Balancing the equation: how to choose the right capacity planning model

written by
Tom Purves
Jan 23, 2023
number
minutes read

In the tumultuous world of professional services, resource capacity planning stands as a critical cornerstone on the road to success. Get this strategic process right, and you'll uncover fresh avenues for growth, rake in more bang for your buck, and keep your staff happy—as well as your clients.  

In this article, we’ll explain what capacity planning is, what some of the different capacity planning strategies are, and how you can choose the best capacity planning model for your business.  

What is capacity planning?

In simple terms, capacity planning is a strategic process used by professional services organizations to evaluate how much capacity is required to deliver their current and future demand. Capacity planning is not a one-time exercise, but instead an ongoing process that evolves with your dynamic business requirements and changing client needs.

By adopting effective capacity planning processes, firms can accurately assess their team's capabilities, skill sets, and available hours, enabling them to deliver successful client projects and plan for future growth. It also helps firms achieve a better utilization rate, which in turn improves profit margins, as well as guiding investment decisions and business development objectives.

A strong capacity planning process acts as a competitive advantage, enabling firms to maintain a steady course, deliver on client projects, and stay adaptable to dynamic market conditions. As the backbone of efficient resource management, capacity planning becomes an indispensable process for firms striving to thrive in their endeavours and achieve long-lasting success.

While we can talk up the benefits of capacity planning all day, actually putting a practical process in place takes careful consideration, coordination, and commitment. Despite its many benefits, being able to accurately predict the capacity requirements necessary to deliver successful projects is an ongoing challenge for many professional services organizations.

Let’s make things a little easier by reviewing some capacity planning strategies.

Implementing a capacity planning strategy

A good capacity planning strategy provides a foundation for firms to successfully analyze and evaluate their resource capacity against their confirmed and potential demand.  

There are three main types of capacity planning strategies that professional services organizations can use during resource planning (https://www.cmap.io/blog/what-is-resource-planning-ultimate-guide-professional-services-firms). Choosing the right one for your business depends on a few different factors, so let’s dive into the pros and cons of each strategy.

Lag strategy

Lag strategy is a conservative approach to capacity planning ( where you increase capacity in response to increasing demand. With a lag strategy, you’re reactive. You monitor your data and wait for an increase in demand, only actively increasing capacity when it’s essential to deliver the project successfully.

For example, let’s say a firm has a period of accelerated growth and needs to deliver multiple new projects. That’s great, but then they check their data and realize they don’t currently have capacity to match the demand required for these projects. In response, they begin to secure and allocate resources to these projects.

  • Pro: As implementing a lag strategy for your capacity planning is reactive, it helps to reduce the risk of excess capacity in your business. Ultimately, by playing it safe with your resources, this helps in driving profitability through minimizing expenditure on benched resources.  
  • Con: Unfortunately, the reactive nature of the lag strategy is its downfall, too. Organizations may not always have visibility of upcoming projects or changes in demand ahead of time, and so when demand increases, you may not be able to increase your production capacity at a rate to match it.

Lead strategy

Compared to lag strategy, lead strategy is a much more proactive approach to capacity planning. This strategy involves forecasting future demand ahead of time and securing your resources prior to the expected increase. Using historical data, market trends and insights from your forecasting will assist in predicting these changes.

For example, let’s say your data indicates that in the first quarter of your financial year, there's an increase in winning client projects alongside numerous potential pipeline projects. In response, you review your production capacity and determine that additional investment in resources will be required to successfully complete the client projects—all before the expected increase in demand.

  • Pro: If you decide to utilize a lead strategy, you can ensure your firm will always have the resource available to cover upcoming demand. By investing in additional resource prior to the actual increase in demand, employees are available to be allocated to these projects as soon as they're confirmed.  
  • Con: It’s difficult to accurately predict the future. With a lead strategy, there’s a risk that you might invest in additional resources without seeing any actual growth in demand. This could lead to excess capacity and additional expenditure on benched resources, which could impact your bottom line.

Match strategy

Match strategy combines both the lag and lead strategies by proactively monitoring capacity vs demand in combination with historical trends in the market and future forecasting. Firms will adjust capacity for projects based on the real-time, live and forecasted pipeline demand visible to them, in addition to expected growth in market trends. This allows for small but steady variations in capacity to match demand.

