Any IT company working with Agile methodology has to have a flexible approach to its operations. However, resources are not always that flexible, and they definitely cannot be molded to manager’s needs right away.

That is why capacity management is essential in this business.

What is capacity and capacity management? Basic definitions

In the IT industry, capacity is generally defined as a maximum production output a company can sustain in its production processes or services. In other words, it is a number of hours an employee or a team can spend working on all work-related activities.

For IT companies, that value is of the utmost importance, as such businesses often bill their customers based on the time employees spend perfecting their projects. As a result, using capacity to the fullest is a source of income for such entities.

Consequently, it comes as no surprise that capacity management is a base of all the operations in the IT industry. This process does not have a single definition; it simply consists of all the actions aiming to maximize the company's output.

Types of capacity

Even though the definition of capacity may seem simple, there are many types of capacity companies use to differentiate between the time dedicated for different tasks. Those include:

1. total capacity - the number of hours an employee is to spend working in a given period. It does not include holidays and absences.

2. available capacity - total capacity minus absences and holidays. Should the employee already be assigned to another project, these hours have to be deducted from total capacity, too.

3. billable capacity - total hours of billable time compared to employee’s capacity.

These types of capacity are used in different cases - and we will cover all of them below.

How to calculate and manage capacity?

Basic capacity formula

Agile means flexible - and that flexibility has a huge impact on capacity. However, it does not mean that capacity cannot be calculated in an agile environment. In fact, it is usually a base for all agile projects - especially in companies executing many projects at once.

In general, capacity can be calculated using a formula:

Total capacity = number of working days * number of working hours - number of hours off

This formula covers a majority of examples you may encounter in an agile environment, however flexible they might be - and you can see it in the examples below.

Calculating total capacity

Let’s assume that you are a manager wishing to calculate a total capacity for a Java developer for an entire month. It’s February, with 28 days overall and 20 working days. One working day equals, of course, 8 hours. However, in your country there’s one additional day off - a public holiday on one of Thursdays.

Therefore, his total capacity is:

20 (working days) * 8 hours - 8 hours (a public holiday) = 152 hours.

This capacity is subject to change in a few cases. For example, hours should be deducted from total capacity if a specialist decided to take a sick leave, or go for holidays.

Calculating available capacity

Before the month started, it turned out that our Java developer is needed in another project. He will spend 5 days (or 40 hours) working on it. As a result, his available capacity for other projects is:

152 hours of total capacity - 40 hours for other projects = 112 hours

Should a worker be assigned to any other project, the time he is due to spend completing the task should also be deducted from his available capacity.

Calculating billable capacity

Our Java developer is also busy helping with an internal project no client pays the company for. Internal work should take 16 hours of his time. As a result, the billable capacity for this specialist is:

152 hours of total capacity - 16 hours for internal project = 136 billable hours

Should the internal project take longer than usual, any additional hours should also be deducted from the billable capacity.

Calculating capacity for teams

Calculating capacity for particular employees may be enough for businesses specializing in body leasing. However, some IT service companies rent out entire teams, or they need to assign specialists to many interwoven projects at once. As a result, calculating capacity for teams may sometimes be necessary.

To do that, you can use a formula:

Total team capacity = Capacity of specialist 1 + Capacity of specialist 2 + …

However, while doing it, remember to calculate the same type of capacity for all the specialists; otherwise you will get incorrect results!

Managing capacity in an agile environment - strategies

Calculating capacity is a simple task; however, managing it may not be so straightforward. That is why IT companies generally assume how they are going to manage their capacity by choosing one of 4 strategies. These are:

1. Lag strategy. Companies base their decisions on capacity on data they already have. This strategy does not require managers to create long-term predictions; instead, lag strategy only affects capacity for the nearest future. However, only very stable businesses can use this strategy successfully; any sudden changes in demand may cause problems with completing projects and force the specialists to work overtime.

2. Lead strategy. A perfect solution for dynamically growing companies that expect to grow even further. With this strategy, the company assumes that all resources can be used to complete projects for incoming customers. As a result, the company keeps on recruiting new specialists. However, this strategy can only work for companies that intend to grow!

3. Match strategy. It is a strategy that requires constant monitoring of all the operations. Its main objective is to constantly repeat capacity planning in order to adapt allocations to all the changes. This strategy minimizes the risks and is perfectly enough for a company to scale, but, on the other hand, it may be troublesome and time consuming.

4. Adjustment strategy. Companies using this strategy adjust their resource plans and allocations based on historical data. As precise as this solution may be, however, it does not take into account any derivations and, in addition, it requires extensive monitoring tools. As a result, this strategy is a good choice for large entities with years of experience.

Want to learn more about capacity?

We realize that calculating and managing capacity may not be easy - with or without digital tools. That is why you can take a closer look at the issue with our comprehensive guide to capacity management. Click on the link below to get access to more examples, definitions and practical tips and tricks.