Theory of Constraints James Henderson March 20, 2002

TheoryTheoryof of

ConstraintsConstraints

James Henderson

March 20, 2002

Overview Presentation on TOCMarch 20th/JRH

AgendaAgenda

Introduction

What is going on in today’s projects?

What is Theory of Constraints? • Five Focusing Steps• Thinking Processes

• Critical Chain• Buffers & Dealing with Uncertainty • Drum - Buffer - Rope

Who is using TOC today?

Questions & (possibly) some Answers

Closing Remarks


What’s going on in today’s What’s going on in today’s Projects - Processes - Systems?Projects - Processes - Systems?


Whether you are a functional manager over the production of widgets or a Project Manager over the development and implementation of the next major whiz bang solution to the market’s needs, you rely on a good production / process flow or project network to ensure the success.

The problem is that…

““constraints happenconstraints happen””

...and things don’t go according to the plan.

Theory of Constraints (TOC) takes the “systems approach” to overcome those constraints. TOC focuses on the few critical elements that truly influence / control the productivity of the system instead of trying to control all of the elements.

Constraints HappenConstraints Happen


Project Type Time Cost

50 new products (new chemical entities, 1.78X 1.61X compounded products, or alternate dosage forms) in ethical drug firm

69 new products in proprietary drug laboratory 2.95X 2.11X

20 management information system projects 2.10X 1.95X

34 DOD systems from “planning estimate” N/A 2.11X

from “development estimate” N/A 1.41X

10 major construction projects N/A 3.93X

10 energy process plants N/A 2.53X

Historical dataHistorical data


• Usually original due dates are not met.

• Too often resources are not available when needed (even when promised).

• There is constant pressure to add more projects.

• Necessary things are not available on time (information, specifications, materials, designs, authorizations, etc.)

• There are fights about priorities between projects.

• There are budget over-runs.

• There is pressure to begin before specs are written.

• There are too many changes… etc. etc. etc.

What kinds of things go wrong in projects?What kinds of things go wrong in projects?


According to Tom Peters… “Velocity”...

...Faster = more market share

...Faster = shorter pay-back period

...Faster = more rapid learning and change

...Faster = smaller target for changes

What is the key to success?What is the key to success?


W. Edwards Deming maintained that real quality improvement isn’t possible without profound knowledge, according to Deming, profound knowledge comes from:

An understanding of the theory of knowledge.

Knowledge of variation.

An understanding of psychology.

Appreciation for system.

Profound KnowledgeProfound Knowledge


Investment and Operating Expenses

Raw Material

RevenueRevenue

Net Profit = Throughput - Operating Expense

Throughput = Revenue - Raw Materials

Return on Investment = Net Profit / Investment

The The SystemSystem the Project Goes Through is the Company the Project Goes Through is the Company


So…What isSo…What isTheory of Constraints?Theory of Constraints?


Goldratt contends that systems are analogous to chains, or networks of chains. Like a chain, the system performance is limited by the weakest link.

This means that no matter how much effort you put into improving the processes of a system, only the improvements to the weakest link will produce any detectable system improvement.

Throughput is limited by the weakest link... the constraint!

(A system might be generally defined as a collection of interrelated, interdependent components or process that act in concert to turn inputs into some kind of outputs in pursuit of some goal.)

Theory of ConstraintsTheory of Constraints


Every system can be modeled as a net of chains

The weakness of the system is the weak link in the chain, the constraintconstraint

A project schedule to get a product rapidlyrapidly throughthrough the system must account for the constraint

Improving the throughput of the system (company) is the highest leverage point for improving profitabilityprofitability

Theory of Constraints - Three Important ConceptsTheory of Constraints - Three Important Concepts


DrumBufferRope

Five Focusing

Steps

CriticalChain

ThinkingProcesses

Theory of Constraints Covers Many ThingsTheory of Constraints Covers Many Things


Five Focusing Steps?Five Focusing Steps?


1. Identify the Constraint

2. Exploit the Constraint

3. Subordinate everythingto the Constraint

4. Elevate the Constraint

5. Repeat for the new Constraint

Theory of Constraints - FIVE FOCUSING STEPSTheory of Constraints - FIVE FOCUSING STEPS (Which will Strengthen the Chain)


1. Identify the System's constraints.The process is analyzed so that a task or activity that limits the productivity of an entire system can be identified. A system constraint may be identified by a long queue of work or long processing times.

