Full Guide to Capacity Planning: Strategies, Steps & Best Practices

It’s a tale as old as time: too much work, not enough people, and the constant feeling of playing catch-up. Sound familiar? If so, you’ve got a capacity planning problem, and it’s one nearly every business faces.

Capacity planning can help you trade this uncertainty for confidence, understand how much work you can take on, and deliver on time and within budget (without burning out your team).

In this article, we’ll dive deep into the art and science of capacity planning, one of the most powerful disciplines in any manager’s toolkit. Specifically, we’ll break down what it is, how it the differs from resource management, and the strategies and tools you can use to master it.

TL;DR — The key points about capacity planning

• Capacity planning is a predictive discipline. It’s the process of making sure you have the right people with the right skills available at the right time to meet future demand.
• Capacity planning differs from resource or capacity management. Capacity planning is strategic and long-term, resource management focuses on tactical task allocation, and capacity management helps you make real-time adjustments.
• The benefits are huge. Effective capacity planning prevents burnout, improves profitability, and enables strategic decision-making.
• Choose the right capacity planning strategy based on your goals. For example, you can act ahead of demand (Lead), respond to demand as it happens (Lag), or take the middle path that balances risk (Match).
• Getting started is straightforward. Capacity planning is a five-step process where you analyze current capacity, forecast future needs, take proactive steps, schedule the work, and continuously track, monitor, and iterate.
• Use software for the heavy lifting. Toggl Focus is the perfect tool for managing team capacity, putting everything (and everyone) you need in the right place to achieve your goals. Learn more about how we do capacity and resource planning here.

What is capacity planning?

Capacity planning is the process of making sure you have the right people with the right skills available at the right time to meet future demand. This is usually done by hand in a spreadsheet or with the help of specialized software (like Toggl Focus, Smartsheet, or ResoureGuru).

We can break this down into two elements:

• Capacity refers to the maximum amount of work your team can complete in a given period. It’s the total number of hours your team has available after factoring in things like vacation time, sick leave, and company-wide training.
• Planning is about looking ahead. It’s a predictive discipline that helps you move from being reactive (“We need to hire a developer now!”) to being proactive (“Based on our product roadmap, we’ll need another developer in Q3”).

That said, capacity planning isn’t just about filling a spreadsheet with names and dates. It’s about understanding who is free, what skills they have, and how confident you are in your team’s ability to deliver what the business needs in the future.

Examples of capacity planning across industries and use cases

Capacity planning can be suitable for almost every profession and organization you can think of. Here are some real-life examples from different sectors:

• Project management: A digital agency is in the running to sign a new client. The project manager uses capacity planning to see if the current team of designers and developers can handle the work or if they’d need to hire a freelancer to manage their project roadmap.
• Product management: A software team is working through its next round of agile planning. The product owner reviews the product roadmap and uses capacity planning to determine how many new features the team can realistically commit to using a sprint or roadmap confidence score. As a result, they don’t over-promise and under-deliver.
• Human Resources: A company is opening a new office. The HR manager uses capacity planning to forecast hiring needs, creating a phased recruitment plan to get the right staff in place for the launch. In HR, this can also be known as workforce capacity planning.
• Manufacturing: A car factory needs to increase production to meet seasonal demand. The operations manager uses capacity planning to schedule extra shifts and order raw materials in advance, so the factory can meet the anticipated demand without inefficiencies and bottlenecks.
• Executive-level: A CEO wants to expand the business into a new country. The leadership team uses capacity planning to model the financial, legal compliance resources needed, making the strategic goal achievable without disrupting existing operations.

Put simply, the principles and process of capacity planning can be applied across various teams, organizations, industries, and scenarios.

Capacity planning vs. capacity management vs. resource planning

As you dive deeper into the world of capacity planning, you’re likely to hear the terms capacity management and resource planning.  

These are three terms often used interchangeably, but they refer to distinct activities. Here are the main differences to consider:

	Capacity Planning	Capacity Management	Resource Planning
Focus	Strategic & Long-Term	Tactical & Real-Time	Operational & Short-Term
Question	“What skills and teams will we need in the next 6-12 months?”	“Can we handle this urgent client request this week?”	“Who is the best person to design this website logo today?”
Goal	Prepare for future demand and strategic goals.	Adjust to immediate changes and optimize current utilization.	Assign specific tasks to specific people.
Use Case	Forecasting annual hiring needs based on the sales pipeline.	Re-assigning a designer to a high-priority project after a team member calls in sick.	Scheduling a developer to work on a specific feature in a two-week sprint.

