Rocks in the river
When selecting projects for the portfolio, practitioners of Strategic Capacity Planning often exclusively consider financial constraints. Though the terminology varies across industries–outside costs, out-of-pocket expenditures, external expenditure–the concept is the same: money spent on something other than staff. If internal resources are considered at all, it is usually at a very cursory level.
From an operational standpoint, ignoring resource considerations can be hazardous. Resource constraints are like rocks below a river’s surface–they’re usually found only after we run into them! Without conducting at least a high-level analysis of resource needs, we won’t know if sufficient internal resources exist to complete the selected projects. Furthermore, experience shows that resource forecasts typically increase as projects are delayed or require more resources than were forecasted, which increases the risk that problems will arise. This can lead to bottlenecks that severely stretch the capabilities of the organization, causing still further delays.
From a strategic standpoint, the impact of bottlenecks can be detrimental. Organizations typically struggle to add staff in key growth areas just to meet the planned resource demand. Growth areas are therefore not only more susceptible to bottlenecks than other areas, but may also feel the greatest pain when they occur.
So how can Strategic Capacity Planning help identify these bottlenecks and provide proactive solutions?
Step One: Develop a Forecast
The first step is to enlist project teams to provide high-level forecasts of project needs for each key staff class. Typically, the forecasts need only consider a 12-24 month period, as longer-term requirements can be addressed strategically.
The success of this step hinges on the proper definition of staff classes. Having too many staff classes will make forecasting both onerous and potentially errant and having too few staff classes may fail to adequately reflect reality. A good rule of thumb is to select the fewest number of staff classes that will allow staff within each class to be fungible. That is, the average person within a staff class should be able to fulfill the needs of a typical project.
Step Two: Identify Critical Staff Classes and Develop Alternatives
The next step is to aggregate the resource forecasts across projects and compare them to the projected number of available staff for each class. This will indicate which staff classes are the most constrained and highlight potential bottlenecks. We can then determine which projects are requesting resources from the constrained staff classes and “sanity check” the underlying resource forecasts. Do they seem reasonable? Have resources been over-forecasted, and can they be reduced without impacting the project?
If no solutions arise from the sanity check, we have to recognize that one or more project development plans will have to be altered to alleviate the bottlenecks. In this vein, we create alternative development scenarios for the identified projects. Ideally, these would be created by the project teams and consider how shifting schedules and/or resources would impact all aspects of the project. As this may be too onerous for the project teams, a compromise is to create a set of alternative scenarios automatically, develop heuristics for affecting development and market forecasts as timelines are shifted.
Step Three: Develop a Workable Solution
Once the scenarios have been created, a simple optimization can be run to determine how projects might be shifted to accommodate resource constraints. The optimization will likely need to consider different rules for different types of projects or activities. For example, lower-priority projects should probably be allowed to have longer delays applied than higher-priority projects. The optimization will help to identify which project scenarios will best alleviate the resource bottlenecks.
While managerial judgment will still need to be applied to determine the final set of scenarios, even the general optimization results can provide useful direction. For example, will shifting a few projects enable all the others to be completed as planned? If not, is the percentage of projects affected 20% or 50%? Are the delays on the order of a few months or indefinitely? It may even suggest that resource constraints will likely make the current growth strategy untenable, requiring a strategic re-think.
Integrating Strategic Capacity Planning into the Portfolio Process
Internal resource constraints are often given short-shrift during strategic processes, but can make or break the successful execution of portfolio strategy. When leveraged as part of an integrated R&D portfolio management process, Strategic Capacity Planning can provide excellent feedback on the ability of an organization to achieve its goals.
If you are interested in seeing for yourself how to use the Enrich Analytic Platform to make complex resource allocation decisions, please contact us for a hands-on, interactive demonstration.