Let's Tackle the 9 Most Common Capacity Planning Challenges

If predicting the future was easy, we’d all be lottery winners (or perhaps that means none of us would be lottery winners… 🤔)

But as it stands, it can feel like you’ve hit the jackpot when your demand forecasts and capacity plans are right on the money - and that’s because capacity planning is pretty challenging to get right.

Thankfully, knowing what challenges to expect in capacity planning is the first step in overcoming them. 

That's where this guide comes in — we’ve laid out all the challenges you should be anticipating, and our best recommendations for beating them.

1. Inaccurate forecasting
2. Lack of real-time resource visibility
3. Accounting for non-billable time
4. Lack of visibility into resource skills
5. Matching supply and demand
6. Getting people on the same page
7. Unexpected changes
8. Balancing short-term vs. long-term planning
9. Time-consuming manual processes

Common capacity planning challenges you’ll encounter

Capacity planning is a challenging practice because it involves accurately tracking and interpreting a large amount of data, as well as achieving collaborative input and consensus from different sides of the business.

And the stakes are high. Succeed with capacity planning, and you’ll be able to identify talent gaps, prepare for fluctuating client demand, create sustainable hiring plans, and spot risks to project timelines before they materialize.

That means that it is worth going through the pain of resolving capacity planning challenges in order to develop a process that works for your organization. The payoff is potentially huge.

So, let’s dive into the challenges you’ll need to look out for on the journey to getting capacity planning right:

1. Inaccurate forecasting

Accurate, confident capacity planning requires you to understand both resource supply and the work demand that is on the horizon. 

You can achieve this understanding through forecasting. Simple, right? Nice work team - let’s all pack up and go home! 

…only it’s not as simple as that, is it? Inaccurate forecasts are the bane of capacity planning, because if you can’t get a realistic picture of what work lies ahead and how much work your team can reasonably undertake, there’s no way you can plan with any degree of certainty.

Dig deeper: Capacity Forecasting: A Future-Proof Guide ➡️

Solution     

The only real way to improve forecasting accuracy is to take a look at the entire process that feeds into your forecasts, and validate that it is fit for purpose. Ask yourself the following questions:

• Where is the data for forecasting coming from? 
• Is data hygiene being treated as a priority? 
• Is someone responsible for the governance of this data?

2. Lack of real-time resource visibility

Arguably the most important question you solve with capacity planning is “How much work can we take on at any given time?”

Being able to answer this question quickly and accurately is a key piece in the capacity planning puzzle - it’s the “supply” element of the supply and demand equation.

You need visibility into your team’s workloads and assignments to understand resource capacity. And crucially, your data needs to be current - ideally changing in real-time, as soon as allocations and assignments are created or updated. 

A static spreadsheet is no use here: if resource availability data is outdated, managers may delay crucial decisions because they’re unsure who is available, or they may make the wrong call based on this obsolete information.

Solution

Any resource management platform worth its salt will give you real-time visibility into capacity, showing changes to resource allocations as they happen - whether that’s because a crucial resource has needed to take a sick day, or if someone is booking PTO, or if a role on a project has been reassigned to someone other than the original pick.

• Move away from static, spreadsheet-based methods of tracking resource capacity. Remember, for a practice as dynamic and ever-changing as capacity management, static data is suspect data!
• When looking for tools to help with your capacity planning, look out for a platform that gives you live updates.

3. Accounting for non-billable time

Capacity planning often focuses on billable hours, but non-billable time (such as training, internal projects, and administrative tasks) can consume significant capacity.

Ignore this time at your peril: without taking it into account, you won’t get an accurate picture of how much availability your workforce actually has. This means that you might overload your employees with assignments that they won’t have time to do - creating a knock-on effect on project deadlines, as well as team morale.

Solution

• Track non-billable activities in your planning process.
• Set realistic expectations about actual availability.
• Allocate time for professional development and internal initiatives.

4. Lack of visibility into employee skills

If our previous two points were about understanding capacity in terms of how much work your people can do, this point is about knowing what kind of work they are capable of. You need to be across both in order to plan effectively.

If you don’t have a comprehensive understanding of the skills mix in your workforce, it’s going to be hard to make the most of their capabilities and find the right people for the work that needs to be done.

If you want your capacity planning efforts to contribute to strategic workforce planning and development initiatives, you also need to have a way to make employee skills visible. In the long term, to build your workforces’ capacity, you need to understand where the skills shortages and gaps are. 

And in order to do a skills gap analysis, you need to have existing capabilities mapped out.

Solution

The best way to get a comprehensive understanding of your team’s skills is to build a searchable skills inventory. This is simple at first glance, but here’s a few best practices to keep in mind:

• Standardize the language you use in your skills inventory: make sure there is only ONE label for each skill (i.e. don’t use “Java”, “Java script”, “JavaScript”, “Javascript” - pick one format and stick to it!).
• Have a process for regularly reviewing and updating the skills inventory.
• Allow employees to add their own skills, but have a process for validating what they have entered.

Not sure where to start with skills management in your organization? We’ve got you covered:

The Beginner's Guide to Skills Management ➡️

7 Cutting-Edge Skills Management Software ➡️

How to Create a Skills Matrix in 6 Steps ➡️

Skills Taxonomy: A Skills-Based Approach to Maximizing Talent ➡️

5. Matching supply and demand

One of the key goals of capacity planning is to “rightsize” supply and demand: ideally, the capacity of your workforce will always match the work demands coming down the pipeline.

But, of course, I don’t need to tell you that real life is rarely so simple. In reality, demand fluctuates - and this means that, at times, you risk overutilizing your people (because the demand exceeds their capacity), or that your team is underutilized (because there’s not enough work coming down the pipeline).