To deliver a successful project, operations team, or entire business, you need all three, with the understanding that they solve different problems at different times.

Note: Why you actually need capacity and resource planning.

Key benefits of capacity planning

The right approach to capacity planning unlocks some powerful benefits for you, your team, and your entire organization, including:

1. Capacity planning prevents team burnout

Working at 110% for a long period of time isn’t sustainable. Burnout is a major cause of turnover, and with the cost of replacing an employee averaging $4,700, according to SHRM, it’s not cheap, either.

Capacity planning gives you a bird’s-eye view of your team’s workload, allowing you to spot potential burnout risks and adjust workloads before your best people start looking elsewhere.

2. Capacity planning improves profitability

Every project, team, and business has a budget, and your biggest cost is almost always your people. When capacity is poorly planned, you end up with team members sitting idle or, worse, working unpaid overtime to hit deadlines. 

Capacity planning gives you the right number of people working on the right things, maximizing billable hours and protecting your profit margins.

3. Capacity planning increases delivery confidence

PMI’s 2024 Project Success report found that effective resource management was in the top five most important levers for guaranteeing success.

Matching demand to your team’s actual capacity means you can set realistic deadlines and create achievable project timelines. This allows you to make promises you can keep and have confidence in your delivery estimates, especially useful for project management methodologies such as Agile and Lean!

4. Capacity planning enables better decision-making

Should you bid on that huge new project? Can you afford to build that new product feature? Are we ready to scale up and beat our competitors?

These are big, strategic questions you want to know, and the answer often lies in your team’s capacity. With a clear picture of your future availability, leaders can make data-driven decisions about growth, investment, and priorities, while still remaining agile and flexible for future changes.

5. Capacity planning boosts employee morale

No one likes feeling overwhelmed and unsupported. Remember that PMI success levers report we shared earlier? Well, team morale is the second-best way to guarantee success.

When people see their workload is managed thoughtfully and leadership is planning for the future, it creates a sense of stability and psychological safety. This fosters a healthier work environment where people feel valued and are more likely to stick around for the long term.

6. Capacity planning guarantees client satisfaction

For service-based businesses, happy clients are everything. On the flipside, missed deadlines or subpar work are a sure-fire way to damage your reputation. And that’s exactly what you risk when your team is overstretched.

Capacity planning allows you to staff your projects correctly from the outset, giving you the time and resources to deliver high-quality work that keeps clients coming back with new initiatives.

The most important capacity planning strategies to remember

There are several types of capacity planning, and the best one for your business will depend on your industry, your risk tolerance, and your overall business goals.

Below, we’ll explore the three main approaches for capacity planning: lead, lag, and match. Each one has its strenghts and weaknesses and understanding those will help you build the skill of selecting the right strategy based on your needs in specific situations.

Lead strategy

Lead capacity planning is a bold, growth-oriented approach that proactively adds capacity in anticipation of future demand. You’re essentially hiring or training people before you’ve got the work.

• How to use it: A company might hire additional people or order extra stock after a significant event, such as a funding round, in anticipation of growth.
• When it’s best: This strategy is ideal for fast-growing businesses in a competitive market. If it takes a long time to train new staff or order supplies, and you want to be able to jump on new opportunities instantly, a lead strategy makes sense.
• Real-life example: A tech startup receives a large venture capital investment. It immediately hires a team of senior engineers, even though its product is still in early development, to accelerate time to market.
• Disadvantage: It can increase risk and lead to overcapacity if demand doesn’t increase as expecte, leading to underutilized resources and financial losses.

Lag strategy

A lag strategy is the opposite. It’s a reactive approach where you only add capacity once demand has been confirmed and is starting to stretch your existing resources.

• How to use it: A business waits until future work is confirmed, or is approaching 100% capacity, before increasing production capacity
• When it’s best: This is a more conservative, risk-averse strategy. It’s well-suited to organizations with stable demand, tight budgets, or in industries where it’s quick and easy to increase capacity (e.g., bringing in freelancers, multiple supply-chain options.)
• Real-life example: A small consulting firm waits until they’ve signed three new clients before they begin the search for a new consultant to service them. They accept that the existing team will be stretched in the short term to avoid the risk of excess capacity.
• Disadvantage: It’s not built for fast changes in demand, so it can lead to lost customers and missed revenue in the case of a suddent demand spike for your products or services.

