Capacity Planning to Unlock Successful Planning
Predicting what a group of engineering teams can realistically achieve every quarter or in any specific timeframe is not a straightforward task. Without a structured approach, it can become a pure guesswork exercise.
This is where capacity planning comes in - capacity planning is a powerful practice that enables engineering leaders to forecast team allocation, align on priorities with stakeholders, and make sure it is clear what can and what cannot be achieved in a specific quarter. In this article, we’ll explore a four-step process for implementing capacity planning effectively. This process is typically conducted before the start of a quarter, with tight collaboration between Engineering Managers (EMs) and Product Managers (PMs).
Step 1: List All Initiatives and Projects
The first step is about compiling a comprehensive list of all initiatives and projects that your teams might work on in the upcoming quarter. This list should include everything under consideration; the goal is to capture the full scope of potential work.
Typically, EMs and PMs collaborate to brainstorm all ongoing projects, new feature proposals, efforts to reduce technical debt, and any cross-team dependencies.
At this stage, there is no ranking or filtering, but there is a willingness to make sure nothing is overlooked.
From experience, an issue that could come up is having projects in the list that are not correlated with OKRs (more on OKRs and Roadmap in this previous article). To avoid this, it is essential to have a reference between each project and a Key Result.
Step 2: Rank the Initiatives
Once you have a complete list, the next step is to prioritize the initiatives based on their importance, urgency, and strategic alignment. PMs usually drive ranking and help clarify which projects are must-haves versus nice-to-haves. It's key to consider what's essential for the business in the upcoming quarter to drive prioritization.
This step is instrumental for the EMs so they can start thinking about how to allocate people.
A typical issue I experienced is having multiple projects marked as ‘Important’ and with the same priority. This needs to be avoided as much as possible because EMs need a clear direction to allocate people.
Step 3: Estimate the LoE per project
EMs mainly drive the third step, which involves estimating the Level of Effort (LoE) required for each initiative (e.g., in-person weeks) and mapping it to the ranked list of initiatives. EMs work closely with PMs to collect as much data as possible about the projects and work with the teams to define high-level estimates. EMs might use data from past quarters (e.g., velocity or throughput) to inform their estimates and need to ensure that they serialize or parallelize initiatives based on team members' skills.
EMs work iteratively to fill out the overall allocation for all team members, aiming to maximize capacity.
A common issue here is that there are gaps in skills on a team for a specific initiative, and sequencing becomes challenging or inefficient. This is where an EM needs to raise this with leadership and stakeholders to make tradeoffs or find creative solutions.
Step 4: Review Allocation and Lock the Plan
The final step is to review the proposed allocation and ensure that everyone agrees with it. This is when EMs and PMs double-check that the plan is realistic, make sure the priorities and sequencing of execution make sense, and when all stakeholders commit to the plan.
At the end of this step, we should have a locked-in plan with a clear view of what each person will work on in the upcoming quarter.
A common issue in this step is that changes to the allocation occur due to trade-offs, and additional sessions are needed to lock in the plan. For example, let’s say initiative A is slightly higher in priority than initiative B; initiative B can be completed in 3 weeks with two people, and initiative A takes 12 weeks with four people. In the initial allocation, the EM might put initiative A before initiative B, but the risk is that nothing is delivered in that quarter. After the alignment sync, EMs and PMs may decide to execute initiative B before initiative A to complete an initiative within the quarter.
Practical implementation
An easy way to implement capacity allocation is to use a spreadsheet. Rows represent people in different teams; columns represent the different weeks in a quarter; and cells represent initiatives based on the estimation, see below:
In this example, there are two teams, each with five people, and each person has a specific skill. We’re just looking at January divided by weeks, and you can see how the allocation is done based on the initiatives ranked from 1 to 6 (each initiative is estimated at a high level by the EM with the team).
This is just a way to create a capacity plan; you can use more advanced tools if needed.
Final thoughts
Capacity planning is an approach to predicting what engineering teams can achieve in a given timeframe. By listing initiatives, ranking them, estimating their costs, and assigning people to them, engineering leaders can set realistic goals and create alignment across the company for a successful quarterly planning.