Resource Capacity Planning

Ultimate Guide to Resource Capacity Planning

Resource capacity planning can be a tricky puzzle to crack but that is no reason to ignore it. I have spent many years working with different organizations over a range of industries to help them work it out. 

Now I am sharing with you a host of tactics, best practice and tips to help you make the most of your resources.

Trying to create a resource capacity plan is enough to stop most resource and project managers dead in their tracks.

If this sounds like you don’t worry.

Even if you have never created a resource capacity plan before, I am going to walk you through the process step by step.

And the capacity planning process I explain works whether you run agile projects or traditional waterfall projects. 

It is a proven process that I have used with many organizations over the years and I am going to share it with you.

Let’s take a closer look.

Click here if you want to jump straight into the details of how to do resource capacity planning. With worked examples, screenshots and more.

What is resource capacity planning?

Resource capacity planning compares the resources you have to the resources you need to get the projects you want to do done.

A resource capacity plan compares the capacity of your resources (i.e. the people and skills you have available to work on projects) with the amount of work and skills the projects need.

It helps you understand things such as:

  • Will you have enough resources to do the projects you want to do?
  • Do you need to hire more resources (or conversely do you have too many resources)?
  • Is the mix of skills you have appropriate for the work you want to do?

But there is more.

A capacity plan is also a decision support tool for your projects and resources.

What do I mean by this?

  • Resource capacity planning is a process that seeks the best outcomes for your projects and resources.
  • You can’t do every project you are asked to do and you can’t hire unlimited resources.
  • So you need to make trade-offs and difficult decisions about what you can and can’t do.

So a resource capacity plan is also a toolbox that helps you make decisions such as:

  • What if we hire another 5 engineers in May?
  • How will things look if we take on another 3 projects in Q4?
  • Can we re-allocate people from Project Alpha to Project Beta and still get both done on time?

You get the idea?

While many folks try to build capacity plans in spreadsheets or resource scheduling tools, it is this last piece of the jigsaw (the decision support) that they can’t successfully support. 

So we recommend you take a look at the resource management software available. A small investment in the right tool pays for itself many times over.

If you are unsure if you need to implement capacity planning, you can always read about the benefits or take our health check to see how your capacity planning stacks up.

And an important point before we move on

The terms capacity planning and resource planning are often used interchangeably.

However they are different processes with different outputs. 

  • Capacity planning is concerned with balancing resource levels and making decisions about what projects you can do over the next 3 to 6 to 12 months.
  • Resource planning is concerned with which resources to allocate to which projects over the coming month or two.
If you are interested in learning more about the differences between resource planning and capacity planning take a look at this article.

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Ultimate Guide to Resource Management

Chapter 2

How to do resource capacity planning

Now I will walk you through the steps involved in building a resource capacity plan. 

To help explain the concepts I will use some screen shots from the Kelloo resource management tool.

Understand your resource capacity

Obvious as it sounds, the first step in the resource capacity planning process is to calculate your resource capacity. 

  • Start by creating an inventory of all the resources you have available to you (this is sometimes called a resource pool).
  • And for each resource work out how much labor time they provide to you (this can be in hours or days).

Don’t forget people also have vacations, sickness and other absence which further reduces their available time. Plus they spend time grabbing a coffee and chatting around the water cooler. So don’t plan on getting 100% of a resources time actually spent on productive hours.

So you resource capacity calculation should look something like this:

Resource capacity = contracted working hours – sickness – vacations  – other absence – overheads

You obviously can’t predict how many hours people will be off sick, on vacation etc. So you use estimates for this based on historic trends.

Here is how the resource pool in Kelloo looks.

Resource inventory

Summarize your capacity into skills or teams

Capacity planning is not done at the level of individual resources.

Instead it is done at the level of teams or skills.

So the next step is to summarize your resource capacity into teams or skills and total this per period. 

We think weekly or monthly works best.

So for each skill or team you now understand how many days capacity they can provide you for work.

To understand this a little better take a look at how it looks in Kelloo. You can now see each team and skill and their capacity per period. 

