Impact of more than one Constraint - 4

 

Alan Barnard (at the 2006 TOC-ICO conference) asked the question whether the simple Throughput per Constraint Unit rule is valid with 2 (or more) overloaded resources. Alan used Eli Goldratt’s P-Q thought experiment for his discussion. His question is important because it is common to see businesses reduce ‘excess’ capacities to balance (or almost balance) capacities. The practice often results in two) or more concurrent constraints or ‘almost’ constraints. Since 2006 I have observed several factories that wonder why their output collapses below the theoretical capacity of their (almost) balanced lines.

I plan to show that that the Throughput per Constraint Unit rule continues to be valid using the same P-Q thought experiment. I also want to discuss this result in relation to the real World – how should companies manage resource capacities.

I would like readers to follow Eli Goldratt’s recommendation that they solve the problems – before I provide the solution and before my discussion of results. The learning experience will be greater and readers should be better able to discuss and critique my conclusions. If you are familiar with the thought experiment you can jump to the second part of this article.

The key part of the article comes at the end when the solution used in the P-Q thought experiment is discussed in relation to REALITY. The thought experiment should not lead managers to an easy solution. The tool is useful but requires thought and care.

Interactive Constraints (like machines B and D in our example)

As we have just seen interactive constraints in my little PQ factory cut the maximum possible profit from 300€ per week to just 120€ per week (that is a 60% drop!). This is what interactive constraints can do to your business – they interfere with your capability to get the most from your most constraining resource.

Cost and efficiency pressures cause many business attempts to “balance” capacities – make all resources have about the same capability. This effectively introduces a second and potentially even more constraints into a production system. For most businesses, a collapse of capacity, is the surprising result – they cannot achieve even the original constraint’s capacity. Sales and profits are damaged. Not only do sales and profit suffer because current demand is not met; customers, because of poor delivery performance, leave for the competition, a much longer term loss and probably a much greater damage. 

To maximise profits and profitability most resources must have sufficient protective (or buffer) capacity so that capacity constraints cannot interact to damage the most constraining resource’s capability. Just one bottleneck is already one too many! Because, no matter what the supply chain does – when a demand spike occurs the company must either lose the added sales represented by the spike, or the company must promise delivery it cannot physically do. If a company promises what it cannot do, then the longer-term damage of lost clients will, sooner or later, happen.

To balance capacities is a ‘policy’ (or simply the way a company works). This ‘policy’ is a kind of (fake) constraint because the policy limits how much money the business can make. In such policy constraint cases; it is NOT this (fake) constraint the business must decide how to exploit (the 2^nd step of the 5 focusing steps). The first step must be: change the faulty policy, including the faulty assumption that caused the business to balance capacities in the first place. Change the hidden assumption that resources are independent (operate in isolation) and therefore do not impact other (production) resources. A further assumption, not evident in the P-Q experiment is that resources are not subject to variability. Variability enhances negative effects caused by interactive constraints – if one breaks down the other constraints can easily be starved of work.

Observe this from the point of view of Lean and ask yourself this question: Does it make sense to reduce capacity/capability to balance capacity? Damaging your customers (because you cannot reliably supply) is a huge waste. Think about Lean as focused on maximising Throughput (and profit) and not focused first on minimising cost (waste). Consider lost Throughput as part of the waste you want to eliminate. The obstacle is managers do not view lost Throughput as waste. It is impossible for managers to put a “single definitive” number on Throughput waste – it’s an uncertain number dependent not only on what the company does, but also on client demand. On the other hand, cost ‘saved’ by firing a resource is a number you can easily determine – cost per person is in the ‘system’. (Never forget the impact firing a resource has elsewhere in your factory (because it can create interactive constraints). Also, remember how employees may react to the firing of their colleagues and friends to ‘balance’ capacities. How well will the remaining employees be motivated to help improve the business in the future?)

Observe this also from the point of view of Agile. We know that demand is uncertain, and often very uncertain at the article level. Ask yourself the question: Does it make sense to operate so close to capacity that any small spike in demand must be left to the competition to fulfil? Alternatively, does it make sense that we make promises to customers we cannot keep? To be agile means to be able to capture all demand our uncertain World sends our way. To do that we must be able to respond and capacity or capability is part of the answer.

Here is a second question: Does it make sense to keep a certain amount of protective capacity (“free” capacity) to be able to respond quickly? Protective capacity makes a company more agile, protects current Throughput and gives the business a better chance to gain new (more) Throughput.

You want your business to be Lean, but never anorexic. Lean means enough reserves to respond quickly and correctly to the changes our environment throws at it? Lean means having the stamina to win against your competitors. Anorexia will not do it.

This was some thoughts about interactive constraints and protective capacity. You may want to check out Eli Schragenheim’s blog for more about the importance of capacity buffers.

Manicouagan River Canoe Trip (1958?)  we slept under the canoes on that island … to avoid the black flies. The river is in Québec, islands like the one above are under water due to the Hydroelectric dams built since then.

On Clear Days you can see Corporate HQ - 9

Why the 5 Focusing Steps are so Important

Most middle and senior managers do not understand or simply are not interested in how their business system works. They are content to focus on their local department and optimise that – rather than understanding the business as a whole to cause it to maximise results. Even top management (CEOs) often do not understand their business. They condone and even encourage their management teams to optimise their local departments – production, marketing sales, finance etc. Wherever local optimisation is the rule the business concerned will always harm the bottom line significantly. Local optimisation is a massive mistake!

The 5 Focusing Steps are guidelines that, properly used, will cause a management team to always reflect on their (local) decisions. Doe the action or decision taken locally help or damage the business as a whole? As we will see the 5 Focusing Steps are a guide, but they do not replace a deep understanding of the business system.

What follows is my second example of the impact of the exploit and subordinate steps on the bottom line. In this example I have chosen another situation in which a there is apparently a clear physical constraint in the factory concerned. However through just a few simple changes to the way the factory works in relation to the constraints (policy changes) they also were able to move from an overloaded situation to being able to meet all demand with the expected lead time.

BTW. If you have any similar examples please share them with me. I will publish them (if there are not too many!

2nd Example of the 5 Focusing Steps in Action

Exploiting the constraint in a coatings (for automotive) factory

Before I arrived at the factory I knew that factory management was lobbying for more vessels to hold paint. They claimed their constraint was the number of storage vessels; they had already submitted a project to install 2 additional vessels.

This time I ran a simple simulation to show the impact of properly exploiting the constraint. Participants were supervisors from the factory and plant management. The simulation went well, the people got the idea and began discussing the constraint. I did not believe the constraint was the vessels since I also knew that quality control had limited capacity due to illness and an accident that reduced capacity by a large amount. Because evaluating colour takes several years to learn adding people to quality control was not going to work.

