You don't need psychic powers to see into the future! 🔮✨ Balancing capacity vs demand isn't as mysterious as it seems - here's why.
.png)
People-based businesses usually ping-pong between two distinct issues.
You might have plenty of capacity, but the expected demand may not materialize. Or, you may face a surge in demand, but lack the capacity to meet it.
In either case, if you want your business to be operationally efficient, you need to bridge that gap.
In this article, we're taking you through the first step towards tackling this challenge - which will help you develop a deeper understanding of your resource capacity and the demands placed upon your business.
Capacity reflects your organization's ability to efficiently meet client demands and deliver high-quality services. It is determined by factors like the number of skilled professionals, their expertise, productivity levels, and available resources.
Resource demand, on the other hand, refers to the number of employees needed to handle the expected workload, based on the volume and complexity of client service requirements. It can fluctuate based on market dynamics, client needs, and economic factors.
While demand can manifest itself in a new project that requires a specific capability to deliver it, capacity is your supply of resources that makes it possible.
Measuring capacity versus demand isn't just about numbers – it's about ensuring your team, customers, and business all stay satisfied.
It helps in allocating staff effectively to meet customer needs without overburdening employees or leaving them underutilized. By aligning staffing levels with demand fluctuations, businesses can optimize workforce productivity and avoid unnecessary labor costs.
Matching capacity with demand also ensures that there are enough staff members available to handle customer inquiries, provide assistance, or deliver services promptly. This reduces wait times, improves responsiveness, and enhances overall service quality, leading to higher levels of customer satisfaction and loyalty.
Overstaffing, on the other hand, can lead to employee boredom, dissatisfaction, and burnout, while understaffing can result in stress, poor work-life balance, and low morale.
By accurately measuring demand and staffing levels, businesses can create a balanced workload for employees, promoting job satisfaction, work-life balance, and retention. Satisfied employees are more motivated, engaged, and likely to deliver exceptional service to customers.
To tip the scales between demand and capacity, it's important to learn how to measure it correctly. Here's one way you can do so by looking at your business data.
In a project-based business, capacity and demand can be measured in your resource management tool. Any tool for resource planning and forecasting should have this information readily available. In this case, we'll use Runn because it centralizes projects and resources in one platform, so it's easy to shed light on both demand and capacity within one place.
Let's start with demand.
In people-driven businesses, projects usually dictate the demand for specific capabilities (roles, skills, proficiency levels).
In Runn, there are a few ways to see the demand.
1) Tentative projects are projects that you have not yet confirmed. You may be in discussion with your client about the project, or you may be waiting for the final sign-off to begin it. That's a good indicator of upcoming demand.
By creating project plans for your tentative projects, you'll be able to see how potential work will impact your confirmed workload and the bottom-line. You'll also be able to identify the demand for specific individuals early on by considering resource constraints.
Further reading: A Guide to Tentative Project Scheduling ➡️
2) Placeholders. By adding placeholders for roles and skills on a project, you can plan the project without needing to know who you'll assign to it ahead of time. It's a foolproof way to visualize what resources are required for a project and analyze demand based on the project requirements.
For example, when you know you’ll need a certain type of resource but not the exact people you want to allocate, you can add placeholder resources - Developer, Graphic Designer, Project Manager, or other.
This lets you plan the project and estimate resource requirements and costs, even if you don’t have specific people in mind yet. It also helps flag resource constraints and recruitment needs in advance.
Further reading: Why You Need Placeholders for Demand Planning ➡️
3) Resource utilization. Another way to identify demand is by analyzing resource utilization and overtime. The staff with the highest utilization rates are the most in demand by clients. This is a rock-solid indicator of demand.
Further reading: How to Build & Read a Utilization Report ➡️
Before we jump to visualizing capacity in your organization, it's important to note that capacity does not just mean people and hours available. It means people with the right skills and specialisms with windows in their schedules.
Now that we've clarified that, let's look at Runn's capacity dashboard built with this in mind.
On the People Planner, you can see the workload assigned to individual team members within your chosen reporting group - that might be everyone working on a particular project, or everyone with a particular skill set.
As well as seeing an overview of where this group is reaching - or is already exceeding - capacity, you can drill down into the details.
See what those overbooked resources are working on, and start reallocating tasks and resources to resolve pending capacity issues - issues that could undermine project delivery, budget, and client satisfaction.
Turning on charts, you can filter to see capacity by specific groups - like person type and skills - to identify capacity and recruitment issues in time to take action.
The best thing with Runn's charts is that you can actually examine the relationship between available capacity and the demand for resources.
With the right approach and reliable software, examining the difference between your demand and capacity becomes much easier. Nevertheless, there are certain traps to avoid for your conclusions to be error-free.
1) Demand variability. Demand is rarely static. In fact, depending on the type of the businesses you service that demand might be highly unpredictable. In peak season, you might notice that your capacity falls far behind demand, while in low season you might end up with whole teams of experts doing bench time.
Managing those fluctuations, or better yet, having a tool that will predict potential changes and adjust course accordingly is crucial for your business to run efficiently, with no client frustrations or employee burnout.
2) Resource allocation. The accuracy of your capacity vs demand calculations is also highly dependent on your ability to match the right people to the right projects. More often than not, resource allocation is not just about matching available people to future projects. Instead, it is about bringing together all workloads, skill sets, seniority levels, and even personal preferences for people to feel fulfilled at work.
Get this step wrong, and the consequences can range from low quality of services delivered or dissatisfied clients to inefficiencies and low employee morale.
3) Capacity change. Just like demand, your capacity is also rarely static and can change depending on how comfortable people feel at their workplace, among other things. Once again, anticipating these fluctuations and having a clear strategy for dealing with them before you even run into the issue is something experienced project managers will highly recommend.
Having to balance demand and capacity is part of the daily agenda for people-based businesses. Here are some of the strategies that are sure to work for you.
1) Develop a robust capacity planning process. You need to get a clear view of your team's capabilities and build project goals based on that. Your go-to resources for this are a workload chart to always know how much work people can still take on and a skills inventory, which will quickly give you an idea of everyone's expertise.
2) Get flexible on resource allocation. Same as capacity and demand, your resource allocation needs to remain malleable. With a system that is quick to adapt you can be sure to take on any change in demand with a smile. Being able to close capacity gaps and reshuffle your resources with little to no strain is a mark of a mature project-based business where resources function at maximum efficiency.
3) Invest in upskilling and development. The professional growth of your team is not just a great way to improve employee morale and satisfaction but also a smart way to balance out demand and capacity, or at least to always have someone on the ready with a skill that suddenly surged in demand. As already mentioned, a skills inventory is a great place to keep track of all the skills-related data.
4) Use resource optimization techniques. In resource management, there are lots of solutions if you're struggling to meet the rising demand. Among the most popular ones, are resource leveling and resource smoothing.
Resource leveling is a great option if your client is flexible on the start and finish day of the project so you can adjust the delivery timeline based on your people's availability. Resource smoothing, on the other hand, is best for projects with a set deadline where you reallocate your resources or hire new people to meet the demands of the project at hand.
5) Use project templates. Project templates give you access to historical data on similar projects you have already completed and will make it easier to anticipate fluctuations in capacity and demand. They will also remind you of the resource management mistakes you could avoid in the new project so that gap between capacity and demand gets reduced to zero.
When people and their time are your most valuable resource, efficiency in meeting client demand stands above everything else. The best place to start tackling that challenge is by investing in the right software.
There are a few indicators that will help you tell the right tool when you find it:
