The Comprehensive Guide to Resource Capacity Planning

Please Note: This article appeared in saviom and has been published here with permission.

Businesses are facing a highly competitive and volatile market demand across the globe. Resource costs are one of the most expensive entries in any organization’s balance sheet. So, a modern business must utilize its scarce resources most efficiently and get the best value.

Many organizations do not have a dedicated resource capacity management tool. They have been carrying out capacity planning using their legacy systems, such as excel spreadsheets/other home-grown applications. There are many resources and no such 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, hard to maintain. It cannot meet new business challenges.

Businesses are in desperate need of an enterprise-level matured resource capacity planning solution. This guide has been designed for businesses to get a comprehensive understanding of enterprise resource demand and capacity planning. It will help any company to establish the right processes with the tool.

#1. What is Resource Capacity Planning?

Resource capacity planning is forecasting the gap between the capacity and the demand for resources. It provides an action plan to bridge this gap. Resources in an enterprise can be people, assets, facilities, equipment, vehicles, etc.

Resource capacity planning 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.

It facilitates real-time forecasting of resource capacity vs. demand. It also provides early warning about resource shortage/ excesses, utilization, project vacancies, on the bench, revenue, margins, etc. The business can take corrective actions ahead of time.

#2. How to Measure Resource Capacity and Demand?

Accurately measuring resource capacity and demand across the resource pool is a critical part of workforce capacity planning.

Resource capacity is the total number of standard hours an individual can work as per the employer’s arrangement.

Resource capacity is measured by the timeline and includes:

• Full time and part-time employees
• Permanent employees and contractors
• Employees hired and joining on a specific date
• Employees leaving the business by specific dates

Example
For example, a company has full-time working hours of 8 hours a day and five days a week.

The capacity would be 40 hours/week or one Full-Time Equivalent or five person-days for a full-time employee.

For a part-time employee working four days/week and 6 hours/day, the capacity would be 24 hours a week.

We calculate FTE using the following capacity planning formula:

Resource capacity on FTE =Resource capacity in hours /Company’s full-time hours which is .6 FTE or three full person-days.

How to calculate Resource Demand?

Calculating resource demand is the process of understanding the number of resources required. The work can be related to projects, BAU, admin, support, etc. The amount of work is measured in terms of hours, FTE, person days, etc.

Example

For example, a company has full-time working hours of 8 hours/day, and five days/week, 40 hours per week.
If an employee is allocated for 45 hours where his capacity is only 40 hours a week, demand is 1.125 FTE. It equates to 5.625 person-days per week.

Measuring Capacity vs. Demand

Capacity vs. demand is forecasting shortages or excesses of resources in the short or long term. It is carried out by analyzing the gaps between resources’ capacity against the demand for resources. This gap can be measured in hours or FTE or Person days.

It is a shortage of resources when the demand is higher than the capacity or supply of resources. Conversely, it is an excess of resources when the demand is lower than the capacity or supply of resources.

Example

If demand is for 5 FTE/week against the capacity of 6.5 FTE/week, an additional 1.5 FTE/week is available. However, if the demand is for 7 FTE/week and the capacity is 5.5FTE/week, there is a shortfall of 1.5 FTE.

#3. What Are the Business Benefits of Resource Capacity Planning?

Reduce project resourcing cost across the enterprise

With the help of efficient capacity planning strategies, overall resourcing cost can be reduced drastically:

• Eliminate under/over skilled resources on projects
• Utilize cost-effective global resources without compromising quality
• Avoid last-minute hiring cost with proper capacity planning
• Minimize hiring/firing cycles by aligning project workload with workforce capacity
• Avoid Double Booking of Resources and minimize burn rate
• Control unplanned attrition

Improve productive utilization of the workforce

The 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 utilization is a critical KPI for a professional service business to ensure profitability and sustainability.

Deploy competent employee at the right time and cost

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.

Forecast skill shortage and bridge the gap proactively.

Capacity planning can help you identify skill-shortage 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

Improve productive utilization of the workforce

The capacity planning system forecasts billable and strategic utilization of the workforce ahead of time. You can mobilize employees from non-billable/low priority work to billable or high priority projects with proper resource utilization tracking.

Forecast and ensure that excess capacity is not wasted.

