Businesses are facing a highly competitive and volatile market demand across the globe. Since resource costs are among the most expensive entries in any organization’s balance sheet, businesses must utilize their scarce resources most efficiently for higher ROI.
Many organizations do not have a dedicated resource capacity planning tool. They have been carrying out the resource allocation and capacity planning process using their legacy systems, such as Excel spreadsheets/other home-grown applications. There are many resources, and no mechanism exists to link their work together to get enterprise-wide visibility for resources.
The Excel spreadsheets and half-baked home-grown capacity planning solutions are incredibly limiting, time-consuming, and hard to maintain. In fact, “88% of spreadsheets are difficult to maintain.” It cannot meet new business challenges.
Businesses are in desperate need of an enterprise-level futuristic resource capacity planning solution. This guide has been designed for businesses to understand enterprise resource demand and capacity planning in project management. In addition, it will help any company to establish the right processes with the tool.
But before delving into the details, let’s first understand the capacity planning definition.
1. What is resource capacity planning?
Resource capacity planning predicts the gap between future demand and workforce capacity to identify the shortfall/excesses of resources. Accordingly, one can develop a resource capacity plan to bridge the gap proactively for successful project delivery while ensuring every resource is optimally utilized. Thus, it becomes an essential step before resource allocation, providing all available resources before the project’s onset.
The resource capacity planning process requires centralizing information from various systems. These systems are human resources, skills, current projects, future pipeline projects, resource demand/ allocation, vacations, and non-project activities. It helps you build a single real-time system as a single source of truth.
2. Role of resource capacity planning in project management
The resource capacity planning model plays a vital role in project management. It helps align sales and delivery by planning and forecasting pipeline opportunities. Once a pipeline project reaches a certain probability stage, the manager estimates the resource requirements and initiates the requisition process.
The corresponding resource manager then starts planning for fulfillment. But first, they need to analyze if there are sufficient resources to start the project.
The resource manager compares the existing resource capacity against the project demand from multiple perspectives such as role, department, team, skills, etc.
It helps to identify the shortages or excesses ahead of time. Accordingly, managers can apply appropriate resourcing strategies, such as hiring a permanent or contingent workforce, to bridge this gap.
Allowing sufficient lead time helps avoid last-minute hiring/firing costs and ensures that the right resources are available for projects at the right time and cost. Simultaneously, capacity resource planning helps minimize bench time proactively by facilitating on-the-job training, adjusting timelines, or selling excess capacity.
In a nutshell, resource or workforce capacity-based planning helps build an optimized project team, reduces project costs, and future-proofs the workforce against market volatilities and economic uncertainties.
Now that we know its role let’s understand the key components of capacity planning in firms.
3. What are the key elements of resource capacity planning?
Resource capacity planning involves determining and managing the availability and capacity of resources required for project execution. It ensures appropriate resources are allocated to tasks and projects based on availability and workload capacity. The key elements of resource capacity planning include:
A. Identifying and categorizing resources
Managers must have complete data on the available resources in the workplace. This includes identifying and categorizing the types of resources, their skills, expertise, and availability. In addition, it provides an overview of the resources at the organization’s disposal.
B. Estimating resource demand
Organizations must forecast and estimate the demand accurately to meet future project requirements. Managers can estimate the number and types of resources required at every stage of project execution by assessing the project plans, scope, and timelines.
C. Assessing the resource capacity
To ascertain the capacity, managers must assess the current and projected utilization of the resources. This includes estimating the workload and availability of the workforce to identify their capacity to take on additional tasks or projects.
D. Capacity vs. demand gap analysis
Managers must conduct a gap analysis and check for any imbalances in the capacity and demand. It involves comparing the future resource demand with the available capacity to identify shortfalls or excesses. If there are any potential gaps, managers can take corrective measures to bridge them.
Now that we know the various components let’s understand the importance of capacity planning for firms.
