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TOC IN A NUTSHELL
           Project Management & Software Dev.
                       November 2012
                                            Eliyahu M. Goldratt
                                       (March 31, 1947 – June 11, 2011




Ran Zadik
                                                                   1
rzadik@gmail.com
Framework
• Philosophy
   Statistical fluctuation & interdependent events
   Three improvement areas (Throughput , Inventory , Operating Expense)
                                    Unlimited        finite         finite
   Five Focusing Steps
• Production                                  • Distribution
   Drum-Buffer-Rope                             Synchronized pull replenishment
• Accounting                                  • Marketing
   Throughput Accounting                        Un-refusable or “Mafia” Offers
• Project Management                          • Sales
   Critical Chain – single projects             Buy in Process
   TOC Multi-Project Management               • People / Leadership
• The Thinking Processes                        Using the Thinking Processes for
   Evaporative Clouds                           day to day management
   Reality Trees                              • Strategy
   Prerequisite and Transition Trees            Viable Vision
                                                                              2
Basic Beliefs
• Any system (company) can perform better
• Exact science methods can be applied on management
• It’s possible to manage systems and people using
  logical principles




                                                   3
Statistical fluctuation & interdependent events


• The activities of any company contain two basic
  phenomena:
  1) statistical fluctuation
  and
  2) interdependent events



   Anything you do will have
          variable results
                                                    4
Cause and Effect
To really understand TOC, you must believe that an
infinite level of production is theoretically possible in
your company

Then you find the cause and effect relationships that
prevent this from happening and change them




                                                            5
System Throughput

• Who uses the results (the output) of the System ?
• What do they value?
• Throughput = the amount of valuable output we
  produce
• Define metrics that measure the throughput




                                                      6
Throughput Accounting
1. Throughput (T): The rate at which the system generates
money (through sales).

2. Inventory (I): All of money the system invests in items it
intends to resell

3. Operating Expense (OE): all the money the system spends to
turn inventory into throughput

4. Net Profit (NP) = T- OE

5. Return on Investment (ROI) = NP / I

                                                                7
Constraints and Focusing

• Constraint is anything that prevents the system from
  achieving more of its goal.
  OR
• Constraint is the thing that is
   preventing the organization
  from getting more throughput
• Core principle within TOC : There is only one
  Constraint we should address in a single point of time
•       Finding the Constraint is a mean of Focusing
•       How can we find this constraint ?
                                                       8
TOC Five Focusing Steps

• Step 0: Determine (and agree on) the goal of the system
  - define the System Throughput

1.   IDENTIFY the system's constraint
2.   Decide how to best EXPLOIT the constraint
3.   SUBORDINATE everything else to the above decision
4.   ELEVATE the system's constraint
5.   If, in a previous step, a constraint has been broken,
     go back to step 1
     Prevent INERTIA from becoming the system's constraint
                                                             9
Five Focusing Steps -Illustration




• What to change?
• What to change to?
• How to cause the change?
                                    10
Local Optima

• Local optima happens when parts of the chain
  elements optimize their output without looking at
  the system as a hole.
• The outcome is usually increase in WIP (or inventory)
  and the throughput of the organization is lower than
  possible.
• Example : Cost accounting
• Unless the consumer has bought no one in the supply
  chain has sold


                                                      11
Project Management - TOC perspective

• Why do projects often fail to achieve their planned
  targets ?
• Murphy's law: Whatever can go wrong, will go wrong
• Parkinson's law: Work expands so as to fill the time
  available for its completion
Why?
• Student’s syndrome
• Multitasking
• Gold Plating

                                                     12
Project Management - TOC perspective

• Delivery and estimation of tasks :




                                       13
Project Management – Critical Chain

What is a critical chain of a project ?
• A set of dependent tasks that define the expected lower
  limit of a project's possible lead time
• We take into account both logical dependencies and
  resource dependencies
• The network of tasks is
  "resource leveled" against
  a finite set of resources


                                                      14
Project Management – Critical Chain

•   Remove the buffer that we have allocated for each task
•   Remove tasks due date
•   Plan Early finish (not early start)
•   Say No to Multi-tasking
•   Project Buffer
•   Feeding Buffer              Buffer Management




                                                        15
Project Management – Critical Chain
Remove the buffer that we have allocated for each task:
Estimate should be done without buffers
It’s really a difficult task
because task buffering is
wired into our thinking




                                                      16
Project Management – Critical Chain

Remove tasks due dates
• No task has planned finished date
• Each task will be planned to complete until the start
  date of following task (Plan Early finish ,not early start)
• Team members can freely express their views of task
  duration




