1. © Avraham Y. Goldratt Institute 1998 1 An Introduction to the Theory of Constraints - breakthrough solution for Project Management Presenter Robert Bolton MS Project Users Group 8th February 2000

2. © Avraham Y. Goldratt Institute 1998 2 Objective of this session ? Examine the effects of the problems we are facing in projects & Project Management today ? Understand the source of these problems ? Understand how TOC addresses the source of these problems ? Results to date ? Aim of TOC: Complete projects on or before the scheduled due date.

3. © Avraham Y. Goldratt Institute 1998 3 The nature of Projects? ? Anyone ever have or heard of a project taking longer than scheduled? ? Anyone ever have or heard of a project going over budget? ? Anyone ever have or heard of a project cutting specifications or scope?

4. © Avraham Y. Goldratt Institute 1998 4 Why is it so difficult to manage projects to deliver on time, within budget and with the full specifications/scope intact? ? Unforeseeable difficulties with vendors who supply equipment ? Longer than expected in meeting Government and/or regulatory requirements ? Unrealistic schedule ? Unreliable (but cheaper) vendors or contractors ? Unforseen emergencies ? Difficulties in matching skilled resources with project need. ? Etc What are the resulting effects ?

5. © Avraham Y. Goldratt Institute 1998 5 What is the current experience? Standish Group Statistics (IT Projects)  30% of projects cancelled before finished  75% of completed projects are late  Average cost overruns of 189%  Average time overruns of 222%  Standish Group survey results can be found at http://www.standishgroup.com

6. © Avraham Y. Goldratt Institute 1998 6

7. 7 Project characteristics All projects have two things in common: 1. They involve high uncertainty. 2. They involve three different and opposing commitments: Due date, budget, and content

8. © Avraham Y. Goldratt Institute 1998 8 Could the three opposing commitments / problems be caused by the uncertainty inherent in all projects? Often projects have difficulty finishing on time Often projects have difficulty staying within budget Often scope or specifications are cut from a project Uncertainty in Projects?

9. © Avraham Y. Goldratt Institute 1998 9 Is uncertainty really the source of all these problems? If it is, then we would never be able to find a project that had a lot of uncertainty in it that finished significantly ahead of time - and that finished within budget and with specifications intact! But, there has been at least one - the U2! It was completed in 8 months, it beat its budget and met full specs! What this means is that uncertainty is not the cause of our three problems. What cause could account for our three problems and the success of the U2? Perhaps it has to do with the way we manage uncertainty!

10. © Avraham Y. Goldratt Institute 1998 10 Perhaps it has to do with the way we manage uncertainty! Often projects have difficulty finishing on time Often projects have difficulty staying within budget Often scope or specifications are cut from a project THE WAY WE MANAGE UNCERTAINTY IN PROJECTS? Adding significant safety everywhere, then wasting it!

11. © Avraham Y. Goldratt Institute 1998 11 Which time are you likely to promise? Your boss asks you when you can have a specific project task ready. You are already busy. Your boss does expect you to meet your commitments. You also take your commitments very seriously. There may be some unexpected surprises (uncertainty) you will have to deal with in doing the task. With no difficulties at all, time A is a very slight possibility. With some surprises, time B is very likely. If a major disaster occurs, time C is likely. Which time are you likely to give? Probably C, maybe even C+. In projects, with the expectation that we will give realistic estimates of how long the task will take, when asked, we will likely give a similar response. If we have to keep our commitments and we know that our given time will be cut, we might give a time as long as C++! ABC Probability of Task Duration Time 50 % 80 - 90 %

12. © Avraham Y. Goldratt Institute 1998 12 The “student syndrome” Task Scheduled, Available Start Date Task Scheduled Completion Date X Murphy

13. © Avraham Y. Goldratt Institute 1998 13 The multiplying effect of multi-tasking In order to keep each project on track, a resource does half of task A, then half of task B, then half of task C, then finishes task A, then B, then C. How long does each task take to complete? What happened to the safety time? Task A Project 1 One Week Task B Project 2 One Week Task C Project 3 One Week 1/2 A1/2 B1/2 C1/2 A1/2 B1/2 C How Long?