4. What are the business benefits of resource capacity planning?
Resource capacity planning helps businesses plan pipeline projects and futureproof the workforce against ongoing market volatility. Here are some of the advantages of resource capacity planning for your business:
A. Reduces project resource costs across the enterprise
With the help of efficient forecasting and capacity planning strategies, overall resourcing costs can be reduced drastically:
- Eliminate under/over-skilled resources on projects
- Utilize cost-effective global resources without compromising quality
- Avoid last-minute hiring costs with proper capacity and resource planning
- Minimize hiring/firing cycles by aligning project workload with workforce capacity
- Avoid Double Booking of Resources and minimize burn rate
- Control unplanned attrition
B. Maximizes productive utilization of every resource
The forecasting and capacity planning system forecasts billable and strategic utilization of the workforce ahead of time. It will help you mobilize employees from non-billable or low-priority work to billable or high-priority projects.
Billable resource utilization is a critical KPI for a professional service business to ensure profitability and sustainability.
C. Ensures competent resource allocation for successful project execution
Having the right employee with the right skills and cost is crucial for a project to finish within budgeted time and cost.
The resource planning and management system must identify and allocate competent resources. It is based on their skills, experience, qualifications, location, team, resource cost rate, and any other criteria you prefer. One must avoid the “first visible first fit” approach instead of the “best visible best fit” principle for resource allocation.
D. Forecasts and bridges the skills gap
The capacity planning process can help you identify skill shortages ahead of time so that you can take corrective action:
- Adjust project timelines to align with available capacity.
- Retrain and skill up available employees ahead of time.
- Hire a contingent workforce before time.
- Optimize Bench Management
- Bring forward initiatives to meet strategic goals.
- Allow movement of resources across departments to maximize utilization
E. Aligns sales and delivery by forecasting pipeline opportunities
Capacity-based planning enables the sales team to estimate and forecast demand for various resources based on the sales pipeline opportunities. It helps the delivery team ensure the right resources are available at the right time to finish the project.
Once the benefits of resource capacity planning are clear, let’s move on to learn some of the best methods of resource capacity planning.
5. Best practices of resource capacity planning
Resource capacity planning in project management is becoming increasingly critical for a business to reduce resourcing costs and become responsive to the market. As a result, resource capacity planning has gone beyond the basics of measuring workforce demand against capacity.
Here are some key strategies to implement capacity planning efficiently in your firm: –
A. Forecast capacity vs. demand and form a project resource plan in advance
A business must forecast capacity vs. demand from multiple dimensions, i.e., by role, department, team, location, skills, etc. It helps identify short- or long-term shortages/excess of resources. It also allows people with different roles to view their specific information at the right time, which helps in decision-making.
Managers can proactively implement the right resourcing treatments using the capacity vs. demand report. They can also form a full-proof capacity plan ahead of the curve.
B. Track and analyze the competency matrix in real-time
Tracking and keeping up-to-date information about the competency and workforce is critical. It allows the right resource with skill, experience, qualifications, individual preferences, etc., to be allocated to the proper work.
It helps plan a new project that may need a niche skill that is difficult to get from the market. If such a capability is available within the organization, the concerned person can be out rotated with a suitable backfill candidate.
C. Manage project pipeline efficiently
The system should keep track of future potential projects in the pipeline and forecast estimated resource demand. It will ensure the resource pool is optimally balanced, skilled, and ready to meet new projects’ demands.
One can decide whether to re-skill, hire, or have contingency resources to do the work. It helps in planning the resource mix.
D. Predict and improve overall resource utilization
The system should provide short- or long-term billable, strategic, and overall utilization forecasting. It helps take corrective actions to ensure high utilization and protect the business’s profitability.
E. Foresee project vacancies and people on the bench
The system should get you foresight into future resource needs and people who will end up on the bench. It helps the resource manager to mix and match available people against project vacancies. It will be an opportunity lost if you cannot find the right resource at the right time for the right project.
F. Streamline resource requisition to deliver projects on time
Generally, resource requesting and allocations are done through email or phone requests. It causes quite a bit of chaos.
Streamlining the process using workflow is critical, ensuring resources are allocated with appropriate approvals and notifications. In addition, one must avoid unnecessary emails/telephone calls as they cannot be easily reconciled, documented, and analyzed later.
These are some effective strategies businesses can adopt for resource capacity planning. Let’s look into the effect of resource capacity planning on utilization.
6. How does resource capacity planning affect utilization?
Achieving high utilization rates relies on the efficient movement of team members across tasks and projects, minimizing unnecessary downtime. Successful resource capacity planning is vital in aligning resources, their skills, and project demands. By implementing effective resource capacity planning, companies can experience increased utilization rates that remain strong over time.
