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Tax Practice Development

Can “capacity planning” solve your accounting firm’s workload problems?

Tad Simons  Technology Journalist/Thomson Reuters Institute

· 5 minute read

Tad Simons  Technology Journalist/Thomson Reuters Institute

· 5 minute read

Capacity planning could allow tax & accounting firms to work more to their maximum potential, increasing revenue and client satisfaction

In an accounting firm, there is a limit to how much work can be accomplished in a given amount of time, depending on the number of staff, how fast they work, the client base, and many other variables.

However, does your tax & accounting firm know precisely what its work limit is? And can you say with certainty how far under or over that limit the firm is operating at any point in time during the year? If not, then “capacity planning” may be the management concept you’ve been looking for.

What is capacity planning?

Put simply, “capacity planning is the process of determining the maximum amount of work an organization is capable of completing during a specific period of time,” says Heather Sunderlin, a senior consultant in Thomson Reuters’ Tax & Accounting group. “If I have a one-cup measuring cup, it can’t hold a gallon of water — and the same holds true with accounting firms.”

During tax season, for example, many one-cup firms take on a half-gallon of work and hope there’s no spillover, even though a mess is inevitable. However, a firm that has engaged in capacity planning already knows exactly how much work it can handle given its existing client base and staff capabilities. There is no need to guess, and when crunch time comes, managers don’t have to bite their nails and hope their staff can rise to the occasion — because they will already know the answer.

Heather Sunderlin of Thomson Reuters’ Tax & Accounting

With that knowledge comes control and power.

“Knowing with certainty how many billable hours are available and whether the firm is over or under their maximum capacity can help firm leaders determine when they need to hire people, and at what skill level,” Sunderlin explains. “It can also help managers understand how to delegate work more efficiently, and, if the firm has identifiable skills gaps, whether [those gaps] can be filled through learning and development.”

Capacity planning also can help in giving firms a long-term look at their strategy going forward, she adds, noting that “capacity planning can force a firm to take stock of its current client base, determine whether to off-board clients that are no longer a good fit, and on-board clients that are more closely aligned with their ideal client persona.”

In these and other ways, a firm that engages in capacity planning has much better information available to help it execute its business strategy and manage its growth, Sunderlin says, adding that in this way, staff burnout also can be avoided and morale improved.

What does the capacity-planning process look like?

The goal of capacity planning is to figure out how many billable hours are available at each level in the firm, and how close (over or under) the firm is to hitting that number. The basic process looks something like this:

      1. Determine the number of available hours at each level of the firm by counting the number of total hours (i.e., number of staff x 40 hours/week x the number of weeks), then subtract holidays, paid time-off, short workweeks, and other non-billable time commitments.
      2. Determine how many of those available hours are realistically billable.
      3. Calculate the firm’s total capacity by multiplying billable hours at each level by the number of staff members at that level. For example, if the Total Available Hours for each staff member during the busy season is 600, and 95% of those hours are billable, the total billable hour goal for each employee at the Staff Level is 570. If there are five employees at the Staff Level, then the firm’s Total Capacity at the staff level for the busy season is 5 x 570 = 2,850 hours.
      4. To determine whether the firm is under capacity (can take on more work) or over capacity (cannot take on more work), you simply need to know how many hours employees have been assigned during the busy season and compare the target number. The same process can be repeated for managers and senior-level executives.

Project management is key

To get those numbers, however, reliable project management (PM) is a must.

“PM allows a firm to see what work is scheduled in a given time frame, which is critical for capacity planning calculations,” Sunderlin says.

Indeed, one key indicator that a firm could benefit from capacity planning is if they aren’t managing projects, tasks, budgets, and assignments, and don’t have numbers available for calculating capacity. Because if a firm doesn’t have those numbers, says Sunderlin, “it means the firm likely has no idea what their workload is in relation to their actual capacity.”

If the firm has accurate capacity-planning data, however, Sunderlin says a firm’s management can:

      • make more informed hiring decisions;
      • delegate work more efficiently;
      • develop training to fill skills gaps;
      • evaluate the quality of its clientele; and
      • develop a better barometer for overall stress and morale in the workplace.

Not a one-and-done solution

For capacity planning to work, however, Sunderlin cautions that it “should be a continuous and ongoing part of the management process, not a one-and-done calculation.”

A firm’s capacity isn’t static — it is always fluctuating, she explains. Some people get sick. Some work faster than others. Some get bogged down by problem clients. Some work too hard for their own good. By gaining an understanding of these variables over time, capacity planning makes it possible to ensure that employees aren’t overwhelmed, and it also helps firms avoid the trap of “taking on too much work and hoping it will all get done, somehow, some way,” which is a perfect recipe for unnecessary stress, Sunderlin says.

“Ultimately, capacity planning focuses on a firm’s most important assets, which are its people,” she explains.