14. © Avraham Y. Goldratt Institute 1998 14 Delays are passed on — gains are not ? Merging paths don’t allow us to benefit from tasks completed early - What’s the impact on the total project if Task A is done in only 3 days? ? What if Task C takes 8 days? ? What if Tasks A, B, and C, through some miracle, all get done in 2 days? (Will Task D be ready to start 3 days early?) Task B 5 Days Task D 10 Days Task A 5 3 Days X Task C 5 8 Days X

15. © Avraham Y. Goldratt Institute 1998 15 Project Management Evaporating Cloud - Stuck between a rock and a hard place Successfully manage uncertainty in projects Objective Don’t add protection time to most tasks Prerequisite Add protection time to most tasks Prerequisite Account for uncertainty in estimating task times Requirement Meet critical timing needs (while addressing uncertainty) Requirement Because the best place to handle the project uncertainty is at each task Assumption Because there is no way to add sufficient protection that results in short enough lead times Assumption

16. © Avraham Y. Goldratt Institute 1998 16 10 20 16 10 Let’s consider a simple project Theoretical this project should finish within 56 days. Will it?

17. © Avraham Y. Goldratt Institute 1998 17 How do we measure a project? A project has three elements: Completion Date - when the benefits are realised (Throughput) Scope or specifications - the definition of what is needed to be achieved so that benefits will be realised. Budget - the money invested to get the benefits Money Benefits

18. © Avraham Y. Goldratt Institute 1998 18 10 20 16 10 Statistics - What is the chance that the project will be completed on time? The probability of the total project to finish on time is 26% Upper path - 0.8*0.8*0.8 = 51.2% Lower path - 0.8*0.8 = 64% Integration: 32.7% Let’s assume that each task has a probability of 80% to be finished on time.

19. © Avraham Y. Goldratt Institute 1998 19 Project Management Evaporating Cloud - Adding “injections” to the reality of the conflict Successfully manage uncertainty in projects Objective Don’t add protection time to most tasks Prerequisite Add protection time to most tasks Prerequisite Account for uncertainty in estimating task times Requirement Meet critical timing needs (while addressing uncertainty) Requirement The project only protects what is critical for handling uncertainty Injection Because the best place to handle the project uncertainty is at each task Assumption Because there is no way to add sufficient protection that results in short enough lead times Assumption We use aggregated buffers and shortened duration times for the task times Injection

20. © Avraham Y. Goldratt Institute 1998 20 Project Planning: Direction of the Solution Have strategic protection times - Buffers 585 88 10Project Buffer 28 Feeding Buffer 16 10 20 16 10

21. © Avraham Y. Goldratt Institute 1998 21 Change in behaviours allows aggregated buffers to be smaller than the individual safety. ie There is less Multi-tasking!!! 585 88 10 Project Buffer 14 FB 8 585 88 10Project Buffer 28 Feeding Buffer 16

22. © Avraham Y. Goldratt Institute 1998 22 Does it ever happen that a resource is needed in two places at the same time? A5C 8B5 D8C 8 E10 Project Buffer 14 FB 8 What happens if the lower path experiences uncertainty beyond its duration times and the top doesn’t? Won’t we have a need for the C Resource at the same time? Solution: The Critical Chain

23. © Avraham Y. Goldratt Institute 1998 23 Identifying the Critical Chain Resource dependencies are identified once resource contention is removed. Finally, the longest path of dependent events - the Critical Chain - is identified. ( We have already removed the safety from the task times, which was half of original task estimate). A5B5 E10D8C8

24. © Avraham Y. Goldratt Institute 1998 24 A feasible and immune schedule A5B5 E10D8C8 A5B5 E10D8C8 Project Buffer 17 FB5 Buffers - Strategic protection of the Due date

25. © Avraham Y. Goldratt Institute 1998 25 Buffers are used to provide focus and early warning to protect the critical chain and due date BUFFER OK WATCH & PLAN ACT Remaining Project Buffer: 0 671213 17 Remaining Feeding Buffer: 0 2 3 45

26. © Avraham Y. Goldratt Institute 1998 26 Project control - Buffer Management The mechanism for gathering data provides us a glimpse into the future - so we can take action before we are in too much trouble. The organization gathers the information for the status of the buffers in the following way: Each resource that is working on the project gives a “daily” status of the time they estimate they still need to work until the task is complete. That information is used to calculate whether any buffer time would be gained or lost if these time estimates proved true. This “daily” interaction is key to reinforce new behaviors and to provide opportunities to mentor resources.