Resource pool

Understand what work you want to do

Next figure out what work you want to do. 

Most folks organize their work into projects so let’s stick with that name for now.

So pull together a list of your projects, both current AND the future projects you want to do.

Project inventory

Prioritize your work

Now organize your work into priority order. 

This is such an important step but often overlooked.

The reason you prioritize work is that you are going to have to make decisions about what work does not get done or gets pushed out in time.

So it makes sense that you try to do the highest priority work first.

If you know the work needs to happen through any particular time, schedule it to where it needs to go.

This is how the prioritized list of projects appears in Kelloo.

Summary capacity plan

Estimate your work and assign teams or skills

Next put in estimates for the amount of work involved and the types of resources needed. 

In the example below we have just estimated the work on Project Beta will take the Mobile Development Team 50 days over 5 weeks.

Estimate work

And we continue doing this for each project.

Just so you understand, the numbers below the purple bars are how many days per week the resources have been estimated to spend on each project.

Expanded capacity plan

Compare your capacity to your demand

Now you need to do a gap analysis between your project demand (the work you want to do) and your resource capacity (the supply of your resources).

The easiest way to view this is on a resource heat map.

Here is the resource heat map in Kelloo. The cell colors and fill levels indicate relative levels of capacity vs supply. 

Red is bad, green is good!

Compare demand to capacity

If we zero in on the heat map we can see straight away that both our Engineering group and Mobile Development Teams don’t have enough capacity to do the projects as we have planned them.

The Engineering group is allocated 55 days per week when they only have a capacity of 45 days. 

And the Mobile Team is allocated 30 days per week compared to their capacity of 20 days.

Big problem.

But on the plus side, the project manager group have too little work!

However, we are missing an important piece of the jigsaw here. 

We know our resources are over-allocated, but which projects will this impact and when?

 

Resource problems

Now take a look at the purple bars in the planner because they tell us something very important.

Not only when the work is planned to happen. 

But also when each project will run out of resource.

If we see red numbers the project is short of resource.

Project Beta does not even get out of the blocks. It is short of resource from week 1.

Whereas Project Delta is ok for Project Managers but has a shortfall of Engineers from week 3.

Spot project issues

Solve resource capacity issues

Ok, so you have problems. Now what?

Well the next step is to get a balanced capacity plan.

This means a plan where the demands on your resources does not exceed the capacity (or supply) of your resources.

You can do this by adjusting the resource demand, the resource capacity or more likely a mix of both.

Here are some of the things you can change to affect the demands on your resources:

  • Re-scheduling when work is happening.
  • Deferring or cancelling lower priority work.
  • Re-prioritize work.

And here are some of the things you can change to affect your resource supply:

  • Hiring more people.
  • Re-allocating resource from lower priority projects.
resource_planning_levers

Following on from our example above, we have a shortfall of capacity in the Engineer group and the Mobile Development Team.

The first thing we try is to model the effect of hiring more people into the Engineer group. 

And we find that hiring just another two engineers will resolve the capacity issue for the Engineer group.

Adjust resource levels

With the Mobile Development Team we take a different approach by pushing the work out to start later in the year freeing up the resource capacity for other projects.

These simple changes have resolved the resource capacity issues in the plan.

Defer work

Testing different plan options - scenarios

When capacity planning there is no “right” answer.

Instead you need to test out different options and solutions to see which works best.

You can do this in Kelloo using scenarios. 

Scenarios are versions of a resource plan that can be independently adjusted and then compared to each other.

 

Scenario planning

Ultimate Guide to Resource Management

Chapter 3

Resource capacity planning health check

Do your projects run late and over budget more often than not? 

Do you struggle to figure out if you have enough resource, the right resources or if you can start up new projects? 

Stressful isn’t it? 

Effective resource capacity planning is vital to resource based organizations but is rarely done well. Run through our health check questions below and see how you stack up.

 

#1 Future resource needs

Tracking future resource needs is critical when planning for up-coming projects.

