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What Is Capacity Planning

What Is Capacity Planning? Tools and Strategies in 2024

Though tedious, planning is a critical part of any project and production. Capacity planning is a term often used in the production field, but not everyone knows what it is. If that’s you, check out this guide, where we will explain what it is and how you can use it to your advantage.

Dan GinnBrett DaySimona Ivanovski

Written by Dan Ginn (Writer, Script Editor)

Reviewed by Brett Day (Writer, Editor)

Facts checked by Simona Ivanovski (Fact-Checker)

Last Updated: 2024-07-04T14:50:40+00:00

All our content is written fully by humans; we do not publish AI writing. Learn more here.

Key Takeaways: Capacity-Based Planning
  • Capacity planning is an integral part of project management and production management.
  • There are several different strategies for capacity planning; the right one depends on your business needs. 
  • Good capacity planning software makes planning easier and can help you monitor a project or production cycle. 

Facts & Expert Analysis About Capacity Planning Definition

  • It’s common for projects and production to get off track, which can lead to a drop in productivity and missed deadlines. Thankfully, capacity planning helps keep everything on the right path and ensures you meet customer demand. It may not be the most enjoyable task, but it is essential to success.

The best project management software has tools to help you build capacity planning strategies. However, for inexperienced project managers, it may not be clear what these tools are for or how you can best utilize them for effective capacity planning. In this guide, we’ll cover the ins and outs of capacity planning and how it can benefit your organization.

You may be wondering why it’s important for a business to have a strong capacity planning strategy. The short answer is that it allows you to identify areas of growth within the business. This could be financial growth or areas where you can increase productivity. It can also be areas you need to cut back on in terms of finances or workforce if you have excess capacity. 

Essentially, a capacity planning strategy ensures your business isn’t doing too much or too little. It helps keep your projects stable, and for companies offering a product, it helps you continue to meet customer demand. Let’s break it down a little further.

  • 06/27/2024

    Updated article to add custom graphics.

What Is Capacity Planning?

Capacity planning is about finding the sweet spot of having enough resources to meet customer demand or the demands of a specific project. Let’s say your company specializes in interior design, and you have 20 client requests. Workforce capacity planning helps ensure you have the right number of people to do the work.

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On the other hand, perhaps your workforce is larger than your business’s actual demand. If members of your team are on retainer, you’ll be overspending on resources. Good resource capacity planning is essential, as it ensures you’re not wasting company finances.

Capacity planning pertains to more than just your workforce. It also encompasses the tools you need to create a product and helps ensure you can create enough products within a specific time frame to meet customer demand. Capacity planning is important because it ensures you don’t overpromise and underdeliver. 

The Capacity Planning Process

Capacity management is most effective when carried out prior to starting a project or a round of production. However, capacity planning is an ongoing process, so you may need to adapt throughout a project or when creating your product. Capacity planning involves certain key areas. They include the following:

  • Resource management: Assess the number of people you need to complete tasks in your project or to build a product.
  • Time management: You need to analyze the output your team can realistically manage within a specific time frame. This is useful for two main reasons: It helps you meet demand on time, and it can help you grow your business if you find you can be more productive within a specific time frame.
  • Tool capacity planning: Whether hardware or project management tools, you need to plan ahead and ensure your team has the right number of tools to deliver the work. 
  • Production capacity planning: If you offer a physical product, you need to ensure you have enough materials to build it. You need to be in sync with any third-party suppliers you source materials from and confirm they can meet your demand so you can then meet your customers’ demand.

capacity planning process
The capacity planning process involves managers focusing on resources and time management, as well as tool and production capacities.

Capacity planning is sometimes confused with project planning. They’re similar but have separate definitions and characteristics. Check out our guide to project quality plans to learn how to create a solid one.

Why Is Capacity Planning Important?

Knowing your capacity is essential, and the benefits are invaluable. It’s one of the key components of scaling your business, as it allows you to increase productivity, meet higher customer demand and bring in more revenue.

scaling business
Capacity planning is essential if you want to increase productivity and your bottom line.

Resource capacity planning is the best way to get the most out of your workforce. This is especially true when working remotely, where it’s not as easy to gauge everyone’s progress with their work as it would be in a central office. 

By planning effectively, you can identify if you need to increase or decrease your current capacity, either to reduce spending or to increase the product supply chain.

If you don’t practice capacity planning, the consequences can not only slow progress but also harm your business. Not knowing how much capacity you have can lead to overspending, a lack of access to the necessary materials and missed opportunities for business growth. Though tedious, capacity planning is an essential element of success. 

Types of Capacity Planning

Now that you have a general overview of what capacity planning is, let’s dig a little deeper. Below, we will discuss the different types of capacity management you can expect to do and how they will help you make the most of your available resources. 

