How to do capacity planning for software development teams

Capacity planning for software development teams means understanding how much work your team can realistically complete within a given period. Even though this may sound simple, estimating the workload and assigning the right people in software development rarely works that neatly. Bugs appear out of nowhere, code reviews take longer than expected, technical debt slows things down, and unplanned tasks constantly pop up. All of this affects your team’s focus, time, and overall output.

Accurate capacity planning helps companies anticipate these realities, reduce overall software development costs , avoid team burnout, and maintain consistent quality and productivity.

In this article, we will walk you through the entire process of capacity planning, explain its benefits for the software development process, and show you how to implement it effectively. 

What is capacity planning?

Capacity planning is the process of evaluating whether your company has the resources needed to meet current and future project demands. In simple terms, it helps you understand if your team can handle an increase in workload, whether you have people with the right skills, enough available time to take on another project, or the budget required to support it.

The most important components of capacity planning in software development include:

• Assessing team capacity. Understanding how much work your team can handle within a specific time period, including their skill sets, availability, and current workload. 
• Anticipating upcoming needs. Identifying activities that will require an engineer’s time, such as new projects, ongoing maintenance, support tasks, or unexpected issues. 
• Allocating resources effectively. Distributing available talent and budget to meet current and future demands in order to ensure the projects are properly staffed and deadlines can be met.

Types of capacity planning in software development

Capacity planning should be an integral part of a software development team’s daily operations, as well as its long-term business strategy. Most companies use a combination of the following types of capacity planning:

Strategic planning

Strategic or long-term capacity planning focuses on aligning your team’s capabilities with the company’s broader goals., which may include launching new product lines, adopting new technologies, or expanding into new markets.

For example, if a company plans to broaden its services with modern front-end technologies, it first needs to evaluate its current expertise, identify skill gaps, and hire or train the right talent.

Depending on how fast your organization or market demand evolves, strategic planning is typically conducted annually, biannually, or quarterly.

Tactical planning

Tactical or medium-term capacity planning focuses on turning long-term strategic goals into actionable plans. It involves decision-making about resource allocation for the near future, typically over the next one or two years. This type of capacity planning includes analyzing resource utilization to identify bottlenecks, forecasting demand based on project pipelines and market trends, and determining whether the team needs additional training, new hires, or temporary support.

For example, if your company plans to release a major platform upgrade within the next 16 months, tactical planning should assess whether you have enough back-end and front-end capacity to handle the expected workload, and whether your team has the required expertise. Based on these insights, you may decide to train your internal developers, hire additional full-time specialists, or bring in outsourced experts to support peak development periods.

Tactical planning is usually reviewed monthly or quarterly and adjusted as needed to stay aligned with changing priorities.

Operational planning

Operational planning focuses on short-term needs and is part of a team’s everyday workflow. Its purpose is to ensure the development team can meet immediate demands by monitoring the current workload, checking the resource availability, identifying potential delays, and allocating resources to address urgent requests.

For example, if a critical production bug arises and requires an immediate fix, operational planning enables the team lead to quickly assess who is available, pause lower-priority tasks, and assign the right team member to resolve the issue.

Why capacity planning for software development teams matters

Capacity planning for software development teams helps companies prevent both underutilization of resources (overcapacity) and insufficient staffing to meet demand (undercapacity). By knowing exactly what your team can handle, you can make smarter decisions, maintain productivity, and keep the project on track. Some of the most important benefits of capacity planning for software development teams include:

Better strategic decision-making

Capacity planning provides team leads and project managers with insights into resource availability, enabling them to make informed decisions on task prioritization, hiring needs, and new projects.

Improved team productivity and morale

When your development team has manageable workloads and clear priorities, they can focus better, work more efficiently, and deliver high-quality outcomes. Balanced capacity prevents burnout, makes them feel valued, and contributes to a healthier work environment. As a result, job satisfaction and morale increase, improving overall productivity.

Higher delivery predictability

Capacity planning in software development improves workflow across development stages, makes deadlines more reliable, and increases the likelihood of completing projects on time and within budget.

Fewer bottlenecks and delays

Capacity planning helps you forecast workload, spot skill gaps, and understand upcoming demands early. It allows you to catch potential blockers before they slow the team down and impact delivery. 

Client and stakeholder satisfaction

Predictable delivery, consistent communication, and high-quality outcomes directly improve client and stakeholder satisfaction. Capacity planning enables more accurate reporting and greater transparency, which strengthens long-term relationships.

Reduced software development costs

When you allocate people more efficiently, you avoid unnecessary hiring and reduce time lost to inefficiencies, making development more cost-effective. According to a McKinsey report, companies that improve team utilization can reduce their software development costs by up to 30% annually.