Questions:

  • Do you know how many people you will need over the next 3, 6 and 12 months?
  • Do you know what skills you need based on your expected projects?
  • Are you able to understand if you have the right number of people with the correct skills?
  • Do you have a record of what projects are in the pipeline and their current approval status?

#2 Project Prioritization

Resource capacity planning should tie in with portfolio prioritization. Resources should be working on the most valuable projects to your organization.

Questions:

  • Do you know which are your most valuable projects?
  • When you decide what projects you are going to work on do you check if you have sufficient resources before you approve them?
  • Do you plan resources onto higher value projects before other projects?

#3 Non-project time / business as usual work

Capacity planning should consider everything your resources spend their time doing not just the time they spend on projects.

Questions:

  • Do you account for the time your resource spend on business as usual work and activities like meetings, administration etc.

#4 Absence, sickness and vacation

Holiday, sickness and vacation time can put a big dent in your resource supply. It is essential that you include this in your capacity planning.

Questions:

  • Do you consider vacations, absence and sickness when capacity planning your resources?
  • You cannot know up-front what time people will have off. However you can forecast a trend for the year based on past experience. Do you do this?

#5 Informed decisions

Do you have reporting capabilities that help you quickly get under the hood of your capacity planning data? Or are you spending days mashing spreadsheets together to produce reports.

Questions:

  • Can you look at your resource capacity plans in different dimensions including days, time and money?
  • Are you able to model how things like resource hires, cancelling projects, deferring projects or starting up new projects will have on your resources and timelines?
  • Can you easily and quickly view the information you need to make informed resource decisions?
  • Are you able to compare different resource capacity plans to weigh up different resource options?
  • Are you able to decide with any certainty if you have available resource for new projects being requested?

Ultimate Guide to Resource Management

Chapter 4

Resource capacity planning best practice

So you are sold on the idea of implementing a capacity planning process. 

Here we share our experience on best practices you should incorporate into your capacity planning.

Set up a centralized system

As easy as it appears to set up a resource planning spreadsheet, the downsides quickly exceed the upsides.

Resource planning is a collaborative process that involves the sharing of information and spreadsheets are not an ideal tool for this. 

Even small organizations often have more than one person responsible for resource planning, which leads to separate spreadsheets per team or location and silos of information. 

Finally resource planning spreadsheets necessitate repeating formulas per project and resource type. 

It is too easy to make mistakes that are impossible to spot. It is far easier, safer and more cost effective to use a dedicated resource capacity planning software solution.

Ensure you capture all of your demand and overheads

A common mistake organizations make is to fail to account for all of their demand and overheads. 

It is essential that your resource plans include all the work your resources are expected to work on. 

This means both currently approved and in-flight work and work in your pipeline.

Don’t get too detailed

The purpose of a capacity plan is to give the organization a heads up about its capability to deliver on existing work and take on new work. 

It is not concerned with which individual resource is working on what project or task on which day. 

And this is a common mistake.

For most organizations the capacity plan should be working at the resource role (skill) level and for each project record the resource roles needed by month.

Account for holidays, vacations and absence

When calculating the capacity of your resources don’t forget about absence time. 

As it is impossible to predict months in advance what absence people will have, the easiest way to model this is using trends.

Show me the money

In many organizations there could be different resources with the same role who could perform the same work. 

What often differentiates them is the cost to the organization. 

So you should be able to visualize your resource plan in terms of money to help you make sense of these options.

Allocate resources to the highest priority projects first

Wherever possible, resources should always be allocated to mandatory (i.e. regulatory / compliance) projects first. 

Then in turn to the highest priority projects in the portfolio (continuing until you run out of projects or resources). 

So it is essential that a prioritization technique is used alongside the capacity planning.

Shout about the benefits to all

The benefits of resource capacity planning impact all people in the project environment. 

  • Better forecasting of resources means resources are less likely to be over worked or handed impossible deadlines. 
  • Project managers are more likely to have the required levels of resource they need to deliver their projects.
  • Resource managers will have less headaches trying to juggle and allocate scarce resources to projects.
  • Executives can better align their strategic vision with the organizations ability to actually deliver it.

