Project management applications of the theory of constraints beyond ...

International Journal of Project Management 20 2002) 75±80www.elsevier.com/locate/ijpromanProject management applications of the theory ofconstraints beyond critical chain schedulingH. Steyn *Department of Engineering and Technology Management, University of Pretoria, Pretoria, 0002, South AfricaAbstractThe application of the Theory of Constraints TOC) is an approach that can be used to develop a variety of management techniques.As a result of the multi-disciplinary nature of project management a variety of di€erent applications within project managementare possible. The application of the TOC approach to project scheduling led to the development of the ``critical chain''technique that has been the subject of discussions in literature. This paper explains why TOC was initially applied only to projectscheduling. A second application of TOC is to manage resources shared by a number of concurrent projects. The basic principles ofthis second application are discussed in this paper. In addition to the above-mentioned two applications the TOC approach can alsobe applied to other areas of project management such as project cost management and project risk management. # 2001 ElsevierScience Ltd and IPMA. All rights reserved.Keywords: Theory of constraints; Critical chain; Project risk management; Project schedule; Project network; Resource scheduling; Project costmanagement; Multi project; Resource allocation; Human behaviour1. IntroductionThe Theory of Constraints TOC) is an approach thatis used to develop speci®c management techniques. Itwas ®rst popularised by the novel, The Goal [1], thatapplied the principles to operations management. Since1997 it has found application in two areas within projectmanagement. The ®rst application is scheduling of asingle project to reduce project duration and simplifyproject control. This is the main theme of the novelCritical Chain [2]. Only towards the end of this novelChapter 24) there is some indication of a furtherapplication to allocate resources that are shared byconcurrent projects.The assumptions and principles underlying the applicationto the scheduling of a single project have beeninvestigated in an earlier paper [3] that, like most literatureto date, covers only the application to individualprojects. A few authors [4,5], however, do mention theapplication to multiple concurrent projects that isalready being used in practice. The basic principles ofthis application are discussed in this paper. This paperfurther illustrates that the TOC approach can also be* Tel.: +27-12-420-3647; fax: +27-12-362-5307.E-mail address: herman.steyn@eng.up.ac.zaapplied to areas such as project risk management andproject cost management.2. Scheduling a single project Ð critical chain schedulingTraditionally time estimates for individual activitiescontain some provision for contingencies. Critical chainscheduling aggregates these provisions into a projectbu€er. As a result of aggregation the total contingencyreserve and thus project duration can be reduced [3].Because contingency reserves are removed from individualactivities and aggregated in a project bu€er, commitmentsregarding the completion date are only madeat project level. All other people working on the projectonly make realistic estimates, communicate expectationson activity durations and attempt to meet the realisticestimates. This implies that all due dates on individualactivities and sub-projects are eliminated [3]. Team membersknow that there is some allowance for contingenciesa bu€er) but if they need to use some of it, they have tomake this need visible and motivate it. This requires amindset that is quite di€erent from the one that normallyprevails where all people working on activities arerequired to commit themselves to due dates [3].Advocates of TOC often claim that in traditionalproject management provisions for contingencies are0263-7863/01/$20.00 # 2001 Elsevier Science Ltd and IPMA. All rights reserved.PII: S0263-786300)00054-5

76 H. Steyn / International Journal of Project Management 20 2002) 75±80too large because people might tend to commit themselvesonly on time estimates that they could meet with ahigh level of certainty. Also, managers or co-ordinatorsat each level within an organisational hierarchy couldbuild in their own reserves on top of the reserves built inby the people reporting to them. It is furthermorebelieved that there is a tendency to waste time as a resultof reserves that are liberal. Should these assumptions becorrect the author supports this view), it wouldstrengthen the case for critical chain scheduling. However,should the assumptions be incorrect the TOC wayof scheduling will still reduce project duration becauseof the e€ect of aggregation [3].In traditional project scheduling the critical path doesnot take resource availability into account and resourceallocation is done as an additional step. The criticalchain, however, takes resource availability into accountto the extent that activities done by the same resourceare scheduled in series. To prevent non-critical activitiesfrom delaying critical ones, feeding bu€ers are placedwhere non-critical paths feed into the critical chain. Afeeding bu€er contains most or all of the contingencyreserve relating to the relevant non-critical path. Propermanagement of the feeding bu€ers prevents the criticalchain from changing during project execution and leadsto a rigorous project plan [3].3. Reasons for the emphasis on schedulingIn applying the TOC concepts to project managementGoldratt and other advocates of the TOC approach limitedthemselves initially to project time management anddid not venture into other aspects of project management.Here is why: the TOC approach prescribes that theconstraint of a system has to be identi®ed and attentionfocussed only on the constraint until it is not a constraintany more. Project duration is considered the major constraintof projects in general. Three