What is Capacity Planning?

Legal Definition
Capacity planning is the process of determining the production capacity needed by an organization to meet changing demands for its products. In the context of capacity planning, design capacity is the maximum amount of work that an organization is capable of completing in a given period. Effective capacity is the maximum amount of work that an organization is capable of completing in a given period due to constraints such as quality problems, delays, material handling, etc.

The phrase is also used in business computing and information technology as a synonym for capacity management. IT capacity planning involves estimating the storage, computer hardware, software and connection infrastructure resources required over some future period of time. A common concern of enterprises is whether the required resources are in place to handle an increase in users or number of interactions. Capacity management is concerned about adding central processing units (CPUs), memory and storage to a physical or virtual server. This has been the traditional and vertical way of scaling up web applications, however IT capacity planning has been developed with the goal of forecasting the requirements for this vertical scaling approach.

A discrepancy between the capacity of an organization and the demands of its customers results in inefficiency, either in under-utilized resources or unfulfilled customers. The goal of capacity planning is to minimize this discrepancy. Demand for an organization's capacity varies based on changes in production output, such as increasing or decreasing the production quantity of an existing product, or producing new products. Better utilization of existing capacity can be accomplished through improvements in overall equipment effectiveness (OEE). Capacity can be increased through introducing new techniques, equipment and materials, increasing the number of workers or machines, increasing the number of shifts, or acquiring additional production facilities.

Capacity is calculated as (number of machines or workers) × (number of shifts) × (utilization) × (efficiency).
-- Wikipedia
Legal Definition
A specific period's determined output of resources.