What is the difference between capacity planning and capacity management?

The first stage happens at a long-range early level, when project managers request resources by role or skill for a future project. Unlike capacity planning, the process goes one step further here as the resources are being officially requested instead of only assessed. This is the requirements step.

Stage 2:

When the date of the project is getting close, department managers can know with more accuracy if a specific person (matching the skill and role requested before) will be available for this project and thereby they can name a probable resource. This is called a soft booking, or a reservation.

Stage 3:

A few weeks before the project starts, when the availability of the named resource is certain, the project manager can finally confirm the reservation of that resource. This last step is the hard booking, or the allocation.  

The Importance of These Two Tasks for an Organization

The definitions of capacity planning and resource management are pretty much self-explanatory.

An effective management of these two tasks and a good cross-level communication between managers will allow the organization to control the size of the demand shark and limit its impact (on the resources and the clients).

Which, ultimately, should lead to:

• Balanced demand portfolio
• Better productivity
• Better utilization of resources (no overwork, skills matching the work)
• Better value delivery
• Happy workforce (through better resources utilization)
• Happy customers (through better value and respected deadlines)

Here is a recap table:

Welcome to the World of Capacity Planning and Resource Management

Consider this article as an introduction to these two concepts. It gives you the necessary context to understand where many organizations fail when dealing with demand and limited resources.

And it also gives you a path on how to avoid falling in the same trap: Through a successful capacity planning and resource management approach.

But all this is theory, which means it describes an ideal situation.

As usual, reality is quite different.

It’s not rare that companies totally overlook capacity planning and schedule projects without being sure they have the necessary resources available. Often, this is due to a lack of data and visibility on resources availability.

Department managers also tend to underestimate or forget the amount time resources needed to complete “secondary” activities that are not being assessed during capacity planning, such as administrative tasks or staff meetings.

When they sum up, these activities can easily start eating on the time calculated for bigger projects.

It is also important to understand that capacity planning and resource management must be working hand in hand. Project and department managers must communicate if they want to avoid chaos (non respected deadlines, overloaded workers, unhappy clients…) within the organization.

That’s a point that many companies still fail to understand or implement.

And let’s not forget that managers are working with a limited amount of shared resources. Which means these managers can actually be in competition when it comes to decide whose project gets priority to use the shared resources.

As you see, there are a lot of moving parts, uncertainties and what if in capacity planning and resource management. The concepts are simple, but their successful execution is yet another challenge for organizations.

Fortunately, many tips, best practices and tools exist to lead the path.

But that’s a topic for another article.

We can give you a good place to start though. If you’re still keeping track of resources and projects on some spreadsheets, it’s time to let them go.

Capacity planning is the process of determining the production capacity needed by an organization to meet changing demands for its products.[1] In the context of capacity planning, design capacity is the maximum amount of work that an organization is capable of completing in a given period. Effective capacity is the maximum amount of work that an organization is capable of completing in a given period due to constraints such as quality problems, delays, material handling, etc.

The phrase is also used in business computing and information technology as a synonym for capacity management. IT capacity planning involves estimating the storage, computer hardware, software and connection infrastructure resources required over some future period of time. A common concern of enterprises is whether the required resources are in place to handle an increase in users or number of interactions.[2] Capacity management is concerned about adding central processing units (CPUs), memory and storage to a physical or virtual server. This has been the traditional and vertical way of scaling up web applications, however IT capacity planning has been developed with the goal of forecasting the requirements for this vertical scaling approach.[3]

A discrepancy between the capacity of an organization and the demands of its customers results in inefficiency, either in under-utilized resources or unfulfilled customer demand. The goal of capacity planning is to minimize this discrepancy. Demand for an organization's capacity varies based on changes in production output, such as increasing or decreasing the production quantity of an existing product, or producing new products. Better utilization of existing capacity can be accomplished through improvements in overall equipment effectiveness (OEE). Capacity can be increased through introducing new techniques, equipment and materials, increasing the number of workers or machines, increasing the number of shifts, or acquiring additional production facilities.

