The Short and Long of Capacity Planning

The Short and Long of Capacity Planning

When crunch time hits, does your team have the bandwidth for new work – or even for work already in progress? Learn critical project management and capacity-planning techniques to maintain visibility across projects and achieve balance as you go.

Capacity is the maximum amount of work an accounting practice is capable of completing in a given period of time. Capacity planning is the process of determining the resources (time, people, etc.) that the firm needs to meet changing demands for its services – in other words, how it will meet its current and future client needs.

The Basics: Bottlenecks and Critical Paths

When evaluating your capacity and thinking about capacity planning, you must understand two concepts from the outset: bottlenecks and critical paths.

A bottleneck is a part of a process with a limited capacity in comparison with the rest, reducing the capacity of the overall process. Is it a specific department? A decision maker? The crunching of numbers, or the advisory analysis? With well-defined processes, hold-ups should be apparent.

Fixing or improving throughput in your bottlenecks will likely have the biggest impact in your capacity, either by improving staff productivity or freeing up more time. That means more work can flow through the system in the short and long term.

Understanding the processes that crisscross your organization from start to finish can uncover how processes overlap one another and share resources. One method to do this is via the critical path, which is the longest sequence of activities that must be finished on time for the project to be completed by the due date.

Understanding your critical path helps make dependencies visible, reduce project duration (by compressing the critical path activities) and enable quick analysis of the impact of missing a key milestone. Critical path insights can also help determine the maximum amount of slack allowable for each non-critical chain activity, without affecting the project schedule. While the critical path is often used for large, complex systems, it is also quite helpful in multi-partner accountancies that deploy multiple processes.

The Numbers

According to David Smith from Smithink, an effective capacity plan requires two calculations:

  1. The “bottom up” calculation looks at the number of productive hours that team members should generate each month, multiplied by estimated charge rates.
  2. The “top down” calculation estimates the fees that will be generated from each client, plus an additional amount for estimated special work from existing clients.

The Impact of Your Firm’s Organizational Design

How you approach capacity planning differs depending on whether your firm is organized vertically, horizontally or as a hybrid.

In a vertical accounting firm, a partner often owns the entire relationship with a client and a pod or team that is responsible for completing all the work. This simplifies capacity planning because you only need to know the partner’s (or team’s) ability to accomplish any given service for any given client.

By combining how long each service will take with what processes are typically performed, you can calculate how many projects will fill the partner’s and the team’s time and, subsequently, how many clients they can take on simultaneously.


In a horizontal practice, people pass work between them to fully serve the client. For example, you might have an accountant doing tax lodgements, a bookkeeper doing compliance work and a senior manager delivering advisory services, for the same client at the same time.

Since you’re now organized in departments doing more focused work, you should have a clear idea of how long each process will take and of each person’s comparable throughput (since they’re doing the same kind of work time and time again). It’s then a matter of mapping the processes for current and prospective clients to determine the required capacity to fulfill those requests.

Planning Strategies: Push vs. Pull

Delivering services implies having a process, which can usually be matched to a production plan. There are two key strategies that you can implement:

Push: You determine what services to “push” downstream. This strategy favors systematic service delivery when the offering doesn’t vary much from client to client. The key is consistency: If processes aren’t standardized, any change in timing or deliverables will have a big impact on the rest of the chain. Horizontal firms tend to favor this process, since each department delivers the same services over and over again.

Pull: Your service offering is determined by your clients’ needs. When a firm’s demand is uncertain, it should move towards “pull.” In this strategy, work is “pulled through” to the end of the process and no new work is added until something has been completed. This keeps resources from becoming overwhelmed.

Kanban is a popular method used to illustrate the pull strategy, where work is divided into three broad stages – to-do, doing and done – and written on cards that are moved from left to right, from column to column or from stage to stage.

As a card is moved into the “done” phase, another one is pulled from the “to-do” phase and into the “doing” phase. This method helps keep bottlenecks from becoming complete blockages.

Accounting firms typically use push strategies for long-term planning and pull strategies for short-term executions. This is usually because upcoming work can be forecasted but can’t be executed until a contract is in place and resources are assigned.

Using a Push Strategy for Capacity Planning

Know Your Workforce

How much work can your team handle, and at what level of proficiency can they complete each task?

Map out your services and staff members, and then use a few metrics to grade them, such as quality of work, execution speed and knowledge base. Give each person a rating from 1 to 5 (1 being poor and 5 being excellent), across an evaluation criteria chart.

The result is a detailed overview of how everyone performs against one another. You’ll uncover who your rock stars are, who has the most versatility and who is best suited for specific tasks. All of these factors are important when it comes to your gap analysis.

Analyze Your Team’s Output

Now that you better understand each member’s strengths and weaknesses, take a look at how the team performs collectively.

How long does each step or process take, on average? Determine how much the team can complete, and how fast, when fully focused. Understand what resource constraints exist and where.