Capacity planning can help you identify skill excess ahead of time so that you take corrective actions, like:

• Bring forward project timelines.
• Market and sell available capacity.
• Bring forward initiatives to meet strategic goals.
• Allow movement of resources across departments to maximize utilization

Align Sales and Delivery by Forecasting Pipeline Opportunities

Capacity planning enables the sales team to estimate and forecast demand for various resources based on opportunities in the sales pipeline. It helps the delivery team ensure that the right resources are available at the right time to finish the project.

#4. Six Best Practices of Resource Capacity Planning

Resource capacity planning is becoming increasingly critical for a business to reduce resourcing costs and become responsive to the market. As a result, the concept of capacity management has gone beyond the basics of measuring the demand against capacity.

Following are some of the best practices in this area: –

I. Forecast Resource Capacity vs. Demand by Time Line

A business must forecast capacity vs. demand from multiple dimensions, i.e., by role, department, team, location, skills, etc. It helps in identifying short or long-term shortage/excess of resources ahead of time. It also allows people with different roles to view their specific information at the right time, which helps in decision making.

II. Tracking Competency Matrix Across the Enterprise

It is critical to track and keep up to date information about the competency and workforce. 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.

III. Project Pipeline Management

The system should keep track of future potential projects in the pipeline and forecast estimated resource demand. It will ensure that the resource pool is optimally balanced, skilled, and ready to meet new projects’ demands.

One can decide if there is a need to re-skill, hire, or contingency resources can do the work. It helps in planning the resource mix.

IV. Forecast Overall, Strategic and Billable Resource Utilization

The system should provide short or long-term forecasting of billable, strategic, and overall utilization. It helps in taking corrective actions to ensure high utilization and protect the business’s profitability.

V. Forecast 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.

VI. Streamline Resource Requisition and Allocation Process

Generally, resources requesting, and allocations are done through email or phone request. It causes quite a bit of chaos. It is critical to streamline the process using workflow, ensuring resources are allocated with appropriate approvals and notifications. One must avoid using unnecessary emails/telephone calls as it cannot be easily reconciled, documented, and analyzed at a later stage.

#5. How to Choose the Right Tool for Efficient Resource Capacity Planning?

Capacity 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 a solution which can provide the following:

Choose a tool that forecasts and improves 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.

The tool needs to be scalable, configurable, and expandable.

Every business is different, so their resource capacity planning needs. A business must select a scalable and configurable tool to meet current needs and expandable to meet future business needs. System performance must not degrade with more users using the tool across the organization.

It must align with the matrix organization structure.

It must align with the matrix organization structure. Nowadays, most businesses have established a matrix organization structure to achieve the best utilization of their resources. So, it is critical for businesses to have a capacity planning tool that aligns with matrix organization structure and associated complexities.

It must provide real-time BI: reports, analytics, and dashboards.

Resource demand in a real-life business environment changes every minute. So, it is crucial for capacity planning techniques to get real-time business intelligence, i.e., reports, analytics, and dashboards.

It should Integrate with existing applications.

Most businesses have already invested in enterprise-level systems. They are holding quite a bit 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.

#6. Checklist for Resource Capacity Planning for a Specific Period

Forecast & Calculate Workforce Capacity

1. Take an inventory of all the full time, part-time, contractor, or freelance resources of your organization
2. Include resources who will be joining or leaving during this period
3. Assign calendar (Workweek and Holiday list) to your resources if they are working at different locations
4. Track the skills and competencies of the selected resources

Establish Work Portfolio

1. List down all the current and future projects.
2. List down all the probable opportunities which are in the pipeline.
3. Account for non-project activities like BAU, Support Maintenance, Administrative Work, Training etc
4. Categorize the projects into Billable, Strategic and Non-Billable Projects
5. Prioritise your projects for better Capacity Planning

Forecast Resource Demand

1. Assign the right resources to the right Project. Avoid allocating over-skilled or under-skilled resources.
2. Allocate generic resources or place holders on future Projects.
3. Create estimates using place holders for your Opportunities
4. Record resources unavailable time i.e. People going on Leave, training, etc.

Compare Resource Demand against Capacity

1. Analyse Resource Capacity versus Demand
2. Identify the Gap between Resource Capacity and Demand
3. Identify skill shortages or excesses if any
4. Plan on how to bridge the gap of shortfall of resources ahead of time

#7. The 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 around the world. 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!