Workforce Capacity Planning

Most companies tend to have a workforce full of different skill sets and availability. Some team members may often voluntarily take on more work than others. This may not sound like a problem, but it leads to an imbalance, which can often result in employee burnout, a drop in productivity and a whole host of anti-patterns.

zoho projects interface kanban
Kanban boards allow project managers to see how much work has been assigned to each team member, which can help prevent individuals from becoming overloaded with tasks. 

Capacity and resource planning (aka team capacity planning) has two positive outcomes. First, it allows you to distribute specific pieces of work to team members who have the right skills. Second, it enables you to delegate tasks more evenly, ensuring no team members are overloaded. 

Project Capacity Planning

Project leaders who manage a project portfolio can certainly benefit from capacity planning. In this context, it involves calculating how long each project would take to complete. Once you have determined the complexity of each project, you can plan how to use your available resources to ensure you complete the project on time.

By following capacity planning best practices, you can begin to find areas of growth. If you determine that you still have time and resources beyond the projects you already have, you can decide whether the business can take on more projects to increase revenue.

Tool Capacity Planning

The tools you use to do your work are an integral part of your success. For physical work, like manufacturing, you first need to take inventory to see which tools are available and which ones you will need. You may also need to replace your current tools due to wear and tear. Planning in advance allows you to get them in time to meet demand.

In the digital world, tool capacity planning means getting the right software and the right subscription plans. Most SaaS products offer many plans that have various tools. Planning in advance helps you determine which software tools you need and helps you avoid overpaying. Additionally, it will help you determine whether you have enough tools to complete your projects.

Product Capacity Planning

Another example of capacity planning is product capacity planning. This involves ensuring you have all the raw materials needed to build the products for your customers. It also gives you the opportunity to create a strategy for how you intend to approach product creation.

Building in line with customer demand helps you avoid wasting product materials. This process is often referred to as JIT (just-in-time) management. The downside is that it can sometimes mean customers don’t always receive orders as quickly as they would if you kept an abundance of parts on hand. Remember this when assessing product capacity requirements.

Human Resource Capacity Planning

The human resources department is responsible for recruiting new employees, onboarding them and measuring ongoing performance. Making sure employees are hired on time and settled in with all the necessary information requires a high level of planning.

If HR doesn’t plan effectively, it can lead to a slowdown in recruitment rounds and delayed start dates for new hires. The obvious consequence is not having the workforce needed to complete the work, which will negatively impact many areas of your business. Check out our guide to project human resource management to learn more about this process.

Capacity Planning — Strategy Examples 

Beyond the types of capacity planning, there are specific strategies a company can use to execute effective capacity planning. We will break them all down below and explain their benefits and drawbacks. 

Lag Strategy

Lag strategy is a reactive approach to production. It involves only increasing production when your company has real-time demand for the product you sell. This is considered a more conservative approach to production, as it involves less risk than producing products in bulk ahead of knowing the actual demand. 

The benefit of a lag strategy is that it helps you minimize expenditure and reduce the risk of having excess capacity. The downside is that if you experience an influx of new customers, you may not be able to meet demand quickly enough, resulting in a loss of sales. 

Lead Strategy

Lead strategy is an approach commonly used in manufacturing industries. It’s the process of creating a product ahead of receiving orders. This is done in a calculated manner where members of operations management anticipate higher demand in the future. 

Lead capacity planning overrides the negatives of lag strategy. By engaging in mass production, you’re able to meet demand should you experience a large influx of new customers. You can also quickly serve current customers. Of course, a loss of revenue is likely in the event of a decrease in demand. 

Adjustment Strategy Planning

Adjustment strategy planning requires being more flexible and reactive. Employing this Agile approach makes it easier to change paths if your project isn’t quite going to plan. It involves a lot of data analysis. An experienced project manager should be able to monitor KPIs (key performance indicators) and identify how to adapt and allocate resources.

monday dashboard
Dashboards, like those found on monday.com, allow project managers
to quickly see key performance indicators.

The challenge with adjusting your capacity plan is that it requires the whole team to be seamlessly adaptable. This is much easier in theory than in practice. Changing paths can often lead to a drop in productivity as team members become accustomed to the new plan of action. To help overcome issues relating to this, you might want to hire a change manager.

Match Strategy Planning

Match strategy planning is a combination of lag and lead strategy planning. It’s a more gentle approach to increasing production capacity, and it allows you to go beyond anticipated demand without aggressively increasing production. 

Though match strategy allows you to take a certain amount of risk (without risking too much capital), it’s not without downsides. Whether a product or your workforce, finding the sweet spot between capacity and scaling isn’t easy. If you get it wrong, you will either have a lack of resources or excess capacity that goes to waste. 

