THEORY OF CONSTRAINTS (TOC) AND CRITICAL CHAIN PROJECT MANAGEMENT (CCPM) LEO LAURAMAA IBM -...

THEORY OF CONSTRAINTS (TOC) AND CRITICAL CHAIN PROJECT MANAGEMENT (CCPM)LEO LAURAMAA IBM - HELSINKI, SEPTEMBER 20 2013

Presentation for PMI Chapter Finland

Leo Lauramaa - TOC & CCPM

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Constraint

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Constraints are the physical limitations and policies that prevent the system from achieving more of its goal.

Bottleneck and constraint are often used interchangeably - pay attention to context

Time saved at the bottleneck can rapidly increase throughput. More efficient use of a non-capacity constrained resource does not

increase throughput– only gives illusion of efficiency. Traditional improvement provides less leverage since it encourages

improving the entire process, including non-constrained resources.

TOC provides high-leverage improvements – Almost 100% of the improvement comes from work done at the constraint.


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2013 09 20

“There really is no choice in the matter. Either YOU manage the constraints

or THEY manage you.

The constraints will determine the output of

the system whether they are acknowledged

and managed or not.”Source: Noreen, Smith, and Mackey, The Theory of Constraints and its Implications for Management Accounting (North River Press, 1995)


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Some remarks

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Most improvements to most links do NOT improve overall performance (the chain)

System wide, or "global" improvement are NOT equal to the sum of the local improvements The way to improve the organization is,

definitely not through inducing many local improvements

Thus a company should focus on best possible flow “allowed by” the "chain strength" – managing the constraint(s)!


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The constraint is

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The leverage point –

where the biggest effect

can be achieved from the least effort


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TOC, Theory Of Constraints

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provides a set of holistic processes and rules, all based on a systems approach,exploiting the inherent simplicity within

complex systems through focusing on the (few) “leverage

point(s)”as a way to synchronize and align the parts

to achieve ongoing improvement in the performance of the system as a whole


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Constraint Management

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System stability: Often times it makes sense to manage the bottleneck where it is rather than to try and break it1. Called Constraints Management2. Improvement becomes iterative process

a. Improve the bottleneckb. Ensure non-constraints have sufficient protective capacity

(PC)c. If they don’t then refocus improvement to add PC

Operating any part of the process above 85% of capacity will eventually create delays and interruptions – wait time increases exponentially as capacity utilization nears 100%

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TOC Knowledge in the Areas of

The four pillars of TOC Process of ongoing

improvement the five focusing steps the change question sequence buffer management

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Thinking Processes Manufacturing Distribution & Supply Chain

Retail

Sales & Marketing Finance & Measurements

Throughput accounting

Managing People Applying new technology Project management

Internal, Engineering, R&D, IT

Strategy Education Healthcare Public services Personal issues


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About TOC applications

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When TOC is used to manage production, manufacturers make the most of their capacity, finding anywhere from 15-50% more capacity than they thought they had – product flows faster, and orders are on time, every time.

When used in Distribution and Supply chains, TOC’s pull approach ensures near 100% availability while at the same time increasing inventory turns significantly.

The TOC-based selling process increases salespeople’s hit rate by systematically removing the obstacles to closing the sale.

TOC-marketing provides the capability to define an offering that satisfies a significant need of a market (unrefusable offer);

When used in Projects, TOC’s approach shortens the overall project timelines and projects are at least 95% on time, without compromising budget or scope.

And, when TOC is used to develop strategy, it puts all of the above together in an integrated way to lead the entire company to profitable growth and stability.


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The 25 Most Influential Business Management Books - The Goal (1984), by Eliyahu Goldratt

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Unusual among business management books for at least two reasons. Goldratt wasn't a titan of industry, a b-school professor,

or even a consultant, but rather a physicist. The Goal is a novel.

Centered on a production manager named Alex Rogo who has three months to turn around a deficient, unprofitable manufacturing plant, The Goal explains the "Theory of Constraints," which among other points incorporates the idiom,

"A chain is only as strong as its weakest link;"

and focuses on bottlenecks, the great hindrances to productivity.

Rogo uses the Socratic method to help fix his marriage, then applies it to his plant crew, coming up with steps to solve the plant's problems. The Goal has been in print since 1984, and a revised third edition was released on the book's 20th anniversary.

The Time Magazine, August 2011

Sold more than 3 million copies,

translated in 21 languages


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Eli Goldratt

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“We must have the honesty to see reality as it is, we must

have the courage to challenge assumptions, and above all, we must use the

gift of thinking. “


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The four pillars of TOC

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Inherent simplicity: WHICH system is more complex?

