The Capacity Model: Best Strategies for Agencies

Lucija Bakić

February 23, 2024

Project management interface with detailed view of a project task within a capacity model, featuring collaboration tools, task status, assignment details, and a comment section.

What is a capacity model, and how do you best utilize one for your agency?

The process of developing and implementing a capacity model is part of the wider capacity planning strategy. It includes identifying your resources, forecasting future demand, and finding the best model to balance availability with current and upcoming needs.

In this article, we’ll explore different types of capacity models, the main steps of the process, and the best tips for successful implementation.

Key Takeaways

  • A capacity model is a strategic plan that helps agencies balance availability with demand, supporting sustainable functioning and growth.
  • Lead, lag, match, and hybrid strategies offer flexible approaches to managing capacity requirements in response to internal and external factors.
  • The capacity planning process involves identifying resources, analyzing gaps, forecasting needs, and balancing availability with demand.
  • Effective capacity planning requires implementing the right capacity planning tool, getting stakeholder buy-in, fostering communication, transparency, and continuous improvement.

What Is a Capacity Model?

A capacity planning model is a strategic plan agencies use to determine and resolve current and future staffing needs. It considers various factors, such as human resources, time and skills, and financial constraints, to balance availability with actual demand.

It supports an agency’s sustainable daily functioning, resource planning, and growth initiatives.

Capacity Models: Overview of Strategies

  • Lead Strategy: This approach involves anticipating demand and expanding capacity before it’s needed. It’s a proactive strategy usually utilized by agencies that want to maintain a competitive advantage and seize market opportunities.
  • Lag Strategy: Lag strategy only adds capacity when demand has been established. This is a reactive approach that minimizes the risk of overinvestment. It’s most frequently utilized in stable markets where businesses are less likely to miss out on engagements.
  • Match Strategy: An approach that aims to perfectly balance resources with demand, usually through incremental but frequent changes. It’s a strategy best applied in agencies with a firm grip on their capacity and future demands.
  • Hybrid Strategy: A hybrid strategy combines elements of all three strategies for a flexible approach to capacity requirement planning. For example, agencies with multiple services, such as creative agencies, can use a lead strategy for services with high demand and lag strategy for stable and predictable services.

The Downsides of Capacity Models

With poor capacity planning, each specific model can have its downsides. For example, lead strategy is a high-risk, high-reward type of approach: getting it right can significantly boost your agency by equipping it with the right skills at the right time. However, mistakes result in excess capacity, which can cause employee dissatisfaction and drain your finances.

The lag strategy is the opposite — you can find yourself lacking resources, resulting in missed opportunities or burnout of existing resources. On the other hand, hybrid and match strategies are the most balanced but also the most difficult to pull off.

In other words, understanding your agency’s context and market trends is key to applying the right capacity model.

The Benefits of Implementing a Capacity Model

According to research, one of the biggest causes of workplace stress is an improper workload (39%). The same survey states that 83% of workers in the US suffer from work-related stress (Source: The American Institute of Stress). 

Capacity planning is one of the main ways to ensure that your agency’s employees have the right amount of work allocated. Overutilization can lead to burnout, while underutilization can impact work engagement and productivity.

Some of the benefits of efficient capacity planning include:

  • Better employee work-life balance
  • Reduced workflow disruptions
  • Increased efficiency and productivity 
  • Stable agency financials
  • Improved agency resilience and sustainability 

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The Capacity Modeling Process

The fundamentals of developing and implementing a capacity model include: identifying resources, analyzing gaps and bottlenecks, forecasting needs, and finally, balancing availability with demand.

Identifying Resources

This initial step involves cataloging all available resources, including staff, technology, and financial assets. Understanding your current resource capabilities and limitations is crucial to plan for their effective utilization. This comprehensive inventory helps pinpoint what is available and what might be needed to meet future demands.

Related: Resource Capacity Planning: The Definitive Guide

Analyzing Capacity Gaps

Capacity gaps can mean different things for different industries. In manufacturing, it can signify an ineffective machine that bottlenecks production capacity. In IT Capacity Planning, it might mean that your servers cannot handle increased traffic during peak periods, leading to slow response times or even system outages. 

In an agency context, capacity gaps can signify a lack of staff in general or perhaps a lack of resources with specific expertise or seniority levels. For example, according to Forbes, 77% of agencies experience a gap in leadership roles. Addressing your most critical gaps is the first step, with potential improvements being the next step.

Forecasting Needs

Accurate needs forecasting can be difficult. After all, this step will inform your potential strategies and can significantly impact your agency’s performance.

Good forecasting is based on a sound understanding of current availability and a correct analysis of anticipated demand based on market trends and changes. Understanding your historical data, such as how long it takes to complete a project or when a certain service is high in demand, is an important part of this step.