2. Decide how to exploit the system's constraints.In this step, decisions must be made on how to modify or redesign the task or activity so that work can be performed more effectively and efficiently.

3. Subordinate everything else to the above decision. (step 2)Now, management directs all its efforts to improving the performance of the constraining task or activity and any other task or activity and any other task or activity that directly affects the constraining task or activity.

4. Elevate the system's constraint.In this step, additional capacity is obtained that will increase (elevate) the overall output of the constraining task or activity. This differs from step 2 in that the added output comes from additional purchased capacity, such as buying a second machine tool or implementing a new information technology.

5. If, in the previous step, a constraint has been broken, go back to step 1 but do not allow inertia to cause a new constraintThis sets up a process of ongoing improvement. As a result of the focusing process, the improvement of the original constraining task or activity may cause a different task to become a constraining task or activity. Inertia could blind management from taking steps to improve the system's output now limited by a new constraint.(1)

Theory of Constraints - FIVE FOCUSING STEPSTheory of Constraints - FIVE FOCUSING STEPS


Thinking Processes?Thinking Processes?


Clarity - If I were reading the issue to someone else would they truly understand?

Entity ExistenceDoes the entity exist in my reality?

Causality ExistenceWhen I read aloud exactly what I wrote using if...then, does it really make sense to me?

Cause InsufficiencyAre the written causes for an entity sufficient to justify all parts of the entity?

Additional CauseIs this really the only major cause? If the cause is eliminated, will the effect be almost eliminated?

Predicted EffectDo the unavoidable outcomes exist?

Cause Reversal What if we have things going the wrong way?

TautologyTautology is a rare case where there is circular logic. IF A THEN B. IF B THEN A.

(Entity = the issue / problem)

Theory of Constraints - THINKING PROCESSESTheory of Constraints - THINKING PROCESSES - CATEGORIES OF LEGITIMATE RESERVATION -


Layer 1 We don't agree on the Problem

Layer 2 We don’t know where to start

Layer 3 We don't see how the proposed solution will solve the Problem(s)

Layer 4 "Yes, but ...", i.e., the proposal looks good on paper, but there are some negative side effects foreseeable if we implement the solution

Layer 5 It may work, but there are too many, or too difficult, obstacles blocking implementation

Layer 6 Fear of going at it alone - doesn’t see how to get there.

Theory of Constraints - THINKING PROCESSES Theory of Constraints - THINKING PROCESSES - SIX LAYERS OF RESISTANCE -- SIX LAYERS OF RESISTANCE -


Critical Chain?Critical Chain?


The Fundamentals of Critical Chain

• Must have a plan that is precedence based

• Estimate schedule duration at ~50% confidence level (vs. 90%)

• Eliminate resource contention

• Use and manage “Buffers” (“Buffers” placed at end of series of tasks to account for schedule variation)

• Consciously eliminate uncertainty • Multi-tasking (Focus on one task until complete)

Theory of Constraints - Critical ChainTheory of Constraints - Critical Chain


Task duration estimates must be reduced to the point where:

People doing the work know there is a good chance (but not a certainty) that they will finish in the allotted time.

Managers and people doing the work know there is an good chance of finishing late and a good chance of finishing early.

And, people doing the work must know that:

Management is not going to make unrealistic due date commitments based on these reductions.

These actions give the overall project a higher chance of success.

There will be no penalty for not finishing within the estimated time.

Task Duration EstimatesTask Duration Estimates


A B C

Probability of Task Duration Time

When asked to provide an estimate of when you can have a specific task ready, what answer do you give?

If everything goes perfectly, there is a slight possibility of finishing within time AEven with some surprises (uncertainty), time B is very likelyIf a major disaster occurs, time C is likely

Time

What are 50-50 Probability Task Times?What are 50-50 Probability Task Times?Critical Chain Uses Time “B”


Resource AResource BResource C Resource D

Resource CResource A

Critical PathCritical Chain

Time

Activity A

Activity B

Task

Resource A

Reschedule task to resolve conflict

The Differences Look Like ...The Differences Look Like ...


