Capacity Planning in Project Management – 4 Important Success Factors (with Checklist)

These days, suitable resources are often scarce in companies. Capacity planning in project management helps obtain or create the necessary capacities in the form of suitable employees at all times. In capacity planning, you must constantly look ahead. At the same time, you must consider the company’s strategic goals – the basis for corporate success.

How do you establish capacity planning in project management and master its challenges? In this article, you will learn how to succeed in capacity planning in the project environment with practical tips. Here is an overview of the topics:

• Capacity planning definition
• Benefits and risks of capacity planning in project management
• 4 steps to successful capacity planning in project management
  • Step 1: Necessary processes with the right staff
  • Step 2: Complete and up-to-date project data
  • Step 3: Identify the actually available capacities
  • Step 4: Consolidate capacities and requirements
• Findings of the PMO Survey 2020 regarding capacity planning
• Conclusion and checklist: Capacity planning in project management

Let us begin!

Capacity Planning Definition

Strategic capacity planning is concerned with the predictive provision of appropriate resources in the form of employees with the necessary skills. It must ensure that appropriate employees can implement strategically relevant projects at the right time.

Note: The terms “(strategic) capacity planning” and “strategic resource planning” are synonymous.

The tasks of capacity planning in project management are usually taken on by portfolio managers or the Project Management Office (PMO) in coordination with:

1. Project managers (requirements regarding skills)
2. Team leaders (overview of available resources)

The figure below illustrates the responsibilities of the roles in the project environment of a company.

Benefits and Risks of Capacity Planning in Project Management

You can gain numerous benefits from employee capacity planning. With capacity planning, you:

• Make sure you reserve the most resources for the most important projects – rather than staffing unimportant ones
• Obtain a complete overview of all resources and their assignments to projects and basic load; this will keep you informed about the overall resource utilization at all times
• Know which additional projects you can start and carry out
• Identify resource bottlenecks in good time and can react to them according to corporate strategy
• Avoid resource conflicts, as they do not even arise

With inadequate or without capacity planning, you run various risks:

• Due to inadequate resource allocation, projects are not finished on time
• Project costs may rise, as there are too few appropriate resources
• Some business opportunities you cannot exploit, as the required skills are not available in good time
• You have significantly increased coordination efforts to resolve resource conflicts

All of this can result in dissatisfied customers, hence the importance of capacity planning!

4 Steps to Successful Capacity Planning in Project Management

This is how you reach your goal of successful capacity planning in four practical steps:

Step 1: Necessary Processes with the Right Staff

The strategic planning of capacities depends on:

• Dynamics at your company
• Your industry
• Number of projects
• Number of resources
• Duration of projects

Different companies tend to undergo the strategic process of capacity planning at different intervals:

• One to four times a year for companies developing and making products
• Possibly monthly for companies offering services
• Only on occasion for companies planning few major projects

Those involved in the strategic capacity planning process are:

• Management with strategic targets
• Team leaders and heads of department who must provide resource information
• Project managers who must update ongoing projects by the due date
• PMO preparing new projects properly and controlling the overall process of capacity planning

Make sure all data is complete and up to date by the due date. For this, all involved must pull together in unison.

To achieve this, you need a PMO that has the relevant competencies.

The PMO:

• Defines processes
• Trains the people involved
• Motivates them to perform their tasks in good time

The PMO may also support the project managers and team leaders in executing their tasks. This depends on the type of PMO you have.

Our tip: For successful strategic capacity planning, it is vital to have the support of a strong PMO with backing from top management.

Read this to find out more: PMO Setup in 4 Simple Steps

Promote the benefits of cyclical coordination (at set intervals) to all participants. This will motivate them to get involved. It is crucial to fix the intervals for coordination individually. They depend on your company’s possibilities and necessities.

Moreover, you must be minute in defining how to prepare as well as conduct planning and decision meetings.

You must manage to make all relevant decisions in a matter of hours. At the same time, the decisions on project start and resource availability need to be well founded. This will only work out if you have a clear agenda and stringent moderation in the context of a regular project portfolio meeting.

Our tip: See to the publication of the results of the project portfolio meetings. Employees tend to expect a lot from the PMO’s work and its controlling influence in the interest of better resource management. This is where there is a lot of potential for good news. If you sell it well.

Step 2: Complete and Up-to-Date Project Data

First, you register all projects with the essential information in a central database. This requires details such as:

• Name
• Project manager
• Sponsor
• Start
• Finish
• Traffic light indicators for status and resource requirements

For ongoing projects, the realistic remaining effort is most relevant – based on the current situation.