I led the team to the idea that quality control is the constraint of the system. Initially they were doubtful but when they began to think about the quality control job and the amount of time actually spent evaluating colours it became clear that quality control, even with 2 of their 4 people out of action, had enough capacity to do the job of colour quality control correctly. The decision made was that the colour experts would do only colour evaluations. To collect samples they would no longer walk back and forth between the lab and the factory; they would no longer add the corrections to the mix vessels and they would not wait until mixing was complete. Other employees were found to make the corrections (weighing pigments and adding these to the mixing vessels), people were found to collect samples and the quality control experts found ways to reduce the number of corrections needed. All these actions were "subordinate to the constraint” actions – subordinate to decision that the two colour experts in QA would focus only on colour evaluations.

Once all the actions the team decided were implemented the factory enjoyed a 40% increase in capacity – and no longer needed to buy any added vessels.

On Clear Days you can see Corporate HQ - 7

Why the 5 Focusing Steps are so Important

Most middle and senior managers do not understand or simply are not interested in how their business system works. They are content to focus on their local department and optimise that – rather than understanding the business as a whole to cause it to maximise results. Even top management (CEOs) often do not understand their business. They condone and even encourage their management teams to optimise their local departments – production, marketing sales, finance etc. Wherever local optimisation is the rule the business concerned will always harm the bottom line significantly. Local optimisation is a massive mistake!

The 5 Focusing Steps are guidelines that, properly used, will cause a management team to always reflect on their (local) decisions. Doe the action or decision taken locally help or damage the business as a whole? As we will see the 5 Focusing Steps are a guide, but they do not replace a deep understanding of the business system.

What follows is a discussion of the impact of the exploit and subordinate steps on the bottom line. If an organisation follows the 5 steps correctly they can easily find 20 - 40% greater Throughput. The impact of the exploit decision and subordination is shown using several cases (materials cost at 35%, 50% and 65% of sales and 10, 20 and 30% positive impact on sales.

Why are the 5 Steps so Important for a Business

The decision to exploit and subordinate to the constraint

Consider a business with an internal constraint. The constraint limits how much can be produced and sold. This business now applies the 5 focusing steps. As a result, without adding any fixed costs, the business finds it can sell 10, 20 and 30% more (gains that can often be easily achieved). The tables below show the impact in 3 different situations – one with 35% material cost; one with 50% material costs and one with 65%. In all 3 cases the businesses earn 5% on sales (profit is 5% of sales).

With low materials cost (35%) the leverage is huge. 

Despite less leverage with higher materials costs the impact is still impressive.

With very high materials (totally variable costs) the leverage declines further but a good impact remains.

From the 3 tables it is clear that following the 5 Steps can have a very significant positive impact on the bottom line. Someone wishing to use the 5 Steps faces the problem that current experience tells managers that such impact is just not possible. They cannot believe that such huge jumps in profitability are possible after their many years of improvement initiatives. The claim insults their capability and their view of themselves as successful managers. The examples below, taken from real life situations, will hopefully demonstrate the possibilities and the pitfalls of not following the 5 steps. (Nevertheless there will always be resistance; much of which in the form of ‘we are different’.)

Elevating or expanding the constraint

After following the 5 Steps in a disciplined way the organisation will know exactly where to expand. The expansion will immediately lead to more sales and Throughput. If in the above first example I have 3 resources machines in my constraint area then a new resource can potentially add 25% to sales and Throughput for a small amount of added costs. It is of course essential to know the cost of such an expansion since you may have to expand the near constraints too or the sales organisation may be unable to increase sales.

The decision how to exploit the constraint and proper subordination has the biggest impact on the bottom line. It’s free! Following the 5 steps correctly and continually is the most rewarding action an organisation can take. It focuses scarce improvement resources at the point of greatest rewards – great for the company and very motivating for the improvement team.

On Clear days you can see Corporate HQ - 6

Why the 5 Focusing Steps are so Important

Most middle and senior managers do not understand or simply are not interested in how their business system works. They are content to focus on their local department and optimise that – rather than understanding the business as a whole to cause it to maximise results. Even top management (CEOs) often do not understand their business. They condone and even encourage their management teams to optimise their local departments – production, marketing sales, finance etc. Wherever local optimisation is the rule the business concerned will always harm the bottom line significantly. Local optimisation is a massive mistake!

The 5 Focusing Steps are guidelines that, properly used, will cause a management team to always reflect on their (local) decisions. Doe the action or decision taken locally help or damage the business as a whole? As we will see the 5 Focusing Steps are a guide, but they do not replace a deep understanding of the business system.

What follows is a description of the 5 focusing steps, how to apply them, why each step is important and a series of examples of common practice that violate the 5-Steps. This sixth post is a short discussion of the fifth (the step with an important warning that is often not heeded) of the 5 steps. This last step is actually simple the first step in the next cycle of improvement.

The 5 Focusing Steps

Step 5: If the constraint has been broken (has moved) go back to step 1. WARNING: Do not let you inertia become the systems constraint!

Clearly the 5 steps are a never-ending improvement cycle since there is no way to ever eliminate constraints. At best they will move to a new location.

The warning is extremely important! We humans develop a new paradigm very quickly as our business simulations show. We can explain the 5 steps in depth and emphasize the 5th step, run the simulation with manager participants and within 30 minutes they will forget the 5th step's warning. While this step makes eminent sense to them it seems managers cannot follow it correctly – it takes time practice and probably at least 2 people that constantly remind each other – of not just of step 5 but all of them.

Sometimes a business will tell me their constraint wanders (or dances) throughout the factory or business. This is simply a phenomenon of too big batches. The operation swallows too much at a time so that the constraint seems to move through the factory. To see the effect in animal life watch an Anaconda snake swallow a pig. The pig is swallowed whole and travels slowly through the snakes digestive system. The huge batch makes the snake lethargic and largely inactive … similar to a constipated factory. 

Factories with wandering constraints have too much WIP and very likely no constraint at all once they choke the release or freeze half their projects (see Production the TOC Way or Critical Chain - both by Eli Goldratt)

On Clear days you can see Corporate HQ - 5

Why the 5 Focusing Steps are so Important

Most middle and senior managers do not understand or simply are not interested in how their business system works. They are content to focus on their local department and optimise that – rather than understanding the business as a whole to cause it to maximise results. Even top management (CEOs) often do not understand their business. They condone and even encourage their management teams to optimise their local departments – production, marketing sales, finance etc. Wherever local optimisation is the rule the business concerned will always harm the bottom line significantly. Local optimisation is a massive mistake!

The 5 Focusing Steps are guidelines that, properly used, will cause a management team to always reflect on their (local) decisions. Doe the action or decision taken locally help or damage the business as a whole? As we will see the 5 Focusing Steps are a guide, but they do not replace a deep understanding of the business system.

What follows is a description of the 5 focusing steps, how to apply them, why each step is important and a series of examples of common practice that violate the 5-Steps. This fifth post is a short discussion of the fourth (probably the step that is taken much too soon much too often) of the 5 steps.

