5 best practices for capacity planning in project management

Once you master long-time planning, you’ll never deal with stressful last-minute hires or a growing bench. Read this article to learn the essentials of capacity planning - why IT companies use it and what happens when they don’t.

Arkadiusz Terpiłowski

Co-Founder

Resource Planning

14/05/2021

Table of contents

How to balance client demand with your capacity across every skill?

Executives in IT companies keep on asking me this question.

My answer? A well-organized capacity planning process is the solution. It gives you a bird’s eye view into your available capacity, allowing you to take in projects with the certainty that you have the resources to get started. It also gives you a chance to fill any potential vacancies.

Planning means trying to predict what the client demand will look like and how you’re going to respond based on your available capacity. 

Once you master long-time planning, you’ll never deal with stressful last-minute hires or a growing bench.

Read this article to learn the essentials of capacity planning - why IT companies use it and what happens when they don’t. 

What is capacity planning in project management?

Capacity planning is a process that focuses on reaching a balance of the available working hours of your teams against what the needs of your projects.

To plan capacity, you first need to know how to calculate your available capacity. 

How to calculate total, and available capacity?

Total capacity

The total capacity is the number of available person-hours in a given period of time including all kinds of public holidays.

Total capacity = number of working days * number of working hours * number of employees

Sample calculation formula for a full-time employee:

For example, in May 2021 we have 19 working days in the UK. Normally it would be 21, but there are two public holidays falling on weekdays.

So the total capacity in hours for May 2021 is 19 * 8 h = 152 h

Sample calculation formula for a part-time employee:

If we have an employee working 4h per day, the total capacity in hours for May 2021 is 19 * 8 h = 76 h

Available capacity

The available capacity is the number of available person-hours in a given period of time including public holidays and time-offs.

Available capacity = total capacity - time offs

Sample calculation formula for a full-time employee

For example, in May 2021 we have 19 working days in the UK. Normally it would be 21, but there are two public holidays falling on weekdays. What's more our employee took 2 days of time-offs.

So the available capacity in hours for May 2021 is (19 * 8 h) - (2 * 8 h) = 136 h

Sample calculation formula for a 50-person company

So, if our 50-person organization is in the UK and celebrates British holidays, in May 2021 we will have 19 working days because of the Early May Bank Holiday and Spring Bank Holiday. 

Employment structure:

  • 40 employee on a full-time basis (8 hours a day, 5 days a week),
  • 10 employees on a part-time basis (4 hours a day, 5 days a week),
  • two employees (one part-time, and one full-time) took 7 days' leave,

If we want to calculate the available capacity of our company for May 2021, we need to:

  1. take the number of working hours this month (including public holidays): 19 days * 8h * 40 + 19 days * 4h * 10 = 6840 h -> this is our total capacity,
  2. take the number of time-off hours took this month: 7 days * 8h + 7 days * 4h = 84 h,
  3. calculate total available capacity: 6840h - 84h = 6756h
Example of the availability heat map in Primetric comparing capacity to the scheduled hours.

Planned workload / Utilization level

Having calculated available capacity, we’re ready to calculate the planned utilization - the planned workload of selected people or the entire company in a given period of time.

With the available capacity and planned disposal, we can only see how many hours of our specialists are available to us and compare this information with the demand in the project.

If you need some more pointers on utilization, start here: What is the utilization rate formula for software companies?

Note: For some companies, it makes sense to translate available capacity into Full-Time Equivalent (FTE). Body leasing companies often use it to allocate their employees to their client’s projects.

Capacity planning - project vs. company-level 

In IT companies, capacity planning happens on two levels: inside projects and on the general company-wide level.

A project manager needs to make sure that team members are working on the right tasks and that these tasks are arranged properly. This directly relates to planning the capacity of individual employees and assigning them to tasks they can complete.

