What Is Aggregate Planning and How Is It Used in Project Management?

What Is Aggregate Planning and How Is It Used in Project Management?
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Defining Aggregate Planning

Aggregate planning is the process used for managing schedule activities relating to demand and capacity such as analyzing, deploying, maintaining the timeline of the projects and operations.

Aggregate Planning Objectives

The key objective of aggregate planning is to reduce overall cost over project planning. The remaining major objectives are given below.

  • Increase customer satisfaction
  • Maximize the usage of project workshops
  • Decrease usage of project inventories
  • Decrease the required number of changes that normally occur in project teams
  • Minimize the changes in the project deliverables
  • Maximize the chances of meeting deadlines

Aggregate Planning Characteristics

The most important characteristics of aggregate planning are:

  • Project planning period of about 3-18 months
  • Consider project demands that are aggregated
  • Consider the number of resources, project teams involved
  • Practical impact on project demand and deliverables through capacity limitations, adjustment of delivery rates, project team levels and customer requirements

Aggregate Planning Strategies

There are three types of strategies used in aggregate planning. Below you’ll learn more on what is aggregate planning along with in depth information about each one of the strategies.

Reactive Aggregate Planning Strategy

The reactive aggregate planning strategy helps in managing fluctuating project demands through different plans. The reactive aggregate planning strategy creates changes in the capacity to match with the changing demand.

Here are options widely used when developing the reactive aggregate planning strategy:

Resource Management: Companies change resource management policies by hiring employees with required skills and lay off those without the right skills. At times, companies also use cross training methods to develop a workforce with the required skills. This strategy helps companies not to lay off any of their resources.

Work Hours: Organizations increase work hours either by hours per day or by adding an additional day in a week to handle the increased demand.

Temporary Work Agreement or Subcontracting: Companies also develop a temporary work force to manage high level demands. Sub contracting is another commonly used strategy practiced during reactive aggregate planning.

Proactive Aggregate Planning Strategies

According to this strategy, the project forecast is done based on marketing activities to produce the final deliverables. By using pricing strategies and deploying sub projects, the proactive aggregate planning strategy helps to minimize and manage project demand changes. Basically the strategies are developed to change the demand to cope up with the capacity changes.

Here are options commonly used while developing a proactive aggregate planning strategy:

Cost: Making changes in cost is one of the key options used while developing a proactive aggregate planning strategy. For example, hotels and recreation parks develop various economic pricing strategies to attract more visitors during off season.

Promotional Activities: To shift demand, companies adopt various promotional activities and make use of social media, direct marketing, etc.

Back Ordering: To smooth the demand process, organizations develop back order systems. For example, advance booking of flights smooth the demand process.

Creating Demands: Proactive aggregate planning also gives a way to create additional demand. For example, movie theaters having a complementary game store. The games in these theaters attract customers while they wait for a movie and in turn, generate more revenue to the owner.

Mixed Aggregate Planning Strategies

Mixed aggregate planning strategies use the best qualities from proactive and reactive aggregate planning strategies to manage demand and capacity changes.

Aggregate Planning Approaches

Businesses use different approaches when conductive aggregate planning activities. Let us look at each one of them in detail.

Chase Approach: The chase approach in aggregate planning helps businesses to manage capacity changes according to the requirements on demand.

With this approach,

  • Workforce utilization goes up
  • Investment in inventories goes down

Level Approach: This is considered the best approach to manage project outputs and workforce activities in a stable position. The level approach is strategized by keeping the capacities in persistence during the aggregate planning phase

Annualized Hour in Aggregate Planning

Flexi Hours, t-florie, sxc.hu

The AH or the ‘Annualized Hour’ is a recently developed idea in aggregate planning. This strategy provides employees a flex hour working system where they work more hours during busy period and less hours when the workload is not too heavy. Even though employees are paid their equal monthly salary, their work hours differ in various months for the whole year. Flex time is considered one of the key motivating factor for employees today.

Image Credit:

Aggregate Planning, biewof, sxc.hu

Flex Hours, t-florie, sxc.hu


_Aggregate Planning retrieved from Encyclopedia of Management at https://www.enotes.com/management-encyclopedia/aggregate-planning_