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,