This type of granular approach works great when planning a sprint or when we focus on task management. This is when we usually create a list of tasks and then consider the people who can be assigned to those tasks - allowing us to estimate the required capacity in a project within a short period of time.

But this approach doesn't allow for a long-term look at the project. It doesn’t help managers who would like to see what the company’s operations will look like in a few months.

That’s why it’s so important to plan capacity from a long-term different perspective. This helps to plan actions in advance and avoid react ad hoc.

For a COO or Resource Specialist, capacity planning means something else than for a project manager. This type of long-term plan is about how employees are allocated to projects across the company. 

This goes for scheduled projects that you know are going to happen and tentative ones that we’re only. It’s also about managing different booking types and knowing where your most valuable resources are allocated, when they can start working on new projects, and when they’re not available.

Benefits of capacity planning at the company level

Knowing your available capacity brings many perks to your overall planning process. But the following are the biggest gains that make capacity planning such a valuable process for IT companies.

1. Data-driven hiring decisions

The process brings you insights into which roles you need to fill in order to take on a future project. Thanks to this, HR teams get a clear overview of your recruitment needs and have enough time to source, recruit, and onboard new employees. That’s how this process helps companies to avoid resource bottlenecks in the future. 

Forecasts about needed vacancies

2. More visibility for the sales team

Another benefit relates to the work of the sales team. The idea is to offer sales reps more visibility into the production pipeline. That’s how they can learn whether there’s room for more projects within a given period and which skillsets will become available.

Forecasts about the bench / availability

3. Better planning and forecasting

An accurate planned capacity allows you to calculate profit forecasts because you know what projects your teams will be realized in the near future. By counting in tentative projects, you can create simulations of future revenues if you end up signing the client.

Finance forecasts with profitability (taking into account tentative projects)

4. Maximizing utilization

Calculating your available capacity is the first step to ensuring excellent employee utilization. Why leave people hanging on the bench when you can focus on getting them the right projects instead?

Needed vacancies vs people availability

5. Protecting the team

This is another key reason why capacity planning is so important to IT companies that take extra care of their employees. A poor process might lead to project overbooking. And when that happens, companies can rarely hire the right resources on time. Instead, some of the existing employees might have to work overtime - and that never works well in the long run.

Violet color warns you about overutilization / overbookings

Factors that may impact capacity planning at the company level

Internal factors that impact capacity planning:

  • Type of employment - Are your specialists full-time workers or part-time contractors? This type of employment will have a direct impact on their capacity and, consequently, on the overall capacity available to you.
  • Leaves - Whether it’s a holiday leave, sick leave, or maternity leave, they all have the same outcome. They change your available capacity. If you fail to take that into account when planning, prepare for trouble.
  • Organizational changes - An example is staff turnover when some team members might be available until a specific time.  
  • Culture - Is working overtime acceptable to your employees? Or are they going to look for another job when you ask them to work on two projects at the same time? 
  • Day planning - Are you going to include the lunch break in your available capacity? This is a key question that will have a massive impact on calculating the available capacity at your company.

External factors that impact capacity planning:

  • Candidate market - We all know that IT is a tough job market. Specialists are scarce and in some areas, the hiring process can take months (think DevOps experts). It doesn’t make sense to sign a project within a timeframe that doesn’t allow you to find the resources for it.
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Risks of bad capacity planning

Inability to take on a project

Capacity management is about dividing into the project funnel. Let’s consider tentative projects first. You need to start estimating the likelihood of these projects happening as soon as possible. And if you see a lot of projects in the funnel, you can take action and start hiring. If you don’t do this early enough, you won’t be able to cover the project. 

Lack of control over bench time

When you don’t monitor your capacity, you might miss out on the moment when your bench starts growing fast. You need to know when your employees are running out of projects. Otherwise, you risk losing profitability.

Resource waste

Another risk of insufficient capacity planning is when you allocate valuable resources to poorly matched projects - just because there were no other resources available at the time. 