27. © Avraham Y. Goldratt Institute 1998 27 Project Management the TOC Way - summary Project Management the TOC Way has five main components: 1. A synchronization mechanism that allows projects to be started later, but finished sooner and that clarifies resource assignment priorities. - i.e. Multi Project. 2. Planning processes that account for the needed dependencies and completion criteria. 3. Scheduling processes that concentrate safety where it will provide the most protection. 4. Changes in behavior that support a world class relay team culture. 5. Mechanisms that create “Project Control & Visibility” to assist in global decision making. Ie due dates.

28. © Avraham Y. Goldratt Institute 1998 28 The change is both logistical and cultural! ? Building and scrutinizing individual project networks in a way that significantly reduces the opportunity for missing critical dependencies. ? Constructing project schedules in a way that recognizes both resource and path dependencies. ? Placing safety strategically to protect the project, not the individual tasks. ? Eliminating behaviors that waste safety. ? Managing resource assignments according to which project has the greatest need. (Buffer Management) ? Managing project progress according to buffer depletion - taking corrective actions when and only when required. ? Software required to support: ? Prochain Solutions - MS Project Add-on www.prochain.com ? Concerto - ERP solution Thruput.com

29. © Avraham Y. Goldratt Institute 1998 29 Results - Saturn Development Corporation Construction of new car dealerships ? History ? 20% overspent ? Project length 6-9 months ? Debate over whether it was on time ? After implementing Critical Chain ? Within budget ? Project length 4 months ? On time per original plan/promise

30. © Avraham Y. Goldratt Institute 1998 30 Results - Harris Semiconductor - new $250m plant New technology product - first 8-inch discrete power wafer fab New raw material, new automated technology New facility, doubling capacity Project scope - construction, installation, ramp-up, Focus on actual delivery of production via the Critical Chain ? Industry norm ? Groundbreaking to first silicon - 28-36 months ? Time to ramp production - 18 months ? Harris results with Critical Chain ? Groundbreaking to first silicon - 13 months ? Time to ramp production - 21 days

31. © Avraham Y. Goldratt Institute 1998 31 Results - Israeli Aircraft Industries Wide-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

32. © Avraham Y. Goldratt Institute 1998 32 Results - Balfour Beatty Civil Engineering (UK) ? 1st Project - By pass road (A13) 80 M GBP - 2.5 yr ? Half way stage - well behind schedule ? Handover 2 weeks early - ? 99% complete vs Industry norm of 80% ? 2nd Project - 8km highway (A50)- 35M GBP- 2.4 yr ? Beat tender program by 9.5 weeks ? 45 weeks earlier than contract completion date. ? Increased Project Profit Margin.

33. © Avraham Y. Goldratt Institute 1998 33 Results - June 1999 - Elbit Systems - Israel Advanced Military Systems - 1,900 People (50% Engineers) ? All projects management by TOC (36 projects 1 -2 years each) ? Visibility of meeting contractual milestones months ahead ? Two major platform upgrade programs met schedule within 2 weeks ? Excellent synchronisation of Program Teams based on a common language ? Recognising the fact that most of the resources in the company might be idle part of the time.

34. © Avraham Y. Goldratt Institute 1998 34 Results - June 1999 - Seabridge - Israel Telecommunications start-up - with Multi-Service Access Platform (50 people - 35 in R&D) Purchased by Siemens & NewBridge in November 1997 ? To deliver Release 2.0 by March 1998 - Bonus tied ? Performance - 5 months late ? CEO reads Critical Chain - decides to implement Sept 1998 ? 1st project on schedule; 2nd project 2 months early; 3rd on track to meet “Unrealistic time constraint”; ? Major review by Siemens on company turnaround

35. © Avraham Y. Goldratt Institute 1998 35 TOC is the ability to construct and communicate common sense solutions Developed by Dr Eli Goldratt and The Goldratt Institute You have been experiencing an application of Theory of Constraints

36. © Avraham Y. Goldratt Institute 1998 36 For further information, books & details of services to improve your projects please contact:- Robert Bolton Associate of the Goldratt Institute Probative Solution Pty Ltd Tel: 02-9357 1455 Fax: 02-9357 1499 Mobile: 0412-235 616 e-mail: probativ@ozemail.com.au or Visit web site: www.goldratt.com