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Convergence - simplicity

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Everything within a system is connected by cause and effect relationships. Identification of the causes leads us to converge onto an apparent core problem/contradiction/conflict.

As long as you cannot clearly verbalize your intuition, the only thing you will communicate is your own confusion.


Theory of Constraints

1970’s 1980’s 1990’s 2000’s

OPT

ProductionSupply Chains Distribution

ProjectsSales Marketing

Strategy & Tactics

The theory was developed by Dr. Eliyahu Goldratt, physicist (1947 – 2011)

Ever Flourishing

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Optimized Production Technique

Eli Goldratt was an educator, author, scientist, philosopher and business leader. But he was, first and foremost, a thinker who provokes others to think. Often characterized as unconventional, stimulating, and "a slayer of sacred cows," Dr. Goldratt exhorted his audience to examine and reassess their business practices with a fresh, new vision.


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1975 1985 1990 1995 2000 2005

Production, Throughput Accounting – OPT, The Goal, The Race, The Haystack Syndrome

The Thinking Processes – Jonah Program

Distribution, Marketing, Management Skills – It’s Not Luck

Project Management – Critical Chain

The TOC Holistic Approach

TOC & Technology– Necessary but not Sufficient

TOC & Business Strategy - Viable Vision

The Evolution of TOC – 30 years

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The Five Focusing Steps of TOC

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1. IDENTIFY the system’s constraint.

2. Decide how to EXPLOIT the system’s constraint.

3. SUBORDINATE everything else to the above decisions.

4. ELEVATE the system’s constraint.

5. Warning!!!!! Do not let INERTIA become the system’s constraint. When a constraint is broken, return to Step 1.

A process of ongoing improvement that can be applied to any organization to continuously improve the achievement of

more “goal units”.


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The change question sequence

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Why change What to change To what to change How to cause the change How to measure and sustain the change

and achieve a process on ongoing improvement.


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TOC Buffer Management (BM)

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A control mechanism based on the amount of time (till the due date) or stock remaining used in the execution phase of TOC applications (operations, distribution and projects). Buffer management functions

Prioritize tasks/orders based on buffer penetration / consumption.

Signal when to expedite (red zone). Provide feedback to the planning process (changing

parameters etc.) Identify prime causes of delay to focus ongoing

improvement activity.


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Drum-Buffer-Rope (DBR)

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The TOC method for scheduling and managing operations when there is an internal resource constraint.

Drum

Internal constraint

Rope

Release Inventorybuffer

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Layers of resistance

The six layers of resistance, as expressed by the person(s) resisting change, are:

1. Disagree on the problem. 2. Disagree on the direction of

the solution. 3. Disagree that the solution

solves the problem. 4. Yes, but there are potential

negative consequences. 5. Yes, but there are obstacles

to implementing the solution.

6. Unverbalized fears.

More recently, nine layers of resistance have been identified:

0. “There is no problem.”1. Disagreement on the problem. 2. “The problem is out of my control.”3. Disagreement on the direction for the

solution. 4. Disagreement on the details of the

solution. 5. “Yes, but… the solution has negative

ramification(s).”6. “Yes, but… we can‘t implement the

solution.”7. Disagreement on the details of the

implementation. 8. You know the solution holds risk. 9. “I don‘t think so” – Social or

psychological barriers.

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“Resistance” is a force for managing change.

How? By systematically overcoming each

layer of resistance and obtaining buy-in.

TOC tool: The thinking processes

Leo Lauramaa - TOC & CCPM22 2013 09 20

“Show me how you measure me, I’ll show you how I’ll behave”

"If you measure me in an irrational way, don't complain about irrational behavior."

Eli Goldratt


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Cost World vs. Throughput World

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Cost World Thinking

”We want to minimize the cost of

capacity”.

Throughput Thinking

”We want to maximize the use of

capacity”.


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TOC metrics – Throughput accounting

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Metrics - Real improvement vs. the goal is measured by the change (Δ) in T, I, &OE: ΔT: Increasing Throughput - cash flow over and

above truly variable costs ΔI: Reducing Investment - cash tied up in the

business, including working capital items such as inventory and accounts receivable

ΔOE Reducing Operating Expenses - costs of running the business, not including raw materials

System level metricsNet Profit = ΣT – ΣOEROI = Net Profit / ICash Flow = ΔT- ΔOE / ΔIProductivity = T / OEInvestment Turns = T / I


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Green & Red curve

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Performance

Time


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Three mechanisms distorting management attention