The 5 Focusing Steps

Step 4: Elevate (Expand) the Constraint

Many times an organisation will expand resources of a perceived constraint, without deciding how to exploit the constraint or how to cause the rest of the organisation to subordinate to the decision. This is almost always a mistake. It is a mistake because a good decision how to exploit together with proper subordination yields so much capability (capacity) that the expansion is often shown to have been unnecessary. The first 3 focusing steps minimise investment and by delaying it to the proper time when investment is truly necessary.

Also many times the first 3 steps alone will cause the constraint to move (see step 5). A too early expansion of something would therefore be a waste of money. While the 5 steps are not a Lean process they do prevent financial waste whenever they are properly applied.

So, if the constraint has been properly and fully exploited and subordinated to; and it is still the constraint, then it is time to expand it … but only after full exploitation! Usually this will cause the constraint to move to a new place (unless strategically, the company decides to expand in such a way as to maintain the location of the constraint).

Elevate or expansion does not only mean investment in added resources. It means any expenditures made to increase capacity such as overtime, hiring temporary staff, outsourcing and anything else you may think of.

On Clear days you can see Corporate HQ - 4

Why the 5 Focusing Steps are so Important

Most middle and senior managers do not understand or simply are not interested in how their business system works. They are content to focus on their local department and optimise that – rather than understanding the business as a whole to cause it to maximise results. Even top management (CEOs) often do not understand their business. They condone and even encourage their management teams to optimise their local departments – production, marketing sales, finance etc. Wherever local optimisation is the rule the business concerned will always harm the bottom line significantly. Local optimisation is a massive mistake!

The 5 Focusing Steps are guidelines that properly used will cause a management team to always reflect on their (local) decisions. Is the action or decision taken locally help or damage the business as a whole? As we will see the 5 Focusing Steps are a guide, but they do not replace a deep understanding of the business system.

What follows is a description of the 5 focusing steps, how to apply them, why each step is important and a series of examples of common practice that violate the 5-Steps. This fourth post is a short discussion of the third (probably the most difficult to implement) of the 5 steps.

The 5 Focusing Steps

Step 3; Subordinate Everything Else to the Decision how to Exploit

This is the difficult step. Imagine that sales are asked to sell lower margin products (in preference to higher margin ones). The fact is that our lower margin products consume our constraint (equipment) resource more effectively; that we get many more low margin products per unit of time from our constraint is a good reason to favour these. Sales, if they are measured by price or margins may well resist such subordination.
Similarly production generally loves big batches or efficiency at every resource. At first glance the right way to go, but big batches extend lead-times of those products waiting their turn. Long lead times (due to big batches, compromise quality - quality control sees problems much later. This quality issue tends to cost in other ways too - materials cost increases and capacity is reduced. The focus on efficiency everywhere wastes scarce improvement resources that should focus efforts on the limiting factor – our constraint.
These examples show how difficult it is to get the correct behaviour. Departments and their managers are measured and rewarded by the results of just their department and not by the effect these managers have on the business as a whole. True, some corporations have a bonus system that rewards middle managers by the overall results. This is a first step, but an ineffective one.
Bosses are used to measuring their employees by the results they achieve locally mainly because they do not have the tools to measure impacts their people have on the business as a whole.
Every business has a lot of work to do to give their managers and employees the information necessary to properly subordinate to the constraint. The data is there in ERP systems; it just needs to be transformed into information!
Part of my garden!

On Clear days you can see Corporate HQ - 3

Why the 5 Focusing Steps are so Important

Most middle and senior managers do not understand or simply are not interested in how their business system works. They are content to focus on their local department and optimise that – rather than understanding the business as a whole to cause it to maximise results. Even top management (CEOs) often do not understand their business. They condone and even encourage their management teams to optimise their local departments – production, marketing sales, finance etc. Wherever local optimisation is the rule the business concerned will always harm the bottom line significantly. Local optimisation is a massive mistake!

The 5 Focusing Steps are guidelines that properly used will cause a management team to always reflect on their (local) decisions. Is the action or decision taken locally help or damage the business as a whole? As we will see the 5 Focusing Steps are a guide, but they do not replace a deep understanding of the business system.

What follows is a description of the 5 focusing steps, how to apply them, why each step is important and a series of examples of common practice that violate the 5-Steps. This third post is a short discussion of the second of the 5 steps.

The 5 Focusing Steps

Step 2: Decide how to exploit the constraint.

This is easy to say, but it is not so easy to do. How should I use my constraint to maximise profits (assuming maximum profit is the business goal)? Which of my products have the highest margins? Which of my products consume constraint capacity most effectively? What are the implications of my decisions in the market? What are the implications for the future? Clearly this is not an easy decision for any to make. It is in fact the responsibility of top management to decide!
If management does not take the decision or does not take it correctly the business will suffer. The bottom line will reflect this suffering. Unfortunately business results will not point to the culprit for less than optimal (even poor) results. The culprit is almost always the way we manage our system, our constraint, or could it be anything else? If it is something else let me know at rgb@vistem.eu!
The constraint might be our market. The market may not be buying enough of our products to fill our factories resulting in a less than satisfactory bottom line. Our decision may then be to cause our markets to buy more and more from us (and this must not be done with lower prices since our competitors can easily copy these). Some sort of powerful competitive advantage is essential.
It is important to remember that a policy ‘constraint’ should simply be changed. Deciding how to exploit an inappropriate policy does not make any sense. An inappropriate policy was originally put in place for a good reason. That is why it should be changed but not necessarily be eliminated. Chang such policies, KPIs or just the way work gets done.

On Clear days you can see Corporate HQ - 2

Why the 5 Focusing Steps are so Important

Most middle and senior managers do not understand or simply are not interested in how their business system works. They are content to focus on their local department and optimise that – rather than understanding the business as a whole to cause it to maximise results. Even top management (CEOs) often do not understand their business. They condone and even encourage their management teams to optimise their local departments – production, marketing sales, finance etc. Wherever local optimisation is the rule the business concerned will always harm the bottom line significantly. Local optimisation is a massive mistake!

The 5 Focusing Steps are guidelines that properly used will cause a management team to always reflect on their (local) decisions. Is the action or decision taken locally help or damage the business as a whole? As we will see the 5 Focusing Steps are a guide, but they do not replace a deep understanding of the business system.

What follows is a description of the 5 focusing steps, how to apply them, why each step is important and a series of examples of common practice that violate the 5-Steps. The second step is a discussion of the first of the 5 steps.

The 5 Focusing Steps

Step 1: Identify the Constraint

“We are continually working on eliminating constraints”, is a common claim when we ask for that thing that blocks a businesses performance. The statementalone indicates common practice. Every entity or department focuses on what they call constraints. These constraints originate from the behaviours of other departments around that focus on their own constraints. It is an uncoordinated mess. Everyone is trying his or her best. It is the system that forces every manager to optimise his or her local department.