Incorporate into the portfolio management process (PPM)

Ideally capacity planning should be performed alongside your organization’s portfolio management as they feed information into each other. 

If your organization does not operate a full PPM process, even just adopting basic principles such as a project approval process, basic prioritization criteria and regular monitoring of the portfolio health will help.

Capacity planning time frame

It is important to set a realistic time frame for resource capacity planning. 

Organizations would love to be able to have a crystal ball and forecast resource needs into the distant future. 

However this is simply unachievable as most organizations work is too volatile and dynamic to allow this.

You need to strike a balance between a planning time frame that provides sufficient detail for the organization while not becoming too time consuming, inefficient and costly to maintain. 

A typical resource plan covers the next 3 to 6 months (more typically 3 months). While a typical capacity plan covers the period to around 12 months out.

Ultimate Guide to Resource Management

Chapter 5

Benefits of resource capacity planning

To those in the know, the benefits are self-evident. 

Most organizations have too many projects and not enough resources – they are resource constrained. 

So an organization’s ability to align its demand for work with its ability to deliver work is key.

The problem we face is that resource capacity planning is a complicated process to get right. 

So more often than not it is ignored or done badly and this has major implications. 

But the truth is:

The benefits for organization who crack the resource capacity planning problem are immense. 

Cost savings, improved project throughput, improved resource morale, better ability to innovate and improved customer satisfaction are all cited as benefits.

Now, let me share something with you that I read recently…

Andy Jordan, writing on projectmanager.com talks about an interesting example where an organization overcame major project delivery problems and improved the amount of work done on projects by 11%. 

Not by recruiting more resource but by implementing an effective capacity planning process.

Another less obvious benefit of resource capacity planning is to be able to reign in unrealistic expectations about your organization’s ability to deliver. 

Without any clear vision of resource capacity, all too often there is the temptation to just keep piling more projects onto the organization which just leads to unrealistic expectations about deadlines. 

Sounds familiar?

With a good resource capacity planning process it is simple to point at the facts and ask the question “you want a new project delivering, tell me which project you want us to stop working on”.

Good resource capacity planning gives you the ability to look at things with a long lens. 

Which means you will not constantly be hitting problems with resource issues. Yes there will be short term bumps in the road – after all capacity planning will not be 100% accurate. 

However, by looking 3 to 6 months down the line it gives you plenty of time to steer the ship around the rocks and make adjustments to resources if required.

To put some figures behind these statements, in an authoritative study on the state of resource capacity planning, respondent organizations cited the following outcomes of not addressing resource capacity planning properly:

  • Inability to compete projects on time – 52%
  • Inability to innovate fast enough – 39%
  • Increased project costs – 38 %
  • Missed opportunities – 34 %
  • Dissatisfied customers or clients – 32 %

Ultimate Guide to Resource Management

Chapter 6

Capacity planning and portfolio management

Here is how to set up resource capacity planning and portfolio management process that really works.

Create a project inventory

First step is to gather up information on all your current and planned projects and the number and type of resources they will require. 

This should be a simple process if you have a PMO keeping track of things. 

If not then a bit of “digging around” will be required to gather this information. 

For each project assign an approval status i.e. requested, under consideration, approved, rejected, started and completed.

That bit was easy!

Evaluate projects

The next steps involve taking the list of projects and vetting the projects to sift out any that have questionable value, are too vague or do not have sufficient detail behind the proposals. 

At this stage you should also identify any projects that have to be done for perhaps regulatory compliance reasons.

When evaluating projects the review should also attempt to identify projects that overlap or projects that naturally would fit together.

Prioritize your projects

After the evaluation stage, most organizations will still end up with more projects than they can actually fund. So the next step is to take your list of projects and prioritize them.

Before we go any further I need to tell you something.

This is probably one of the most important processes in portfolio management but the one most often neglected.

There are many different approaches to project prioritization and explaining the different methods in detail is outside the scope of this article. 