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Fear of complexity Imposing Simplicity on Complexity

create and manage sub systems – local optima, conflicts between sub sections

Fear of Unknown Imposing Certainty on Uncertainty

manage by “accurate” indicators – micromanagement, reacting to “noise”

Fear of conflicts Imposing Harmony on Conflicts

strive for a compromise between extremes – struggling with unacceptable compromises, dealing with symptoms other than core conflict, loose-loose in stead of win-winBAD MULTI TASKING

LOOSING FOCUS

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Logical Thinking Process for Strategy

Goal Tree

CurrentReality

Tree

EvaporatingCloud

FutureReality

Tree

PrerequisiteTree

Critical Chain Project

By Bill Dettmer

Leo Lauramaa - TOC & CCPM28

Focus (CRT) – One of the TOC ways to analyze reality

We are losing sales

Our reputation is deteriorating

It is impossible to have a good

forecast

We are losing profit

margins

We have cash limits

We have space

limitations

We cant hold the full product

portfolio

We have too many write

offs

We have shortages of some items

We are overstocked with some

items

Our suppliers are not reliable

Our suppliers do not react fast enough

The common practice- launch multiple improvement / correction initiatives. Spread your resources & management attention too thin and waste a lot of resources with limited results.

We give to many discount

s

We are losing sales

Our reputation is deteriorating

It is impossible to have a good

forecast

We are losing

profit/profit margins

We have cash limits

We have space

limitations

We cant hold the full product portfolio

We have too many write

offs

We have shortages of some items

We are overstocked with some

items

Our suppliers are not reliable

Our suppliers do not react fast

enough

We give to many

discounts

2013 09 20


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Some reported TOC results

2013 09 20All material © CMG &/or CMS, 2004

Lead Times

70%

Cycle Times

65%

InventoryLevels 49%

44%On-Time Delivery,Availability

63%73%

Revenue,Throughput

CombinedFinancial

The World of Theory of Constraints, Vicky Mabin & Steven Balderstone,

St. Lucie Press, 1999


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ABB – Multiple TOC based initiatives

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Average payback time 2,14 months!


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TOC RESULTS – CASE SANMINA TOC-LEAN-SIX SIGMA

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About TOC LEAN and SIX SIGMA

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The best results to improve the system performance is achieved by: Using TOC / Constraint Management as a

focusing mechanismAnd then Using Lean and Six Sigma on focused way

Recommended reading:Velocity: Combining Lean, Six Sigma and the Theory of Constraints to Achieve Breakthrough Performance A Business Novel by Dee Jacob, Suzan Bergland, Jeff Cox, 2010

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Legacy from Eli Goldratt since 1997

Critical Chain Project Management (CCPM)

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The TOC solution for planning, scheduling, and managing

performance in a project environment.


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Typical complaints

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Our project lead times are too long. Project ROI and cash flow are frequently jeopardized. Due dates, budget, quality and/or scope are frequently

compromised. There is a constant battle to reduce safety time. We sometimes miss dependencies in the project plan. Deliverables are not always clear. Critical resources are losing a lot of time moving from one

task to another and having to report progress on all tasks.

Erroneous belief: In order to finish the project on time, we must finish each task on time.

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Background phenomena

2013 09 20Leo Lauramaa - TOC & CCPM

Early start Start the project sooner, you’ll finish it sooner?

Parkinson’s law Work expands so as to fill the time available for its completion.

And … work continues because it must take the full scheduled time to be of high quality.

The “Students syndrome” When people will start to fully apply themselves to a task just at the last

possible moment before a deadline. This leads to wasting any buffers built into individual task duration estimates. What if and when Murphy will strike?

Bad Multitasking Occurs when resources stop work on a task to start another task even

though they could still work on the first task. The lead time increases significantly, even without considering

additional setup time.

Significant safety is inserted into the project plan and wasted.


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The vicious cycle

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Resources receive a poor evaluation for missed deadlines

Resources will inflate estimates more

The project still does not complete on time, within budget and scope

Promised lead times for future projects are even longer (causing lost work?)


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Responsibilities & task estimates

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Reliability of a person and negotiating position

How much safety buffer is needed, if you must be fully in charge of your task estimate?- what if the task itself is on planning stage a bit fuzzy?

Resources do not typically report early finishes.


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Critical Path vs. Critical Chain

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Critical Path Longest sequence of task dependencies in terms of

time. This is the traditional term and path that is NOT used in TOC.

Critical Chain Longest sequence of task and resource

dependencies in terms of time. In other words, it is the longest sequence of dependencies, with explicit consideration of resource availability.


