Capacity planning is the process of determining the

production capacity needed by an organization to meet

changing demands for itsproducts.[1] 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. The goal of capacity
planning is to minimize this discrepancy. 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.

In the context of systems engineering, capacity planning[2] is used

during system design and system performance monitoring.
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. The question of when capacity should be increased and
by how much are the critical decisions.
Capacity – Available or Required?
From a scheduling perspective it is very easy to determine how
much capacity (or time) will be required to manufacture a quantity
of parts. Simply multiply the Standard Cycle Time by the Number of
Parts and divide by the part or process OEE %.
If production is scheduled to produce 500 pieces of product A on a
machine having a cycle time of 30 seconds and the OEE for the
process is 85%, then the time to produce the parts would be
calculated as follows:
(500 Parts X 30 Seconds) / 85% = 17647.1 seconds The OEE
index makes it easy to determine whether we have ample capacity
to run the required production. In this example 4.2 hours at
standard versus 4.9 hours based on the OEE index.
Repeating this process for all the parts that run through a given
machine, it is possible to determine the total capacity required to
run production.
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.
How to Do Capacity Plannings
It is very common for an IT organization to manage system
performance in a reactionary
fashion, analyzing and correcting performance problems as users
report them. When
problems occur, hopefully system administrators have tools
necessary to quickly analyze
and remedy the situation. In a perfect world, administrators prepare
in advance in order
to avoid performance bottlenecks altogether, using capacity
planning tools to predict in
advance how servers should be configured to adequately handle
future workloads.
The goal of capacity planning is to provide satisfactory service
levels to users in a costeffective manner. This paper describes the
fundamental steps for performing capacity
planning. Real life examples are provided using TeamQuest®
Performance Software.
Three Steps for Capacity Planning
In this paper we will illustrate three basic steps for capacity
planning:
1. Determine Service Level Requirements
The first step in the capacity planning process is to categorize the
work done by systems
and to quantify users’ expectations for how that work gets done.
2. Analyze Current Capacity
Next, the current capacity of the system must be analyzed to
determine how it is meeting
the needs of the users.
3. Planning for the future
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.
Determine Service Level Requirements
We have organized this section as follows:
a. The overall process of establishing service level requirements
first demands an understanding
of workloads. We will explain how you can view system
performance in business terms
rather than technical ones, using workloads.
b. Next, we begin an example, showing workloads on a system
running a back-end Oracle
database.
c. Before setting service levels, you need to determine what unit
you will use to measure the
incoming work.
d. Finally, you establish service level requirements, the promised
level
that will be provided by the IT organization.
Workloads Explained
From a capacity planning perspective, a computer system
processes workloads
(which supply the demand) and delivers service to users.
During the first step in the capacity planning process, these
workloads must
be defined and a definition of satisfactory service must be created.
A workload is a logical classification of work performed on a
computer
system. If you consider all the work performed on your systems as
pie, a
workload can be thought of as some piece of that pie. Workloads
can be
classified by a wide variety of criteria.
who is doing the work
(particular user or department)
what type of work is being done
(order entry, financial reporting)
how the work is being done
(online inquiries, batch database backups)
It is useful to analyze the work done on systems in terms that make
sense
from a business perspective, using business-relevant workload
definitions.
For example, if you analyze performance based on workloads
corresponding
to business departments, then you can establish service level
requirements
for each of those departments.
Business-relevant workloads are also useful when it comes time to
plan for the
future. It is much easier to project future work when it is expressed
in terms
that make business sense. For example, it accounts payable
department on
a consolidated server than it is to predict the overall increase in
transactions
for that server.
Analyze Current Capacity
There are several steps that should be performed during the
analysis of capacity measurement
data.
a. First, compare the measurements of any items referenced in
service level agreements with
their objectives. This provides the basic indication of whether the
system has adequate
capacity.
b. Next, check the usage of the various resources of the system
(CPU, memory, and I/O
devices). This analysis identifies highly used resources that may
prove problematic now
or in the future.
c. Look at the resource utilization for each workload. Ascertain
which workloads are the
major users of each resource. This helps narrow your attention to
only the workloads that
are making the greatest demands on system resources.
d. Determine where each workload is spending its time by
analyzing the components of
response time, allowing you to determine which system resources
are responsible for the
greatest portion of the response time for each workload.
Plan for the Future
How do you make sure that a year from now your systems won’t be
overwhelmed and your IT
budget over extended? Your best weapon is a capacity plan based
on forecasted processing
requirements. You need to know the expected amount of incoming
work, by workload. Then
you can calculate the optimal system configuration for satisfying
service levels.
Figure 10
APPOINTMENTS
Components of
Response Time
Figure 11
ASMAIN Components
of Response Time
9 of 13 How to Do Capacity PlanningWhite Paper
Copyright ©2010 TeamQuest Corporation. All Rights Reserved.
Follow these steps:
a. First, you need to forecast what your organization will require of
your IT systems in the
future.
b. Once you know what to expect in terms of incoming work, you
can use TeamQuest Model
to determine the optimal system configuration for meeting service
levels on into the
future.
Determine Future Processing Requirements
Systems may be satisfying service levels now, but will they be able
to do that while at the same
time meeting future organizational needs?
Besides service level requirements, the other key input into the
capacity planning process is
a forecast or plan for the organization’s future. Capacity planning is
really just a process for
determining the optimal way to satisfy business requirements such
as forecasted increases in
the amount of work to be done, while at the same time meeting
service level requirements.
Future processing requirements can come from a variety of
sources. Input from management
may include:
• Expected growth in the business
• Requirements for implementing new applications
• Planned acquisitions or divestitures
• IT budget limitations
• Requests for consolidation of IT resources
Additionally, future processing requirements may be identified from
trends in historical
measurements of incoming work such as orders or transactions.
Capacity Planning Process
In summary, we have shown these basic steps toward developing
a capacity plan:
1. Determine service level requirements
a. Define workloads
b. Determine the unit of work
c. Identify service levels for each workload
2. Analyze current system capacity
a. Measure service levels and compare to objectives
b. Measure overall resource usage
c. Measure resource usage by workload
d. Identify components of response time
3. Plan for the future
a. Determine future processing requirements
b. Plan future system configuration
By following these steps, you can help to ensure that your
organization will be prepared for the
future, ensuring that service level requirements will be met using
an optimal configuration. You
will have the information necessary to purchase only what you
need, avoiding over-provisioning
while at the same time assuring adequate service
In information technology, capacity planning is the science and
art of estimating the space, computer hardware, software and
connection infrastructure resources that will be needed over
some future period of time. A typical capacity concern of many
enterprises is whether resources will be in place to handle an
increasing number of requests as the number of users or
interactions increase. The aim of the capacity planner is to plan
so well that new capacity is added just in time to meet the
anticipated need but not so early that resources go unused for
a long period. The successful capacity planner is one that
makes the trade-offs between the present and the future that
overall prove to be the most cost-efficient.

