major organizational adjustments. All of these factors will affect project work. Project managers often find that the capacity plan they create is seldom static for an extended period. 


The bottom line is the more detailed a capacity plan is, the more work is needed to update it.


Project manager know-how


Creating a robust capacity plan hinges on the skills and ability of the project manager. A good project manager will work with their team to understand the level of capacity required for individual projects. Many organizations, however, can’t maintain the discipline required to create comprehensive plans for all projects in the pipeline.


This is made more challenging when project managers lack the formal training or leadership skills needed. This is intrinsically linked to the project management maturity of the company.

 

PERFECTING CAPACITY PLANNING: YOUR NEXT STEPS


Even with ample preparation, capacity planning will never be perfect. Yet, when taken seriously throughout the organization, you can maximize its value. Taking the time to understand upcoming projects’ resource requirements and your individual teams’ capacity will allow you to prioritize projects, manage workloads, optimize spend, and work towards achieving the business’s strategic goals.


Remember, capacity planning never stops. It’s an iterative planning process that plays a key role in strategic decision-making.

 

How Precursive can help


A powerful PSA software like Precursive can greatly benefit any professional services organization looking to master capacity planning. Precursive provides a clear overview of your capacity, resource skill set, and forward forecasting, allowing you to set your project teams up for success. Here are just some of the ways we can help you out:


  • Work management: Break down a project and assign work to your teams. Get notified when tasks are ready based on their predecessors being completed.

  • Project management: Get everyone on the same page about what's happening and your timelines. Manage projects using Gantt Charts or Kanban Boards.

  • Planning and scheduling: Set a baseline to track deliverables against your commitments and if the plan changes, tasks are automatically rescheduled.


You've done the reading, but if you're looking for more information now you can watch our newest video on how to utilize our powerful PSA system.



A PSA software solution helps provide visibility into workloads, allowing for more successful capacity planning. Want to see for yourself? Book a demo today.


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