How to Use the Capacity Utilization Formula for Project Management

Project management is an industry that’s been around since ancient times, and the demand for project managers in the modern world is growing into 2025 and beyond. 

This number will tell you how much work your individual team members currently have on their plate against how much total work they can handle.

The capacity utilization formula especially comes in handy with startups and other projects where team members wear multiple hats. When roles and skills overlap, you can shift work around to prevent people from getting overloaded.

On the flip side, when it looks like someone isn’t pulling their weight, you can number one, be alerted to the situation, and two, add some more responsibilities, perhaps even outside the project if necessary.

Here we’re going to discuss the capacity utilization formula, including how to calculate it and tips for leveraging it to increase the profitability of your projects.

What is capacity utilization?

Capacity utilization is a percentage that measures the output of a person, team, or organization against the total potential output, known as capacity. Project managers use capacity utilization as a key indicator of efficiency; these numbers help you quickly see where improvements can be made to your team’s workflows.

To calculate capacity utilization, you divide the output by the total capacity and multiply by 100%. For example, if an employee had 40 available hours last week but only worked 30 hours, their capacity utilization for that week would have been 75% (30/40 x 100%).

Essentially, capacity utilization will reveal how full or empty everyone’s plate is. It’s a simple metric, but speaks volumes about efficiency and how people are handling their individual workloads.

Capacity utilization in the case of project management is usually measured at the individual level, but can also be applied across an entire team or even an entire project. 

This percentage will help you see how well you’ve allocated your resources as well as areas for improvement. 

Importantly, the capacity utilization rate can alert you to bottlenecks before they even happen, giving you time to adapt before deadlines or budgets are in jeopardy. 

Why capacity utilization is critical for successful projects

Your team’s capacity utilization, both collectively and individually, has a direct impact on the success of the project. Think of this metric like an efficiency barometer, a window into how well your team is plugging along and where there’s room for improvement. 

Here’s why calculating and tracking this metric is critical to effective project management:

Time management

How much time is each person spending working on the project compared to their capacity? Capacity utilization rates provide insights into how individuals are managing their time and how the overall project looks from a time management perspective. Consistently low capacity utilization at the individual level is a red flag for low motivation. On the flip side, consistently going over capacity can be a warning sign of burnout and lower quality work. 

Productivity

As a project manager, particularly when working with a remote team, it’s nearly impossible to constantly have your finger on the pulse of everyone’s productivity. If you’re not going into an office or meticulously checking timesheets every week, you might not know about productivity lulls until it’s too late. Capacity utilization tracking keeps teams on their toes and project managers intimately aware of their time management skills, or lack thereof. 

Team morale

When someone is consistently pushed beyond their capacity, they’re in risk of burnout. Burnout doesn’t just affect the individual psychologically, it prevents them from doing their best work. Especially in the case of creatives and developers, you can’t let capacity utilization rates get out of control. People feel they are being taken advantage of, and it can also create resentment towards other team members with lighter loads.

Better resource allocation & risk management

The capacity utilization formula lets you know how well or how poorly you’ve allocated your resources. And because maintaining optimal capacity utilization lowers costs and makes you more likely to meet deadlines, tracking this metric is a useful tool within your overall risk management strategy.

Project profitability

Faster project completion times, high productivity levels, and efficient workflows are what make a project successful. Calculating and tracking capacity utilization promotes all those things. By monitoring capacity, you can help move project’s along faster. And because people know their capacity utilization is being tracked, you can promote productivity across the team. Finally, when capacity utilization repeatedly gets out of whack, inefficient steps in your workflows may be to blame. The idea is to identify, investigate, and fix these issues before they affect the profitability of the project. 

Capacity Utilization Formula for Project Management: How to calculate

Capacity Utilization Formula = (Actual Output / Capacity) x 100%

The capacity utilization formula is super easy and can be done without a calculator. For project management, capacity utilization is primarily measured in terms of hours worked on a project against total hours available within a given time frame:

Capacity Utilization = (Hours Worked / Available Hours) x 100%

Although it’s most often reflected in terms of time, i.e. hours, for project management, capacity utilization can also be expressed in other forms of output. For example, if a product team has the potential capacity to churn out five proposals per month, but they only deliver three, then that capacity utilization would be measured in terms of the proposals, not time spent, and would equal 60% [(3 ÷ 5) x 100%].

What is a good capacity utilization rate?

Most project managers look for capacity utilization rate to hover between 80% to 100% in the interest of efficiency. Numbers lower than this could simply indicate a bad week or extenuating circumstance, but when consistently below 80% there could be a bigger issue related to time management. 

How to improve capacity utilization

Everyone wants their teams to work as efficiently as possible, and to create amazing results for clients, preferably in an environment with positive morale. It’s not a matter of luck, but a matter of systematic attention that will help you improve capacity utilization. Here’s how to do just that:

1. Make capacity planning a priority

When you’re allocating resources during project planning, make sure capacity planning is part of your repertoire. First, you’ll need to know the capacity of each team member. Most project managers will inquire about this before the project begins, and they’ll usually configure it on a weekly basis. I.e. person #1 can dedicate 35 hours per week until project completion, person 2 can only offer 20 hours, etc.

With a capacity planning tool, which is usually within the wheelhouse of more comprehensive project management software, simply input the capacity information you’ve garnered from your team members. This will help you be more effective with your resource planning and task management, as well as to develop more true-to-life timelines. 

2. Track capacity utilization

The second best way to improve upon your team’s capacity utilization is to track it. Any project management software that offers a capacity planning tool will let you do this easily, as long as it has built-in time tracking. Simply click on the capacity tab or the resource planning tab to see where you stand at capacity utilization. Better yet, many tools like PSOhub will let you view capacity utilization directly on your Gantt chart or task board. When you’re constantly in the loop on capacity, you can manage utilization to a tee. 

3. Analyze workflows.

If you want to make sure your team’s time management is on point, make sure your workflows aren’t bogging anyone down. Perhaps there’s an unnecessary extra step that’s putting people behind. Or maybe you can automate certain approvals to keep work moving ahead without hiccups. The more streamlined your team’s workflows are configured, the better chance you have at achieving those 90 percent utilization rates and higher. 

4. Set alerts

If you’re using a more automated project management solution, you can easily set up automated alerts for capacity. Many project managers will put an alert at 95% or 100% to know who is working at full capacity and may or may not need support. You can also choose an underball percentage, say at 70% or 75%, to notify you when someone needs a little productivity nudge.

5. Encourage communication and feedback

Throughout the course of the project lifecycle, things come up. People get sick. Vendors don’t come through on time. A savvy project manager can adapt to shifting circumstances on a dime. But with open communication and feedback among the team, you can be more aware of any influences on capacity utilization. Encourage team members to be transparent about their limits and to offer feedback about your resource planning that could better help you on the next go round. 

Key Takeaways: How to Use the Capacity Utilization Formula for Project Management

Capacity utilization measures actual output against total potential output, aka capacity. This percentage tells you how much individuals and project teams are producing compared to their total potential, and it’s most useful for project managers to see this in terms of hours.

The capacity utilization formula is easy. Simply divide actual hours by the total available hours and multiply by 100%.

Even easier, get your project management software to do this for you. Using a capacity planning tool to allocate your resources and track utilization in real time will keep you in the know, abreast of any red flags that may require your intervention.

You can improve your team’s capacity utilization systematically by using a capacity planner for resource allocation, tracking capacity, optimizing workflows, setting alerts, and encouraging open and honest communication.