What is the difference between capacity and utilization?

When it comes to project resource management, there are a lot of factors to consider and metrics to ensure you are being efficient with your efforts. Since your people are likely your most valuable asset, it follows suit that it can also be the most challenging part of project management to get right. There are so many ways to ensure you are assigning the right people to the right work and the more people you have in your pool, the more complex it becomes to keep it all organized.

Two of the most important and yet commonly misunderstood concepts are that of Resource Capacity and Resource Utilization. While they are similar and even related, they are quite different practices. Let’s explore each one individually, and then see how they fit together.

Capacity

Capacity, in the context of resource capacity as it pertains to project management, is the amount of time a resource or group of resources is available for productive work in any given time frame. Simply put, this is the amount of work a person can take on. While this sounds simple enough, true capacity accounts for productive work which means administrative, personal, and any other type of time and effort is accounted for. For example, a full time employee might be working a 40-hour week, but much of that time might be spent on administrative work - filling out time sheets, answering calls or emails, helping a colleague, etc. Another significant portion of that time might be for personal use - breaks, taking a personal call, running an errand, these types of things are common and for a realistic estimation of capacity need to be included. Even considering a full time employee, with realistic estimations, many people have dual roles and multiple skill sets. So resource capacity is once again factoring how much time that resource is dedicated to a given project or team. If a person can be used for 50% of their time on a project or team, they can also be assigned 50% of their time on something else. Capacity is often measured on week, month and annual basis and across teams or departments so it is not a straight shot measurement - people might have 80% of their time available one week and 10% the next week. Needless to say, gaining an accurate representation resource capacity is often challenging given how much they are already assigned to, which brings us to our next concept: utilization.

Utilization

Utilization, in the context of resource utilization as it pertains to project management, is the amount of assigned work allocated to a resource or group of resources in any given time period. In other words, how much of the person’s capacity has been spent or accounted for. What gets tricky about utilization, especially when it comes to projects, is the misconception of it. Many people at first glance thing 100% or as close as you can get to 100% utilization is ideal. On the surface that sounds right - if everyone as enough to be working on and assigned their work, they should be spending all their time doing it. But this actually leads to delayed projects and unrealistic goals. People can’t realistically spend 100% of their time on project work and assigning them based on numerical capacity is dangerous. If things come up last minute or they get pulled into something else it can derail the whole project. Measuring utilization is also tricky because it can be a moving target. Based on accurate project data and scoping, it is best to aim for an 80% utilization rate varying depending on your industry or use cases.

Tying them Together

Utilization and capacity are both ways to measure resource management and are interrelated pieces. Utilization consumes capacity and is expressed as a percent of capacity - Total allocation / Capacity * 100). For scheduling purposes, utilization is planned utilization or what is assigned to that person. Actual utilization is determined by the actual time charged to the allocated work. The difference between capacity and utilization is capacity is the maximum amount that something/someone can be used, while utilization is the effective use of something/someone. These are important for project management because you need to know the capacity of any given person or team to be able to know how much they are available to take on. Similarly, utilization tells you how much of that available capacity has been accounted for and gives you the effective amount of time that a resource should be used. People often have over utilized their resources based on assigning them to too many projects/tasks that they don’t have the capacity (time) to fulfill because of inaccurate or outdated information. When managing for changes to available capacity or utilization, it is critical to understand options and assess the best path forward.

Back to Mastering Resource Capacity Planning.