Both of these situations spell trouble. When your team is underutilized, this means that you’re paying people for time that they can’t use productively; when your team is overutilized, this means that they are having to work over their contracted hours - which means you can rack up overtime costs, as well as creating conditions ripe for employee burnout and dissatisfaction. 

And if people decide to vote with their feet and start leaving your business, that will only make your resource supply problems worse.

Solution

There are a few angles from which you can tackle this problem:

• Consider how you can build a more dynamic, flexible resource mix with a blended workforce model, that you can scale up and down as demand changes.
• If you have a surplus situation, before you take the most drastic option and start laying people off, consider how you can reallocate and redeploy team members, or even use this as an opportunity to explore new business opportunities. 

Further reading: Exploring Alternatives to Layoffs with Resource & Capacity Management ➡️

6. Getting people on the same page

It’s likely that the supply side and the demand-generating sides of your business are represented by totally different people. This might be a business development or sales team on the demand side, and a PMO or delivery team on the supply side. 

Whatever terminology you use, the fact is that these teams represent different professional domains and skillsets - as well as different priorities and approaches to problem-solving.

But for capacity planning to work, both of these sides need to come together and reach some sort of agreement about what is being addressed, how issues are being defined and tackled, what predictions meet the threshold for action and which don’t…all without folks falling out with each other.

Solution

Communication and collaboration are key here. You need to find ways to build common ground, and agree upon shared understandings and terminology, so that each team feels heard and no one feels shut out by unfamiliar jargon. 

It will take time to establish a process that works for everyone, but here are a couple of suggestions to get you started:

• Interlock meetings are invaluable in the capacity planning process. These are meetings where stakeholders from the different teams come and work on reaching consensus around how to act on the capacity plan. The folks who are responsible for the data that feeds into the plan are also brought into this forum, as well, so they can explain and clarify as needed. Set up these interlock meetings as often as you need them.
• Take some time to perform stakeholder mapping and analysis. This can help you clarify the approach you need to take with each stakeholder.

7. Unexpected changes

With all the best will in the world, you won’t be able to predict every little thing that can impact your team’s capacity. Project scope changes, urgent client needs, and ad hoc projects can land at the last minute and have a knock-on effect.

But sometimes the unexpected changes could be avoided. Those incidents of “crossed wires” - where promises are made to clients before you’ve had a chance to check that you actually have capacity to fulfil the promise - are not an inevitability.

Solution

Sometimes truly unexpected events will crop up that no one could have foreseen. But to reduce the chance of this happening, you need information: lots of it, of good quality, and for it to be open and accessible to anyone who might need to see it. Forewarned is forearmed!

• Use a system that integrates with your tech stack and updates in real-time, so that it captures any sudden changes - giving you a truly accurate, dynamic picture of capacity.
• Handle your resource allocation and capacity planning in one unified platform that serves as a single resource of truth that your team and stakeholders can reference in their decision-making.

8. The balance between short-term thinking vs. long-term planning

Many organizations put their focus on short-term, quarterly planning, and prioritize immediate concerns. This is perhaps especially true for service organizations that live and die, not just by the quality of, but the rapidity with which client projects come in and out the door.

Strategic capacity planning means going beyond the quarterly P&L statement and thinking about the direction the business is growing in: are there trends in your sector that you need to respond to? Is there an emerging demand in the marketplace that you want to service?

The challenge is getting people onboard with this longer-term outlook when all they see are the short-term issues that need to be tackled.

Solution

Once again, this is about communicating the value and purpose of the capacity planning process, building consensus, and getting folks to buy-in to the work that is being done. 

• It’s harder to prove value for an initiative that has long-term results instead of quick wins, so draw upon the case studies and success stories that are out there. Introduce people to the concept of strategic workforce planning if this is something they are not familiar with.
• Regularly review future demand trends in your sector, and proactively build talent pipelines in line with the emerging trends.
• Implement rolling forecasts that extend beyond your immediate projects.

9. Time-consuming manual processes

A final challenge to be mindful of is the time it takes to plan, update, and manage your capacity planning tools. 

This might sound like an afterthought, but it really isn’t. Whatever process you establish for managing your capacity planning tools has an impact on the quality of your data, which impacts your forecasting accuracy, which impacts your ability to plan…you see how it’s all connected, right? 

If you’re relying on tools that are not actually designed for capacity planning, it will take more time and cause you more trouble than if you had a tool designed for the job. Many organizations use spreadsheets to manually track demand and supply changes, but this is not a particularly reliable or scalable solution. 

It can be very manual, and extremely vulnerable to human error - which, once again, endangers the accuracy of the information that then feeds into your planning process.

Solution

Needless to say, using a centralized tool for planning and management streamlines your processes and makes it easy to collaborate. It also cuts back manual work, reducing human error and automating repetitive data entry tasks - which ultimately contributes to the data integrity required for accurate forecasting.

What to do to improve your capacity planning today

We recommend following the tips laid out above to overcome each of the workforce capacity planning challenges - but if you wanted to start with one thing today, here’s our parting advice.

Take a good, realistic look at the state of your current capacity planning. Are you able to (with a reasonable degree of confidence) answer the following questions:

• ‍Are you meeting demand sufficiently?
• Are your resources engaged, with a reasonable workload (i.e. not too much, nor too little)?
• Can you tell how much work is coming down the pipeline for the next few months ahead?

If you are able to answer these questions, you can map available resources with your current and future demand.

And once you've established this baseline and you’re ready to level up things, add another layer to this — employee skills. This will help you improve capacity planning and employee engagement by letting you manage resources and projects based on specific skill sets, and to start strategically building capacity where you currently have gaps.

Most of all, using the right resource planning and capacity management software can make things so much simpler, streamlining your processes, and reducing the margin for error.