Match strategy

A match strategy aims to find a middle ground by adding capacity in small, incremental steps that align closely with rising demand.

• How to use it: Match is all about being proactive but cautious, getting ahead of future demand predictions in a controlled way, and then pushing harder once plans are confirmed.
• When it’s best: This flexible approach is great for businesses with seasonal or fluctuating demand, like a retail company that needs more staff during the holiday season or a marketing agency that has a few very busy months each year.
• Real-life example: An e-commerce business hires a core team of full-time customer service agents but brings in additional staffing every year from October to December to handle the extra capacity needs of the Christmas rush.
• Disadvantage: It can be expensive and difficult to implement as it requires true expertise and a data-driven approach to forecasting. This is especially true if you need to hire people on short notice to meet demand spikes.

As we’ll explore next, capacity planning is a constant, ongoing discipline. It’s unlikely you’ll use one of these strategies forever. In reality, you’ll use different strategies at different times, depending on your current situation.

Capacity planning into action: 5 steps to get started

Now we know the what, why, and how of capacity planning, it’s time to start thinking about putting it into action. To help, let’s walk through a five-step capacity planning process you can steal for your own business, using a case study from fictional creative agency “Innovate Digital.”

1. Analyze the current situation

Start with a clear picture of your team’s current capacity, workload, and available resources.

• Action to take: Calculate your total team capacity in hours/days, and track how much of that capacity is already gobbled up by existing projects.
• Best practice: Don’t forget to account for non-project time! Subtract vacation time, public holidays, and sick leave (usually around 5-8%), and any time spent on regular admin, company meetings, or training.
• Pitfall to avoid: Don’t assume everyone is 100% productive for 8 hours a day. A realistic utilization target is 80%, leaving a buffer for unplanned work and day-to-day tasks.

Example: The Head of Projects at Innovate Digital calculates that their team of 10 has a total of roughly 1,600 available hours per month. After subtracting non-project time, they determine their true project capacity is around 1,280 hours (80%). They see their current projects already use 1,200 of those hours, meaning they’re close to full capacity.

2. Forecast future resource needs

Next up, “What new work’s coming down the pipeline?” This is where the true value of capacity planning starts to come in.

• Action to take: Work with your stakeholders (such as sales or leadership team) to understand the future customer demand and upcoming pipeline of work for the next 6-12 months. Break down that work into the roles and skills you’ll need (e.g., 100 hours of a Senior Designer, 250 hours of a Backend Developer).
• Best practice: Use historical data from past projects to make your forecasts more accurate, factoring in a buffer for any unknowns and uncertainty. Also, pay attention to the skill sets, seniority, and quality levels of the resources you need — e.g., a junior vs. senior designer, or budget vs. premium materials.
• Pitfall to avoid: Don’t just focus on confirmed work or projects. You should also assign a probability to tentative work or projects in the pipeline (e.g., a 50% chance of winning Project X). This gives you a more realistic forecast and reduces the chances of you being caught out.

Example: Innovate Digital is in the final stages of winning a huge new client. The project will require significant work from a UX designer and a copywriter over the next six months. Looking at a similar project they completed last year allows them to forecast they’ll need 30+ extra hours of UX design and 40 hours of copywriting per month.

3. Take proactive actions to meet needs

Now, you’ll compare your current capacity (Step 1) with your future needs (Step 2) and decide how to bridge any gaps. Regardless of your chosen capacity planning strategy, it’s important to have a clear plan in your mind to meet the demand.

• Action to take: Based on the size of the gap, decide on the best course of action. Ask yourself questions such as “Can I upskill an existing team member?”, “Do I need to hire a new full-time employee?”, or “Do I need to identify new suppliers?”
• Best practice: Involve your team in the decision. They often have the best insights into who might be ready to learn a new skill or whether the current workload is truly sustainable. Certain team members might also be ready for a new challenge and support you in the next steps.
• Pitfall to avoid: Don’t default to hiring or buying mode. Sometimes the most effective solution lies with your current resources. For example, you could delay a lower-priority internal project, invest in training to build capacity within your existing team, or reuse what you already have in stock.