There can be only 1 (or very few) physical constraint(s) in any system of entities; like a chain can have only one weakest link. Since this is true a business system will have only 1 constraint located in just one of the entities. That is what we must find.
There is something else that people call a constraint. These are the rules by which their business is run. These may be formal policies, guidelines, key performance measures or simply ‘the way we run the business around here’. These have been called policy constraints. The 5 steps are not valid for these ‘policy constraints’ they (the inappropriate parts of policies) must be changed to remove or change the damaging part.
The simplest way to understand how to find a constraint is to look at a production environment with many machines more or less in a sequence between raw materials and finished product. One of these machines has, on average, the smallest capacity. Work in process (WIP) tends to pile up in front of this machine. (Many times materials are released as soon as possible so that huge amounts of (WIP) are present throughout the factory masking the true constraint.) So, the most loaded resource is the constraint of the system as a whole. The constraint does not need to be a bottleneck! The constraint can be the market or sales that are not delivering a sufficient number of orders to keep the factory busy.
The next steps are the guidelines how to manage the business constraint. They are guidelines! They are not a management cookbook! Top and middle management need to develop the thinking and tools to be able to apply the 5 steps correctly.

On Clear days you can see Corporate HQ - 1

Why the 5 Focusing Steps are so Important

Most middle and senior managers do not understand or simply are not interested in how their business system works. They are content to focus on their local department and optimise that – rather than understanding the business as a whole to cause it to maximise results. Even top management (CEOs) often do not understand their business. They condone and even encourage their management teams to optimise their local departments – production, marketing sales, finance etc. Wherever local optimisation is the rule the business concerned will always harm the bottom line significantly. Local optimisation is a massive mistake!

The 5 Focusing Steps are guidelines that properly used will cause a management team to always reflect on their (local) decisions. Is the action or decision taken locally help or damage the business as a whole? As we will see the 5 Focusing Steps are a guide, but they do not replace a deep understanding of the business system.

What follows is a description of the 5 focusing steps, how to apply them, why each step is important and a series of examples of common practice that violate the 5-Steps. The first step is a discussion on the prerequisites to apply the 5 steps correctly.

The 5 Focusing Steps - The Pre-Requisites

Prerequisites to the application of the 5-Steps

1. Definition of the System: The system to be optimised could be our production (because we know that production is holding back our ability to succeed. It could be the business as a whole including our markets. Care should be taken that the system selection will not lead to local optimisation.
2. Definition of the Goal of the system. If we do not know the goal of our business we will not know how to optimise it – there will be many things that can be improved so that our business will have no focus.
3. We need to know how our business can tell it is approaching the goal. Top management may be able to look at the bottom line, but middle management is operating locally. They need a way to know that their decisions and actions are causing the business as a whole to approach the goal more and more.

Critical Chain in Japan

Disasters - Rapid Response, Rapid Repair

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

If you would like to read the rest of my article please send an email to JapanCC@vistem.eu and request a copy.

Alternatively you can also go to the September edition of ProjektMagazin http://bit.ly/Wa4QwR the German magazine for project management. (My article is in English!) 

The Simplon Pass between Switzerland and Italy

Where to Focus your Scarce Resources - 1

In the “Your Businesses Potential” article you were asked to evaluate your business against 5 criteria (Global vs. Local Optimisation; Aligned Key Performance indicators; Your Limiting Factor(s) (Constraints); Reliability and Effectiveness. Local optimisation (every department and function optimises its area of responsibility) is wasteful of scarce resources because most of the optimisation efforts bring nothing to the bottom line – since your limiting factor determines what your bottom line can be. Focus your scarce resources on your limiting factor to always realise the greatest positive bottom line impact!

So, where is your limiting factor or business constraint located? What part of your business is blocking your ability to increase profits and profitability?

Your Goal and Necessary Conditions

To determine where to focus scarce resources necessitates an understanding of your goal and necessary conditions. For our purposes we will assume your goal is something like: “We want to make money now and more in the future”. The necessary conditions we assume are: 1. We want to satisfy clients now and in the future; and 2. We want provide our employees with a satisfying and secure employment. Whether or not you agree with the goal and the necessary conditions matters not. Key is the goal.

Your limiting factor is that part of your business system that is blocking you from making more money (and that you believe will continue to block you in the future). Now is a good time to think about what might be blocking your bottom line performance. From the following list pick that part of your business you believe is blocking performance. Since your business is a system of interdependent entities (the functions and departments) only one of them can be the blocker!

• Sales & Marketing; the Market
• Production•Distribution
• Engineering, Research and Development, New Product Development
• Sourcing/Purchasing; Suppliers
• Human Resources; Employees
• Finance
• Legal
• Management; Senior Management
• Policies, Performance Indicators, Behaviours, Company Culture

What does your intuition tell you? Try to verbalise why you believe your pick is the blocker or limiting factor. Explain to yourself through cause and effect analysis why your choice must be correct. This blocker is the place for your scarce resources to focus and improve performance – is it not?

Your intuition might be faulty. Would that be dangerous for your business? It would not, since your efforts to improve the non-limiting factor would overload the real constraint even more than it already is. If this does happen, then switch your focus to your real constraining factor.

Might this kind of focus result in much greater bottom line improvement vs. spreading improvement resources across all departments?

What follows may help you to qualify your intuition will deciding on the location of your limiting factor.

Hold Down Two Jobs with Ease!

I am not really suggesting you actually do this, but evidence shows that in today’s business environment it is entirely possible to hold down 2 (maybe more) jobs at the same time. This may not be true in all situations, but I claim it is (very) often possible. A better way might be to use your capability to get more done and get ahead in your current job.

Low management expectations and bad practice make it possible. Management expectations are based on their reality; based on what they experience and not on what could be. Organizations’ have simply never delivered to their potential.

Managers are at Fault

Every manager’s personal objective is to demonstrate his high workload, many important tasks and projects he plans to deliver for the company. Managers want to show their value to the company. Such managers overload their organisation with jobs or projects that ‘must’ be worked on and should be achieved. Both managers and their employees are so loaded with work they hardly ever have a spare minute. Not only are they 100% occupied, but at the same time the multi-tasking that goes on is the premium capacity killer for both individuals and organisations. We all know it and yet we continue to insist on (over) full loads - a long list of tasks and projects (all with priority 1!).

Employees are at Fault too

Most employees feel pressure to be constantly busy. If they are not they worry about longevity in their job or the diminishing likelihood of promotion. No work and our job may be cut and cost reduced or we are not visible to those that may help us get a promotion. Not wrong if many, as most people believe, “a resource standing idle is a major waste”. Employees therefore go out of their way to find more work to make sure they are always busy (many stay late in the hope management sees). They effectively aggravate managers’ behaviour. Multitasking in organisations increases even more.