Additionally, it is also crucial to continually implement capacity planning strategies, learn from past projects, and build a comprehensive catalog of employee skills. This continuous improvement approach enhances planning and resource allocation, resulting in a positive impact on utilization rates. Ultimately, the goal is to reach a utilization percentage that maintains profitability while avoiding employee burnout.
Knowing how resource capacity planning impacts utilization, let’s understand how to select the right solution for effective capacity planning.
7. How to choose the right solution for efficient resource capacity planning?
Capacity and resource planning is a crucial part of the performance improvement of modern business. It is critical to look for a solution beyond the current spreadsheet functionalities. A business should ensure that they have robust capacity planning software that can provide the following:
A. The system should be scalable, configurable, and expandable
Every business is different, and so are its workforce capacity planning needs. Therefore, a business must select a scalable and configurable capacity planning tool to meet current needs and expandable to meet future business requirements. In addition, system performance must not degrade with more users using the device across the organization.
B. It should forecast profitability and productivity
Resource capacity planning methodology should help your business to do multi-dimensional forecasting. It will provide real-time business intelligence to improve business performance, profitability, and productivity.
C. It must solve the complexities of matrix organization
It must align with the matrix organization structure. Nowadays, most businesses have established a matrix organization structure to best utilize their resources. So, companies must have a capacity planning tool that aligns with matrix organization structure and associated complexities.
D. The solution must provide real-time BI analytics
Project demand in a real-life business environment changes every minute. So, it is crucial for resource management and capacity planning techniques to get real-time business intelligence, i.e., reports, analytics, and dashboards.
E. It should integrate with other applications
Most businesses have already invested in enterprise-level systems. They hold a lot of data required by a capacity planning solution, i.e., resource profile, competencies, project detail, etc. So, the resource management system must integrate seamlessly with existing applications.
In this way, organizations can choose the right capacity planning solution. So now, let’s know some ways to do resource capacity planning.
8. Checklist for resource capacity planning for a specific period
Here are some critical capacity planning strategies you must consider while managing capacity and demand for projects.
A. Forecast & calculate workforce capacity
- Take an inventory of your organization’s full-time, part-time, contractor, or freelance resources.
- Include resources who will be joining or leaving during this period
- Assign calendar (Workweek and Holiday list) to your resources if they are working at different locations
- Track the skills and competencies of the selected resources
B. Establish project portfolio
- List all the current and future projects
- List all the potential opportunities which are in the pipeline
- Account for non-project activities like BAU, Support Maintenance, Administrative Work, Training, etc.
- Categorize the projects into Billable, Strategic, and Non-Billable Projects
- Prioritize your projects for a better Capacity Planning process
C. Forecast resource demand
- Get foresight into the resource requirements of the pipeline projects
- Identify the competent resources and their availability during the same timeline
- Prioritize the demand as per the criticality of each project and their subsequent tasks
D. Compare resource demand against capacity
- Analyze Resource Capacity versus Demand
- Identify the Gap between Resource Capacity and Demand
- Identify skill shortages or excesses, if any.
- Plan on how to bridge the gap of shortfall of resources ahead of time
E. Allocate resources to the appropriate projects
- Assign the right resources to the right Project. Avoid allocating over-skilled or under-skilled resources
- Allocate generic resources or placeholders on future Projects
- Create estimates using placeholders for your Opportunities
- Record resources unavailable time, i.e., People going on Leave, training, etc.
- Implement the right resource optimization technique to avoid employee burnout
- These are a few techniques to be considered for managing project capacity and demand.
9. Conclusion
Resource capacity planning is a crucial aspect of project resource management. By leveraging the functionalities of advanced capacity planning tools, businesses can use their resources more effectively. In addition, it also helps in reducing resourcing costs, eliminating reactive hiring, and futureproofing their workforce against market volatility.
10. Glossary
11. SAVIOM solution
SAVIOM is the market leader in providing an Enterprise Resource Capacity Planning solution. With over 20 years of experience leading the market, Saviom is actively used by over 15 highly-esteemed global companies worldwide. The tools within the suite include project portfolio management, professional service automation, and workforce planning software. Re-engineer operational efficiency with a system shaped around your business!
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