ProjectCompletion

10:Design 4:Develop

4:Test4:Design 6:Prototype 8:Develop

The critical chain by definition is a set of tasks that determines project length

considers tasks dependencies considers resource capacity

distinguished from Critical Path in this way

Resolves Resource ContentionResolves Resource Contention


ProjectCompletion

10:Design 4:Develop

4:Test4:Design 6:Prototype 8:Develop

The critical chain by definition is a set of tasks that determines project length

considers tasks dependencies considers resource capacity

distinguished from Critical Path in this way

Resolves Resource ContentionResolves Resource Contention


BuffersBuffers&&

Dealing with UncertaintyDealing with Uncertainty


Traditionally we protect TASKS from uncertainty by adding “Safety” to our schedule and by working to “Due Dates”

… So what is the impact of working to Due Dates and Putting Safety Everywhere?

Believe it or not . . . Safety is wasted Delays are passed on Gains are not

Let me explain...



How the Safety Gets WastedHow the Safety Gets Wasted

Student Syndrome

I have plenty of time, I’ll start tomorrow

Parkinson’s Law

The amount of work done is directly related to the time allocated …

No early finishes

Bad Multitasking

Doing several things at once takes longer than doing one thing at a time

We always need to look busy

We always need to make everybody busy (or look busy)

Fire-fighting



Should happen:

Could happen:

Does happen:

Task A Task B Task C

B B

BB

A

A

A

A

C

C

C

C

Task A

Task B

Task C

Tasks assigned to a resource

3 days3 days3 days

3 days 3 days 3 days

6 days

7 days

Why Eliminate Multi-Tasking?

Multi-tasking extends both task and project completion



If Task A takes 5 days to complete

If Task B takes 5 days to complete

If Task C takes 5 days to complete

and…

If Task D takes 10 days to complete

How long is the project?

Task B5 Days

Task D10 Days

Task A5 Days

Task C5 Days

How long will it take?How long will it take?



Protecting Individual Tasks Provides Little Protection!

If Task A finishes in only three days

Is there a benefit to the whole?

If Task C takes eight days to finish

What’s the impact on the whole?

If Tasks A, B, and C, through some miracle, all finish in two days?

Will Task D be ready to start three days early?

Task B5 Days

Task D10 Days

Task A5 3 Days

Task C5 8 Days

X

Delays are passed on and Gains are NOTDelays are passed on and Gains are NOT

X



5:Design 2 Dev

2:Dsn 3:Proto 4: Dev 2:Tst 6.5: Project Buffer

2: FB

Protect the critical chain from disruptionsFeeding Buffer

5:Design 2 Dev

2:Dsn 3:Proto 4: Dev 2:Tst 6.5: Project Buffer

Protect the project from critical chain disruptionsProject Buffer

Remember, traditionally we protect TASKS from uncertainty with Critical Chain scheduling, we protect THE ENTIRE PROJECT, not individual tasks

“Buffers” to protect the project are ESSENTIAL elements of the schedule



BUFFER

OKWATCH& PLAN

ACT

RemainingProject Buffer:

20 15 14 8 7 0

RemainingFeeding Buffer:

8 7 6 4 3 0

Buffers Provide Focus and Early Warning

Using the Buffers to Monitor Project StatusUsing the Buffers to Monitor Project Status


Project Buffer Status Report%

Pro

ject

Bu

ffer

Co

nsu

mer

Status Date

Schedule On-Track Act on Contingency PlanDevelop Contingency Plans

Use the Buffers to Monitor Project StatusUse the Buffers to Monitor Project Status


Drum - Buffer - Rope?Drum - Buffer - Rope?


The Drum Concept utilizes a common resource between projects to act as the drum beat (with some protection - buffer) for

releasing each new project into the environment (pulling the rope).