The Damage of Multitasking

Our brains are wired to focus on one thing at a time. Hopping around among or between projects (or tasks) cost every project buckets of time. Every idle project must wait for the person to return to it. Everything takes much longer. Benefits are delayed. A person loses time whenever they return to a task or project. They must recall all that was done before – at the very least read their job notes; that hopefully are complete. (Just think about reading a book. You put your book down to sleep or do something else. When you come back to the book, how quickly are you back in the flow of the story?) Hopping between tasks not only costs time; it also has a detrimental effect on quality and as a consequence more time, repairing poor quality, is lost that should have been available for something else.

How can you hold down 2 Jobs?

Follow some simple rules:

1. Avoid multi-tasking like the plague – avoid it as much as you can. With more than one task or project, make sure you always complete a job before starting a new one.
2. Minimise the number of things you are working on to 3 or so. Prioritize your jobs clearly.
3. Deliver your tasks quickly … by staying focused on just a few tasks and completing them one after another.
4. Make sure your boss knows you have completed a task or project. Don’t let him give you more than the small number you can handle effectively.
5. If you follow these simple rules your boss will see a greater flow of projects coming from you than from anyone else.
6. You need much less (multi-tasking) effort to create this flow and will therefore have the capacity for your second job!
7. Your colleagues will wonder how the hell you do this.
8. If you manage a group … the same rules apply.

Project Management - Critical Chain Challenged! I

A response to a recent article in the GPM (The German Association for Project Management) contain the following reservations in relation to Critical Chain:

1. "Critical Chain proponents claim that projects are shortened by an average of 25% and that the project throughput is significantly increased. By my understanding of the logic of project management both methods will have about the same Throughput." (I guess the author of the response means the critical path and the critical chain methods result in the same throughput.)
   
2. "The author of the blog entry claims that many Critical Chain users are unwilling to report their success - since it represents a competitive advantage. How can the effectiveness of a method be proven if users are unwilling to report and describe their successes. Or is it simply so that Critical Chain des not have any success?"

Does Critical Chain Shorten Projects?

There are 2 ways to convince yourself of the likelihood that Critical Chain does actually cause projects to be significantly shorter than other methods.

1. Perform a thought experiment. Test the logic of Critical Chain in your mind. Based on what you know about single and multi- project environments build up the logic that either disproves or proves whether or not the Critical Chain method will be successful. If you choose this method you will have to build the cause and effect logic that leads to the correct conclusion. To ensure a correct conclusion every step in the cause and effect chain(s) must be checked using the categories of legitimate reservations. Not that difficult a task, but one that you must validate with colleagues, both those familiar with project management and others that are not.
2. You can evaluate the simple Critical Chain solutions that are supposed to achieve the spectacular results claimed - they are risk free since the actual work does not change; just the organization of that work.
   • Critical Chain cuts task times in half and places half of what was cut at the end as a project buffer. So the plan is 75% of what you started with - which proves nothing about project execution. The action places an aggregated project buffer at the end of the Critical Chain instead of spreading it over all the tasks (Side paths are handled in the same way but do NOT add to the project buffer.) The actual work we need to do is not reduced. What we have is a buffer at the end of the project plan that is to be used to give us early warning that trouble is brewing in the project - if buffer consumption is greater than the rate of project completion we are heading for trouble.
     
     Why can we cut task times in half and the live with only half the buffer aggregated at the end?
     
     The assumption Goldratt made was that we all include a significant amount of safety in every task - because every resource in a project wants to be seen as reliable. Since the time a task will take does not follow a normal (Gaussian) distribution - the distribution is skewed significantly to the right (statistics of repetitive actual projects show this well). The amount of safety for say 90% certainty of completing a task on time is very high - probably even more than the amount cut using Goldratt's rules. According to Goldratt's assumption we have plenty of safety, but we find ways to waste it. Putting the buffer at the end puts that safety under the control of the project manager so that any gains made in one task can help another in trouble. (Delays are still passed on, but task time gains are now also passed on - in very many of current and historical cases you  know about most tasks were finished on time - but rarely early (more than half should be early). If tasks are rarely delivered early, then we must be wasting time by delivering on time instead of when we actually finished our task … early. (If we make task time efforts that are relatively certain to finish on time (before implementing Critical Chain), then it follows that more than 50% of the time a task should finish early. The fact the many tasks do not helps prove that time allotted to tasks is often wasted.
     
     Try it … not much can go wrong and your information about the project is improved because of monitoring the buffer. Think about the risk is zero … at worst the project will take the same time as before.
   • When Critical Chain is introduced in an environment one of the first actions is to freeze at least 25% of all projects - stop all work on these projects. The impact of this action is to seemingly delay some projects in favour of others - so a good prioritization is essential. The further impact will be that resources will  focus their efforts better - they will no longer be pushed to switch tasks as often. Multi-tasking will reduce significantly and the flow of projects will increase. This is not so easy to prove, but professor John D. Little (of MIT) did just that. His proof  known as Little's Law. You can find his proof on the internet … but for most of us understanding the math it is not easy.
     
     Another way to show the impact of freezing 25% or more projects is to use simulations. There are several that could be used including the bead simulation,  the confetti factory and the columns of numbers. At least some of these simulations are explained somewhere on the web. Simulations are a simplification of reality, nevertheless they may convince you enough to at least try the freeze tactic.
     
     What is the risk with freeze? Customers whose projects have been frozen for a time may complain initially. However, after doing the simulations you may well realize that even if a client must wait now, he will still get his project earlier than otherwise. Projects will complete much sooner (those not frozen) and the frozen ones have an excellent chance of finishing earlier than they otherwise would. Time lost due to multi-tasking is recuperated and ensures even the frozen projects complete earlier than they otherwise would. Risk is low, but you must explain to clients what  you are doing and why!
     
     (As projects complete, you can defrost a corresponding amount. Workload on resources should remain about constant … or be lowered further if multitasking is still very high.)
3. Get references from successful implementations. I am certain you can find these in several place - Critical Chain software suppliers, Critical Chain consultants, Academia and the TOCICO. However, every project environment will be different from yours so even when you find the success stories you will still need to check the logic, check your paradigms and in the end check out the methodology on real projects.

When we were young … Baie Comeau, Quebec, 1953.
Technorati Tags: 6-Sigma, Continual Improvement, Critical Chain, Execution Management, Focus, Goldratt, Little's Law, Management, Multi Tasking, Project, Project Execution, Project Management, Project Manager, Project Plan, Risk Management, Strategy and Tactics, Theory of Constraints, TOC

Pharma under Pressure

The FT of today (couple of weeks ago now) published an article about many of the Worlds leading Pharmaceutical companies and their success in R&D. It turns out that all but one of the companies reviewed have a pipeline with an expected value less than their investment in R&D. All of them are in need – they all must improve the productivity of their R&D. The approach taken seems to be cost and risk reduction through outsourcing. Is this really a solution?Could the solution be to question common practice – if what we do is faulty there might be a chance. There might be a chance much more powerful than the cost and risk reduction described in the article.

