Capacity planning

 Is the process of determining the production capacity needed by an

organization to meet changing demands for its products. In the context of capacity

planning, "capacity" is the maximum amount of work that an organization is

capable of completing in a given period of time. The phrase is also used in

business computing as a synonym for Capacity Management

A discrepancy between the capacity of an organization and the demands of

its customers results in inefficiency, either in under-utilized resources or unfulfilled

customers.

Goal of capacity: planning is to minimize this discrepancy.

Overall equipment effectiveness (OEE).

Demand for an organization's capacity varies based on changes in

production output, such as increasing or decreasing the production quantity of an

existing product, or producing new products. Better utilization of existing capacity

can be accomplished through improvements in overall equipment

effectiveness (OEE). Capacity can be increased through introducing new

techniques, equipment and materials, increasing the number of workers or

machines, increasing the number of shifts, or acquiring additional production

facilities.

Capacity is calculated: (number of machines or workers) × (number of shifts) ×

(utilization) × (efficiency).

The broad classes of capacity planning are lead strategy, lag strategy, and

match strategy.

Lead strategy is adding capacity in anticipation of an increase in demand. Lead

strategy is an aggressive strategy with the goal of luring customers away from

the company's competitors. The possible disadvantage to this strategy is that it

often results in excess inventory, which is costly and often wasteful.

Lag strategy refers to adding capacity only after the organization is running at

full capacity or beyond due to increase in demand (North Carolina State

University, 2006). This is a more conservative strategy. It decreases the risk of

waste, but it may result in the loss of possible customers.

Match strategy is adding capacity in small amounts in response to changing

demand in the market. This is a more moderate strategy.

Capacity Available

If you are considering new work for a piece of equipment or machinery,

knowing how much capacity is available to run the work will eventually become

part of the overall process. Typically, an annual forecast is used to determine how

many hours per year are required. It is also possible that seasonal influences exist

within your machine requirements, so perhaps a quarterly or even monthly

capacity report is required.To calculate the total capacity available, we can use the

formula from our earlier example and simply adjust or change the volume

accordingly based on the period being considered. The available capacity is

difference between the required capacity and planned operating capacity.

Capacity planning is long-term decision that establishes a firms' overall level of

resources. It extends over time horizon long enough to obtain resources. Capacity

decisions affect the production lead time, customer responsiveness, operating cost

and company ability to compete. Inadequate capacity planning can lead to the loss

of the customer and business. Excess capacity can drain the company's resources

and prevent investments into more lucrative ventures..

LONG-TERM CAPACITY PLANNING

Over the long term, capacity planning relates primarily to strategic issues involving

the firm's major production facilities. In addition, long-term capacity issues are

interrelated with location decisions. Technology and transferability of the process

to other products is also intertwined with long-term capacity planning. Long-term

capacity planning may evolve when short-term changes in capacity are insufficient.

For example, if the firm's addition of a third shift to its current two-shift plan still

does not produce enough output, and subcontracting arrangements cannot be made,

one feasible alternative is to add capital equipment and modify the layout of the

plant (long-term actions). It may even be desirable to add additional plant space or

to construct a new facility (long-term alternatives).

SHORT-TERM CAPACITY PLANNING

In the short term, capacity planning concerns issues of scheduling, labor shifts, and

balancing resource capacities. The goal of short-term capacity planning is to

handle unexpected shifts in demand in an efficient economic manner. The time

frame for short-term planning is frequently only a few days but may run as long as

six months.

Alternatives for making short-term changes in capacity are fairly numerous and

can even include the decision to not meet demand at all. The easiest and most

commonly-used method to increase capacity in the short term is working overtime.

This is a flexible and inexpensive alternative.

While the firm has to pay one and one half times the normal labor rate, it foregoes

the expense of hiring, training, and paying additional benefits. When not used

abusively, most workers appreciate the opportunity to earn extra wages. If

overtime does not provide enough short-term capacity, other resource-increasing

alternatives are available. These include adding shifts, employing casual or part-

time workers, the use of floating workers, leasing workers, and facilities

subcontracting.

Firms may also increase capacity by improving the use of their resources. The

most common alternatives in this category are worker cross training and

overlapping or staggering shifts. Most manufacturing firms inventory some output

ahead of demand so that any need for a capacity change is absorbed by the

inventory buffer. From a technical perspective, firms may initiate a process design

intended to increase productivity at work stations. Manufacturers can also shift

demand to avoid capacity requirement fluctuation by backlogging, queuing

demand, or lengthening the firm's lead times. Service firms accomplish the same

results through scheduling appointments and reservations.