Example: Innovate Digital’s Head of Projects decides on a two-pronged approach. They’ll hire a freelance copywriter to cover the copywriting needs. For the UX work, they’ll invest in an advanced training course for a junior designer who has shown great potential, allowing them to support the senior designer on the new project.

4. Schedule resources to meet capacity demand

With your actions implemented, it’s time to get tactical and start scheduling resources to the work. Capacity planning starts to merge into resource allocation here, but that’s ok — as we saw with our house-building example, it’s all part of the bigger picture! 

• Action to take: Use a resource scheduling tool to assign team members to the new work. This visual plan clarifies who’s working on what and when. Toggl Focus’s timeline and schedule management features are a great fit here. They give you a bird’s-eye view of your entire roadmap, allowing you to see your team’s available capacity and utilization rates to avoid scheduling conflicts and keep tasks on track.
• Best practice: Create a centralized, single source of truth for your schedule. When plans are scattered across different spreadsheets and calendars, it’s impossible to get a clear view of your team’s capacity.
• Pitfall to avoid: Making the plan too rigid. Projects change. A good resource schedule should be flexible enough to be updated easily when priorities shift or unexpected issues arise.

Example: Using their project management software, the Head of Projects formally schedules the freelance copywriter and the newly upskilled junior designer to the new client project. The whole team can now see the updated project plan and their individual assignments.

5. Track, report, and optimize

Capacity planning isn’t a “set it and forget it” activity. It’s a continuous discipline where you have to react to changes in business strategy, team morale, and prioritization to remain in balance. To do this, continually track metrics, report on progress, and streamline your capacity plans.

• Action to take: Track your team’s actual time spent on projects against your initial plan. As a payoff, you’ll see if your forecasts were accurate and if projects are staying on budget.
  
  This is another area where our tools at Toggl will transform you into a capacity planning pro, thanks to Toggl Focus’s simple and easy project time tracking features. Not only is time tracking embedded directly where your team is already working, but detailed insight dashboards also track capacity, utilization, and profitability all in one place.
  
• Best practice: Hold regular, brief check-in meetings to review capacity. A quick weekly meeting can spot potential roadblocks and reallocate resources before a small problem becomes a major crisis.
• Pitfall to avoid: Only looking at individual project data. You need to zoom out and look at capacity, resource availability, and resource utilization across the entire team or department.

Example: Two months into the project, the Head of Projects reviews the timesheet data. They see the project is going well, but the junior designer is much ahead of schedule. By allocating some of their time to a smaller internal project previously on hold, they can make even better use of the team’s capacity.

Capacity planning software: Quick look at the top 3 tools

Like most things in business, quality software makes a world of difference to your productivity, your progress, and ultimately, your bottom line. While you can start with spreadsheets, they quickly become unwieldy and out-of-date.

The good news is that most project management and capacity planning tools offer far more sophisticated options, making it easier to manage your team’s bandwidth against future and actual demand.

Below, we’ll quickly explore our three favourites. However, if you want a complete, detailed list, check our our guide to the 9 best capacity planning tools.

#1 – Toggl Focus

Price: From $9 per user/mo (Free plan available)

Toggl Focus is a powerful, all-in one capacity planning, resource management, and project management tool that gives you everything you need to plan, track, and deliver your work.

It makes it simple to track team availability, plan capacity, and allocate resources. It also has a beautiful and easy-to-use interface, as well as a powerful and accurate time tracking that perfect for helping you compare your demand forecasting with actual work records.

It’s differentiator lies in time and specifically — time data. The exceptional time tracking experience makes it easy for everyone to log work hours on any device. Then, you can use accurate and reliable time data to power your capacity planning, so your efforts are always based on facts, rather than hope or opinions.

What we like

• Toggl Focus’ team timeline view provides a clear visual representation of team members’ workloads and schedules on a timeline.
• It enables managers to easily see who is working on what, assess team capacity, spot overloads or underutilized periods, and make informed decisions for future planning.
• Accurate and intuitive automatic time tracking to deliver better, more cost-effective projects

Best for

Toggl Focus is best for teams and freelancers who are serious about time management and need a simple yet powerful tool for capturing capacity requirements, capacity planning, managing resources, and scheduling projects. 

