Capacity Utilization
This page explains Capacity Utilization and its relevance to business operations.
D10 - Operational Leverage
Definition
The ratio — expressed as a percentage, of current output to maximum sustainable output for a specific operational resource, indicating how much headroom remains before a constraint is reached.
A team or system running at 95% utilization looks fine until demand increases 10%. At that point, the constraint doesn't appear gradually. It appears suddenly. Knowing capacity utilization in advance is what makes the difference between a planned capacity expansion and an emergency one.
Indicators
- You don't have a current utilization figure for your most critical operational resource.
- You have added capacity reactively after the constraint appeared, rather than in advance.
- No growth plan you've seen has included a utilization-to-headroom calculation before committing to a target.
Quick Win
- Pick any one resource.
- Divide current output by maximum capacity. That percentage is your capacity utilization of the selected resource.
- Anything above 85% deserves a second look before you commit to a growth target.
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