Capacity Management: Best Practices for Agency Growth
Capacity management is the key to your agency’s sustainable growth. Ask yourself: Are you getting the most out of your processes?
This guide will review the essentials of the capacity management processes by discussing key benefits, processes, and metrics. Keep reading to learn how to optimize your processes by utilizing key strategies and the best capacity management software currently available.
Key Takeaways
- Capacity management is essential for optimizing resources in service-providing agencies, including managing teams, their time, and project finances.
- In IT services, capacity management ensures that infrastructure is aligned with business demands to ensure stable and efficient system performance.
- The benefits of capacity management include balanced resource utilization, increased efficiency, and improved service delivery. Effective capacity management strategies enhance agency operations and contribute to sustained business growth.
- Adopting comprehensive capacity management software, like Productive, enables agencies to manage their capacity while integrating it with other key agency operations. This supports streamlined daily agency processes and strategic decision-making based on reliable, real-time data.
What Is Capacity Management?
Capacity management can have different definitions, depending on whether we’re discussing it in terms of the broader agency context or IT service management (ITSM). Regarding capacity management in agencies, it can be described as a strategic process aimed at ensuring the availability of agency resources, which usually includes employees, time, and finances (learn more about developing a successful capacity model).
When it comes to IT service management specifically, capacity management focuses on IT infrastructure. The main processes include monitoring the performance of IT services and systems to ensure that capacity is adjusted to current or future demand.
This article will focus on the general capacity management process in agencies, but we’ll discuss IT capacity management in more detail in the later sections. To learn more, check out our IT Capacity Planning Guide.
Capacity Management vs Resource Management
Another part of capacity management that might be confusing is its frequently synonymous terms. One of these is resource management. Certain resources might make a distinction between the two, along the lines of:
- Capacity management is a strategic process that considers future projects and growth.
- Resource planning is an operational process that deals with day-to-day allocation (also see project resource planning).
These two can functionally be considered the same, as any process that deals with resource capacity will need to consider both of these practices. Therefore, this article treats these terms as synonymous.
Capacity Management vs Capacity Planning
Another popular pair of synonyms is capacity management vs capacity planning. In this dichotomy, the difference is perceived as:
- Capacity management concerns handling current and future capacity to ensure availability.
- Capacity planning is focused on processes such as forecasting, gap analysis, and planning.
As you can see, there’s a lot of similarity between this and capacity management vs resource management – however, the definition of capacity management has flipped. There are other attempts at differentiation, which define capacity management as the umbrella term and capacity planning as the subordinated concept.
In any case, accounting for the slight differences in this terminology is a thankless job. In practice, they will usually be used interchangeably. As with the previous comparison, the two terms will be treated as indistinguishable in this article.
The Benefits of Capacity Management
According to the participants of research by Prosymmetry, service-based industries that benefit most from resource management include consulting (29%), PMO (16%), IT (13%), product management, HR, and engineering (around 15% cumulatively).
Capacity management is one of the foundational processes of agency project management. It ensures that your resources are used efficiently, including that there are no gaps that can disrupt the project delivery process. It also aims to achieve balanced utilization, meaning employees are not overworked or underworked. This can lead to dissatisfaction, reduced productivity and motivation, and even turnover.
PRODUCTIVE HELPS YOU BALANCE YOUR TEAM’S WORKLOADS
In ITSM, capacity management helps ensure that businesses can meet their SLA compliance, as well as avoid system downtime by anticipating needs and avoiding overload. It provides increased IT system reliability and performance.
In general, we can summarize enterprise resource planning advantages as:
- Balanced resource utilization
- Increased efficiency
- Improved service delivery
- Enhanced agency operations
Overview of Capacity Management Software
The aforementioned study by Prosymmetry reports that the vast majority of agencies with a resource management system use a dispersed approach, with only 38% having a centralized platform.
These findings are corroborated by SoDa & Productive research, which reports that 52% of agencies use disparate tools for their management, with only 14% having an integrated tool that allows for real-time insights.
We can generally distinguish types of capacity management software depending on their comprehensiveness. More specialized resource scheduling software solutions usually provide features that support resource allocation and utilization insights for agencies.
When it comes to integrated solutions, these types of tools combine human resources and financial management with additional collaboration features for project management. A popular example of an all-in-one tool is Productive.
Consider the benefits of comprehensive tools outlined by Brendon Nicholas, the Co-founder of DotDev, an Australian-based product development company:
That was probably the single biggest thing—reducing the amount of tools, platforms, and systems, and using just one. Having a platform that considers everybody’s salaries, the operating expenses of the whole business, and feeding that into project budgets and looking at the internal time vs. client time gives us a much more real-time and accurate view of the profitability of actual, specific projects.
We’ll provide an overview of Productive’s key features in the following section to show you how it supports your capacity planning strategy.
Productive – The Top All-in-One Agency Software for Capacity Management
Productive is an all-in-one agency management software for companies of all shapes and sizes. The platform is designed to support marketing agencies, consultancies, design agencies, and development companies in optimizing their business processes.