reasons for identifyingproject duration as the constraint are discussed below.3.1. Positive cash ¯owobtained fasterProject costs often escalate as a result of extendedduration. As the schedule of a project with a ®xed scopeincreases, costs usually increase [4]. Furthermore, revenuesare often reduced as a result of delays. Projectduration and project budget are sometimes traded o€with the assumption that reduced project durationwould be possible only with an increase in project costs.The most common time±cost trade-o€ technique withthis assumption is one that was developed in 1957 by theDuPont Company and Remington Rand Univac. Thisis often referred to as the Critical Path Method or CPM.The reason for this apparent discrepancy is that authorson techniques such as CPM often consider the projectitself as an end on its own, while in reality the projectoften only exists to create another system or product.The objectives of many projects are to establish products,services or other outcomes that exist well beyondproject closure. The product life cycle as opposed to theproject life cycle has to be considered. The project lifecycle only forms the ®rst phase of the product life cycle.Although the product life cycle is described in systemsengineering literature and in certain literature on projectmanagement such as BS6079 [6], it is neglected in much ofthe other literature on project management that considerhand-over, project closure and the lessons learned as theultimate goal. Each system has a goal. If the goal of theproject is to deliver a speci®c product or system, theresulting product or system should have some bene®cialgoal. In business the goal normally is to generate moneythrough sales. The objective of the project should be tomaximise the revenue of the resulting system or product.Total product life-cycle costs and total product life-cyclebene®ts rather than the project budget) should be themain considerations. To plan and execute a project normallyresults in an initial negative cash ¯ow. The objectiveof the rest of the product life cycle should be to obtainsome bene®t a positive cash ¯ow in the case of projectsdone for business reasons). If project risks are takeninto account, the positive cash ¯ow should generally farexceed the negative cash ¯ow. Therefore, if a projectwere to be delayed, the overall e€ect on cash ¯ow orother positive outcome) could be expected to be impaired.If the product life cycle as opposed to project life cycle) isconsidered, it often makes sense to reduce project durationin order to improve the internal rate of return evenif it requires greater expenditure during project planningand execution. The optimisation of total product lifecyclebene®t is the ®rst motivation for the assumptionthat project duration is a very important constraint.3.2. Contingency cost of delaysA second motivation for considering duration as animportant constraint is that the contingency cost ofproject delays could be very high. For example, marketshare could be lost if a project is delayed. This is mentionedin the context of new product development inCritical Chain [2].3.3. Preventing changes to stakeholder needsA third reason is that it is believed that extended projectduration not only leads to escalation of overheadcosts, but also leads to scope changes because stakeholderneeds could be expected to change over time.While scope changes are often not allowed, there arecases where scope changes during the project life cycleare permitted. When a project is completed early there isless time for the stakeholders' needs to change and

H. Steyn / International Journal of Project Management 20 2002) 75±80 77thus certain scope changes could be eliminated. This isespecially applicable to the development of productswhere changes in market needs or in technology couldbe addressed by subsequent product generations. Recentexamples include the development of mobile telephonesand certain computer-related products). In industrieswhere the project deliverable has an extended life e.g. inthe construction industry), expediting the project wouldalso eliminate scope changes. However, in certain casesit might be argued that a project should not be rushed inan attempt to prevent such scope changes.These three reasons provide the motivation for theinitial focus of applying TOC principles to reduce projectduration. Obviously the development of a schedulingtechnique for a single project had to be developed beforea technique for multiple projects could be developed.Three applications of TOC beyond the ``criticalchain'' application to single project scheduling are discussedbelow, viz. application to multi-project environments,cost management and risk management.4. Application of TOCprinciples to managing resourcesin multi-project environmentsIt is estimated that up to 90%, by value, of all projectsare carried out in the multi-project context [7]. Theproblem of allocating resources to concurrent projects isnot new: it is fundamentally the same as the problem ofscheduling a ``job shop'' where multiple jobs are routedthrough a workshop with a number of dissimilar machinesor resources such as lathes, milling machines, drillpresses and heat treatment facilities. Job shop schedulingreceived ample attention in the 1960s and 1970s.Elton and Roe [8] say that TOC works well whendealing with individual projects but falls short inexplaining how companies could best manage a portfolioof projects. Senior managers, therefore, need to supplementthe guidelines given by Goldratt [2] with otheradvice. They maintain that managers need to know howto juggle a portfolio of projects, and that the only advicethat the book Critical Chain [2]) o€ers on that subject isto make sure to allocate resources carefully across projectsto minimise the constraints on shared resources.What managers need is a wider perspective of aggregateproject planning such as is explained by Wheelwrightand Clark [9]. The statement by Elton and Roe [8] ``...to make sure to allocate resources carefully