Does Outsourcing Lower Cost?

It depends! Most companies have a cost accounting that allocates overheads to  their R&D operations (overheads are allocated to practically all functions). When they outsource they may be able to reduce direct expenses, but in most cases overheads remain – they are simply spread over the other functions. On top of this the companies outsourced to all want to make a profit that must be paid for and they need management – someone to control what they are doing.It feels as though no or very minimal savings can be made – no matter how the actions might be reported.

Does Outsourcing Reduce Risk?

Well maybe – but only to the extent that risk is transferred to the company doing the actual work. The supplier’s risk is actually higher since he will have fewer developments (I assume) to spread their risk across. Major companies plan to simply transfer this risk to others and wash their hands of it. Well maybe not quite – it seems outsourcing brings risk with it –does the new supplier, who probably needs the business have the necessary relevant competency? If we squeeze the supplier too much, will he survive? If a supplier goes under who will finish the project?

Might there be a Better Way?

Project performance is notoriously poor in most, if not all, project environments. Even project environments that apparently do a good job (they deliver approximately on time) still take too long and cost too much. It is not the people, they are doing their best, given the situation. The bottom line is that project organisations are not delivering enough value the business needs. They take too long for the economic viability of the business. No wonder management seeks to reduce R&D cost. Reducing cost, though, does not solve the problem. It ensures the company will develop less since capacity is now less. Cost reduction cannot be the way. But, is there a better way?A better way would be a more effective project organisation. One that can reliably deliver more projects, reliably and more quickly is the magic we need. With the value of 1 extra day’s sales being (in Pharma) huge such a solution, if it is at all possible would bring enormous value.How could this dream be realized? Our people are already all working to their limit; so how much more effective can we become? If we want to improve significantly we must assume that more projects, reliably on time and more quickly is possible – our job is to find out how to do it!

Common Practice?

If Pharma (or any project environment) wants to improve then common practice must be questioned. Improvement can only be made through changes (I make the assumption that people will have optimized the present way of working already – so we cannot expect much improvement by simply doing what we have always done better. We must question today’s common practice, rules, policies and behaviours if we want to find the key.

Test the following statements – are they at least partially true?

Work in Process.

• A resource standing idle is a major waste. If some is not working make sure we give him or her something to do.
• Employees believe they must always be busy – otherwise their job may be in danger.

Task and Project Time Estimates

• Project task timings and project timings are estimated for management approval.
• There is pressure from management to deliver projects sooner.
• Once task and project timings are determined they become commitments – management measures project teams against these ‘commitments’. Estimates (subject to considerable uncertainty) are transformed into fixed commitments.
• Resources know that their estimates will be under pressure (to be cut) and their estimates will be transformed into commitments.
• Resources include enough time (safety buffers) to ensure their ‘commitments’ can be met – even after cuts.
• Because of points 3-7 here is a lot of safety time in all projects.
• Since most projects still take even more time than estimated, project teams must be wasting the time they have in some way … otherwise all projects should be delivered on time or earlier. At least this assumption must be true if an improvement is to be found.

Full Kit

• Since there is pressure for all resources to be busy working ‘all the time’ then tasks and projects are often started without ‘Full Kit’ – without all materials, information, authorisations etc. being available.
• Since there is pressure to finish as soon as possible projects are often started without ‘Full Kit’

If these statements are true, then on the one hand there will be a lot of work in process and all project plans must have plenty of safety – but its wasted.

Work in Process (WIP)

Professor John Little (of MIT) proved that the more WIP slows down your throughput. “The more patients in the waiting room, the longer the waiting time.” The same happens with projects – the more projects underway, the longer they will all take. All because resources are ‘forced’ to divide their time among all projects – all project managers want their elephant (project) to get through the gate ASAP. And yet we all know that our herd of elephants will get through the gate much quicker in single file – each elephant hold the tail of the elephant in front with his trunk!Work in process increases because there is always plenty of work available. Because it’s available it starts to get done slowing down the overall process. Some tasks or projects end up being late aided by Murphy (uncertainty) – Murphy will never die! The delayed tasks/projects cause projects to be released as soon as possible aggravating the situation. We have a negative spiral.Multi-tasking is part of this negative spiral. Generally speaking we know that multitasking is not a good idea, but we are not aware of how devastating the effect is. Simple experiments show that 50-100% lost capability is definitely in the realms of the possible or probable. Organisations that have been able to ban ‘bad multitasking’ have seen their capability jump by 50% or more.To reduce Work in Process requires just a very simple tactic – prioritize your projects and freeze the last 25 – 50% of the list. Flow, the number of projects completed per period, will immediately increase dramatically. Pharma companies may want to wait with implementing the tactic in order to put in place the proper formal process and maximize their benefits.

Task and Project Time Estimates

The 7 points above describe common practice and resources’ behaviour in order to protect themselves. The fact remains that every task will have significant safety in it that will be wasted – a resource will not finish early (certainly not by much) because he cannot admit to sandbagging his task times. This behaviour will even lead to late tasks (and projects) because when Murphy does attack (always in the worst possible moment) there will be too little task time left to recover.Why not remove safety from all tasks and bundle it at the end of the project – the safety buffer becomes the project manager’s and is used to protect the project and NOT the tasks. A late task is immaterial, it’s the project that counts. It is worth remembering that statistically we need less safety buffer if we bundle it in one place – at the end!

Full Kit

The pressures to start ASAP cause tasks and projects to start with inadequate preparation. Mountaineers do not climb Everest without ensuring all necessary authorisations; necessary equipment, maps etc. are in their kit. It would be dangerous to NOT have Full Kit. If mountaineers won’t start a climb without Full Kit why do we do it in projects? Its because of management and business pressures.Missing Full Kit is a source of rework, multi-tasking, poor quality and lots of lost time. Full Kit is an extremely simple concept that has been forgotten because the physical damage of an early start is so low … or its ‘invisible’ to us.To implement Full Kit is easy – just decide where it makes sense and make someone responsible for it.

Pharma Companies

They are no different from anyone else. Projects in this industry take much longer than in most others, so the benefit of 25% shorter projects will be even greater – probably can be counted in the many millions. All it takes is to decide to question common practice and start the process of implementation. We call the methodology Critical Chain – it is the way to manage projects in planning and during execution.The potential is surely there!

