5 Best Practices for Capacity Management

- By Ajay Kumar | October 12, 2023
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Human resources are the success drivers of an organization. After all, their talent, skills, and efforts lead to the project’s success, which in turn enhances your firm’s reputation and gives you a competitive edge. That being said, recruiting the right people for the right job is only the beginning. Additionally, it is required to manage and utilize the existing capacity of the organization as it enhances the profitability and sustainability of any business.

The entire process of matching the right skill set to the right job, ensuring optimal utilization of the workforce, and minimizing hiring/firing cycles constitutes capacity management.

This article entails what is capacity management, its significance, and the best practices to help you join the ranks of a well-managed business.

Let’s begin with capacity management definition.Get robust resource management software

What is resource capacity management?

Capacity management is a strategy that accounts for the resource capacity to meet the project demands. It optimises the existing capacity before adding or hiring new resources.

Moreover, it enables firms to make real-time data-driven decisions to bridge the capacity vs. demand gaps in advance. In addition, it also helps improve profitability by forecasting the billable utilization levels and optimally leveraging the existing resources.

Efficient resource capacity management helps you address the following questions:

  • Are there sufficient resources to work on current and pipeline projects?
  • Are there enough projects to deploy the available resources?
  • Is there centralized visibility into the current resource capacity and demand?
  • Is there an adequate budget to complete projects?

If these are your company’s challenges, then capacity management is essential to combat them.The Comprehensive Guide to Resource Capacity Planning

Now that we know the definition of capacity management, let’s understand the benefits of capacity management in detail.

Why is resource capacity management important?

Capacity management is a critical function for businesses of all sizes and industries. One of the primary benefits of capacity management is ensuring that an organization has adequate resources to meet current and pipeline project demand.

By proactively forecasting resource requirements, managers can bridge capacity gaps with suitable corrective measures. This enables organizations to prepare for demand volatility with more precision. Moreover, effective capacity management prevents last-minute firefighting and minimizes wastage due to a large bench. As a result, it contributes to enhanced profitability.

Resource capacity management also involves forecasting resource utilization. It provides an opportunity to maximize the billable utilization of resources and generate better revenue. More importantly, it enables organizations to futureproof the workforce by helping them to upgrade their skill sets and stay abreast of evolving technological and market trends.

Therefore, capacity management strategies help firms operate efficiently, meet project requirements, and remain competitive in the marketplace.

Next, let’s learn about various metrics of capacity management.

What are the key metrics of capacity management?

The following metrics are an integral part of intelligent capacity management. They enable resource managers to take resource treatment measures well in advance.

Capacity vs. demand

Capacity vs. demand is a critical metric that tells you about the shortage or excess of resources. Resource managers can bridge the gap proactively and ensure that neither the excess capacity is wasted, nor the project has vacancies.

Resource utilization

Resource utilization is a way to measure how effectively the resources are utilized against their available capacity. It helps you ensure uniform utilization of the workforce and keeps over or underutilization of resources in check.

Forecast vs. actual time

The forecast vs. actual time lets you compare the booked hours against the actual time spent on specific project activities. It will help you protect your project costs and safeguard you from billing loss.

People on the bench

Effective bench management is the cornerstone of a capacity planning strategy. Forecasting people on the bench is, therefore, a crucial aspect of allocating projects and tasks to the workforce in advance.

Project vacancy

Project vacancy is an important metric that allows mobilizing your resources from non-billable or BAU tasks to billable projects. It also gives you enough lead time to retrain resources or hire new recruits.

Now that the basics of capacity management is clear let us understand the difference between reactive and proactive capacity management.

The Comprehensive Guide to Resource Capacity Planning

Reactive vs. proactive capacity management: What is the difference?

Reactive and proactive capacity management are two essential methods organizations use to manage resource capacity.

Reactive capacity management

Reactive capacity management is a responsive approach where the resource adjustments or allocations are made only after the capacity-related issues have occurred. This process involves strategies like reactive hiring, firefighting of resources, etc., to combat resource shortages, unplanned attrition, etc. Though this approach addresses immediate issues, it results in higher costs, service disruptions, customer dissatisfaction, etc.

Example of reactive capacity management

In an ongoing IT project, the client suddenly asks for additional features that require specialized skills. Managers may allocate work to the existing resources without analyzing their capacity to meet the immediate requirements. This will lead to overutilization, causing stress and burnout, resulting in project delays and client dissatisfaction.

Proactive capacity management

Proactive capacity management is a planned method to meet the anticipated resourcing challenges. It is a long-term process that involves resource forecasting and monitoring to ensure that suitable resources are available and utilized appropriately to meet the pipeline project requirements. Additionally, it offers benefits like cost savings, optimal resource utilization, enhanced service quality, etc. Moreover, it allows organizations to align resources with business objectives more effectively.

Example of proactive capacity management

Reiterating the above IT project example, in proactive planning, managers foresee the requirements that may arise in the project and ensure they have sufficient capacity to meet the demand. Proper visibility into the resources will enable managers to deploy resources to the project based on their capacity and availability. This ensures the project is completed on time and within the budget.

Knowing the differences between reactive and proactive capacity management, let’s understand the key strategies for capacity management.

Strategies for effective capacity management

Following some effective capacity management strategies will enable organizations to align their resource requirements with the changing project demand. Listed below are a few:

Lag strategy

The lag strategy is a reactive approach where the resource capacity adjustments are made after the changes in the demand have occurred. This method enables organizations to plan their capacity to meet the current demand rather than future resource requirements.

The lag strategy helps firms optimally utilize their resources and lower the resourcing costs as they do not have to hire an additional workforce until needed. Contrarily, this method may not respond quickly to sudden changes in demand, causing project delays and client dissatisfaction.