For new projects, it is necessary to meet the minimum requirement for resource planning. This means you must plan all required skills – not necessarily people – per month or quarter.

It is definitely not enough to look only at the total work without the distribution over time.

This is exactly where it starts to get complex.

Find out your optimum specificity by beginning with the roughest possible but still complete planning.

Our tip: Everyone asks for detailed planning, as it appears to be the better basis. But consider that this requires a higher planning effort. This effort will have to be made again and again in the future. So find out your optimum specificity. What is important above all is complete planning.

Prioritization of Projects

If there are more project proposals than the company can carry out, you need to prioritize them. This allows you to decide which new projects you can start.

There are various methods of prioritizing. They can be suitable to a greater or lesser extent – depending on the number of projects and decision-makers.

You might also like our Project Portfolio Management 7-Step Guide.

Further reading: Strategic Portfolio Management – Enterprise Alignment

Eisenhower’s rating according to importance and urgency is one way. It will help you to get good results quickly.

But the easiest way is to make the decision-makers prioritize the list of new projects.

Our tip: Turn to the relevant decision-makers when determining weight and urgency of the projects.

If there are many decision-makers as well as many projects, you might have to consider a different course. You might need to establish strategic drivers. These must be prioritized and weighted and assigned to the projects accordingly. This will allow the system to calculate a prioritization.

Check on all accounts if the most effort is going towards the most important projects.

Here is how you do it: you match the importance of the drivers to the corresponding efforts of the assigned projects.

Identify unimportant projects which it might be best to discontinue. This can free up resources for more important new projects.

Observe the dependencies among the projects, too. Some development projects can only start once the results of basic projects are available. Maybe you have also planned several alternative scenarios. Naturally, only one of these needs to be implemented.

Simple Excel lists soon prove to be inadequate when it comes to prioritization and dependencies. Professional capacity planning tools provide excellent support for these challenges.

Our tip: When implementing new kinds of projects, e.g. in the R&D area, you often face unknowns or various approaches to a solution. Resource requirements tend to be relatively uncertain or rather different from case to case. We recommend you divide such projects into research and implementation. This allows you to limit the uncertainty in the research part via a time budget. Based on the results of the research you will be able to plan the implementation part anew and in a more precise way.

Further reading:

• PMO Tools for Successful Multi-Project Management
• Capacity Planning Tools: Enterprise Comparison and Selection Guide

Step 3: Identify the Actually Available Capacities

It does not make sense to analyze each person individually. While this would be desirable, it would be too much effort. It would be confusing, too.

Displaying the total capacity of all employees in one chart is not wise either. Employees have different skills which you must deploy as required.

A clear and sensible level of detail can be obtained by consolidation at skill level. Some companies also form teams according to skills. In some circumstances, this permits planning at the level of these teams. In most cases, this is easy to implement.

Read this article to find out about using skills management in resource planning.

The level of detail regarding the skills should bear relation to the effort. The capacity plan must remain easy to understand at all times. The above principle also applies here: as rough as possible, as detailed as necessary.

Moreover, you must use the actual availability for projects in your calculations. There are two options to achieve this:

1. You deduct basic load or absences and operations from the total resource capacity
2. You compare the basic load and the projects with the full capacity

This is ultimately a matter of tools and the decision-makers’ preferences.

How the basic load or operations are dealt with is an important factor for planning precision. To keep it simple, you can use a flat estimate across the entire year.

But it is preferable to retrieve the team leaders’ planning on a monthly basis.

Our tip: Be sure to involve the team leaders in your project capacity planning. Provide them with a suitable tool for tactical resource planning. The tool should be capable of transferring the team leaders’ data to the project and portfolio management system. Team leaders have an interest in planning all activities outside of projects anyway. It can be simple to transfer their data from Excel into a professional tool.

Reading tip: 6 Steps to Resource Planning Implementation

Step 4: Consolidate Capacities and Requirements

At this point, you have the capacities for each skill and the requirements from the projects at hand. Now, you must examine how these fit together.

Find out about 7 success factors for multi-project management here.

In order to control them, all skills and their utilization must be viewable on one page in an appropriate way. After all, a project usually involves various skills.

With every change you make, the effect on all skills should be visible at once. This requires appropriate resource diagrams showing multiple skills on one screen.

When you add new projects to the portfolio, this must be in line with their priority and remaining availability.