Capacity is calculated as (number of machines or workers) × (number of shifts) × (utilization) × (efficiency).

Strategies[edit]

The broad classes of capacity planning are lead strategy, lag strategy, match strategy, and adjustment strategy.

• Lead strategy is adding capacity in anticipation of an increase in demand. Lead strategy is an aggressive strategy with the goal of luring customers away from the company's competitors by improving the service level and reducing lead time. It is also a strategy aimed at reducing stockout costs. A large capacity does not necessarily imply high inventory levels, but it can imply higher cycle stock costs. Excess capacity can also be rented to other companies.

Advantage of lead strategy: First, it ensures that the organization has adequate capacity to meet all demand, even during periods of high growth. This is especially important when the availability of a product or service is crucial, as in the case of emergency care or hot new product. For many new products, being late to market can mean the difference between success and failure. Another advantage of a lead capacity strategy is that it can be used to preempt competitors who might be planning to expand their own capacity. Being the first in an area to open a large grocery or home improvement store gives a retailer a define edge. Finally many businesses find that overbuilding in anticipation of increased usage is cheaper and less disruptive than constantly making small increases in capacity. Of course, a lead capacity strategy can be very risky, particularly if demand is unpredictable or technology is evolving rapidly.

• Lag strategy refers to adding capacity only after the organization is running at full capacity or beyond due to increase in demand (North Carolina State University, 2006). This is a more conservative strategy and opposite of a lead capacity strategy. It decreases the risk of waste, but it may result in the loss of possible customers either by stockout or low service levels. Three clear advantages of this strategy are a reduced risk of overbuilding, greater productivity due to higher utilization levels, and the ability to put off large investments as long as possible. Organization that follow this strategy often provide mature, cost-sensitive products or services.
• Match strategy is adding capacity in small amounts in response to changing demand in the market. This is a more moderate strategy.
• Adjustment strategy is adding or reducing capacity in small or large amounts due to consumer's demand, or, due to major changes to product or system architecture.

Capacity[edit]

In the context of systems engineering, capacity planning[4] is used during system design and system performance monitoring....

Capacity planning is long-term decision that establishes a firm's overall level resources. It extends over a time horizon long enough to obtain resources. Capacity decisions affect the production lead time, customer responsiveness, operating cost and company ability to compete. Inadequate capacity planning can lead to the loss of the customer and business. Excess capacity can drain the company's resources and prevent investments into more lucrative ventures. The question of when capacity should be increased and by how much are the critical decisions. Failure to make these decisions correctly can be especially damaging to the overall performance when time delays are present in the system.[5]

Capacity – available or required?[edit]

From a scheduling perspective it is very easy to determine how much capacity (or time) will be required to manufacture a quantity of parts. Simply multiply the standard cycle time by the number of parts and divide by the part or process OEE %.

If production is scheduled to produce 500 pieces of product A on a machine having a cycle time of 30 seconds and the OEE for the process is 85%, then the time to produce the parts would be calculated as follows:

(500 parts × 30 seconds) / 85% = 17647.1 seconds The OEE index makes it easy to determine whether we have ample capacity to run the required production. In this example 4.2 hours at standard versus 4.9 hours based on the OEE index.

By repeating this process for all the parts that run through a given machine, it is possible to determine the total capacity required to run production.

Capacity available[edit]

When considering new work for a piece of equipment or machinery, knowing how much capacity is available to run the work will eventually become part of the overall process. Typically, an annual forecast is used to determine how many hours per year are required. To calculate the total capacity available, the volume is adjusted according to the period being considered. The available capacity is the difference between the required capacity and planned operating capacity.

Capacity is needed in formulation and execution of strategy as this refers to how capable are the resources in the organization. Without effective resources it could be very difficult to formulate and implement the Strategy.

What is capacity planning and management?

What is meant by capacity management?

What are the 3 components of capacity management?

What are the two types of capacity planning?