  • Pro: As firms with a match strategy are proactively monitoring their live projects, forecasting future projects, and considering their historical and market trends, they can be more flexible with their capacity planning and better manage their resources. This reduces the risks involved in capacity planning—whether that’s disappointing clients with limited resources or overspending on excess resources—as they can respond to real-time changes in demand.
  • Con: While a match strategy could be preferential for organizations as it has the lowest risk, it does have one significant challenge—the challenge of effectively implementing it. As a wide range of data, insights, and forecasting is required, organizations will need to implement appropriate processes, systems, and training to ensure production capacity is successfully managed.

Choosing the right capacity planning model

Now we’ve been through the primary capacity planning strategies, let’s discuss the systems that can be used to achieve this—also known as capacity planning models.

A capacity planning model offers a visual depiction of your data, showing the confirmed & pipeline demand in relation to available capacity. It provides valuable insights in an easy-to-digest format when examining teams, individual roles, or skills within your resource pool as your demand changes.  

There are numerous data points required to produce these insights, including resource availability & skillsets, live & pipeline project requirements, and forecasted impact on capacity. These can be distilled into the six forces of capacity vs demand.

For many organizations, implementing a capacity planning model is essential in ensuring the successful management of capacity vs current and future demand and increasing profit margins across projects.  

Let’s explore two of the main types of capacity planning models: spreadsheets and professional service automation solutions (PSA).

Spreadsheets

Spreadsheet software can be utilized to monitor, analyze and visualize data for an organization's capacity planning and management. They offer a limited range of features, such as graphs and charts, conditional formatting, and macros that could assist with visualizing capacity data into a more understandable and actionable format.

However, spreadsheets aren’t specifically designed for this application, so there may be some challenges when utilizing it for capacity planning. Firstly, building a fully functional capacity planning model within a spreadsheet requires a high skillset. Even though many people will have used spreadsheet software successfully during their careers, it requires advanced knowledge to build a highly technical reporting system that meets business needs.  

Furthermore, even if a business does manage to create a functional capacity management system within spreadsheet software, the large data sets and moving parts involved mean there are risks of unexpected errors, data loss and crashes. Due to these risks, spreadsheet software rarely scales with growing firms.

Professional Services Automation (PSA) systems

Professional Services Automation solutions, such as CMap, are designed to address the specific business requirements of professional services organizations. Integrating the diverse tools and separate spreadsheets often used by firms to manage projects and company performance, PSA solutions provide one comprehensive, centralized platform.  

PSA solutions offer an extensive range of functionality designed to streamline and optimize a wide range of business processes. As an example, CMap offers a blend of project management, accounting, HR, CRM (Customer Relationship Management), custom reports, proposals and, most pertinently, resource capacity management.  

In regard to specific resource capacity planning modelling functionality, PSA solutions offer numerous dedicated features designed to maximize resource utilization and accurately forecast capacity vs demand. To explore this further, let’s delve into a cof key features that are available in CMap’s PSA solution.  

Staffing Prediction Reports

CMap's staffing prediction report, a capacity planning model feature

Staffing Prediction Reports provide a visual prediction of capacity vs demand. They provide valuable and digestible insight into the future of your capacity based on live and pipeline project demands, helping you predict your resource constraints in advance and reduce the risk of excess or shorted capacity. This allows your project managers to focus on winning more work and delivering successful projects.

Resource scheduling & utilization

CMap's resource utilization dashboard, a capacity planning model feature

With CMap's resource management and scheduling tools, you receive a comprehensive breakdown of projected utilization for individual employees. This empowers organizations to make well-informed decisions when allocating resources, ensuring clearer visibility of utilization in the future.

Recent research has revealed that professional services organizations who use a PSA rather than spreadsheets see a 7% increase in their average utilization rate (https://www.cmap.io/blog/benchpress-press-release)—and a 25% increase compared to firms with no tools.    

Final thoughts

Capacity planning is one of the most challenging yet essential tasks for professional services organizations. Defining a capacity planning strategy is an important starting point for any organization as it helps provide a framework for the processes, models and systems necessary to successfully manage production capacity.  

Organizations who successfully implement a capacity planning model, such as a PSA, have a better chance at increasing margins, maximizing resource utilization, optimizing resource allocation, and predicting the future of your capacity requirements.

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