Top features

• Team capacity and workload: Get a quick visual overview of team members’ tasks, schedules, and daily workloads.
• Track and forecast resources: Powerful resource forecasting helps you plan your team’s availability ahead of time, helping you get ahead of bottlenecks and blockers.
• Project progress overview: Plan projects with simple drag-and-drop timelines and milestones that make it easy to react to changing demands.
• Drag-and-drop scheduling: Easily and intuitively adjust tasks and timelines with Toggl Focus’ drag-and-drop scheduling.
• Flexibility: Use timelines, Kanban boards, and custom task workflows that adapt to your way of working.
• Task estimates: Set time estimates for tasks and plan your work more accurately.

Pricing

Toggl Focus has a free plan that’s great for up to five users who need basic time, task, and project tracking. Starter plans begin at $9 per user/mo, unlocking features that provide true clarity, smarter planning, and capacity planning. Learn more by seeing our pricing options page.

#2 – Smartsheet

Price: Starts at $9/month (free trial available)

Smartsheet is project management software that combines the flexibility of a spreadsheet interface with features like dynamic resource planning, Gantt charts, and utilization heat maps.

What we like

• Smartsheet has lots of capacity planning templates to help you quickly start capacity planning without building everything from scratch, saving time and effort.
• Smartsheet’s intelligent workflows help you automate basic tasks, giving you more time to focus on how you’ll meet demand.

Best for

Smartsheet is best for teams that want a spreadsheet-based resource management tool.  

Top features

• Dynamic resource planning: Plan resources, spot issues, and solve them quickly. 
• Utilization heat maps: See team member availability one year into the future to plan for the long term. 
• Kanban boards and Gantt charts: Plan resources with intuitive and easy-to-use visual aids.
• Capacity planning templates: Choose from human resources capacity planning, project capacity planning, or team capacity planning templates. 

Pricing

Smartsheet has two paid plans (at $9 per user/mo and $19 per user/mo), with an Enterprise and Advanced package both available on a quote-only basis. There’s no free plan, but there is a 30-day free trial.

#3 – Resource Guru

Price: Starts at $5/month

Resource Guru is a resource management tool that helps teams schedule resources, plan capacity, and manage workloads. While it includes project management features, it focuses on resource management capabilities to optimize your team’s time.

What we like

• Resource Guru generates project forecasting and resource utilization reports. This way, you can get high-level visibility into current capacity and see where you have shortages.
• Resource Guru is pretty customizable, allowing you to add custom fields and filters to get the specific data you need quickly and easily.

Best for

Resource Guru is best for teams that need a capacity planning and resource management tool with powerful project forecasting reports. 

Top features

• Multi-resource bookings: Easily create bookings for multiple people simultaneously and save time.
• Advanced clash management: Get booking clash notifications and avoid overbooking team members.  
• Vacation tracker and absence management: Track days off so you can plan capacity and projects accurately. 
• Availability Bar: See at a glance how much free and booked time each of your team members has.

Pricing

Resource Guru doesn’t offer a free plan, but has three low-cost paid options at $4.16, $6.65, and $10 per user/mo, respectively. You can also sign up for a free trial if you’d like to give it a spin.

Want to learn more about resource capacity planning tools?

If you’re in the market for a full-service capacity planning tool, have a look at our 10 Best Capacity Planning Software & Tools guide to get the full rundown!

It’s time to get started with capacity planning

At its heart, the goal of capacity planning is to make sure your most valuable asset — your people — can do their best work. It’s the art and science of matching the work required with the people available, allowing you to confidently plan and deliver for the future.

Getting this right transforms how your team operates, moving from reactive fire-fighting to strategic planning. Benefits like improved team morale, happy clients, and healthy budgets are all on offer for those who get it right. Need a bonus? You’ll also have more confidence to deliver what’s expected from your stakeholders!

But one of the biggest capacity planning pitfalls is trying to manage this complex process with static, disconnected spreadsheet templates.

Enter Toggl Focus — our all-new, all-in-one project and time management tool. We’ve combined the best of Toggl Plan and Toggl Track to give you an accurate, real-time view of your team’s capacity, empowering you to make informed decisions that keep your projects on track and your stakeholders happy. 

If you like the sound of that, sign up for Toggl Focus and test out our capacity planning, time tracking, and reporting features for yourself.