Capacity Planning Best Practices 

Whether you’re resource planning or workforce capacity planning (or anything in between), there are certain best practices worth following to ensure you approach it correctly. We’ll go more in depth on these practices in this section.

Remain Alert

You’ve developed an excellent capacity plan that you believe is foolproof. This can mean you take your eye off the ball and miss subtle changes that require you to do some adaptive capacity planning. Don’t become too relaxed in your success. Instead, remain alert so you can respond promptly to any changes you need to make.

Assume Changes Will Occur

Speak to an experienced project manager or product owner, and they will tell you that a plan rarely sticks to its course. Assuming changes will need to be made makes it easier to adapt and avoid panicking when they arise. It also helps set the tone for your team and prevents a dent in confidence when the original course of action takes a detour. 

Analyze, Analyze, Analyze

It’s best to have an analytical thinker on your team when it comes to capacity planning strategies. This means having someone who is always on the ball and happy to analyze before, during and after a project or production cycle. This helps you improve your capacity planning strategies in the future and refine your processes during a project. 

Invest in Capacity Planning Software

There’s no shortage of options when it comes to software to support capacity planning. From templates for managing data to automation tools that help make your processes easier to manage, using good software certainly helps improve capacity planning. Most software options have dashboards and reporting features to help you prioritize projects and workload.

Capacity Planning vs Resource Planning

Resource capacity planning and resource planning are similar, but not quite the same. The two are often used interchangeably, but it’s best to know what distinguishes them. We will explain the differences to clear up any confusion.

In project management, resources are anything that’s needed to complete a task or project. This could include team members, materials or tools. When resource planning, you choose and define what you need to complete the work.

Resource capacity planning is the process of managing the resources you have already identified for your business needs. For example, you may decide you need a software developer to complete a task. That’s resource planning. You may then need to decide how many software developers you require to complete the projects. That’s resource capacity planning. 

Capacity Planning Tools

As we noted, good capacity planning software will make capacity planning much easier. We have tested many project management software platforms, including the best Agile tools. Below is a selection of what we feel are the best options to help you with everything from production capacity to resource management.

1. monday.com 

monday knowledgebase
The monday.com blog is an excellent source of detailed information on capacity planning. 

monday.com is an excellent solution for all types of project management. It’s also a useful resource for those looking to learn more about capacity planning, as it has plenty of detailed articles in its knowledgebase. It offers a capacity planning template to guide you in quickly setting up a plan with minimal effort. You can learn more in our monday.com review or use the 30-day money-back guarantee to test it yourself.

Free
  • Maximum users: 2
Basic
  • Minimum users: 3; All prices per user
Standard
  • Minimum users: 3; All prices per user
More plans
Pro
  • Minimum users: 3; All prices per user
Enterprise
  • Enterprise-level features.

2. ClickUp

clickup Weekly Resource Planning
ClickUp offers several planning templates in a range of different views. 

Another quality project management solution is ClickUp, and it’s one we use daily here at Cloudwards. It has a dedicated workflow view that allows you to easily see and analyze your team’s capacity for work. It has templates for resource capacity planning, as well as capacity planning templates in table and kanban views. Learn more in our ClickUp review or take it for a spin using the 30-day money-back guarantee. 

Free Forever
  • Basic functionality with some limitations

3. Zoho Projects

zoho projetcs ruc view schedule
Zoho offers a multipurpose digital workspace through several apps within its ecosystem.

For a project management all-arounder, Zoho Projects is a great option. It’s useful for remote teams, as it lets you collaborate with others and discuss the best course of action for your capacity plan. It’s also highly customizable, allowing you to create a visual board that helps you digest all your capacity data. Check out our Zoho Projects review to learn more or test everything it can do using its 30-day money-back guarantee. 

Final Thoughts

Now that you understand capacity planning in its various forms, it’s time to put it into practice in your business. It’s a good idea to consult other senior members of your team to decide the best capacity planning process for your product or business. Don’t be afraid to experiment with different approaches. It can take time to find the right approach for your company.

If you’ve checked out our monday.com and ClickUp reviews but are unsure which one to choose, we can help. We created a useful ClickUp vs monday.com guide to help you decide which is best for your business needs.

Did you find this capacity planning guide useful? Are there any other strategies you would like us to explain? What is your favorite capacity planning software? Let us know in the comments. Thanks for reading. 

FAQ: Capacity Planning Meaning

  • The four types of capacity planning are resource capacity planning (or workforce capacity planning), time capacity planning, tool capacity planning and product capacity planning.

  • First, you need to consider how many team members you will need to complete the work and assess how best to distribute them. Then, you need to analyze how much time it will take to complete your work and how best to utilize your time to maximize productivity. Lastly, you’ll need to know which materials are needed and how much product you can produce to meet demand.

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