Conduct a Demand Analysis (How much work do you need to complete?)

Once you understand your team’s output, it’s time to take stock of the demands on the work they perform, such as their capacity.

Take all of the work you have contractually agreed to deliver to your clients and look at it as a whole, and then break it down into all of the tasks.

From there, estimate the average time and resources required to complete the work. To help with this, you might consider using a Gantt chart with a time horizon of about a week or two.

Conduct a Supply Analysis (How many resources do you have?)

Which staff members are on vacation or sick? Once you know who you have to work with, measure their throughput on a relative scale.

For example, if you have someone who works 40 hours per week at an average pace and another who works 20 hours a week but 1.5 times faster, the latter effectively works 30 hours compared with the average team member. Do this across the board over the same time horizon, and use the result for your demand analysis.

Build a Gap Analysis and Strategy

Now, compare your demand and supply analyses. Take the number of hours needed for each of the services and fill them, from the role with the least overlap in skill to the role with the most overlap. For example, you may fill the hours needed for an advisory role first because you have only a few people who can provide that service.

Once you’ve filled the remaining hours as best you can, there may still be gaps in supply vs. demand. You might have demand for services that you don’t have the people to deliver and you might have staff that will have no work to deliver in one month’s time.

Once you identify the gaps, you can bridge them:

  • Short-term strategies to bridge gaps:
    • Increase capacity: Have people work overtime, or bring in skilled contract labor.
    • Increase time: Call the client and push back the deadline.
    • Decrease quality: Cut corners (not recommended).
  • Longer-term strategies to bridge gaps:
    • Cross-train your staff: The more people with broader skill sets, the easier it will be to fill gaps as they arise.
    • Time-phase the work: By doing a single type of work in phases, you can create the most efficiencies in that period. However, you may still need to push back some deadlines with this strategy.
    • Hire up: Swapping one of your staff with someone more efficient will create capacity.

Implement a Workforce Plan

Unfortunately, with a push strategy, you constantly need to rebuild your plans. Once your time horizon has concluded, you must redo the supply, demand and gap analyses, and then reapply them to fill the gaps.

For this reason, firms with a push strategy often use Excel spreadsheets to manage and adjust plans as they see fit. This is also why accountants frequently use the push strategy for planning purposes – and why there needs to be a better way to plan for the long term. Which brings us to pull strategy.

Using a Pull Strategy (Kanban process) for Capacity Planning

Map out your processes at granularity of work passing between people. If a team member is handling a process on their own from start to finish, you may need the visual aid of the Kanban cards less than you do an understanding of how many projects the individual can handle at once. But, if you’re handing off work between people across phases, the cards can be a great way to visualize that flow.

Show process stages on an x-axis and people on a y-axis. With this setup, you can see who’s currently doing what across your entire team.

Visually show who can’t participate in certain activities. Indicate who’s unable to do certain tasks, so that you aren’t confused when they don’t do certain things along the process.

Map project cards across the process and the people. Set up the board with the different stages, with to-do, doing and done as the basic setup – but, be much more granular.

Create cards for each of your projects. Track the due dates on the cards and place them where they are in the process to easily see what’s on schedule. This will help you estimate how long things actually take, as opposed to the time you may have budgeted for them.

Move cards from left to right across the process. As you move the cards, you’ll immediately start to see how things are syncing up and where work is bottlenecking. This will allow you to not only address bottlenecks before they occur, but also more clearly understand everything that’s happening in your practice.

3 Reasons Why 85% is the Key

Why does value pricing expert Ron Baker consistently recommend that you “run your practice like an airline – always stay at about 85% to 90% capacity?”

Reason #1: To Leave Room for Last-Minute Clients

There are only so many seats on a plane. If you’re at full capacity and a really excellent client comes along, you’ll have to turn the client away.

Reason #2: To Absorb System Shocks

If you’re running at full capacity, any unforeseen changes in your resources (e.g., staff on sick leave) or workload (e.g., unexpected extra tasks) can’t be dealt with appropriately.

Reason #3: To Always be Selling!

Having that extra 15% capacity left leaves open the opportunity to cross- or up-sell your current clients. (Upgrades to first class, anyone?)

So, now that you’re running at 85%, what do you do with that extra bandwidth when you aren’t taking on new clients or absorbing shocks? You can use it to improve your processes and deal with bottlenecks. You can also keep it in reserve to give your staff a better work/life balance. There are so many things you can be doing internally to move your business forward that you should have no trouble using that extra capacity when it’s available. At the very least, it gives you the flexibility to decide how it should be used.

In Summary

By taking a step back and thinking about how your firm is structured, you can better plan to accommodate the work you currently have and evaluate your available capacity. By understanding capacity and how best to allocate resources, you can shore up any gaps, do more with the time and staff you currently have, and decide whether you have the capacity to take on more work in the future.

You’re Ready to Scale and Grow!