Capacity planning problem different for mature products than for product that are new.

How is the capacity planning problem different for mature products that have relatively stable growth pattern than for product that are new or involve risky situations?

The alternate capacity plans developed will have to be analysed to find the one which is most desirable for our purpose . This involves a quantitative analysis to find the economic consequences of different capacity plans based on the assumptions made regarding what is going to happen in future. However there are uncertainties regarding future as well as many strategic effects flowing from capacity plans all ot which cannot be qualified precisely. That is why there is a need for quantities assessment of the risks and other strategic consequences.
Economic Analysis for Mature outputs with stable Demand Growth
Establishment of capacity is always an investment and the returns from it accrue over a period of time. That is why some kind of discounted cash flow analysis has to be used so that alternate capacity plan, the general procedure requires that all the cash flows occurring in different years up to the planning horizon have to be listed- All the costs incurred are cash outflows and the revenues earned are cash inflows. When all these cash flows are discounted at the cost of capital for the enterprise, we get the not present value (NPV) for each capacity plan. The capacity plan having the highest NPV will be the most attractive from an economic perspective. This basic methodology can be expanded by adding to the list of alternative capacity plans care of different locations e.g., when considering capacity expansions and even plans to have vertical integration- both backward ( to produce what we are buying from tour suppliers ) and forward ( to use in further processing and assembly what is currently our finished product).
Economic Analysis for outputs with Highly Uncertain Demand Growth
When the demand growth is highly uncertain, the consequent cash inflows any capacity plan are not reliable enough to make any conclusions. In such case, knowledge of the probability distribution of demand useful in the absence detailed distribution; one needs to know the optimistic expected and pessimistic predictions of demand. For these scenarios, the NPV for each alternative capacity plan can be computed- Different and appropriate capacity plans can turn out to be the most economic under each of these scenarios.
A formal approach for such a situation involves using a decision tree to analyze the various alternate plans. Both the alternatives and the uncertain outcomes are shown on the decision tree. Probabilities are assigned to each of the uncertain outcomes and finally, the tree is folded back to find the best capacity strategy,. which results in the highest value of some criterion like the expected NPV. When the demand growth is highly uncertain, the choice of a capacity plan is highly dependent on the strategic effects of having an over or an under- capacity.

Risk Analysis Of Alternate Capacity Plans
All capacity plans are based on prediction of probable demand and the future can never be predicted exactly. Thus, there is always some element of risk present are in ant planning process. What we have said above is that the risks are higher in the case of new outputs than in the case of mature outputs with stable demand.
If demand cannot be predicted exactly, the actual demand will either be low or higher than the predicted demand. In the first case, we are likely to suffer from an under capacity. We should analysis the likely consequences of both over capacity arid under capacity. In each of the following situations the organizations may plan for having an overcapacity rather than an under capacity if: (a) there are some, minimum economic capacity sizes, below which the process becomes uneconomic, (b) the cost involved in establishing capacity is relatively low, (c) subcontracting is very difficult or impossible, (d) the lead time required to establish new capacity is very long, (e) the demand growth is more likely is more likely to be nearer the optimistic prediction tan the pessimistic one, (f) cost sales are perceived by the trade very negatively and may amount to a more than proportionate drop in market share.
On the other hand, the organization may plan to add capacity on a conservative basis in each of the following situations if: (a) alternate sources of capacity are easily available, (b) the cost involved in establishing capacity is relatively low, (c) the lead time required to establish new capacity is relatively short (d) the customers are either expected to wail or the lost sales have no long term consequences if the demand cannot be satisfied. It is difficult to quantify many of the strategic consequences from having an under capacity or an overcapacity and what is important is to assess how these influence the competitive ability of the organization.