Capacity planning strategies in software development

The 2024 State of Agile Report reveals that 68% of development teams struggle to plan their capacity accurately. Successful capacity planning requires a clear, tailored approach that aligns with your team’s structure, workload, and project requirements. Here are three common capacity planning strategies in software development:

• Lead strategy: A proactive, “better safe than sorry” approach, where you add resources before demand actually increases. For example, if you expect rapid growth or seasonal spikes in activity, you can prepare your team in advance so capacity is ready when new work arrives. This approach lets you seize opportunities quickly and improve time-to-market for new features and products. However, it may also result in underutilized resources if the expected demand does not materialize. 
  
• Lag strategy: A reactive approach where you add resources only after a noticeable rise in demand. This method helps you control costs and avoid overinvestment, as you scale the team based on actual need. However, it comes with potential downsides. Over time, your staff may face burnout if they are consistently overloaded. It can also cause project delays, missed opportunities, and even affect the company’s reputation if delivery expectations are not met.  
  
• Match strategy: This approach offers a balance between Lead and Lag strategies, offering a practical middle ground. It relies on continuously monitoring and forecasting demand so you can adjust the team’s workload in real time. The focus is on flexibility, adapting to changing requirements while achieving both cost effectiveness and responsiveness. Although this approach offers significant benefits, it can be challenging to implement. Successfully aligning capacity with demand in real time requires accurate data, tools, and a robust capacity planning system.

How to do capacity planning for software development teams in 5 steps

Now that you understand the benefits of capacity planning and the strategies you can apply, it’s time to look at how to put it into practice. Regardless of the approach you choose, every operational capacity planning process should include the following steps:

1. Define the current team workload and priorities

Calculate how many hours each team member can realistically contribute without overloading them. Consider their skills, expertise, seniority, and overall availability, including public holidays, planned time off, vacancies, part-time schedules, and contractor capacity. Identify any inefficiencies or gaps in tools or infrastructure that may be limiting productivity. Then, map all existing priorities and active projects to determine whether there is capacity to take on new tasks or additional projects. 

2. Forecast anticipated demand

Start by researching market trends and competitor activities to understand the external factors that may influence future workload. Combine these insights with internal indicators by gathering input from product managers, sales, marketing, and customer support. Their feedback, supported by historical data analysis and expert opinions, helps you to anticipate where new demand will come from. Once you have a broader picture, work with stakeholders to define the upcoming project pipeline in detail by clarifying scope, volume, timelines, and complexity. This approach ensures you have an accurate view of how much work is coming and what the team needs to be prepared for.

3. Determine required capacity

The next step is to determine the capacity needed to meet anticipated demand. Break each project into smaller, manageable tasks to gain a detailed understanding of what work is involved. This approach allows you to identify specific skills, level of expertise, and amount of time required for each task. By mapping these requirements against your team’s available capacity, you can determine whether the current workforce can handle upcoming projects or whether additional resources, training, or adjustments are necessary.

4. Measure the capacity gap

Now that you have a clear view of estimated demand, required capacity, and your team’s current workload, the next step is to identify where gaps exist. In other words, determine where demand exceeds the team’s availability to deliver. These gaps can lead to delays, missed deadlines, or overworked team members. To address them effectively, determine the underlying cause, whether it involves missing skills, unfilled roles, or simply the need for extra staff. With this understanding, you can take proactive steps, such as redistributing responsibilities, refining project scope, or bringing additional resources (through new hires or outsourced help) to keep the projects on track.

5. Match capacity with the planned work

The final step is to align your team’s capacity with the planned workload. Assess how much additional capacity you may need to support expected growth and ensure smooth project delivery. Keep in mind that it is recommended to maintain some buffer capacity to handle unexpected tasks or performance setbacks. Maintain transparent communication with stakeholders and the team to stay prepared for changes as requirements evolve.

At this stage, determine which tasks should remain with your internal team, which should be outsourced, and where priorities or deadlines can be adjusted to close any gaps. If you decide to bring in external support, look for trusted outsourcing vendors who follow agile methodologies, provide flexibility to scale as needed, and integrate seamlessly with your in-house team.

Maria Strömsdörfer, a product owner at a German automotive company, highlighted the benefits her company experienced from working with a nearshore team:

“We’re impressed by how quickly they integrated into our team. They’re also very transparent, and having them on board has been very beneficial for us because they’re experienced in different technologies.”

Roles and responsibilities in engineering capacity planning

Accurate engineering capacity planning involves collaboration across multiple stakeholders, each playing a critical role to ensure projects are delivered on time and within scope. Key roles typically include:

• Project managers managing the software development team define project priorities, establish scope, and set realistic timelines to guide planning. 
  
