Capacity Planning

What capacity planning means

Capacity planning (تخطيط القدرة), also called workforce capacity planning, is the conversion of the workload expected in a defined period into the working capacity that workload requires, followed by a comparison of that figure with the capacity actually available in the same period. Its purpose is to show where a shortfall or a surplus will fall before it occurs.

The sense of capacity in capacity planning

The word carries two meanings in human resources writing, and confusing them changes the whole question. In capacity planning it means working capacity: how many working hours the organisation has available in the period, and how many of those hours are needed to complete the work due in it.

Capacity in the sense of what a person is able to do is a different meaning. It is the sense used in talent management when performance in the current role is kept apart from the ability to take on a larger role, the two axes that the 9 box grid crosses for each employee. The first meaning is a quantitative measure, counted in hours at the level of a department. The second is an individual measure, established by assessment. The two do not sit in the same table.

The two sides that capacity planning compares

• Required capacity. It is the expected volume of work multiplied by the time that one unit of that work takes.
• Available capacity. It is the team’s hours in the period after deducting the time that is not spent on the work itself.

Required capacity therefore rests on two inputs, a forecast of volume and a time per unit, and an error in either one carries into the result. Available capacity rests on the team’s hours and on what is subtracted from them, which is set out in the deductions below.

Both sides are measured over a known period: a month, a quarter or a peak season. Without a defined period the result becomes an annual average, and an annual average does not reveal the week in which the whole shortfall falls. A comparison made across a full year can show the two sides in balance while one stretch of that year is short of hours and another has hours to spare.

Nominal and available hours in capacity planning

Take a customer service department that expects 5,200 transactions in a month, with an average handling time of 45 minutes per transaction, and 25 employees working an assumed 160 hours a month each:

• Required capacity: 5,200 × 0.75 hours = 3,900 hours.
• Nominal capacity: 25 employees × 160 hours = 4,000 hours.
• Available capacity, after deducting leave, absence and time not assigned to transactions, taken together as 25% of nominal hours: 4,000 × 0.75 = 3,000 hours.
• Shortfall: 3,900 less 3,000 = 900 hours.

Anyone who stopped at the first two lines would see a surplus of 100 hours. The difference between nominal and available capacity is not a cautionary margin added to the calculation; it is the calculation itself.

Converting the shortfall into posts is also done on available hours, not nominal ones. One employee in this department provides 160 × 0.75 = 120 available hours a month, so the shortfall equals 900 ÷ 120 = 7.5 full time equivalents. A full time equivalent is the unit that converts working hours into a number of full time posts, and it is the same unit that forms the denominator of revenue per FTE. Dividing the 900 hours by the nominal 160 instead would give 5.625, a figure that counts each new employee as bringing hours that the deductions will in fact remove.

What capacity planning deducts from nominal hours

• Scheduled leave and public holidays. They are known in advance, so there is no reason to leave them out of the plan.
• Unplanned absence. It is estimated from the historical absenteeism rate of the department itself, not from the average for the organisation as a whole. The absenteeism rate measures days of unscheduled absence as a proportion of available working days.
• Time not spent on output. It covers training, meetings and handovers between teams.
• Differences in proficiency. It reflects the fact that an employee in their first month does not produce what a colleague with two years in the role produces. Counting the new employee as a full unit raises capacity on paper alone.

How capacity planning differs from workforce planning and the headcount plan

Capacity planning sits beside two other planning concepts. Each of the three asks a different question and uses a different unit of measurement:

• Capacity planning asks whether the capacity available in a particular period can absorb the work expected in it, and where the shortfall falls. Its unit is the hour.
• Workforce planning asks how many people, with which skills, the organisation will need, and what gap separates that need from the workforce it will have without intervention. Its output is a gap expressed in numbers and skills. Markov analysis is one method used in workforce planning to estimate, from past transition rates, how employees will be distributed across levels if things carry on as they are.
• The headcount plan asks how many posts have been approved and funded out of that need. Its unit is the approved post, with its cost.

Closing a capacity shortfall does not necessarily pass through either of the other two, because some of the options sit inside the period itself: redistributing demand across the weeks of the period, adjusting the shift work schedule, which is an arrangement designed to provide coverage across time, or postponing work that can be postponed. These options come before any decision about numbers.

What distorts a capacity planning calculation

• Measuring on an annual average in a seasonal business. It lets the week in which the shortfall falls disappear inside the average.
• Treating capacity as transferable. It overlooks that a surplus hour in one department does not cover a shortfall in a department that requires a different skill, and that an hour next month does not cover this month’s shortfall.
• Taking the time per unit from an estimate rather than a measurement. It allows a small error in that time to be multiplied by the number of units. In the example above, each minute added to or removed from the 45 minute handling time changes required capacity by 5,200 minutes, or about 86.7 hours a month.
• Stopping at the total. It leaves the figure undivided by skill and by location. That breakdown is what workforce readiness examines through four questions, on number, skill, distribution and continuity, and workforce readiness is a state measured at a single moment. Workforce readiness also uses the word capacity in the sense of a team’s ability to deliver, not in the sense of the available hours that capacity planning counts.

This is an explanation of the concept, not legal advice.

Related terms

• Markov Analysis
• Revenue per FTE
• Employee Growth Rate
• Shift Bidding
• 9 Box Grid