A more creative approach is to modify the output. Standardizing the output or

offering complimentary services are examples. In services, one might allow

customers to do some of the process work themselves (e.g., self-service gas

stations and fast-food restaurants). Another alternative—reducing quality—is an

undesirable yet viable tactic.

Finally, the firm may attempt to modify demand. Changing the price and

promoting the product are common. Another alternative is to partition demand by

initiating a yield or revenue management system. Utilities also report success in

shifting demand by the use of "off-peak" pricing.

CAPACITY-PLANNING TECHNIQUES

There are four procedures for capacity planning; capacity planning using overall

factors (CPOF), capacity bills, resource profiles, and capacity requirements

planning (CRP). The first three are rough-cut approaches (involving analysis to

identify potential bottlenecks) that can be used with or without manufacturing

resource planning (MRP) systems. CRP is used in conjunction with MRP systems.

Capacity using overall factors is a simple, manual approach to capacity planning

that is based on the master production schedule and production standards that

convert required units of finished goods into historical loads on each work center.

Bills of capacity is a procedure based on the MPS. Instead of using historical

ratios, however, it utilizes the bills of material and routing sheet (which shows the

sequence or work centers required to manufacture the part, as well as the setup and

run time). Capacity requirements can then be determined by multiplying the

number of units required by the MPS by the time needed to produce each.

Resource profiles are the same as bills of capacity, except lead times are included

so that workloads fall into the correct periods.

Capacity requirements planning (CRP) is only applicable in firms using MRP or

MRP II. CRP uses the information from one of the previous rough-cut methods,

plus MRP outputs on existing inventories and lot sizing. The result is a tabular load

report for each work center or a graphical load profile for helping plan-production

requirements. This will indicate where capacity is inadequate or idle, allowing for

imbalances to be corrected by shifts in personnel or equipment or the use of

overtime or added shifts. Finite capacity scheduling is an extension of CRP that

simulates job order stopping and starting to produce a detailed schedule that

provides a set of start and finish dates for each operation at each work center.

A failure to understand the critical nature of managing capacity can lead to chaos

and serious customer service problems. If there is a mismatch between available

and required capacity, adjustments should be made. However, it should be noted

that firms cannot have perfectly-balanced material and capacity plans that easily

accommodate emergency orders. If flexibility is the firm's competitive priority,

excess capacity would be appropriate.

Read more:Capacity Planning - organization, system, examples, definition, system,

Long-term capacity planning, Short-term capacity planning, Capacity-planning

techniques

Document Purpose

This Practices Guide is a brief document that provides an overview

describing the best practices,

activities, attributes, and related templates, tools, information, and key

terminology of industry-leading

project management practices and their accompanying project management

templates.

Background

The Department of Health and Human Services (HHS) Enterprise Performance

Life Cycle (EPLC) is a framework to enhance Information Technology (IT)

governance through rigorous application of sound investment and project

management principles, and industry best practices. The EPLC provides the

context for the governance process and describes interdependencies between its

project management, investment management, and capital planning components.

The EPLC framework establishes an environment in which HHS IT investments

and projects consistently achieve successful outcomes that align with Department

and Operating Division goals and objectives.Capacity is defined as the maximum

amount or number that can be received or contained. For example, the amount of

data that a computer hard disk can store is the disk’s capacity. The maximum

possible data rate received over a communication channel under ideal conditions is

its capacity. Capacity can also refer to non-technical things such as the maximum

amount of work that an organization is capable of completing in a given period of

time or the maximum number of people that can physically occupy a

room.discrepancies in capacity and demand results in inefficiencies associated

with either under-utilized resources or unmet user demand. The goal of capacity

planning is to minimize this discrepancy and to provide satisfactory service levels

in a cost-efficient manner. The Information Technology Infrastructure Library

(ITIL) defines capacity management as supporting the optimum, and cost effective,

provisioning of services by helping organizations match their resources to the

business demands.

Practice Overview

Capacity planning doesn’t always mean planning for periods of peak demand.

Capacity requirements can vary greatly from times of peak demand to times of

limited demand. As a result there may be drastic differences in the resources

required to maintain normal operations during periods of peak demand. When

planning for what levels of capacity will be supported it’s important to understand

and weigh the costs, benefits, and risks of delivering, or not delivering, a certain

level of capacity. Depending on the type of project, it’s possible that true capacity

planning may play a small role in theoverall project life cycle. For example,

assume a project is only responsible for creating a small database application that

will be stored on a shared server within a data center. The server’s capacity is the

responsibility of the data center manager. The project manager may not have any

real control over the server at all. However, the project manager is responsible for

ensuring that the business requirements are met. For example, if it is required that

the database be accessible 100% of the time, the project manager needs to ensure

this is the case. Accomplishing this requires working closely with the capacity

provider. The data center manager would then be responsible for maintaining

adequate server capacity to fulfill the business need.

