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What is Capacity Planning?

Capacity Planning refers to the arrangement in which organizations or teams match employees together with the needs of a project. Capacity is the optimum level of work that can be done within an established period. Usually, it is measured in the quantity of work that is carried out by employees. Also, planning equates to the scheduling work hours against a specified amount of work.

An example of this is when a firm has 20 employees that work for like 20 hours a week, then the firm has 400 weekly working capacity. Without putting overtime in the equation, it means the firm can take care of a maximum of 400 hours in a week.

Concept of Capacity Planning

  • Design Capacity

It means the optimum level of output that can be gotten within a specified period.

  • Effective Capacity

It means the optimum level of output, given the changes in product mix, equipment maintenance, programming and operating issues, labor problems, etc. It usually is less than the total design capacity.

  • Actual Output

It is the level of output that is achieved actually. It cannot be more than the sufficient capacity because of breakdowns in the machine, labor absenteeism, the inconsistent supply of raw materials, abnormal delay in supply of equipment, power outage, etc.

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Procedure For Capacity Planning

  1. Assessment Of Present Capacity

The capacity of a department can be measured in their output or inputs. Output measure is allowed in case of manufacturing firms such as automobile plant (number of vehicles), iron and steel plant (tons of steel), brewery (barrels of beer), cannery (tons of processed foods), Power Company, (megawatts of electricity), and a lot more.

Also, service industry such as hospitals (number of beds), airports (number of planes), cinemas (number of seats), restaurants (number of tables and chairs), university (number of students), warehouse (spaces), and a lot more, can be used to measure capacity in terms of inputs.

  1. Estimating Future Capacity Needs

Short term capacity requirements can be estimated by forecasting product demand at different stages of the product life cycle. It is more challenging to anticipate long-term capacity requirements due to the uncertainties of market and technology.

Capacity forecast helps to determine the gap between the existing capacity and estimated capacity so that necessary adjustments may be made. For example, a company that engages in the manufacturing of two products may find that one product has low demand in summer (e.g., coffee or tea) while another product has low demand in winter (e.g., cold drink).

  1. Identifying Alternative ways of Modifying Capacity

In a situation where the present capacity is not enough to meet the estimated demand capacity, an expansion will be needed to meet up with the shortage. This way, more shifts or overtime will be needed to improve the capacity. In the same vein, the expansion will offer to scale and help in meeting the demand forecast, but it needs extra investment and a danger of falling short of expectations in future demand.

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When the present capacity more than the one forecasted, there is a need to cut down on excess capacity. Building new products, selling present facilities, laying off workers, or getting more jobs from other companies are all ways to stay on top of this.

  1. Evaluation of Alternatives

Different alternatives for capacity improvement or reduction are calculated from economic, technical, and other standpoints. The reactions of staff and locals should be considered during the evaluation to get the correct analysis. Some main evaluation techniques include cost-benefit analysis, queuing theory, decision theory, and others.

  1. Choice of Suitable Course of Action

After carrying out the cost-benefit analysis of different alternatives to increase or reduce the capacity, the best alternative is now closed.

Importance of Capacity Planning

 Capacity planning is essential because of the following:

  1. It Ensures Availability:

Before you put pen on that paper to seal the next contract, are you sure you have the team readily available to work on it? Capacity planning explains what you need to do and how to carry out your projects. For example, you need people that can take care of the tasks or decide if you need extra hands to help you take over the projects. Capacity planning helps you determine all these and ensure you do not disappoint your clients.

  1. Manage Your Skills

Capacity planning is also crucial in measuring the skill inventory of your team. A skill inventory is a piece of information about who can carry out a specific task and the skills they possess. This is especially important in a technical setting like a programming or software company. For example, you can list out each team member’s core competency, such as:

  • Mobile app development
  • Website development
  • Cloud computing
  • Cybersecurity

When you have a task for someone, you can quickly determine if they meet up with what is needed. Whether you want to create a mobile app, or a beautiful and functioning website, you already know your go0to man and this will make work easier and straightforward. Also, you can easily update the skill inventory when a worker adds new skills or expertise.

  1. It Helps to Identify Easily Any Skill Gap
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A typical example of this is a situation where your firm has just won a big contract and it involves an extensive level of work with varying skills you might not have in your company.

A great thing about capacity planning is that it allows you to identify any problem early. You don’t need to begin the project before you know that you need to get people that can help you with it.  When you plan effectively, you can see who fits in and what they have to offer to the cause.

When you can identify the skill gap, you have the opportunity to prepare your team in advance for future opportunities that may arise from that kind of gig. For example, if you don’t have a mobile app developer in your team this year for a mobile app development gig, capacity planning can help you prepare for this in subsequent time.


Ultimately, capacity planning is a secret weapon that can help you bridge the challenges of getting the right people to allocate the job efficiently. When you have the ideal people with the right skills working with you to get results, it will improve the profitability of your company and boost your chance of success. It will also lead to development on the part of your staff as everyone will try to improve on their skill inventory in order to remain relevant in the workplace.

About Sonia Kukreja

I am a mother of a lovely kid, and an avid fan technology, computing and management related topics. I hold a degree in MBA from well known management college in India. After completing my post graduation I thought to start a website where I can share management related concepts with rest of the people.