Capacity Planning Challenges & Solutions for Agencies

Lucija Bakić

February 20, 2024

A screenshot of a capacity planning tool displaying tasks under 'Marketing and website' with statuses like 'Doing' and 'To do', dates, and assignee names, illustrating capacity planning challenges in project management.

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 5 Main Capacity Planning Challenges in Agencies

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.

1. Managing Multiple Projects

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.

More predictability is probably the biggest win for us. Having all of our projects be more consistent and reliable. It’s tough having three different teams each having 3-6 projects of varying nature and complexity. Being able to look into the details of what they’re doing and how, and being able to understand it quickly.

Orion Jensen,
CEO at Clear Launch

You need to have a full understanding of:

  • How each project contributes to your business strategies
  • The availability and capability of your resources
  • How to best allocate them to achieve project and agency goal

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.

A screenshot of a detailed capacity planning software interface showing individual employee schedules with tasks, hours allocated, and vacation time, highlighting capacity planning challenges in project coordination.


GET EFFICIENT RESOURCE ALLOCATION WITH PRODUCTIVE

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.

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2. Handling Client Expectations

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.

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.

Ilija Brajković,
CEO of Kontra Agency

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.

3. Effective Workforce Planning

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.

A screenshot of a capacity planning report highlighting individual and departmental billable and worked hours with percentage rates, depicting the efficiency and capacity planning challenges in a corporate environment.


VISUALIZE UTILIZATION AND BALANCE WORKLOADS WITH PRODUCTIVE

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

  • Balancing workloads: To maintain high productivity levels, distributing demands across resources is important. Overutilizing resources can lead to burnout, which statistics say accounts for 20% to 50% of annual turnover (Forbes). On the other hand, underutilizing employees can impact their engagement and motivation.
  • Automating Repetitive Tasks: An essential way to free up high-demand resources is automating your daily workflows. Not all processes can be automated, such as creative brainstorming. However, automation tools can simplify and reduce errors in areas such as reporting, billing, and sharing project updates.
  • Investing in Education: According to McKinsey: “The business case for reskilling can be roughly one and a half to three times better than for hiring”. Consider various upskilling and reskilling strategies, such as internal mentorships or external workshops or certifications. This helps your workforce stay competitive and ensures continuity in business operations.

Optimizing Staff Utilization and Billable Hours

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

A screenshot of a time tracking interface for marketing tasks including 'Social media posts' and 'Customer success - interview questions', with timers indicating hours spent, related to capacity planning challenges in managing daily workloads.


USE PRODUCTIVE TO MAKE TIME TRACKING SIMPLE FOR EMPLOYEES

The benefits of high utilization:

  • Signifies enhanced employee productivity and efficiency
  • Increases profitability, which leads to more capacity for growth-focused initiatives

The disadvantages of high utilization:

  • If overly high, it can cause burnout and employee dissatisfaction
  • Can lead to neglecting crucial tasks such as internal projects or administration

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:

4. Reliable Data & Forecasting

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:

  • The volatility of the professional services market
  • The dynamic nature of human resources
  • The often expanding scope of projects

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).

A screenshot of a rebranding campaign dashboard showing a bar and line graph for weekly financials and hours worked, with detailed time, budget, and invoicing breakdowns, reflecting capacity planning challenges in campaign management.


PRODUCTIVE PROVIDES REAL-TIME INSIGHTS INTO KEY AGENCY METRICS

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 planning 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.

That’s a key thing that we get out of the reports that really feeds into our utilization and resourcing. If we know we’re doing 30% on internal projects, then we know we’ve got the capacity to take on more client work.

Brendon Nicholas,
Co-founder and Technical Director at DotDev

5. Collaboration and Communication

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:

  • Different communication styles (42%)
  • Unclear responsibilities (34%)
  • Time pressures (31%)
  • Lack of strong leadership (29%)
  • Client demands (23%)

While some of the negative impacts are:

  • Added stress (52%)
  • Delay or failure to complete a project (44%)
  • Low morale (31%)

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

A screenshot of a content management system for social media posts with a 'Board view' selected, showing tasks in 'Not Started' and 'Done' categories, related to capacity planning challenges in content strategy execution.


WITH PRODUCTIVE, YOU CAN GET FULL PROJECT PROGRESS VISIBILITY

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.

3 Tips for Optimized Capacity Planning

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.

Ensure Strategic Alignment

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.

  • In the context of short-term planning, this means assigning resources to fulfil current demands while advancing toward strategic milestones.
  • Long-term capacity planning, on the other hand, focuses on developing capabilities and infrastructure for future capacity requirements.

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.

Get Stakeholder Buy-In

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

The wholehearted commitment of senior management to capacity planning is a prerequisite for success, as the process requires the interaction and cooperation of many different parts of an organization.

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. 

Investing in Latest Technology

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.

A screenshot of a new budgets insights feature with options to group by company, displaying a bar chart with revenue and margin data, related to capacity planning challenges in financial forecasting.


MANAGE HIGH-LEVEL AND DAILY AGENCY OPERATIONS WITH PRODUCTIVE

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.

The main benefit we get from Productive is planning, clarity, everyone working towards one system. It facilitates reporting, hugely. It’s very easy to use. Also, I think one of the biggest things for me is the fact that it’s constantly improving.

Andrew Harb,
Program Director AT Saffron

Its benefits include:

  • Automation: Automation streamlines the capacity planning process by streamlining manual tasks, increasing accuracy and efficiency, and minimizing human error.
  • Real-time data: Access to real-time data empowers organizations with timely insights into resource utilization, availability, and performance metrics.
  • Forecasting: Forecasting allows business leaders and resource managers to make informed decisions on their agency’s future based on historical, financial data.
  • Scenario planning: Control your project scope by visualizing and forecasting key agency metrics, including budget burn, profit margins, and revenue.
  • Collaboration: Facilitating collaboration among teams, departments, and stakeholders ensures that all parties involved are informed and aligned on objectives. 

Managing Capacity in Non-Service Industries

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:

  • Managing supply chain fluctuations
  • Equipment maintenance
  • Production scheduling to meet demand

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

Takeaway: Addressing Challenges in Capacity Planning Strategies

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).

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Lucija Bakić

Content Specialist

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