See also: Top 5 Capacity Report Types

Spreadsheet of a capacity model displaying hours billed versus hours worked by department and person, with percentages indicating billable efficiency.


find out how efficient your teams are with productive

The utilization rate, or the ratio of billable hours vs non-billable hours, is one of the most important metrics for this step. For example, if you provide multiple services, compare which ones are frequently underutilized or overutilized.

You can consider building more capacity for overutilized services, while sales efforts might target clients for underutilized services during specific periods.

Find out more about utilization in crisis times:

Balancing Availability with Demand

The final step is to align the available resources with projected demands, ensuring that the organization can meet its objectives without excess capacity or bottlenecks. This process is also called capacity requirement planning (CRP).

This might involve strategic hiring, investments in new technology, or reallocating existing resources to where they are needed most. 

Effective capacity planning is applied throughout short and long periods of time to ensure that your agency can sustain its day-to-day operations, as well as achieve desired growth in the future. It also involves choosing the right capacity planning tools to help you balance workloads and keep projects on time.

Long-Term vs Short-Term Capacity Planning

The capacity planning process considers two separate but adjacent strategies: short-term and long-term capacity planning.

  • Short-term planning is concerned with ensuring that current demand is met. It involves processes such as resource scheduling, reallocating tasks, and resolving immediate resource gaps.
  • Long-term planning usually focuses on addressing future capacity requirements, those spanning a period of over a year or more away. It includes strategic decisions on workforce planning, development, and investments in new technologies, facilities, and markets.

Both of these strategies need to be aligned to ensure operational continuity and sustainable agency growth.

Types of Agency Resources

The three main types of agency capacity are budget, people, and technology.

  • Budget refers to the financial resources allocated for operational and strategic initiatives, determining the scope and scale of projects an agency can undertake.
  • People encompass the workforce, including their time, skills, and experience needed to execute and complete project tasks.
  • Technology represents the tools, systems, and infrastructures that support day-to-day agency operations and high-level planning.

Managing Human Resources

Managing capacity in professional services agencies includes maintaining and enhancing your resources through various strategies. Maintaining includes allocating them across projects according to their unique skills and expertise.

Enhancing resources is usually done through a capacity building plan, which contains strategies on how to approach upskilling and reskilling to satisfy current needs and future demands.

Investing in capacity building not only boosts productivity but also fosters a culture of continuous improvement and innovation. An example of this is succession planning, which ensures that the agency has enough skilled staff for management and high-level positions and reduces internal disruptions. 

Financial Management

Project financial management in agencies encompasses a range of key activities, such as budget allocation and investing in growth and technology. The foundation of this discipline is financial forecasting — the ability to predict future financial needs and opportunities against your current capacity.

Analytical dashboard displaying a capacity model report with options to group by company and a graphical representation of budget allocations for various projects.


productive helps you visualize your agency’s financials

Some key financial and capacity planning metrics for agencies include:

  • Revenue Forecasting: Predicts future income based on current and anticipated projects, helping agencies allocate resources efficiently and plan for growth.
  • Cost Management: Tracks expenses related to projects and operations, enabling agencies to maintain budget control and improve profitability.
  • Resource Utilization: Measures how effectively an agency’s human resources are employed, indicating areas for overuse or underuse to improve productivity.
  • Cash Flow Analysis: Provides insights into the timing and flow of cash in and out of the agency, which is necessary for managing liquidity and ensuring operational stability.

Leveraging Capacity Planning Tools 

According to the Financial Times, in 2024, the Norwegian sovereign wealth fund lost a little over 90 million dollars to an Excel error. While Excel serves its purpose as a complementary tool, incidents like these underscore the importance of investing in capacity planning software for reliable, real-time data.

The benefits of comprehensive tools can include:

  • Streamlined operations
  • Timely insights into key agency metrics
  • Better collaboration and communication
  • Standardized data and workflows

We used to have a project management tool, a time tracking tool, a support tool, a way we handled opportunities and sales-driven processes. Those were all separate tools that we had, and it wasn’t good. It also meant that all that data was being lost every time we switched between tools, or we had to find a way to normalize the data between them. And now, the fact that it’s all in one, it’s really a game changer.

Bryan Casler,
Vice President of Digital Strategy at 4Site Interactive Studios

Using Productive to Manage Your Capacity

One of the best kinds of solutions for agency project management are tools that offer a range of features, including project, resource, and financial management. Productive is a popular example of an all-in-one tool for agencies of all shapes and sizes.

If I had to choose the main benefit of switching to Productive, it would be having visibility of everything in one place: from sales through resources, projects to delivery, plus the time logging and profitability figures in one place—being able to track the end-to-end lifecycle of a project.

Jason Devoy,
Delivery Director at Joi Polloi

Starting off, you can easily manage your short and mid-term resource planning. Schedule your employees in various ways, either by inputting percentages of billable time and total working hours or entering bookings day by day. You can filter your views by people or by projects, depending on how many engagements you’re working on at once.