acrossprojects...'' is a fair description of what the novel, CriticalChain [2] o€ers on the topic of managing multipleprojects. However, in addition to the simpli®ed descriptionof the approach to allocate resources to multipleconcurrent projects described in the novel, a method hasbeen developed to address resource allocation in themulti-project context. This material is still mentionedonly super®cially in literature in the public domain andis currently addressed only in proprietary course material[10]. The basic principles are discussed below.The TOC approach involves ®ve steps [1,2]:1. identify the constraints) of the system;2. decide how to exploit the constraints);3. subordinate non-constraints to the decisions) onexploiting the constraints);4. elevate the constraints) in other words: take stepsto ``widen the bottleneck''); and5. by returning to Step 1 above, determine whether anew constraint has been uncovered, rendering theconstraint under consideration a non-constraint orless critical.For a single project Goldratt [2] de®nes the criticalchain the path that determines project duration) as theconstraint. In a multi-project environment concurrentprojects commonly depend on a pool of shared resources.A resource that is overloaded limits the number ofprojects that the organisation can execute and thus presentsa further constraint. The objective is to maximizethe number of projects that the organization can doconcurrently. The concept of the critical chain removesresource contention within a single project but it doesnot address resource contention among projects. Therefore,another way had to be found to allocate scarceresources to multiple concurrent projects.Applying the ®ve-step TOC approach implies that theresource or resources) constraining the capacity has to beidenti®ed TOC Step 1). Then the sequence of work to beperformed by such a Capacity Constraining ResourceCCR) has to be scheduled TOC Step 2). The scheduling ofother resources should be subordinated to this scheduleTOC Step 3). To accomplish Step 3 a CCR Bu€er isinserted before each task performed by the CCR. This typeof bu€er is sometimes also called a ``drum'', ``strategicresource'' or ``bottleneck bu€er''). Such bu€ers are illustratedin Fig. 1 where CCR indicates activities that areperformed by the Capacity Constraining Resource. Thesebu€ers prevent the CCR from having to wait when a precedingactivity has been delayed. In this way, non-constraintsare subordinated to the constraint and the riskFig. 1. CCR bu€ers inserted to prevent the CCR from being delayed.Adapted from proprietary course material [10].

80 H. Steyn / International Journal of Project Management 20 2002) 75±80multiple projects that share common resources. Thisapplication maximises the number of projects that anorganisation can handle while maintaining the principlesfor reducing project duration on each individual project.In addition to the contribution that the TOCapproach makes to project scheduling it can also beapplied to other areas of project management. Examplesof new applications include project risk managementand project cost management.As a result of the principle of aggregation, applicationof the TOC approach to project cost managementreduces project cost signi®cantly.When applied to project risk management the TOCapproach provides a model that ensures systematic reductionof risk. This ensures that risks not initially identi®ed ashigh receive the required attention at the right time.ReferencesFig. 2. Proposed risk management model for systematic riskreduction.cases indicating that project duration could be reduced,literature still lacks information on practical results in thefour areas mentioned in this paper, namely single projectscheduling, multiple project scheduling, cost managementand risk management. Results of cases where the TOCapproach has been applied to these four areas need to bepublished. In addition, other areas of application shouldalso be investigated. For example: Elton and Roe [8] correctlyclaim that TOC has not yet found signi®cant applicationin the ®eld of project selection. However, this doesnot imply that it is impossible to apply the TOC principlesto this problem. The possibility of applying TOC to theproblem of project selection could be investigated.8. ConclusionsThe TOC time management technique critical chainscheduling) has been extended to allocate resources to[1] Goldratt E.M. The goal. Great Barrington, MA: The North RiverPress, 1st ed. 1984, 2nd ed. 1986, 2nd revised ed. 1992.[2] Goldratt EM. Critical chain. Great Barrington, MA: The NorthRiver Press, 1997.[3] Steyn H. An investigation into the fundamentals of critical chainproject management. International Journal of Project Management,PM9996 in press).[4] Leach LP. Critical chain project management improves projectperformance. Project Management Journal 1999;302):39±51.[5] Newbold RC. Project management in the fast lane Ð applyingthe theory of constraints. St. Lucie Press, 1998.[6] British Standards Institute. BS 6079:1996 Ð Guide to ProjectManagement. 1996. p 40.[7] Turner JR. The handbook of project-based management. UK:McGraw-Hill, 1993.[8] Elton J, Roe J. Bringing discipline to project management. HarvardBusiness Review 1998;March±April.[9] Wheelwright SC, Clark KB. Creating project plans to focus productdevelopment. Harvard Business Review 1992;March±April.[10] Avraham Y. Goldratt Institute, Introduction to the theory ofconstraints project management application, Version 7.3.2, NewHaven CT, 1997.[11] Turner JR. Controlling progress with planned cost or budgetedcost. International Journal of Project Management2000;183):153±4.[12] PMI Project Management Standards Program, A guide to theproject management body of knowledge. Project ManagementInstitute, Newtown Square, PA, USA Exposure Draft 2000).[13] Chapman C, Ward S. Project risk management Ð processes,techniques and insights. John Wiley and Sons, 1997.[14] Standards Australia, AS/NZS 4360:1955. Risk management,Australia Homebush. 1995.