Capacity Planning Challenges & Solutions for Agencies

How can you best address the main capacity planning challenges?

Capacity planning is a strategic process that helps professional services agencies match their services with demand. It includes various key steps, such as current capacity analysis, demand forecasting, and strategy implementation.

In this article, we’ll answer the evergreen question: What are the main capacity challenges, and how do you tackle them?

The most common challenges for effective capacity planning include balancing multiple projects and customer expectations, ensuring optimized current and future capacity, real-time data and forecasting, and efficient collaboration.

According to research by Wellingtone, taking on too many client projects at once is one of the main capacity planning challenges for professional service agencies. This can happen due to various reasons, such as ambitions for growth, fear of yielding market share to competitors, or simple overestimation of current capacity.

Whether your agency has bit off more than it can chew or not, balancing various demands with your available resources can be a tough process.

You need to have a full understanding of:

Capacity planning software can streamline this process by helping you get an overview of how efficient your resources are at completing certain tasks. For example, historical data on estimated vs. actual completion time can greatly benefit your future planning.

Additionally, utilizing a responsive system for allocating and reallocating your resources can help your agency maintain flexibility and adaptability. A great feature is incorporated leave management. How often have crucial resources been unavailable, and key team members were unaware of them? Getting full oversight of your actual capacity is the first step toward efficient management.

Another key factor in resource planning for multiple projects is balancing client expectations with your capabilities. Even on a single project, scope creep can be a serious detriment to your service delivery, both when it comes to timelines and quality.
How can you best manage this?

One way is to start from the beginning. Make sure to define the terms of your collaboration clearly in the contract. For example, in website and development-related projects, the maintenance phase can be a frequent stepping stone. Clients can implicitly expect a level of support that might stretch to additional functionalities in some cases.

Related: IT Capacity Planning: Implementing a Successful IT Capacity Plan

Another way is to understand exactly what each project contributes to the wider picture. While gold plating your deliverables might increase customer satisfaction, it can lead to overtime for your teams and negatively impact your agency’s overall success. Not to mention that it can result in overinflated expectations for future collaborations.

Effective communication is another key factor. If your clients understand how their projects are progressing and how additional features might impact them, they’ll be more understanding if or when you put your foot down.

The main types of capacity planning in agencies include three types of resources: finances, people and their time, and technology.

Workforce planning includes considering the best strategies to allocate your current resources and ensure you can always meet future demand. The strategies used to build your agency’s capacity are usually part of what is called a capacity building plan.

There are various practices for ensuring successful workforce planning. These include:

Managing billable hours ensures that time spent on client projects is used efficiently. The utilization rate is the metric that depicts the ratio of billable vs non-billable hours spent on a project.

See also: 7 Best Professional Services Time Tracking Software & Tools

The benefits of high utilization:

The disadvantages of high utilization:

In conclusion, balancing billable and non-billable tasks ensures that an agency is financially healthy while maintaining a healthy work-life culture and sustainable daily operations.

Find out more about managing your utilization in crisis times:

One of the most challenging but also important parts of capacity planning is accurate demand forecasting. This is made difficult by multiple factors, which include:

Reliable data is the best way to combat this. A traditional way to gather agency insights would be manually extracting information and using Excel to create reports. While Excel has its uses, using it as your main source of gathering capacity planning metrics is not ideal.

According to The Wow Company, agencies that have moved from spreadsheets to dedicated software are less likely to experience stress and anxiety, are more likely to make more profit, and have higher utilization rates (BenchPress Report).

Additionally, consider investing in a more robust solution for financial management that can offer forecasting features. For example, the all-in-one agency management tool Productive handles forecasting like this: after you allocate your resources, you can check profitability, revenue, and budget burn across your projects. Changes in your resource capacity management are immediately reflected, helping you make informed decisions.
Finally, you can visualize and forecast your utilization rate across various metrics to decide which client projects you should take on.

Read the full story: Using Productive, DotDev Has Grown 50% YoY For the Past Three Years

Good collaboration and communication is the foundation of all your agency processes. From project managers to ground-level staff, across clients and external stakeholders, keeping all relevant parties in sync can be difficult.

According to research by The Economist, the top causes of poor work communication include:

While some of the negative impacts are:

To overcome these challenges, consider investing in capacity planning tools that offer various task or project management features.

This can include features such as customizable status updates on tasks, automatic notifications, Gantt charts, and employee and client access rights. Investing in an all-in-one platform can bring additional benefits by helping you standardize all processes on one platform, which helps eliminate siloes and drives reliable data.

A popular example of comprehensive PSA software for agencies is Productive.

After reviewing the main challenges of capacity planning, let’s go over through some basics that can put your agency on the right path: developing strategic alignment, driving stakeholder buy-in, and investing in software.

Ensuring strategic alignment between capacity planning and overarching business goals is essential for any organization looking for sustainable growth and competitiveness. This alignment guarantees that resource allocation supports not only immediate project needs but also contributes to the broader objectives of the organization.

By aligning capacity planning with strategic goals across different time periods, agencies can ensure that they are not just responding to the most pressing needs. Instead, they are proactively building towards their future.

This is an ongoing process that supports optimized resource utilization and a well-developed resource pool and ensures that all investments directly contribute to the achievement of long-term visions and goals.

Securing stakeholder buy-in drives a unified mindset across all organizational levels, ensuring that everyone is aligned and committed to the plan’s success.

Source: Benefits of capacity planning

This consensus fosters a collaborative culture where team members are more willing to adapt to changes and contribute ideas for improvement. When stakeholders understand the plan’s relevance to both their individual roles and agency goals, it enhances engagement, facilitates smoother implementation of strategies, and significantly increases the likelihood of achieving desired outcomes. 

Don’t underestimate the importance of utilizing effective capacity planning software. The right tool can help support your capacity planning efforts, as well as drive new improvements to processes. 

Although there are many good options out there, consider investing in an all-in-one tool. A popular example for agencies is Productive, a software designed for businesses of all shapes and sizes.

Productive combines various features, including project management, budgeting and billing, and resource planning, into a single platform. This helps agencies streamline their tech stack and drive improvements across all projects.

Its benefits include:

Learn more: Top Agency Management Software: Guide to Features & User Reviews

Managing capacity in agencies versus manufacturing industries presents distinct challenges due to the nature of their outputs and processes. Agencies focus on delivering intangible services through human resources, making their capacity planning centered around workforce planning and time management.

In contrast, manufacturing deals with tangible goods, requiring a focus on physical resources, machinery, and inventory levels. Challenges in manufacturing often include:

To find out more about capacity planning in manufacturing, read our article on Finite Capacity Planning.

There are many challenges that you might face when developing and implementing your capacity strategy. Some will come from external factors, such as client expectations or the difficulty of forecasting demand, while others concern internal considerations, such as resource allocation and collaboration.

To enhance your agency’s resilience and sustainability, consider fostering strategic alignment, securing stakeholder support, and utilizing effective capacity planning software. These overarching strategies provide a solid foundation for addressing any obstacles that may arise.

Learn more by reading our Guide to Capacity Requirement Planning (CRP).