A visual dashboard of an agency management tool, showing a strategy for implementing a capacity model with resource scheduling, heatmaps, and scheduled time off.


use drag-and-drop to reallocate resources

You can also turn on heatmaps for a visual indicator of daily utilization. Additionally, Productive provides integrated leave management, so you can view time off per employee to get the full picture of your agency’s resources.

Placeholders can be used to book time for external employees, such as contractors.

The interface of an agency management tool showing how to implement a capacity model through weekly scheduling with team member assignments, hours allocated, and an alert for overcapacity.


achieve balanced workloads across employees

Productive’s Resource Planning feature also enables powerful forecasting. By switching to the Profitability view, you can get insights into your key agency metrics, including revenue, budget burn, and profit margins. 

Use tentative bookings to plan out various scenarios without impacting your confirmed hours. When you’ve got the perfect allocation, you can easily convert them into real bookings.

A capacity model graph for a rebranding campaign showing weekly progress in hours and budget, with a dotted trend line and summaries for time worked, budget totals, and invoicing details.


make informed decisions with financial forecasting

As professional services time tracking software, Productive also helps your employees and project managers manage time entries and visualize utilization. Check how efficient employees are across departments, per seniority level, and more. By forecasting your utilization for upcoming time periods, you can decide whether you have the capacity to take on new client projects.

Additional features: Project Management, Time Tracking, Budgeting & Billing, Sales, Docs, Automations.

3 Tips for Implementing Your Capacity Model

After going through some specific processes and goals of building capacity models, we’ll cover some basics that help you address capacity planning challenges: getting stakeholder buy-in, fostering a culture of transparency and transparency, and focusing on continuous improvement.

1. Getting Stakeholder Buy-In

For a capacity planning model to work for your agency, you must get everyone on board. Change starts from the top of the agency, so getting management buy-in is key. However, ground-level staff should also understand the reasons for and the benefits of capacity planning. 

This ensures active participation across all levels of the agency, which helps bring in valuable feedback. Your team’s diverse knowledge, skills, and ideas can enrich the planning process and help identify potential gaps or opportunities. This, in turn, results in more efficient and successful capacity management

2. Promoting Transparency

Ensuring your clients are aware of the decisions made in the context of capacity planning can be a great way to mitigate potential risks. Most of all, this includes scope creep. If your clients understand your real resource availability and how expanding the project will impact the budget and timelines, this can help you reject or modify certain requests. 

[With Productive] We figured out where we need to improve our estimating or be more rigorous with clients on what they’re getting for their money because obviously, you don’t want to overrun every project.

Jason Devoy,
Delivery Director at Joi Polloi
 

Capacity planning provides these insights, so all that is left is to communicate it effectively to get on the same page. Overall, maintaining transparency helps keep everyone informed and manages expectations.

3. Continuous Improvement

One final tip is to forget about perfection. As soon as you have a workable capacity model, you can start implementing it. After all, there’s always room to refine and adjust your strategies as you go along. Consider tracking your capacity planning progress by addressing specific questions:

  • What is the specific goal of capacity planning in your agency?
  • When do you want to achieve it?
  • Who are the main stakeholders?
  • Which KPIs should you collect?
  • When is it time to review progress and implement adjustments?

Continuous improvement is as necessary as it is good — sometimes external changes, such as new market trends, or sudden internal disruptions, such as turnover, will require you to reconsider your strategies. Therefore, a proactive approach is always better than a reactive one.

Takeaway: Managing Your Capacity Planning Process

Implementing your capacity model is a lengthy process that requires a lot of work, from getting a full understanding of your agency’s resources and how to best utilize them to forecasting market trends and demands.

Embracing the right mix of strategies, best practices, and modern capacity tools can help ensure that your agency can successfully complete current projects and take on exciting new opportunities in the future.

To learn more about capacity planning and the differences between manufacturing industries and professional services, read our article on Finite Capacity Planning.
 

FAQ

What are the elements of the capacity model?

The main elements of developing and implementing a capacity model include: analyzing your resource pool, identifying resource gaps, demand forecasting, and implementing strategies for balancing current and future capacity with demand.

What are the 4 types of capacity?

In a manufacturing industry context, we can distinguish four types of agency capacity, including design capacity, effective capacity, actual output, and excess capacity.  Design capacity defines ideal output; effective capacity is the output that can realistically be achieved; actual output is the amount of production achieved in a given period; and excess capacity is unused resources.

What is an example of a capacity strategy?

An example of a capacity strategy could be to examine seasonality when considering your resources. For example, a development agency building a website for an ice cream company might want to invest in additional server infrastructure during the summer months proactively, utilizing a lead strategy. Conversely, they might scale it down in the winter months to save on costs.

How do you create a capacity planning model?

A capacity planning model is usually created and implemented across both short and long periods of time. For short-term capacity planning, you might utilize a capacity planning tool to identify resources, schedule them, and balance timelines. For long-term planning, advanced resource and financial forecasting is usually employed to determine the proper capacity-building challenges and investments.

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Lucija Bakić

Content Specialist

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