At any accounting firm, time is the basic resource you use to turn a profit.

How well you manage your team’s time can determine how successful your projects are. For example, how do you know when your team is at capacity? Do you have the resources to take on new clients, or do you need to hire? It all depends on how much available time your team has to take on new work.

A lot of firm owners will base decisions about whether to hire on whether or not they can afford to, with only a rough sense of how busy their current team is. But a more structured approach to capacity planning can help you be more strategic about growing your firm.

What is capacity management and how can it help your firm?

Capacity management involves maintaining an accurate sense of how much future work your team can take on. Done well, it can help you:

Screen clients: better capacity planning helps you gauge whether you have time to take on clients that aren’t as profitable, or whether you should reserve your remaining capacity for more profitable clients.

Hire effectively: you’ll have a better sense of when you need to hire and how many new team members you need to meet client demand.

Avoid missed deadlines: sometimes, saying no to new work is the best thing you can do for your firm. Effective capacity planning helps you avoid taking on work your team can’t handle and then missing deadlines as a result.

Capacity planning is the first step – but it’s often harder than it seems at first, because it can be challenging to estimate the time it will take your team to finish larger projects. Below, we’ll cover some of the common challenges in capacity planning, and three basic steps for getting it right.

3 steps for effective capacity planning

For smaller firms, capacity planning usually involves blocking out time on your firm’s calendar to gauge your team’s workload. That means estimating how long each pending project will take, and blocking them out to see how much of your team's capacity you'll need to complete them.

1. Start with time estimates for common projects

Realistic estimates of how much time each project takes is the most fundamental thing to get right for capacity planning, but it’s also the most difficult.

That’s because people tend to underestimate the amount of time it will take to complete tasks. It’s so common that there’s a name for it – the “planning fallacy” – and studies have shown that power tends to amplify this bias.

For managers, that means being extra careful to use data-driven estimates rather than relying on intuition.

If your team tracks their time on projects, that can help immensely with capacity planning because you can use this record to inform how long future projects will take. When you estimate, make sure to include a buffer for non-billable administrative tasks like meetings, emails, and other things that may not be captured in project time.

When you’re unsure, err on the side of overestimating the amount of time projects will take. One common project management tool to estimate time is a 3-point PERT estimate that averages optimistic, realistic, and pessimistic time frames using a simple formula: (Optimistic + 4xRealistic + Pessimistic) / 6.

2. Create work projections with a time-blocked calendar

Next, calculate the overall capacity of your team and use that to block out time for your firm’s pending projects.

• Calculate your team’s overall capacity by first estimating the percentage of their time that’s billable, then multiplying that by the number of hours they’re scheduled for.

• Take a look at your due dates and block out time according to what’s due next. Include some extra time to deal with any unexpected issues.

• Talk to your team to check if the time you’ve allocated is realistic. You could also encourage them to block out tasks on their calendars as well, and report their capacity to see if it aligns with your estimate.

This strategy will give you a good enough projection of future workflows to make informed decisions about taking on new work.

3. Stay flexible and adjust as necessary

Making some errors in capacity planning is inevitable, especially when you first start doing it. The key is to stay flexible as you go, and adjust your time blocks as necessary. If your estimates are way off, it might be time to sit down with your team to evaluate where their roadblocks are.

AI capacity planning in accounting

McKinsey found that AI-based scheduling tools reduced job delays by 67% while increasing productivity. We’ve previously shared some AI tools for accounting firms that streamline tasks for bookkeeping and financial reporting, but there are a few good AI tools that small firms can try for capacity planning as well:

Motion: is an AI-enabled scheduler that can automatically build a daily schedule for teams using the time estimates you input. One of its unique features is that it can warn people in advance when they’re unlikely to meet a deadline.

Reclaim AI: Similar to Motion, this AI scheduler creates a daily schedule from their work items. It has more performance analytics than Motion, but fewer integrations with common project management tools.

How ProCharted can help

ProCharted’s integrated time tracking features create records of the total time spent on each project across your entire team. You can also view your firm’s dashboard for a quick look at their overall capacity, with an overview of all pending projects across your firm. In the Calendar view, you can see the due dates of all open work items as a useful starting point for time blocking.

This can give you the data-driven building blocks for effective capacity management that helps your team hit deadlines without undue stress. Learn more about how ProCharted can help with a 30-day free trial today.