What is Capacity Planning?
Capacity planning is a process used to predict a company’s upcoming demand. And, significantly, whether it has the resources to support this demand.
The approach relies on a company’s data to make informed predictions. This can include historical project data, customer behavior, and industry or market research. This data enables organizations to calculate resource requirements (such as equipment, workforce, facilities, and systems). Doing so helps minimize idle resources and overproduction and prevent resource or product shortages.
Some approaches to capacity planning include:
- Lead strategy (increasing capacity to match an anticipated increase in demand)
- Lag strategy (meeting demand increases or decreases as they occur)
- Match strategy (increasing capacity when demand starts to grow)
What is the Purpose of Capacity Planning?
Business leaders use capacity planning to ensure that resources align with demand. Capacity planning helps determine the resources a business needs to reach its goals. This is both shorter-term projects and activities and longer-term objectives. So, is capacity planning important? The simple answer is yes. It has several critical purposes within an organization, including:
- Better forecasting. A clear understanding of your business’s capacity enables more accurate predictions of workload, outcomes, finances, and more. You will be better prepared to pivot and adapt to unexpected events (like internal company changes), unforeseen circumstances (such as a competitor launching a new product), and even emergencies (as extreme as natural disasters).
- Visibility of gaps. Pre-identifying the skills required for a project helps you plan forward and fill any skills gaps. For example, you can hire new team members, upskill existing staff, or upgrade specific systems. This enhanced visibility also helps to ensure skill sets align with the company’s broader objectives.
- Ensuring enough supplies. Resources don’t only refer to the people in your team. They are also the materials you need to run your business. Capacity planning allows companies to track resource use and minimize any risk of shortages.
- Resource adaptability. Resource shortages can, of course, lead to issues. But overcapacity can be as problematic. Capacity planning techniques help identify underused teams, outdated skills, and excess materials. This enables you to make better resource decisions and adapt to future needs.
- Optimized human resources. When there is a lack of human resources, job creep becomes inevitable. By planning ahead, you can ensure jobs are performed by the right person or people (and at the right seniority level).
- Cost and risk management. Capacity planning helps avoid overprovision (more resources than required) and underprovision (fewer resources than needed). Both of these increase risk and incur unnecessary costs.
- Scalability. Capacity planning allows for more agility because it improves forecasting and optimizes resources. This enables businesses to scale to meet demands more easily (and more rapidly).
What’s the Difference Between Capacity Planning and Production Planning?
Production planning and capacity planning both sit within operations and share some similarities. But, there are critical differences between the two. Production planning focuses on the current requirements of the production process. Capacity planning looks at how it can handle future demand. Let’s explore this further.
Production planning
Production planning means developing a plan to deliver products, goods, or services. The process started in manufacturing, but organizations of many sizes, industries, and outputs have adopted it. For example, production planning can benefit healthcare, retail, and construction.
Teams use the process to:
- Estimate product demand.
- Identify the materials and resources required for successful delivery.
- Plot out the production schedule.
- Coordinate with suppliers/third parties.
- Allow for quality control.
- Monitor performance.
This approach ultimately defines the day-to-day activities, minimizes risks, reduces costs, and helps businesses create an efficient production process.
Capacity planning
Capacity planning is a strategic approach to managing an organization’s future demands. It assesses a company’s capacity to handle predicted workloads and adapt to change. (No matter how unexpected that change is). Business leaders can then change systems and resources to ensure successful outcomes.
What’s the Difference Between Capacity Planning and Resource Management?
Resource management is an operational function of the business. It encompasses several different processes, including capacity planning and resource allocation. Let’s explore each of them.
Resource Allocation
Resource allocation involves planning, scheduling, and allocating resources across a business. It is an operations-focused practice. It determines capacity, gives specific resources (or identifies extra resources required), and matches capabilities to business needs. This includes human resources, financial and material resources.
Capacity planning
Capacity planning is one aspect of resource management. It is a strategic approach to determining your organization’s capacity for future projects. It does not focus on individual people or equipment. Instead, it ensures the right resources (not too few or too many) to meet future business demands. It focuses on team and system capabilities, forecasting, and preparation for future needs.
Want to implement capacity planning in your organization? Get in touch today.
see also: long-range planning
related articles: planisware enterprise demo: operational resource management, planisware enterprise demo: capacity planning