• Team leads assess the team’s capabilities, identify potential skill gaps, and highlight bottlenecks that could affect outcomes. 
  
• DevOps engineers are essential in managing the agile capacity planning process, ensuring that workflows, tools, and infrastructure are seamlessly aligned to support efficient and timely project delivery. 
  
• Product owners contribute by providing detailed software specifications, feature requirements, and other information necessary for realistic workload estimation.
  
• Individual team members are responsible for providing accurate task estimates, communicating availability, and reporting progress or challenges promptly.

Capacity planning when partnering with outsourcing teams

Capacity planning in software development can become easier if you collaborate with outsourcing companies that follow structured processes, value transparency, and integrate seamlessly with your organization. Proven outsourcing vendors often adopt collaborative models, meaning they plan capacity together with the client or based on the client’s specific requirements. This approach ensures rapid scale-up or scale-down options based on evolving project needs.

Adriana Martinović Rozmirov, a senior team lead at ProductDock, explains that capacity planning starts with the onboarding phase. During this period, unit leads and local experts work closely with the client to shape the team, defining the required skills, technologies, and responsibilities. Clear success criteria are set for three, six, and twelve-month milestones to align expectations.

“We forecast capacity during early onboarding based on an existing quarterly scope and team-level capacity planning. Since the project roadmap and delivery commitments are already defined per quarter, onboarding capacity is treated as a gradual ramp-up rather than full availability from day one.

Key factors include the join date within the quarter, the seniority of the new team member, and the nature and urgency of planned work. These inputs help determine how much time is allocated to business and technical onboarding versus initial delivery contribution.

From the client side, the most critical inputs for accurate forecasting are clarity and stability of scope, delivery priorities, upcoming deadlines, and any fixed release commitments. Having this information early allows us to align onboarding speed with delivery expectations while maintaining quality and predictability.” – Adriana Martinović Rozmirov, team lead

Throughout the scaling phase, continuous client feedback helps fine-tune the team composition, supported by the unit leads who ensure optimal skill distribution.

Further, periodic meetings between the client and the outsourcing company serve not only as project updates but also as strategic discussions that include planning around team dynamics, such as promotions, rotations, and training. Staffing managers and coaches regularly review the predefined success criteria, present progress reports, and recommend improvements.

“We look for red flags that suggest a team needs restructuring. The most common one is team size, as communication overhead increases and agile practices like daily Scrum or planning become inefficient once a team exceeds 7-8 developers. Our sweet spot is usually 5-7 developers. If the number of developers increases, we look to split the team into dedicated bounded contexts with clear, independent responsibilities.

Other indicators may be bottlenecks that require specialists in specific areas. For example, security or database optimization issues can signal the need to bring in a specialist. We also monitor velocity versus code quality. Mounting technical debt is often a sign that we need more experienced engineers in the team to provide mentorship and architectural oversight.”  – Milan Janković, team lead

Even as the project approaches its end, the outsourcing partner provides a comprehensive handover plan, along with a detailed capacity plan outlining how the team and costs will be scaled down, ensuring a smooth transition and continued client success.

Conclusion

Capacity planning for software development teams is essential for delivering projects on time, maintaining quality, and preventing team overload. Assigning engineers to tasks based on their skills, experience, and availability ensures optimal resource utilization and guarantees every project has the resources needed for success. Accurate capacity planning not only reduces development costs and keeps stakeholders satisfied but also allows you to consider your team’s individual preferences and career development goals.

Capacity planning is not a one-time activity, so you should regularly track metrics such as resource utilization, project progress, and team performance to maintain smooth operations and identify areas for improvement. With a well-structured approach, capacity planning in software development improves productivity, reduces risks, drives better project outcomes, and supports sustainable business growth.

FAQs.

How often should software teams do capacity planning?

Operational planning should happen weekly or bi-weekly, tactical planning monthly or quarterly, and strategic planning annually. The frequency depends on project volatility and team size.

What is the ideal team size for capacity planning?

Most experts recommend 5-7 developers per team. Beyond 7-8 developers, communication overhead increases and agile practices become inefficient, suggesting the team should be split.

What tools are commonly used for capacity planning in software development?

Popular tools include Jira, Monday.com, Asana, Float, Resource Guru, and Harvest Forecast. Many teams also use spreadsheets for simpler calculations.

How do you calculate developer capacity?

Calculate available hours per developer (accounting for meetings, PTO, and overhead), then multiply by the number of team members. Most teams use 6-6.5 productive hours per 8-hour day as a baseline.