Capacity and Capacity Utilization

Capacity is the maximum amount that can be produced in a given period under normal conditions.

Capacity may be stated in terms of output units or input units. For example, the capacity of a clinic may be expressed as the maximum number of patients that can be seen per day, whereas the capacity of a hospital may be stated as the total number of beds. Most often, capacity is expressed as a rate per time period.

Although the term capacity implies a constraint on the amount that can be produced, the notion of capacity is quite flexible and is affected by a number of factors in both the long term and short term. Obviously, capacity can be increased in the long term through capital improvements and increased staffing. These investments may result in expanded physical facilities that provide more hospital beds, improved technology that allows patients to be treated faster, an expanded workforce to better handle patient loads, and better information that reduces patient waiting times. Major investments of this type must be carefully coordinated, because expanded physical facilities without appropriate increases in staffing levels, or vice versa, may not be effective in increasing capacity.

It may not be as obvious that capacity can also be altered in the short term. Temporary staffing, overtime, and subcontracting are ways to increase capacity in the short term. Temporary additions to the staff or overtime may be used to increase capacity in unusual situations involving, for example, large-scale vaccination programs. Subcontracting may involve sending lab specimens to an external laboratory for testing rather than using hospital facilities. In this manner, capacity is increased in the short term to provide the needed customer service, although extra cost may be involved.

Efficiency of the workforce also plays a role in determining the capacity of a system. With a fixed level of equipment/facilities and personnel, training and education may play an important role in increasing capacity through more efficient operations.

Capacity utilization is an important measure that tells us what percentage of the available capacity is actually being used. Capacity utilization should reflect conscious decisions made by management to forecast demand and provide the necessary resources.

The target or planned level of capacity utilization is a strategic decision. A hospital administrator would probably like to see a high level of capacity utilization with respect to the number of beds in the hospital. A high projected use level may be necessary to justify the purchase of a major piece of diagnostic equipment. A doctor's office may call patients a day in advance to remind them of their appointment, so that a high level of capacity utilization can be maintained. In many cases, however, the planned level of capacity utilization should allow for a buffer to handle surges in demand. A prime example is the hospital emergency room, where the need to maintain a state of readiness necessarily results in low average capacity utilization. In planning for the target level of capacity utilization, the cost of not being able to provide service (which could be catastrophic in the emergency room) must be weighed against the cost of idle capacity.

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