What Is Capacity Planning and Why Is it Important for Your Digital Business?

Capacity planning is a process used by businesses to determine consumers’ demand and create plans to meet long-term and short-term needs. When combining all aspects of capacity planning, it is referred to as capacity management.

 

Digital businesses require frequent capacity planning to ensure that they hire the right number of employees to meet the digital demands of their clients. By implementing capacity planning, digital businesses meet the needs of their consumers without overworking or underworking their employees.

The Importance of Capacity Planning

Capacity planning is essential to creating an effective service delivery strategy. Capacity management is used to ensure that the IT infrastructure satisfies both business and customer needs.

Digital businesses that rely heavily on capacity planning include:

 

 

Digital businesses will implement capacity planning strategies to improve their output, limit their server capacity, and increase their revenue. Capacity management covers all aspects of IT infrastructure planning, including:

 

  • Planning for IT capacity;
  • Developing a capacity management plan;
  • Undertaking full network discovery to identify all affected or connected devices and systems that need to be accounted for in IT and security planning;
  • Monitoring IT capacity and adjusting plans and goals accordingly;
  • Resolving and identifying issues within plans.

 

By leading successful capacity management plans, digital businesses can respond faster to the supply and demand for their resources and manage their resources to create cost-effective work environments.

 

Capacity management also helps digital businesses understand how much server capacity is in use. Businesses can cut down on server capacity, which cuts the number of resources the company wastes. IT and MSP businesses can use capacity management to isolate areas where they can consolidate or expand their resources.

 

Capacity planning and management are essential to several aspects of digital businesses. It will influence:

 

  • Customer onboarding;
  • Business security;
  • Overtime and additional labor;
  • Server capacity limits.

 

By implementing successful capacity management plans, digital businesses can reduce the risk of software failure or support end-to-end security for staff to improve the effectiveness of the business budget.

Types of Capacity Planning

There are three main types of capacity planning. A business’s implementation of the capacity planning technique may vary depending on the size of the business and the needs of its clients or staff.

 

Additionally, businesses may use different strategies when implementing their capacity plan. The strategies used by digital businesses are discussed in a later section.

 

The three types of capacity planning that all digital business should know include:

Long-Term Planning

A long-term capacity plan analyzes past data to create a production capacity estimate for the next three to five years. This plan revolves around the business’s areas of major production and creates plans for hiring and staffing those areas.

 

Long-term planning often avoids in-depth decisions and instead creates a roadmap. Businesses can’t rely solely on long-term planning and should use it to create more in-depth short-term plans.

Annual Budget Planning

An annual budget plan is separated into periods and may change during monthly or quarterly evaluations. Businesses will analyze sales data and available capacity from previous years to create a budget for the current year. The annual budget plan factors in annual profits, investments, and cost targets.

Quarterly Capacity Planning

A quarterly capacity plan is a short-term plan that operates on a quarterly time frame. These plans are revised often to create minimal wastage during a short period. Annual budget planning often affects the quarterly capacity plans.

 

Quarterly plans are revised every three months, four times a year. They can aid in determining the capacity plans for the following year. Businesses should only create reasonable quarterly capacity plans. They are goals meant to be reached — not goals to strive for.

Capacity Planning Strategies

Implementing the right capacity planning strategy in a business can help solve output issues and cut down on wasted materials. Creating a capacity planning strategy is only one step of successful capacity management.

 

Businesses will need to adjust, monitor, and analyze their business data to create updated capacity plans when new demand arises. In a constantly changing market, businesses can’t afford to let a capacity strategy sit stagnantly.

 

This section discusses three capacity strategies for digital businesses.

Lead Strategy

Lead strategy focuses on anticipation. Digital companies use lead strategy to increase their output and server capacity to handle a higher number of clients and customers. It purposefully creates excess production to handle anticipated clients.

 

Lead strategy is proactive and aims to create the supply for the services before the services are actually in demand. When a business expects an increase in clients or customers, it increases its capacity to create a planned excess. However, a business that inaccurately predicts customer demand could end up with excess products and underworked employees.

Lag Strategy

Lag strategy is reactive instead of proactive. This strategy focuses on actual demand and ignores anticipated demand. Unless there is a tangible increase in demand for a product or service, the business will not change its previous capacity plan.

 

When the business has an increase in demand, it reacts and adds more products or services. However, this could lead to a bottleneck in services where there isn’t enough supply to meet the demand.

 

Businesses using the lag strategy could “lag” behind the competition if it is unable to meet consumer needs. It may also have issues with overworking its employees.

Match Strategy

A matching strategy closely watches the market and adds capacity when the business anticipates demand. However, unlike lead strategy, a match strategy only adds small amounts. This strategy strives to meet demand without excess capacity.

It is less likely to create excess and less likely to fall behind market demand. However, to implement a match strategy, businesses must be vigilant in determining demand patterns and be both reactive and proactive. If businesses are unable to predict demand, they may fall behind or create too many services.

When used successfully, a matching strategy can ensure that businesses keep up with consumer demand without producing excess capacity.