Capacity planning is simpler if an existing system is in place and needs only

adjustments to meet current or expected changes in capacity. However, when

planning capacity for a new system, analysis of information such as historical

project archives, industry standards, and information obtained from

vendors/customers, etc. can assist in estimating expected demands upon that

system. Regardless of which situation a project is planning.

Three basic steps for capacity planning include:

Determine Capacity Requirements

Define required system performance to support associated business and

process workloads.

Capacity planning defined in business terms rather than utilization of CPU,

memory, hard drive

space, etc. simplifies planning for impacts on people, processes, growth, etc. For

example, it’s

easier to predict the growth of a business unit and adjust capacity to accommodate

an expanding

work force than it is to predict an increase in transaction volume resulting from

such growth. Once

defined, capacity requirements are then later used as inputs into identifying the

planning of the

physical infrastructure (technology, building, staff, etc) necessary to support the

business

requirements.

Agree upon a unit of measure to assess conformance to defined system

performance

requirements. Note that the goal of capacity planning is to provide satisfactory

services in a cost

efficient manner. As a result, this unit of measure should be defined in terms of

business units as

well as the technical requirements necessary to support them. Associate it with a

measurable

quantity of work as opposed to the amount of system resources required to

accomplish that work.

For example, when deciding on a unit of work to measure the satisfactory servicing

of patients at a

hospital consideration may include the number of patients serviced, the number of

patient records

processed the amount of drugs dispensed, etc.

Test the system against defined business requirements and make

adjustments where needed.

This relates more to IT performance, as opposed to business functions, necessary

to meet business

needs. This may be accomplished by adjusting IT resources such as CPU

utilization, memory usage, disk space, etc.

Agree upon minimum levels of service (capacity) the system must provide.

These requirements

Are often defined by clients/users and should outline measurable system

performance in terms that

make sense to clients/users. This typically includes items such as response time,

processing time

for each request, minimum number of requests that can be processed in a given

period of time, etc.

Defined in these terms it’s easier to illustrate success and make adjustments to the

technical

aspects of the system as necessary to meet business objectives.

Practice Activities

1. Determine capacity requirements

a. Define required system performance to support associated business

and process workloads

b. Agree upon a unit of measure to assess conformance with defined

system performance

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a. Test the current system against defined business requirements and

make adjustments where

5. needed

a. Agree upon minimum levels of service (capacity) the system must

provide

Analyze Current Capacity

Understand the organizations current capabilities. Before assuming that

additional capacity is

necessary a detailed understanding of current available capacity is required. A

capacity study may

need to be performed to evaluate the organizations current capacity.

Check usage of system resources necessary to support business

requirements (CPU, memory,

hard drive, etc). This relates more to IT performance, as opposed to business

functions, necessary

to meet business needs. If no current system exists it becomes even more important

to understand

and evaluate all available information regarding expected demands upon that

system. This may

include information such as historical project archives, industry standards,

information obtained

from vendors/customers, etc

Record and track utilization of system resources to determine where

capacity adjustments need

To be made to support business processes as defined by the client.

Practice Activities

1. Analyze current capacity

a. Check existing usage of system resources

b. Record and track utilization of existing system resources

c. Understand historical capacity utilization and any available industry

standard usage data

2. Plan for future capacity

a. Forecast expected workloads

b. Plan for future system usage

Plan for Future Capacity

Forecast expected workloads for a particular period of time. Understand

how changes in

Workloads affect business processes and the system that was built to support them.

Translate that into

technical requirements necessary to maintain the system at a level that satisfies

user demands.

Plan for future system usage and plan adjustment to accommodate varying

demands upon the

system. Create a capacity plan that outlines the current configuration, required

future configuration,

and the steps necessary to accomplish any necessary system changes. Identify key

capacity

areas/items needing to be monitored and expected growth rate of these items.

Include a defined

response strategy for growth. Thresholds should be defined that represent

utilization levels

requiring action necessary to increase capacity. Such as utilization at 75%, 1,000

users, 10,000

visitors per day, etc. The goal is to mitigate the risk of a capacity bottlenecks

before it becomes an HHS EPLC Practices Guide - <OPDIV> Capacity Planning

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Finally, using forecasts of future business activity, future system requirements

are

determined. Implementing the required changes in system configuration will

ensure that

sufficient capacity will be available to maintain service levels, even as

circumstances

change in the future.