ABSTRACT
Business planning starts with defining, measuring, and determining the management policies that will shape the capacity of a firm. The basic economics of business drive the capacity cost management practices of a firm. Capacity cost management creates a number of challenges at all levels of the enterprise. The actual costs and implications of current capacity utilization levels and idleness are baseline issues that have to be dealt with by every firm, regardless of what products and services it offers. Developing a comprehensive approach to capacity and its management requires the creation of a common language for discussing and measuring capacity utilization. Practical capacity is usually defined as the level of output generally attainable by a process; it is theoretical capacity adjusted downward for unavoidable nonproductive time, such as setups, maintenance, or breakdowns. The cost and potential implications of various levels of capacity deployment are established when the process or system is designed.