 

Technorati Tags: Complete Kit, Continual Improvement, Critical Chain, Effectiveness, Full Kit, Goldratt, Insurance, Inventory, Little's Law, Policy, Project, Project Execution, Project Management, Project Manager, Projects, Reliability, Speed, Theory of Constraints, TOC, WIP

More Projects – Risk Free

Intuitively we know that too many tasks or projects slow down project completion rate. We should reduce the number of active projects!
“A resource standing idle is a major waste.” Management should find enough work to keep all resources 100% busy. We should increase the number of projects until everyone is continually busy. Not only management, but also almost every employee believes this quotation. Everyone acts accordingly. We tend to increase the number of active projects.
The drive for efficiency and effectiveness prevents limiting the number of active projects. Bad multitasking is prevalent. (One company (Omron in Japan) killed or froze (stopped for a time) over 90% of active projects with only beneficial bottom line results.
What is the risk if we prioritize and then stop some lower priority projects for some time? From the perspective of business results none – things can only improve. However, the boss might discover a favourite project is not being worked on. So, simply make sure the key management projects are top of the priority list, or make sure that management prioritizes projects - which is their responsibility in the first place!
Can there be any other risk?

Bad Multitasking

Bad Multitasking occurs whenever a resource (especially a key resource) switches between tasks without completing his current task. When he returns to the original task the resource will lose time as he familiarizes himself with the stated work. The more tasks a resource switches among, the higher the percentage of valuable resource time lost. The time required for a task increases – even more for intellectually difficult tasks.
Everyone is aware of the effect. People that interrupt their reading take some time to get back into the subject whenever they interrupt. Nevertheless the pressure to keep everyone busy, the pressure to do just one more project, the pressure to show efficiency, the pressures on cost; all cause management to overload their resources to the extent that those businesses that do stop bad multitasking often get startling results – productivity can triple , lead-times can be cut to one third.



          
                   The drawing is probably not far off reality considering the following:

• The Israeli Air Force multiplied capability by 7.
• HP cameras tripled their performance. Many have has similar results.

The Cause and Effect of Bad Multitasking

Management is constantly under pressure to make their part of the business efficient and effective. There are many ways to measure efficiency, but almost all measure a resource’s time – how much of the resource’s available time is used to produce (busy working).
Workers at all levels feel the pressure to be effective and efficient. If they are not busy they seek out work. They ask for work (projects or tasks) to be released to them so that they can be “productive”.
A fact of life in every business or operating system is the existence of a constraint – a factor or resource that limits the capability of the entire organization. No matter how hard other resources work, an organization cannot produce more than whatever its constraint allows. (By producing items that do not need the limiting factor an organization can produce more, but it can also create a second limiting factor that may well disturb (and waste) the primary constraint’s capacity).
If work is released at a greater rate than the limiting factor can actually manage, then work piles up and must wait. If other projects (not using the limiting factor) are launched, then other resources become more loaded and potentially a second constraint is created.  Work also piles up there. The consequence is even more pressure on now both limiting factors to switch between jobs in order to satisfy various ‘customers’. Every switch at the limiting factor costs capacity – the company’s capacity to earn money. How much capacity is lost depends on how difficult it is to re-start (re-set-up) a job and the frequency of task switching.

Follow the arrows on the graphic on the above – beginning with “Resources are limited” and “There are always opportunities for more projects”. The arrows flow logically from high work in process to lead-time increase to project delays – delays that are accentuated by uncertainty (Murphy)! Finally the situation causes the pressure to start all projects as soon as possible (because of the erroneous belief that the sooner we start the sooner the project will be delivered. And the cycle repeats and gets worse and worse – as illustrated by the graphic below.

Consequences – The Damage

The resource, especially the capacity determining resource wastes time switching and in to set up activities when he returns to a job. The capacity lost is that of the company – either opportunities are lost or unnecessary (but costly) or resources must be added.
Switching projects delays every project – a project not worked on is not progressing and therefore (bottom line) results will be delayed. Multitasking causes tasks to complete more or less at the same time – the time it takes to complete all tasks. However, one (the most important one) could have been finished much sooner and therefore produced its benefits (profit) that much sooner. Had resources not multi-tasked, then even the last task or project would be finished much sooner.
Switching back and forth also has a detrimental impact on quality. The original plan and concept for a task is often remembered only vaguely – the resource has to “reinvent” his solution – through his frustration there is an increased risk of poor quality. Poor quality and changes in solution design can easily lead to re-work and more pressure on task time; leading to even more multitasking. We have a negative spiral that strongly amplifies the situation.
The consequence is longer project times, less business due to lead-times, higher cost per project, lost capacity and generally less job-satisfaction for employees. The size of the damage can be seen in the results of companies that did succeed to dramatically reduce bad multitasking. HP camera was able to increase new product development 3-fold while at the same time they delivered their new products 100% on time. The Israeli air force was able to improve their maintenance operation 600%.
Resources did not work any harder. The worked much more effectively because they stopped multi-tasking. Job satisfaction improved accordingly.
Imagine the impact to your bottom line through this kind of reliable speed and free capacity. Even a small part of the potential has huge impact.

Diagram of the Logic

Not only does the logical diagram show 5 negative effects, there are also 2 negative feedback loops that (powerfully) strengthen the system and its effect on a project organization. (Touch Time is the amount of time needed to complete tasks and projects.)

A Few Easy Steps

1. Prioritize all active projects according to their importance for the business as a whole.

2. Freeze at least 25% of them. In many companies 50% or more can be frozen with only beneficial effects to project speed and the number completed per period.

3. Project team members follow this rule: Once a task is started it is (almost) always finished before a new one is started.

4. No task or project is started without ‘Full Kit’ – all necessary materials and information must be available before starting.

5. Management resists pressures to start more projects. If they do, then ALL projects – even those they delayed – will be completed earlier than otherwise. There is NO risk of getting less done. The organization will deliver more and better quality work.

6. New projects are started after an active one is completed, truly completed!

7. Frozen projects are defrosted when projects are completed – 1 for 1 in terms of the load on the constraint capacity.

Technorati Tags: 6-Sigma, Continual Improvement, Cost, Critical Chain, Execution Management, Focus, Goldratt, Little's Law, Management, Multi Tasking, Product Development, Project, Project Execution, Project Management, Project Manager, Project Plan, Quality, Risk Management, Shareholder Value Add, SVA, Theory of Constraints, TOC, TQM

Learning from Experience VI

Nov 11th, 2011 Eli Schragenheim will lead a workshop on Learning from Experience. The purpose is to learn how to understand the cause and effect (the why) of disturbing and unexpected results from our actions AND, more importantly to take and apply the important lessons we learn.
The stories in these posts are all about unexpected effects that someone has experienced and that he or she could not properly understand. With Eli, we will look at such problems (bring your own!) and analyse them.
If you are interested The Workshop (in English) will be at the hotel Schiller in Olching (near Munich) followed by the TOC4U Meeting (mostly German) on Saturday Nov. 12th. You can register here: Register or call +49 6252 795 3070 if you have problems with the German registration page.