The capacity planner, using business plans and forecasts, tries

to imagine what the future needs will be. Analytical modeling
tools can help the planner get answers to "What if" scenarios
so that a range of possibilities can be explored. The capacity
planner is especially receptive to products that are seen to be
scalable and also stable and predictable in terms of support
and upgrades over the life of the product. As new technologies
emerge and business strategies and forecasts change,
capacity planners must revisit their plans.

Capacity planning has seen an increased emphasis due to the financial benefits of
the efficient use of capacity plans within material requirements planning systems
and other information systems. Insufficient capacity can quickly lead to
deteriorating delivery performance, unnecessarily increase work-in-process, and
frustrate sales personnel and those in manufacturing. However, excess capacity
can be costly and unnecessary. The inability to properly manage capacity can be a
barrier to the achievement of maximum firm performance. In addition, capacity
is an important factor in the organization's choice of technology.

Capacity is usually assumed to mean the maximum rate at which a

transformation system produces or processes inputs. Sometimes, this rate may
actually be "all at once"—as with the capacity of an airplane. A more usable
definition of capacity would be the volume of output per elapsed time and the
production capability of a facility.

Capacity planning is the process used to determine how much capacity is needed
(and when) in order to manufacture greater product or begin production of a new
product. A number of factors can affect capacity—number of workers, ability of
workers, number of machines, waste, scrap, defects, errors, productivity,
suppliers, government regulations, and preventive maintenance. Capacity
planning is relevant in both the long term and the short term. However, there are
different issues at stake for each.

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.

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