Daniel Walsh | Managing constraints effectively
Daniel Walsh | Managing constraints effectively
Time is money for project management expert Daniel Walsh. He advises companies on finishing projects on or before time. Walsh, who is a consultant to companies such as Boeing Co. and Lockheed Martin Corp., and organizations such as the US Marine Corps. and the US Navy, has successfully applied the theory of constraints (TOC) in critical chain project management across industries over the past 12 years. For instance, Walsh helped Phoenix-based Shea Homes, a leading homebuilding company, to improve cycle time by 40%—from 91 days to 56 days—and save around $6.9 million (about Rs27 crore) in the first year from capital reduction alone, by critical chain management.
Founder of Vector Strategies Inc., a San Diego-based business management and strategic planning consultancy, the 62-year-old Scot began his career with the US Navy after acquiring a Bachelor of Arts degree from Southeastern Louisiana University and Master of Science from the University of Southern California.
It was during his stint in the US Navy, where he studied aerospace engineering, that Walsh discovered the theory of constraints and its creator, Eliyahu M. Goldratt, an Israeli physicist who became a business consultant. After retiring from the navy as captain, Walsh set up Vector Strategies and started advising companies on increasing productivity and profitability.
In an interview with Mint, Walsh—who will be visiting India for the first time this week—spoke about the importance of critical chain management in a fast-expanding economy and how companies can add to their bottom lines by finishing projects before schedule.Edited excerpts:
What is the theory of constraints? How is critical management through this theory different from the traditional approach?
The theory of constraints (TOC) is a management concept, which focuses on identifying what is impeding an organization from producing/providing more value addition to its product/services. Once these constraints are identified, they are removed or managed, resulting in an increased throughput, which is key for improving net profit and/or return on investment. Throughput is money generated through sales, minus the variable costs associated with selling that product.
In a not-for-profit organization, such as in government or education, throughput is viewed as providing increased quality of levels of service per dollar unit.
Traditional approaches attempt to provide protection against variability—uncertainties encountered in the project—by embedding safety or contingencies in terms of time and money throughout the project. TOC provides a better alternative by placing the protection where it will provide greater returns with significantly less resources.
In essence, it immunizes the project by providing management with knowledge about when and where they have to intervene. Just as importantly, it shows management when the project, or system, is within control limits and does not need any intervention. Unnecessary intrusion often leads to inefficiency. For instance, while driving, the cruise control monitor takes care of the speed and requires no input from the driver. In fact, speeding or braking leads to increased gas consumption.
What are the typical constraints that stop a project from being completed on time, within budget and desired quality?
The typical constraints we see in traditionally managed projects stem from the way the schedule itself is put together in the planning phase, such as lack of understanding and consideration of the impact bottlenecks will have in the execution phase.
The project team mistakenly believes they need moreresources and money or, the requirements are unrealistic tobegin with. Seldom is this the case.
In fact, we have empirical data that suggests a high correlation between poorly managed projects, which do not finish on time, with increased levels of spending, rework and deterioration of quality. Continuous intervention and changing priorities not only eat up a lot of time but also affect quality.
How does it help in dealing with the bottlenecks better? More technology, better communications or more effective human resources?
Critical chain provides powerful metrics that everyone uses in planning and execution. They are relatively few but allow the entire team to communicate very effectively and provide project focus by not reacting to meaningless individual metrics that are in use today.
Rather, the team can clearly see the impact of specific tasks in real time that must receive priorities.
In other words, they see the cause and effect these tasks are having on the project completion time and focus on what action must be taken in a timely manner.
Conventional project management cannot provide this type of information.
Which are the sectors/organizations where TOC project management works best?
Let me just say TOC and critical chain have successfully been used in every imaginable sector/organization. The reason is that it is based on improving processes and developing strategies based on proven specific TOC-based applications and solutions.
TOC emphasizes full utilization of existing capacities. Do you think that companies in an expanding economy really focus on maximizing potential?
They most certainly need to be concerned. In an expanding economy, the supply chain must grow in such a way that it will be able to support individual companies. History has taught us that this expansion is unpredictable and uneven when viewed through the prism of time. When viewed more granularly at the individual company level, the effects can be catastrophic when this mismatch materializes. The company needs a synchronized and aligned relationship within its supply chain—both as a supplier and a recipient.
If a company is successfully managing its internal constraints, it will be maximizing profits. In order to expand profitability, the constraints of the company will shift externally into the market. So, its dependence on the supply chain is even more of an issue. Since the company cannot control the fluctuating market demand, it must be leveraging its constraints smartly. Remember, if the company cannot recognize, or ignores, its constraints, then its competitors will.
How can Indian companies benefit from critical chain management?
I believe India is at a crossroads of development and prosperity. On the one hand, you have intelligent, industrious and capable managers and on the other, you have the great challenge of expanding infrastructure and bringing even more people into this management pool to sustain substantial levels of growth. I truly believe that TOC and critical chain have the capability to significantly contribute to this challenge.
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