How's my Luck now?

Reflections, views and descriptions during my stay at IIM Lucknow from July 2004 to March 2006

Location: India

Saturday, February 05, 2005

'Critical Chain' - I

I read this book by Eliyahu Goldratt (see earlier post on 'The Goal') a few days ago. Once again, this is a management novel, and this time it is about the application of the Theory of Constraints to project management. Another fascinating book. By now, I have become a Goldratt fan, and am already digging into another book by him.

This book has been written 14 years after 'The Goal' was published. In the interim, Goldratt has developed TOC not just as a production theory, but as a management philosophy. He has a contempt for purely academic research and wants research to be ruthlessly practical, related to the real world.
The setting of the novel is extremely interesting. Dr. Richard Silver is a struggling academic striving to achieve tenure at his business school. Silver's approach to teaching (open discussion and development of concepts by the students themselves) is well-appreciated. But his research publications are very few in number, and so he finds it difficult to get tenure. He doesn't like obscure mathematical optimizations which no manager would ever apply to his real-life problems.
Now, the business school he is at is also in trouble as enrolment is declining. There is a general feeling that MBA courses are not teaching students problem-solving techniques for the real world. In a desperate bid to achieve tenure, Silver makes a deal with the university president to get ten students in the next year to the Executive MBA programme of the school.

Silver chooses to teach Project Management in his first assignment as teacher in the Executive MBA programme. Among the students are three employees of Genemodem, a modem-making company. These three have been assigned the task of finding a process to systematically reduce their new product development time, and in trying to achieve this, they have joined this programme. All the discussion relating to project management flaws and TOC applications now takes place in the classroom.

I'll first touch on the problems in project management so magnificently pointed out in the book. In doing so, I will quote a few sentences verbatim from the book:

1. On the causes of project cost overruns and lateness:
"Uncertainty is what typifies projects. It's the nature of the beast."
"There is little positive incentive, if any, to finish ahead of time, but there are plenty of explanations required when we are late."
Hence, "most of the people involved in a project build a lot of safety into their time estimates of every step. They don't give their time estimate as the median of a normal distribution (probability of completion: 50%), but give a time estimate at which that probability is 80-90%."

2. On the mis-emphasis on cost overruns:
"Financially, the cost overruns are almost always much less important than the overdue. Companies are so immersed in the mentality of saving money that they forget the whole intention of a project is not to save money, but to make money."
And then, when a project is late, "cost and time overruns are blamed on other people or external factors. The lower the level of the employee, the more the finger points internally, rather than externally. "

3. On the inappropriateness of the operational measure used to measure project progress:
"Project progress reports generally measure progress according to the amount of work, or investment, already done, relative to the amount still to do. This measurement does not differentiate between the work done on critical path from that done on non-critical paths. This measurement rewards starting each activity at the earliest possible time and encourages the project leader to start unfocused."
Then, how should a good metric be? It should: "1. induce the parts to do what is good for the system as a whole. 2. direct managers to the point that needs their attention."

4. On the importance of focus to a project leader:
"For every activity on a non-critical path, there is a tradeoff between an early start and a late start. If you start early, you commit investments earlier than required, the project manager has too much on hand right from the beginning. If you begin late, the slack time on the activity has already been eaten up, and again the manager will have problems focusing on all the tasks at hand."

5. On the inappropriateness of the contract terms with subcontractors:
Vendors or subcontractors have been conditioned to compete on price for a contract. This is totally inappropriate if it is really the lead time that is the more important variable for you. Vendor contracts should be negotiated on lead time, with money being traded off for shorter lead times.

6. On the inappropriateness of the entire management outlook:
Because of the mentality of cost reduction ingrained in most managers (which Goldratt calls 'the cost world'), the emphasis is on optimizing each individual step (because that is what gives cost efficiency).
This is in fundamental conflict with the TOC philosophy ('the throughput world'), which seeks to protect the throughput of a system, with the ultimate aim being making money. (See earlier post on 'The Goal' for the 5-step process to be followed in the throughput world.) The aim (and challenge) is to make each step function in a way that would be beneficial to the project as a whole.

In the next post, I will mention a few more practical problems encountered in project management and the solution based on TOC principles proposed by Goldratt.


Blogger Darth Midnightmare said...

I think I will propose your name for teaching us....your retention and ability to UNDERSTAND and filter the main ideas is stunning. Keep it up.

12:20 PM  
Blogger Darth Midnightmare said...

This comment has been removed by a blog administrator.

2:02 PM  
Anonymous Anonymous said...

Great post Ted....JB seems to have encapsulated just what I myself would have wanted to say. How about posting your views oother things also though.

Would love to hear your take on the stuff taught in class....specially the IMPRESSIONS you have.....not exactly WHAT but HOW....

2:56 AM  
Blogger Tadatmya Vaishnav said...

Glad to know my posts have value to people other than me. I would really recommend Goldratt books for some solid fundae..and he writes in a very laidback manner, very easy to read.

4:34 AM  

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