Your approach must be similar to filling a glass with stones and sand. You add the large stones first, then the pebbles and at last the sand. Shaking and rattling helps the sand to fill all the gaps.

You may have excess capacity for some skills. In this case, identify tasks for the sales department or product management. Or you might identify potential for retraining. In times of ever-changing environments, this is a valuable insight – if it comes at the right time.

Learn more about Resource Management – Basics and Methods here.

A more common problem will be resource or skill overload. There are some simple and logical ways of resolving these:

• Compensate for the missing capacities with the aid of internal or even external resources
• Change the priority of the projects or drop some projects altogether
• Postpone the projects far enough into the future that they fit into the given resource situation

For all three options, you will need an optimum database at any rate.

But be aware that the database is based on personal estimates. And that it is exposed to political currents.

There is one difficulty you will face time and again when communicating about the workload of the teams. You must make it clear to all involved that the glass is full and nothing new can be taken on.

One trick: Ask this simple question whenever too much is expected to go into the portfolio: what can we remove to make room for the new? This will create the necessary awareness among all stakeholders.

You could also ask what part of “no” they did not understand.

Enjoying a drink together can help as well. This will relieve pressure and improve the atmosphere. After all, there is always room for this in a glass filled with stones, pebbles and sand!

Reliable Data Is the Basis of Successful Capacity Management

No matter whether they are about bringing in external resources or postponing projects: the decisions remain human decisions. But you should always make these decisions based on the best possible data.

To obtain this data, you need suitable software tools for capacity planning. Without the appropriate portfolio management software support, which also helps with strategic resource planning, you will find the tasks involved hard to master.

Are you working with tables in Excel or something similar? Are you dealing with a certain degree of complexity and amount of data? In this case, you will only achieve the best outcome in capacity planning and decision-making with a lot of effort – or not at all.

Our tip: Define your precise objectives and requirements before investing in a tool. Plan a phased introduction of the tool to avoid overwhelming those involved. Only then does the purchase make sense. And you are on the right path to higher resource efficiency.

Reading tip: Requirements for resource planning software for the roles involved

Findings of the PMO Survey 2020 regarding Capacity Planning

In the context of a comprehensive TPG Survey on the state of the PMO in 2020, we derived an interesting result from the responses of 330 companies with a PMO.

Learn more about the challenges of resource management – capacity planning as well as tactical and operational resource planning.

Companies that can be classed as high and top performers have implemented strategic capacity planning much better than low performers.

In the case of the low performers, strategic capacity planning almost does not feature among the responsibilities of the PMO.

In addition, top-performing companies were half as likely to name lack of resources as a reason for unsuccessful projects.

The top performers did not name insufficient staff qualification as a reason for unsuccessful projects either. This was because they were clearly better positioned in terms of skills management than the other performance levels.

What we can take away from this: strategic capacity planning and good skills management clearly pay off in the pursuit of project success.

Conclusion and Checklist: Capacity Planning in Project Management

This article has introduced four important steps to successful strategic capacity planning:

• Step 1: Establish all necessary processes with the appropriate staff – from top management and the PMO to team leaders, department heads and project managers.
• Step 2: Provide for complete and up-to-date project data and prioritize your projects.
• Step 3: Identify the capacities that are actually available at skills level. To do this, define the basic load and confer with the team leaders at regular intervals.
• Step 4: Consolidate the requirements (step 2) and the capacities (step 3). Identify underload as well as overload and try to balance them.

In addition, you have learned about two further important parameters. These can make for successful resource capacity planning in project management:

• An efficient PMO with backing from top management
• A suitable software tool to provide a solid database

Find the most important points summed up in the following checklist:

Checklist Capacity Planning in Project Management

• Appoint a PMO with the appropriate competencies
• Identify the roles and individuals involved
• Promote the benefits of strategic resource / capacity management
• Warn stakeholders of the risks of going without capacity management
• Ensure a coordination process with meetings at set intervals
• Keep all ongoing and new projects up to date
• Control the priorities of the projects
• Consider the dependencies between the projects
• See to complete resource planning by the team leaders, i.e., team capacity planning
• Be exact in preparing and conducting planning sessions
• Create a clear overview by means of a dynamic chart with project lines and resource diagrams
• Introduce the topic step by step to avoid overwhelming those involved
• Provide each role with the appropriate IT tool

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Our final tips

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Is there anything you would like to add regarding project capacity planning? What gives you a headache? We’ll be happy to respond to your comment below.

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