DRUM BUFFER ROPE

Theory of Constraints - THE DRUM CONCEPTTheory of Constraints - THE DRUM CONCEPT


Drum schedule:

Project 1:

Project 2:

2:CS 3:Eng 5:HW

6:Prog Feeding

Project

3:HW

2:CS

5:HW 3:HW 5:HW 3:HW

2:CS 3:Eng 5:HW

6:Prog Feeding

Project

3:HW

2:CS

The constraint is called “the drum” - it sets the pace & provides a means to stagger projects & set priorities across projects.

Theory of Constraints - THE DRUM CONCEPTTheory of Constraints - THE DRUM CONCEPT (Staggering Projects based on the “Drum Resource”)


Who is using TOC & CCPM?Who is using TOC & CCPM?

&&

What are the Results?What are the Results?


Consulting Firms

Industry

Plus Others

Boeing

BCA• IASL• Flight Test• 777 AFIT• MR&D Chem/SHEA

C-17• Flight Test

F-22• Wing Assy

Int. Schedules Maturity Model

Government

AFOTEC

Under Secretary of Defense for Acquisition

Computing Tools

Literature

No. ofTOC

Articles

90

240

‘90-’94 ’94-’98

Plus Over 40 books devoted to TOC

Education

Plus Others

Tony Rizzo

Who is using TOC & CCPM Today?Who is using TOC & CCPM Today?


Harris Semiconductor

New technology product - first 8-inch discrete power wafer fabNew raw material, new automated technologyNew facility, doubling capacityProject scope - construction, installation, ramp-up,

Focus on actual delivery of production via the Critical Chain

• Industry norm Ground-breaking to first silicon - 28-36 months Time to ramp production - 18 months

• Harris results with Critical Chain Ground-breaking to first silicon - 13 months Time to ramp production - 21 days

ResultsResults


Israeli Aircraft IndustriesWide-Body Aircraft Directorate Multi-project maintenance operation

History Average visit per aircraft - 3 months Amount of work committed by customers - 2 months

One year after implementing Critical Chain Average visit per aircraft - 2 weeks Amount of work committed by customers - 1 year

ResultsResults


Examples of Industry Successes - TOC 2000

5%-10% savings of revenue $37M increase in no. of profitable programs 2-4 month cycle-time reduction $400k per project reduced carrying costs Recovered strained customer relationship

15% capacity increase projected (goal 50%) Savings on 1st project paid for full implementation Full-deployment planned within 1-yr (150 programs) Enhanced visibility into resource requirements Enables quick response to replans

AFOTEC

$5M incremental profits on first project $11M increased revenue on same first project 5 weeks schedule reduction on delivery to market First to Market Competitors Withdrew

ResultsResults


QuestionsQuestions

&&

(Possibly) Some Answers(Possibly) Some Answers


Closing RemarksClosing Remarks


By Eliyahu M. Goldratt

By Robert C Newbold

By Willian H. Dettmer

How can you Learn More?How can you Learn More?


THANK YOU!!THANK YOU!!


BIOBIOAfter leaving the United States Air Force in 1988, James joined The Boeing Company (formally The McDonnell Douglas Corporation). He holds a Bachelor of Sciences Degree in Business Management, and a Jonah Certification from the Goldratt Institute (through the University of Washington).

James is a member of the Project Management Institute (PMI), and has served on the Orange County Chapter’s Corporate Advisory Board for Project Management Practices. He is currently at work on obtaining his Project Management Professional certification from the PMI organization.

As Senior Program Manager at the Boeing Company, James has directed and supported million-dollar projects ranging from re-engineering of development processes, to relocating work between company components, to redesigning products to improve quality, cycle time and cost.

JAMESHENDERSON

James currently manages the engineering processes for the military air-lifter known as the C-17. In addition, he oversees internal applications development of technology projects (internal R&D type projects) for the Aircraft & Missiles Southern California (A&M SoCal) programs, and is the Steering Team Lead for the A&M SoCal Leadership Development Program.

Recognized for his expertise in Project Management practices, Lean Engineering, System Engineering, Resource Planning, Design Processes, and Production Engineering, James is a program advisor for the application of Critical Chain Project Management principles at the Boeing Company. Utilizing fundamental Project Management techniques, and Constraint Based Project Management (Theory of Constraints – TOC), James guides program leaders in the development of comprehensive program plans.

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Theory of Constraints James Henderson March 20, 2002