GET THE MOST OUT OF YOUR AGENCY’S CAPACITY WITH PRODUCTIVE
Productive provides a range of features for agency operations, including:
- Financial management with budgeting and billing
- Capacity management with resource planning and utilization insights
- Project management with tasks, notifications, and collaborative documentation
In Productive, the ability to tie invoicing and detailed estimates and project deliverables: that’s kind of been the secret sauce.
Key Features Include:
- Capacity Management: Productive’s capacity management capabilities support simple resource scheduling and booking creation. With a reactive resource plan, you can easily split bookings or reallocate teammates, as well as gauge how busy each employee is by turning on heatmaps. Productive supports billable utilization insights, forecasting, and capacity analysis reports so you can make strategic business decisions based on accurate data.
- Budgeting: Productive’s budgeting provides full insights into your agency’s financial health. Create budgets for hourly-priced, fixed-price, retainer, and hybrid engagements. An especially powerful feature is financial forecasting, which predicts your key metrics. This includes profit margins, revenue, and budget burn. By inputting changes in your resource scheduling, these metrics are updated in real time. You can also create invoices and send them from the platform — find out more about Productive’s Billing.
- Time Tracking: Streamline day-to-day tasks with Productive’s time tracking. This feature provides various ways of managing entries, including an integrated timer, manual entry, and automatic sync with resource bookings. Employees can pin their most used services or use a desktop widget to manage their timer more easily. Productive also includes time off management, with agency-specific categories and request approvals.
- Project Management: Productive improves team collaboration by giving you access to high-level and granular project progress oversight. This includes up to six project views, including Gantt, Kanban, Calendar, and more. For daily task management, Productive provides automatic notifications that can be customized for preference, easy hierarchies with subtasks, to-dos, and milestones, as well as client access for simplified feedback.
- Reporting: Productive offers a library with 50+ agency-focused templates to generate in-depth agency reports. With custom fields, you can add specific parameters to your data. Additionally, you can create dashboards and organize your reports there, or schedule them to be sent to e-mail at particular intervals. All of this helps you stay up-to-date and make informed business decisions.
Additional features include: Sales, Automations, Docs, Purchase Orders.
Integrations include: Xero, QuickBooks, HubSpot, BambooHR, Zapier, Slack, Jira, and more.
Optimize Your Capacity Management
Manage your agency’s resources with an all-in-one tool for billable hours tracking, utilization insights, and financial forecasting.
Capacity Management Strategies: Key Steps and Processes
In this section, we’ll consider some of the main steps of the capacity management process in more detail. This includes identifying and managing imbalanced capacity, optimizing allocation, and forecasting future demand.
1. Managing Excess Capacity
Excess capacity can happen for various reasons. For one, the volatile nature of client projects may result in sudden spikes of intensive labor, with similarly unexpected periods of low utilization. Though it can be difficult to prevent periods of uneven customer demand, there are some commonly employed strategies to mitigate them.
These include:
- Employing a flexible workforce with freelances or contractors
- Diversifying services to cater to various market segments
- Investing in training during periods of low demand to maintain competitiveness
- Pushing for more retainer projects to ensure more predictable revenue
All of these strategies have their own particular benefits and downsides. What can be managed more easily is underutilization due to lacking internal resource management. Ensuring that you have a full understanding of your workforce — their particular skills, abilities, and workloads — can help you get the most out of your agency’s resources (learn more: workload management definition).
Advanced resource management software can help you achieve these goals.
2. Identifying Capacity Constraints
On the flip side of excess resources are capacity constraints. These can occur for various reasons, one of which can be overcommitment to client projects without regard to actual resource availability. Another reason can be a poorly implemented lag strategy — a reactive approach to balancing capacity that adds resources only when current demand has exceeded availability.
The consequences of this can be significant, as it usually leads to overburdening your employees, causing burnout, reduced efficiency, and decreased quality of deliverables.
Therefore, identifying resource gaps in time is essential for uninterrupted operations. During project initiation and planning, consider historical data on similar projects to try and predict potential areas where bottlenecks may occur. Techniques such as workflow analysis and capacity requirement planning can help support this process.
3. Optimizing Allocation
Alongside managing resource gaps and excess capacity, another key step in optimizing your allocation on a daily basis is monitoring utilization.
Utilization is considered one of the key agency metrics, as it shows how efficient and effective your workforce planning is. It’s the ratio of billable hours worked or client tasks delivered against total hours worked. Industry benchmarks recommend a utilization of around 70 to 90%, though this depends on the seniority and position of a particular employee.
GET TIMELY DATA ON EMPLOYEE HOURS WITH PRODUCTIVE
In general, striking a balance between billable and non-billable tasks is important. Consider that non-billable tasks such as pitching for new projects or expanding your employees’ skill sets can also be crucial to agency performance and growth.
Learn more about managing your utilization in crisis times:
4. Forecasting Future Demand for Resources
When it comes to demand and resource forecasting, this process is key for both current and upcoming client engagements. Forecasting for ongoing projects can help provide you with insights that help you see the actual state of your project financials; for example, you can check your profit margins to determine whether you’re overcommitting to a client to your detriment.