You can use easy relatively simple metrics like CD3 or more encompassing methods which score projects on a number of criteria such as strategic alignment, cost reduction, regulatory compliance etc. 

However, whatever method is chosen it should be easy for people to understand and use.

Using your project prioritization criteria and your list of projects (current and planned) next prioritize your projects. The output of this process should be a clear list of prioritized work.

Resource capacity planning

Now you have your list of prioritized work, the next step is to compare this to your resource capacity.

Resources should be assigned to the highest priority projects first before assigning remaining resources to the lower priority projects. 

Eventually as each project in turn is allocated resource you will get to a point where you can no longer fit in any project work. 

It is that simple!

Essentially a line has been drawn between the projects we can do and those we cannot based on resource capacity.

Optimize the resource plan

At this stage the power of resource planning tools like Kelloo really come to the fore. 

The truth is, trying to optimize your resource plan without software is pretty tough if not impossible.

Your initial resource capacity plan ranked by priority will probably not be particularly well optimized in terms of resources.

There will be resource roles who are under-utilized and those which are over-utilized.

And shifting work between them or changing the resource levels within roles can make a drastic impact on your plan. 

Simple changes like changing the sequencing of projects can also make a big impact. 

So at this point you want to model changes to your plan to improve utilization, shorten delivery dates and reduce costs. It may even be possible to squeeze in additional projects.

Decisions that can be made at this stage include:

  • Should we hire more resources?
  • Can we deploy underutilized resources onto other projects?
  • Can we change the sequence of projects to improve things?
  • To understand the impact of any portfolio changes they will need to be modelled and the capacity analysis checked again.

Ultimate Guide to Resource Management

Chapter 7

Agile resource capacity planning

If you run agile projects and think resource capacity planning does not apply to you, you are wrong.

And here is why.

Organizations have a pretty fixed amount and people (their supply).

However they will have an almost unlimited amount of things they want to do (their demand).

And do you know what? 

Demand will almost certainly exceed supply.

So people are faced with decisions – what projects and work should they do and what gets canned (or pushed into next year).

And these decisions need to be made however you choose to run your projects.

And this is what capacity planning gives you – a way to evaluate different selections of projects, resource hiring levels and resource allocation plans until you find something that works for you.

But the good news is that capacity planning for agile projects is very similar to capacity planning waterfall projects:

  • You still have to compare your demand to your supply.
  • Then identify any resource short falls.
  • And adjust priorities, time scales and resource levels to balance your plan.
So just follow the steps in chapter 2 as they apply for both agile and waterfall / traditional projects.

 

 

Ultimate Guide to Resource Management

Chapter 8

Resource capacity planning software

Most organizations start by using spreadsheets for resource capacity planning but quickly hit limitations that makes them unusable for resource management. 

So instead they look for dedicated resource capacity planning software.

What does resource capacity planning software do?

With resource capacity planning software you can:

  • Understand the resource capacity of your organization.
  • Get a handle on the skills mix in your organization.
  • Compare this to the resource demand coming from your projects and spot resource gaps.
  • Make better informed resourcing decisions.

This allows you to identify resource shortfalls, make decisions about which projects you can do and how best to allocate your resources to projects.

Resource capacity planning software - 5 key features

Here are some of the must have features you should look for when comparing resource capacity planning software.

1. Role and team based planning

Being able to capacity plan resource by role (skill) or team is essential. 

Don’t choose resource management software that forces you to do your planning at the named resource level.

2. Agile and waterfall

Look for resource capacity planning software that supports both agile and waterfall planning techniques.

And remember, not all work an organization does is projects. 

So check the software can also be used to plan the other non-project work your resources do.

Kelloo resource plan can contain a mix of agile and traditionally planned work alongside general business activities meaning your resource management picture is complete.

Here we can see the resource plan in Kelloo including both agile and non agile activities

3. Scenario planning

There is no right answer when doing resource management. 

Instead, there are competing resource and project options that need to be evaluated against each other to strike the best balance. 

This is called scenario planning or what if modelling. 