Six Sigma auf dem Rückzug! The Retreat of Six Sigma

QZ-Frage im Juli

That Six-Sigma is retreating in Germany is not surprising. But, what is the reason and what can we learn from it?
The people that launched six-sigma on the World said something very significant. The told everyone that to be successful a company’s black and green belts must accomplish many, many smaller projects. Where I used to work projects should deliver about 250’000€ each. With 100 such projects the improvements would reach 25 million Euros – to the bottom line.
The sad part was and probably still is, that it is not possible to identify the impact to the bottom line – there apparently was only a small positive impact to companies’ bottom lines. The size of the bottom line impact was insufficient to justify the huge investment and certainly not enough to motivate employees. No wonder Six-Sigma is retreating in Germany. I wonder what is happening elsewhere in the World?
The graphic below is a possible description of what is happening to Six Sigma (the green ovals represent an and – all the entities that pass through an and are required for the next logical entity. The graphic is a summary; there may be assumptions (we believe realistic) and logical ‘leaps’ (again we believe realistic).)
The graphic shows that since Six Sigma (and many other continual improvement methodologies) is not focused on the businesses limiting factor a lot of effort is wasted – at least for now. Bottom line impacts are delayed, managers are disappointed and eventually everyone moves to some other way of achieving personal targets. The effect is enhanced because there is a negative reinforcing loop (the red line) thatensures any continual improvement programme not focused on the limiting factor is certain to fail sooner or later. It is unfortunate because Six Sigma and other such methodologies have a lot to offer any business – production, project or service oriented.
What is missing is the correct focus on the limiting factor(s). In any business there are not many limiting factors at all – often-just one! If what I have just said is true, then the opportunity for success is great. The rules to follow will be something like:

1. Identify the limiting factor.
2. Decide how to exploit (get the most from; how to use the limiting factor in the best possible way) the limiting factor.
3. Subordinate everything else (the rest of the organisation, the policies, work behaviours etc.) to the decision you just made. This is not an easy thing to implement. Not easy because it means focus on one place instead of improvement everywhere.)
4. Eventually the limiting factor will be operating at its maximum capability. If it is still the limiting factor, now is the time to expand it.
5. If during a previous step the limiting factor has moved to another resource then go back to step 1 and start over. (Make sure that your own inertia become the limiting factor – when the limiting factor moves, ALL the experience you have is most likely invalid – go back to step 1.)

These 5 simple rules make Six Sigma, Lean and other improvement methodologies much more effective. The bottom line will receive a very significant boost; managers and employees get a motivation boost and reports of “Six Sigma auf Rückzug” will be replaced by the positive results achieved.

Beautiful picture from National Geographic

Instead of giving up on Six Sigma lets use a valid focusing mechanism to identify where scarce resources should focus their efforts. 

If we can learn how to do that how much more will continual improvements achieve for the bottom line?

Technorati Tags: 6-Sigma, Continual Improvement, Cost, Efficiency, Execution Management, Focus, Goldratt, KPI, Production, Project, Quality, Theory of Constraints, TOC, TQM

Swiss Business Under Threat IV

One Swiss Franc is currently worth more than one Dollar. The Euro has also significantly weakened vs. the Franc. The Swiss economy is dependent on exports that must now be under threat due to the high price of Swiss goods. If Swiss industry does not find a good solution the strong economy there will suffer greatly. How quickly can Swiss industry react successfully?

4. Don’t Waste the Capacity of your Product Development

Project organisations are not all that different from production. Projects flow through the system and management puts a lot of pressure on resources. A resource standing idle is a major waste is the rule also here.

Similar to production a reduction in the amount of work in process will speed up the flow, make the project environment more reliable and increase capacity through a less chaotic process. So, to not waste your new product development capacity projects must be prioritized (each with a unique priority) and 25 -50% should be stopped (frozen). The frozen projects are reactivated one at a time as the active projects are completed. (Very few project environments have the correct amount of project load in their system – most are overloaded leading to longer lead-times and lost capacity.)

This seems to be detrimental to the frozen projects but experience tells us that not only will the still active projects be finished much sooner, but the frozen ones will also finish earlier than they otherwise would. Many project environments have increased their capacity by 25% and more with this simple step. A few additional steps allow early warning of trouble – which allows operational priorities to be set so that all projects finish on time or the few that are still late are much less late. Look around for explanations about the Critical Chain methodology. Some of the rules are described in the risk-averse articles.

Here are some reading recommendations:

1. “Critical Chain” by Eli Goldratt
2. “Project Management in the Fast Lane” by Rob newbold
3. “Critical Chain Project Management” by Lawrence P/ Leach
4. "Critical Chain - Beschleunigen Sie Ihr Projektmanagement" von Uwe Techt und Holger Lörz

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Technorati Tags: Continual Improvement, Cost, Critical Chain, Goldratt, Little's Law, Project, Project Management, Project Manager, Strategy and Tactics, Theory of Constraints, TOC

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Project Managers Risk Averse? - Part IX

There are many stories of projects where 90% of the project takes 100 days and the last 10% also take 100 days. Too often project managers and top management get significant surprises late in the project. Could these surprises be known about earlier? What needs to be done to get the appropriate information? If we can get the information risk will be less.

9. Minimize Risk; Early Warning

Common practice, as discussed earlier, is to get a commitment from resources performing tasks. They try their best to make commitments that gives them a high chance of finishing their task(s) on time.

During execution it is not really ‘polite’ to ask for progress in tasks that have just started – after all the task is not due yet and the project manager has a commitment. So, at least early on during a task there is no report on progress – and therefore no knowledge of a possible problem.

When a task is planned the task owner must make assumptions about the task and his environment (for instance the number of tasks he has). When a resource starts work on a task he soon knows how long the task will take with much greater accuracy than at the time he made his estimate for the project plan. Why don’t project managers get this information and use it to help manage their projects better?

How about applying the following tactics. Instead of reporting completion progress e.g. a task or project is 25% complete let’s request the time remaining in tasks. All resources report how many more days they need to complete their task. That way (if they make an honest evaluation) the project manager knows immediately when a problem arises – rather when it is already to late from saving the project from missing its due date. (Remember cutting scope, or spending more money are the equivalent of missing the due date.)

There is the question of what to report and how frequently. Since project managers want early warning, report frequency must be high – say daily. To achieve such a frequency reporting must not be onerous. If only resources with started tasks report and all they report is the expected remaining task time, is that onerous? If WIP and multi-tasking have been reduced, then there will be fewer tasks to report and knowledge over remaining time will be better.

Does this make sense? Will this give the project manager a better view of the status of their project? Will it give top management a better view of their portfolio of projects?

What are the obstacles to implementation?

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Technorati Tags: 6-Sigma, Continual Improvement, Cost, Critical Chain, Effectiveness, Efficiency, Execution Management, Goldratt, Project, Project Execution, Project Management, Project Manager, Projects, Reliability, Risk Management, Theory of Constraints, TOC, TQM

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