Team burnout 

Poor planning might lead to project overbooking and overtime for team members. If that happens on a result basis, you’re looking at the risk of team burnout. Burnout affects employee motivation and productivity. Missed objectives are more likely to happen because of that, causing losses in project quality, costs, or schedules.

5 best practices for planning your employee’s capacity 

1. Understand your available capacity

Without knowing how many hours you have available to sell each month, you can’t start a meaningful conversation with a client. Moreover, once you know your available capacity, you can take on the right projects and give recruiters enough time to find resources if you’re missing any.

2. Forecast capacity vs. demand 

Capacity planning is all about the future. You have a few projects in front of you, and now you’re trying to see how they fit into the resources you’ve got. Smart capacity planning allows you to be more accurate in your predictions. And thanks to forecasting, you can develop a project resource plan in advance.

3. Track and analyze skills matrix in real-time

While considering your available capacity, keep a close eye on the skills matrix at your company. You need to know what skill sets are available to you right now and when other competencies are going to free up soon. This information is a perfect guide for a focused sales effort or recruitment strategy.

4. Predict and improve overall resource utilization

A software platform like Primetric allows you to review historical data but also forecast employee utilization. You can quickly respond to the changing utilization by hiring additional staff or informing the sales department about resource availability so they can find projects for them.

5. Foresee project vacancies and people on the bench

Use capacity planning to understand where your resources are going and for how long they’re going to be locked in their projects. If you’re negotiating a new project with a client, take this information into account and you’ll be able to easily tell whether realizing this project 2 months from now will require hiring additional resources. 

The same goes for your bench - you can reduce bench time if you know that certain team members are going to finish a project soon and will be available for other projects.

Common capacity planning mistakes

Overestimating an employee’s availability 

If you plan projects without knowing that an employee’s availability is much smaller than you think (for example, they have a holiday leave planned in the middle of the project), prepare for trouble. You’ll have to get their share of working hours covered by someone else in the last minute and that’s never a good way to run a project.

Mismatch between skill sets and projects

Consider this: Not every backend developer knows PHP really well. So if you stop planning at the level of backend/frontend developer, you might run into serious problems later if it turns out that the people you’ve assigned to the project don’t have the right skills.

Overestimating the project’s capacity

The demand in a given project can vary depending on the resource you assign to the project. Let's be clear, a senior dev will often deliver customer requirements several times faster than a junior dev. This, in turn, affects planning capacity and may result in forecast misinterpretations. 

Use capacity planning software

To plan capacity at the level of the entire company, you need resource capacity planning software that includes all the features required for capacity planning in IT.

Here are the must-have features of any capacity planning software:

Scalable and configurable

Make sure that your solution can support you as your company grows and your teams expand in both number and skill diversity. The software you pick should also allow you to configure it so that it matches the unique nature of your business. At Primetric, we often add new features to support our clients.

Forecasting profitability 

It’s essential that your solution offers extensive forecasting capabilities that go beyond capacity and cover availability, revenue, and profitability.

Real-time BI analytics

Make sure that the tool you pick generates a variety of reports to assist you in making smart data-driven decisions. It should allow you to create advanced financial forecasts and simulations to assess your results.

Integration with other applications 

Capacity planning tools need to integrate with systems used at your company. This can be ATS, leave management software, project management tools, and Customer Relationship Management solutions.

Wrap up

Calculating, planning, and forecasting your capacity are all pretty complex processes if the only tool at your disposal is a bunch of spreadsheets.

But it doesn’t have to be. 

We built Primetric to address this problem and help IT companies to get better at predicting their profitability. 

Sign up here and make sure that you never overbook projects again.


Arkadiusz Terpiłowski

Co-Founder

Arkadiusz is Head of Growth and Co-founder at Primetric. Prior to that, Arkadiusz was at the helm of his own software development company where he oversaw operations. A great enthusiast of process improvements, his personal mission is to make software companies more profitable and efficient on their path to growth.

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