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CCPM in breaf

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Objective of a project: On time, full content, within budget

In a single-project environment the critical chain project management solution includes the following:

1. Removal of existing behaviors that are harmful for the project

2. A plan, or project network, that includes all task and resource dependencies as well as time estimates with safety removed

3. A schedule showing the critical chain and the buffers4. Implementation of new behaviors critical to streamlining flow

such as the relay runner work ethic and frequent reporting of work remaining

5. Expediting and improvement activities based on buffer management


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CCPM principle

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Securing the project, not individual tasks


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Buffer management for projects

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Buffer Management is the process used to plan for and take any necessary corrective actions based on the impact of actual and predicted variability.

These actions include: Assessing status of the project and, if appropriate, taking

steps to recover schedule on the few tasks that are having impact,

Assessing status and taking steps to recover schedule on the few materials that are having impact,

Prioritization of available task work for a given resource to minimize queuing on the wrong tasks, and

Reducing developing peak loads that can lead to serious resource delays.


D We Feel Pressure to

Add significant safety time to each task time

estimate

D’(But) We also feel pressure to Add the absolute

minimum safety to task time estimates

C We must Contribute to

creating a competitive lead

time advantage and not create

opportunities for wasting time

B We must Make reliable

promisesA

Satisfy customer and shareholder

expectations (time, budget,

scope)

Assumption

Assumption

Assumption

Assumption

Assumption

Prerequisite / TacticsRequirement / Strategy

Objective

Dilemma regarding: Our project lead times are too long Background: Our customers have been complaining that our project lead times are too long.

Some customers have defected to our competitors as a result of our long lead times.

2013 09 20


D We Feel Pressure to Frequently multitask

D’(But) We also feel pressure to Limit the amount of multitasking

C We must Minimize time lost

on “set-ups” and

progress reporting

B We must Ensure that

progress is made on all tasks

A Satisfy customer and

shareholder expectations (time, budget,

scope)


Objective

Dilemma regarding: Critical resources are losing a lot of time moving from one task to another and having to report progress on all the tasksBackground: Our resources have to spend a long time getting up to speed on a task that was set aside for a period of time. This time is non-productive time. A significant amount of set-up and set-down time is affecting resource productivity.

2013 09 20



Start work as early as possible

D’(But) We also feel pressure to

Delay start of work as late as possible (especially on

subcontractors)

C We must Postpone spending

B We must Ensure that we have sufficient safety for each

taskA Satisfy customer and


scope)


Objective

Dilemma regarding: Project ROI and cash flow are frequently jeopardized

Background: We must pay our subcontractors when they start working for us and for materials when we start using them. However, we do not receive payments until progress is made on the project. Therefore, our cash outflows exceed our cash inflows during initial stages of projects.

2013 09 20



Take actions / use rules that will

optimize task and resource

performance (increase safety,

multitasking; start as early as possible)

D’(But) We also feel pressure to

Take actions / use rules to improve overall project

performance (reduce safety, multitasking;

start as late as possible)

C We must Finish projects in

minimum time and cost

B We must Complete the

project based on the original promises

A Satisfy customer and


scope)


Objective

Systemic Core Conflict/Dilemma

2013 09 20


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Direction of the Solution

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Do not turn estimates into commitments. Minimize the wasting of safety. Enable early and late finishes to compensate

each other. Minimize bad multitasking.

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Example

2013 09 20Leo Lauramaa - TOC & CCPM

Remove task safety

Resource contentionCritical chain Add project safety


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Example: Insert the feeding buffers

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The feeding buffer, which is half the safety removed from the non-critical chain tasks, is placed where a path feeds into the critical chain or end of the network


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Example: Insert the resource buffers

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Project lead time = 90(25% less than 120)PB is 1/3 of lead time

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Critical Chain Project Management Before (Traditional)

Resolving Resource Contention (CC)

Aggressive Schedule & Inserting Buffers

A-14 C-16

E-20

B-10 C-16

D-20 C-16

E-20 LT = 72 days

A-7 B-5 FB-6 C-8

D-10 C-8E-10 PB-18 LT = 54 days

A-14 C-16

D-20 C-16E-20

B-10A-14 C-16E-20

B-10LT = 60 days

Note: ALWAYS check “given” information:

are times padded or has padding been removed?


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Five Focusing Steps - CCPM

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1 Identify the system’s constraint(s) Identify the critical chain (the longest sequence of task and resource dependencies)

2 Decide how to exploit the systems constraint(s) Ensure that the critical chain time is minimized, but protected strategically with safety

We use an early warning mechanism (resource buffer) to ensure that resources working on the critical chain are prepared to start on time or start earlier than the scheduled start date if gains were achieved in upstream tasks on the critical chain

The project buffer (which is HALF of the safety removed from critical chain tasks) is used to ensure timely or early completion of the project overall.