It lets you see how approving a new project, hiring more resource or cancelling a project would impact your current schedule and resource utilization.

So ensure any resource management software you select allows you to create different planning scenarios.

Scenario planning

4. Utilization reporting

Resource utilization is a metric that shows you how busy resources are. 

And conversely, it can also show you how available your resources are. 

Resource utilization reporting is an essential component of resource management software which shows you which resources are in short supply or have capacity to take on more work.

5. Remember the money - finance tracking

While resource capacity and utilization levels are key metrics, capacity planning software also needs to focus on resource costs. 

Decisions on allocating resources will often be constrained by financial considerations. 

So look for software that lets you allocate usage costs to resources and then shows you how your resource plans stack up in terms of money.

Ultimate Guide to Resource Management

Chapter 9

Spreadsheets for capacity planning

Are you still using spreadsheets for capacity planning? 

Doh!

Here we explore some of the pitfalls of this approach and look at why using Kelloo may be a better option for your resource planning.

Spreadsheets for resource capacity planning

Spreadsheets are a commonly used tool for resource capacity planning.

And yes, the appeal is obvious. 

Most people have Excel or Google Sheets and they are easy to use and you can quickly put together a basic capacity plan.

However if you are betting your resource capacity planning process on a spreadsheet you may want to re-think. 

Schedule changes are near impossible

A must have feature of any capacity planning tool is the ability to quickly make schedule changes.

For example moving a project forward in time by 3 months. 

Sounds simple doesn’t it.

Or you need to change around the resources allocated to a project.

Which is something you are going to want to do a lot…

But the truth is, in spreadsheets this will mean editing cells and copying formulas. 

Is this something you really want to be doing?

Changes to plans become at best laborious and at worst error prone and can take many hours. 

Using Kelloo you can easily model different schedule options and see the results in seconds.

Spreadsheets create silos of resource planning data

As your team grows the resource capacity planning function will get split between different managers. 

So using a spreadsheet based solution inevitably means multiple resource planning spreadsheets in use. 

I guess you can see where we are going here?

Trying to create an overview of your resource status becomes a monster headache and involves consolidating the data from multiple sources. 

Using Kelloo, each resource manager can have their own resource plan or they can share an overall master resource plan.

Simple changes to plans are not simple to do

The layout of spreadsheets means that people inevitably end up producing a spreadsheet organized a little like this:

resource_capacity_planning_spreadsheet

Does it look familiar?

It looks really straightforward. 

A row for each project and within that a row for each skill set (or resource) with grand totals at the bottom.

However, if you have used spreadsheets in anger you will see the obvious problems straight away.

Let us run through some basic tasks you are going to want to do and see why they become so hard…

Example #1 – Inserting a new project means copying / updating lots of formulas

Inserting a new skill means potentially inserting a new skill set row for each project. 

Then copying / updating lots of formulas. 

Then what happens if we want to model putting a project on hold?

Do we delete the project row – or over type the project values with zeros? 

Yes it becomes a nightmare. 

In Kelloo you can add a new project in seconds, hold an existing project or re-prioritize work and see the impact on your resources.

Example #2 – Inability to model different planning options

Resource capacity planning is a collaborative process normally undertaken as part of the portfolio planning process. 

The people involved are typically the PMO, portfolio managers and resource owners. 

People need to look at the different resource and project options and weigh the pros and cons to be able to make a decision.

But the thing is.

Doing any form of meaningful what if analysis and comparing different options is impossible in spreadsheets. 

And that is because you need a way to model changes.

And see the results instantly. 

Which you can’t do in a spreadsheet.

In Kelloo you can create scenarios which let you model changing things like resource levels and see how they will impact your plans.

Lack of reporting

How are you going to produce reports in a spreadsheet? 

And how are you going to distribute those reports – will you end up emailing around screen prints or even worse emailing multiple copies of the capacity planning spreadsheet. 

A better option is to use dedicated resource planning software or resource capacity planning software like Kelloo which has a suite of dedicated resource capacity planning reports which provide you with deep insight into your resource planning data.

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