We ended up terminating contracts with two of our oldest clients after only a few months of using Productive. We thought that we were at least at zero with them, or that we had some small earnings, but it turned out that we were losing money because the money they paid us did not cover salaries, fixed overhead per hour, and variable overhead per hour.
For future client engagements, forecasting capacity management indicators such as utilization can help you decide if you have enough capacity to meet client demand. The main capacity planning challenge is dealing with uncertainties such as sudden changes in market trends. However, having a firm grasp on your availability can help reduce the risk of underutilization or overextension of resources.
Optimizing Your Performance Management
To be able to react in time to internal or external changes, you’ll need to continuously monitor all of the processes discussed above. Implementing key performance indicators (KPIs) and regular review sessions helps identify and respond to potential areas for enhancement.
One of these key metrics is utilization, but there are more ways to gauge whether your capacity planning initiatives are successful. This is often called return on investment or ROI (learn more about the ROI formula).
The main challenges of successful performance management include collecting relevant data and accessing it in time. Utilizing modern capacity planning software can be essential to effective performance management.
CAPACITY MANAGEMENT TOOLS LIKE PRODUCTIVE HELP ANALYZE YOUR DATA
Overview of Capacity Management Metrics
For example, here are some essential KPIs that you can track with Productive:
- Utilization Rate: Measures the percentage of capacity actually used out of the total available. It’s calculated by dividing billable hours by the total available capacity, i.e., working hours. In Productive, you can get forecasted utilization rates to guide your business strategies.
- Estimated vs Actual Time by Business Unit: Compares the projected time frames set for tasks or projects against the actual time taken to complete them within each business unit. This helps identify discrepancies in resource scheduling, enabling agencies to refine their forecasting and capacity management across different departments.
- Budget Burn: Measures the rate at which an organization or project consumes its allocated budget over a specific period. Productive allows you to set up automated warnings, where you can input thresholds for billable hours delivered to stay in touch with your agency’s progress. You can also forecast your budget burn to get actionable insights into project financials.
IT Capacity Management
Finally, IT Capacity Management is a critical discipline within IT service management. It ensures that an organization’s technological resources can meet current and future demands. It involves processes such as monitoring, analyzing, and optimizing the use of IT resources to ensure efficient operation and prevent performance bottlenecks.
The main steps of the process include:
- Business Capacity Management: Ensuring the future business requirements for IT services are considered, planned, and implemented in a timely fashion.
- Service Capacity Management: Monitoring, analyzing, and managing the performance of IT services, such as web, hosting, cloud computing, or online transaction processing.
- Component Capacity Management: Managing the capacity of individual IT components, including servers, storage devices, operating systems, and various virtual resources.
The benefits of IT capacity management include improved system performance, cost-effective processes, and enhanced user satisfaction.
IT Capacity Planning KPIs
- Performance vs. Capacity: Tracks the relationship between system performance and capacity, helping identify when additional resources are needed to maintain optimal performance levels.
- Forecast Accuracy: Compares predicted resource requirements with actual usage to gauge the accuracy of capacity forecasts, which is essential for improving future planning efforts.
- Service Availability: Monitors the availability of IT services, ensuring that capacity issues do not cause downtime or service interruptions. This KPI is essential for maintaining high service levels and user satisfaction.
Integrating Capacity Management with Other IT Services
Integrating capacity management with other IT services, such as incident management, change management, and business continuity planning, ensures that capacity considerations are embedded in the lifecycle of IT services. This ensures that overall service delivery is stable and effective, and increases operational efficiency. It also enables proactive identification of capacity-related issues and ensures that capacity management is aligned with the organization’s strategic goals.
Managing Your Capacity Planning Process: Closing Remarks
Whether we’re dealing with capacity management in an agency environment or IT services, one thing is clear: this process is the key to ensuring that your resource allocation is aligned with strategic business goals, supporting sustainable and continuous growth.
At the heart of this process is implementing the right capacity planner software to support your current and upcoming projects. Although there are many available options on the market, consider the benefits of an integrated platform. These types of tools help support standardized and reliable data across various projects, as well as provide streamlined daily workflows.
Find out more about all-in-one agency management by booking a demo with Productive today.
FAQ
What are the 3 components of capacity management?
The three main components or steps in the capacity management process include planning or forecasting future resource requirements; performance management or monitoring of current resources and their allocation; and capacity analysis for understanding and improving your processes.
What are the 5 capacity management strategies?
Capacity management strategies deal with balancing resources effectively to ensure that your supply meets market demand. These include identifying excess capacity, managing constraints in current capacity or capacity gaps, performance management, resource optimization, and forecasting future needs.
Why is capacity management important?
Capacity management is one of the basic strategies for supporting effective business processes. It ensures that your resources are balanced across various projects or initiatives, promoting efficiency and saving costs. It also aims to mitigate risks with forecasting, as well as support change management in case of unexpected internal or external factors.
What is the role of a capacity manager?
The role of a capacity manager is to make sure that resources are well-matched to meet current and future demand. This includes monitoring allocation, measuring their performance through analyzing key performance indicators (KPIs), identifying disruptions and reallocating capacity, and forecasting upcoming demand.
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