Introduce and use measures that reinforce road runner and relay race behaviors.

3 Subordinate everything to the above decision. Use feeding buffers (HALF of the safety removed) wherever non-critical paths/tasks

feed into a critical chain task [to protect the constraint from delays]. Schedule non-critical chain tasks to start as late as possible. Introduce and use measures to reinforce road runner and relay race behaviors

[eliminates problematic behaviors].

4. Elevate the System’s Constraint(s) Shorten project lead time by adding resources to break resource contention.


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Fever chart

2013 09 20

Progress along the Critical

Chain is typically

accompanied by a reduction in the amount of safety that is

required in the Project Buffer

– The overall

Project Buffer requirement is

indeed dynamic, not static,

during project execution.

% Critical Chain completed0 100

33%

66%

100%

% P

roje

ct B

uff

er

Consu

med


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Strategy & Tactics Tree - Projects

2013 09 20

http://www.goldrattresearchlabs.com/default.aspx?ven=goldrattmarketinghttp://www.youtube.com/watch?v=5QVLjQJdIBoCheck these links

All generic TOC application S&T Treesare available free of charge – see the link below

http://www.goldrattresearchlabs.com/default.aspx?ven=goldrattmarketing

http://www.youtube.com/watch?v=5QVLjQJdIBo


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CCPM results

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CCPM results

2013 09 20


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Practical Ideas for Improving Project Execution

2013 09 20

Start projects as late as possible Cut the number of projects in the portfolio by

half (don’t start a new one until you finish one)

One person decides work priorities Don’t start a task unless you can finish it

completelyBy Mark Woeppel /Pinnacle Strategies

We are planning a TOC / CCPM training together with Pinnacle in Finland.

-Are you interested?


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CCPM software

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CCPM+: Advanced Projects Inc. - http://www.advanced-projects.com/ ProChain : ProChain Solutions Inc. - http://www.prochain.com/ cc-Pulse & cc-MPulse : Spherical Angle - http://sourceforge.net/projects/cc-

mpulse/ Exepron - http://exepron.com/ Lynx - www.a-dato.net PS8 : SciForma - http://www.sciforma.com/en-uk/ Adept Tracker AgileCC - http://www.adepttracker.com/agilecc/index.html Guided Innovations - http://www.guidedinnovation.com/simplecc/ Aurora - http://www.stottlerhenke.com/products/index.htm Being Management - http://www.toc-ccpm.net/eng/bm2.html FLOW MPM from Glow Management - http://www.glow-management.com/ Concerto: Realization - http://www.realization.com/ Schedlyzer Lite: , http://www.optisol.biz/lean-production.html Sciforma VPM Lite (free IOS app) – very simple…

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Other links

Books The Goal - Special Edition Eli Goldratt

(1 May 2013) Eli Goldratt, Jeff Cox 2004 Critical Chain, Eli Goldratt 1997 Simplifying Innovation, Mike Dalton

2010 Ebook Theory Of Constraints – Do It

Yourself Kit For Small and Medium Sized Companies, Rajeev Athavale, 2011

TOC roof organization TOCICO see www.tocico.org (also free

guest membership possibility)

Best free TOC source www.dbrmfg.co.nz/

Other TOC links http://www.toc.tv order

newsletter http://www.goldratt.com

Some TOC linkedin groups TOC4U – Theory of Constraints TLS – TOC Lean Six Sigma TOC4FINLAND Critical Chain Visual Project Management

2013 09 20


CV Summary Leo Lauramaa

2013 09 20

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Age 55, M. Sc. (Econ), ConsultantCompany: Kukonaskel Oy2008 Management ConsultantKaukomarkkinat Oy1981 - 20082005 – 2008 Director strategic development, management systems,

member of management team1998 – 2005 Deputy Director, development, international activities &

group level1989 – 1998 Controller/Business Controller, import, international

activities

Strengths Good business overview, holistic approach Wide experience of strategy and development work in different

businesses and levels Strategy driven development projects with different tools including

process modeling Helping in change management, e.g. in integration or

organizational change situations Positive purposeful approach, analytical, creative problem solving

Using constantly TOC thinking, tools and applications on consulting engagements

Languages finnish (native), english (good), swedish (moderate)

leo.lauramaa (at) kukonaskel.com +358 400 727 625

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Thank You for Your attention!

2013 09 20

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THEORY OF CONSTRAINTS (TOC) AND CRITICAL CHAIN PROJECT MANAGEMENT (CCPM) LEO LAURAMAA IBM -...

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