Lead strategy

The lead strategy involves increasing or decreasing the capacity by anticipating changes in future resource requirements. Contrary to lag strategy, this method allows organizations to make adjustments in the capacity before the fluctuations in demand occur.

This strategy ensures that a company is well-prepared to meet the demand changes without any delays. On the downside, with this method, organizations have excess capacity ahead of time, which will escalate the costs and the risk of increased idle time, causing billing losses.

Match strategy

Match strategy falls between lag and lead strategies and adjusts the capacity to meet the fluctuations in demand as closely as possible. With this strategy, organizations can effectively predict the demand and ensure the resources are optimally utilized in proportion to the demand.

Additionally, this strategy aims at lowering resource idle time while maintaining the capacity to meet the demand changes. Though this strategy may seem ideal for organizations, it may require a high level of coordination to match capacity precisely with fluctuating demand and significant investment in advanced tools and technologies.

Now that the essential strategies for effective capacity management are understood, let’s learn about some of the best practices organizations can follow for capacity management.

What are the best practices for efficient capacity management?

Listed below are the best practices organizations can follow while capacity management.

Use a centralized platform to track competency across the matrix organization

It’s imperative for resource managers to stay up-to-date with the workforce’s competencies in a matrix organization. It helps them allocate the right resource with the right skills, experience, qualifications, and expertise to the project tasks. However, with many businesses still relying on basic, outdated tools like spreadsheets for a crucial task like this, it becomes challenging. A centralized platform is critical to accomplish this task.

Enterprise-wide visibility helps you identify required skill sets and book specific resources based on their availability.

This approach of using a centralized platform helps you plan new strategic projects that require niche skills. Since there is a significant lead time to acquire these resources from external channels, one can look for these skills internally. Once identified, out rotating the concerned resource and backfilling with a less qualified resource maintain the success of both projects.

Read More: Effective Ways to Overcome Resourcing Challenges in Matrix Organizations

Manage pipeline projects effectively

Efficient resource capacity management implies reduced hiring/firing cycles and intelligent fulfillment of short-term/long-term future demands. Resource managers should stay forewarned of future potential projects and subsequent resource demands. It will help you balance your resource pool with the right skills for the fulfillment of any open position.

In case there is a gap in skill set within your existing resource pool, you can proactively apply resourcing treatments. Some of these techniques are retraining or upskilling the existing employees or hiring a permanent or contingent resource. These practices enable you to stay ahead of the curve and eliminate future project bottlenecks.

Read More: 4 steps to perfect your Project Pipeline Management strategy

Forecast your future capacity to maximize billable utilization

Utilizing your existing capacity to their maximum potential is at the crux of efficient and intelligent capacity planning strategy.

Having said that, only scheduling and allocating resources to any tasks does not complete the job. Resource managers need to ensure that maximum resources are booked for billable projects.

Centralized visibility in a robust capacity management tool enables managers to mobilize resources from non-billable to billable and strategic projects. Moreover, foresight into resources’ utilization will help managers take a proactive approach to increase billability instead of a reactive one.

Read More: Maximize Profitable Resource Utilization with Modern Resource Management Solution

Implement a workflow for resource requisition and allocation

Resource requisition and resource allocation are two of the most crucial steps of resource capacity management. However, if this is carried out via email or phone calls, it can lead to chaos. This is because the process will require a trail of emails to concerned department heads, team managers, and so on to pull out the resource. By the time you get the right resource, the project might have already started leading to billing loss.

Thus, a well-crafted workflow is vital to get the resource on time and keep it documented and auditable. It will also keep everyone in the loop. The stakeholders will stay informed about their resources along with their allocations, avoiding any unnecessary discrepancies.

Read More: What is Resource Allocation? A Comprehensive Guide for Project Success

Increase profitability by reducing bench time with effective capacity management strategies

An exceeding number of benched resources is a nightmare for resource managers. For one, it’s incurring unnecessary overheads to the firm, and for two, it’s hampering the productivity of the resources. Forecasting bench time is, therefore, the right measure to take corrective measures ahead of the curve. A robust capacity management software provides intuitive people on the bench and vacancy-related details.

Leveraging real-time data, resource managers can proactively fill the vacancies with resources likely to end up on the bench. Resource managers can forecast excess or shortfalls and take remedial actions beforehand. They can get foresight into the capacity vs. demand gap to take the right resourcing measures.

Plan for different scenarios using what-if analysis

In a multi-project environment, balancing the resource capacity against the demand becomes challenging. Therefore, organizations can implement simulation and modelling techniques to simplify capacity planning. In this method, managers can create and compare scenarios to analyze different ways of scheduling or allocating resources across multiple projects.

This what-if analysis also helps compare the effect of changes in resource allocations on essential metrics, like cost, utilization, availability, etc. It, thus, enables organizations to arrive at the best possible plan and implement it in the actual schedule to align their planning with long-term objectives and maximize profitability. This way, firms can overcome resource constraints and ensure the workforce is available to meet the critical project demand.

The takeaway

Resource capacity management is the hallmark of organizational success and business sustainability. The above-mentioned best practices, combined with the right capacity management tools, will help minimize project risks and bottlenecks while ensuring optimal workforce utilization. In summary, by implementing effective capacity management strategies, businesses can achieve long-term success and growth.

The Glossary

Read More: Glossary of Resource Workforce Planning, Scheduling and Management

The SAVIOM Solution

SAVIOM is the market leader in providing an Enterprise Resource Capacity Planning solution. With over 20 years of experience as a market leader, Saviom is actively used by many highly esteemed global companies. Some of the components of the tool include enterprise resource management, professional service automation, and workforce planning software.

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