                                                            17
Project Management – Critical Chain

Say No to Multi-tasking




                                       18
Buffer Management

Buffer Management:
• Buffers are a mean protect against Murphy’s Law
• Buffers consumption (or expected consumption) can be
  indicators that something might be amiss
                                      BUFFER

                             OK       PLAN        ACT


                          Use “time to complete” task
                          estimates to evaluate buffer
                          consumption

                                                         19
Project Buffers

• Do not use task level buffers
• Use project buffer to protect the critical chain




                                                     20
Feeding Buffers

•   The critical chain is the project constraint
•   According to TOC we have to protect the constraint
•   But what if non-critical tasks take longer than expected?
•   We use feeding buffer to protect the critical chain tasks




                                                          21
What’s in it for the Managers?

• handling Parkinson’s and Murphy’s Law effectively
  (Better decisions by taking away the risk factors by some
  extent)
• Greater chances that project will not consume the
  entire buffer that is padded at the end. This is because
  the buffer will be consumed only when something
  wrong happens
• Multi-tasking awareness
• Team spirit

                                                        22
What’s in it for the Team Members?

•   integrated view of the entire project
•   The role of each team member is clearer
•   Avoid multi-tasking advantages
•   Prioritization is easier
•   No due dates for individual tasks
•   Team members knows they will not be blamed for
    inaccurate estimation




                                                     23
TOC and LEAN




               24
Goldratt's books
• The Goal (1984) TOC improving organizations , accounting aspects.
  (manufacturing company) continuous improvement
• The Race (1986) logistical system ,drum-buffer-rope (DBR)
• The Haystack Syndrome (1990) performance measurements, data vs.
  information
• What is This Thing Called Theory of Constraints and How Should it be
  Implemented? (1990) -five focusing steps of on-going improvement
  and fundamentals of the Thinking processes
• It's Not Luck (1994) marketing, distribution and Business Strategy
• Critical Chain (1997) project management ,The Critical Chain method
• Necessary But Not Sufficient (2000) Enterprise resource planning (ERP)
  and operations software
• The Choice (2008)
• Isn't it Obvious (2009) Retail

                                                                    25
TOC

                             Thank you




                                                                       26
Ran Zadik rzadik@gmail.com        Many thanks to Goldratt Consulting

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Toc in a nutshell

  • 1. TOC IN A NUTSHELL Project Management & Software Dev. November 2012 Eliyahu M. Goldratt (March 31, 1947 – June 11, 2011 Ran Zadik 1 rzadik@gmail.com
  • 2. Framework • Philosophy Statistical fluctuation & interdependent events Three improvement areas (Throughput , Inventory , Operating Expense) Unlimited finite finite Five Focusing Steps • Production • Distribution Drum-Buffer-Rope Synchronized pull replenishment • Accounting • Marketing Throughput Accounting Un-refusable or “Mafia” Offers • Project Management • Sales Critical Chain – single projects Buy in Process TOC Multi-Project Management • People / Leadership • The Thinking Processes Using the Thinking Processes for Evaporative Clouds day to day management Reality Trees • Strategy Prerequisite and Transition Trees Viable Vision 2
  • 3. Basic Beliefs • Any system (company) can perform better • Exact science methods can be applied on management • It’s possible to manage systems and people using logical principles 3
  • 4. Statistical fluctuation & interdependent events • The activities of any company contain two basic phenomena: 1) statistical fluctuation and 2) interdependent events Anything you do will have variable results 4
  • 5. Cause and Effect To really understand TOC, you must believe that an infinite level of production is theoretically possible in your company Then you find the cause and effect relationships that prevent this from happening and change them 5
  • 6. System Throughput • Who uses the results (the output) of the System ? • What do they value? • Throughput = the amount of valuable output we produce • Define metrics that measure the throughput 6
  • 7. Throughput Accounting 1. Throughput (T): The rate at which the system generates money (through sales). 2. Inventory (I): All of money the system invests in items it intends to resell 3. Operating Expense (OE): all the money the system spends to turn inventory into throughput 4. Net Profit (NP) = T- OE 5. Return on Investment (ROI) = NP / I 7
  • 8. Constraints and Focusing • Constraint is anything that prevents the system from achieving more of its goal. OR • Constraint is the thing that is preventing the organization from getting more throughput • Core principle within TOC : There is only one Constraint we should address in a single point of time • Finding the Constraint is a mean of Focusing • How can we find this constraint ? 8
  • 9. TOC Five Focusing Steps • Step 0: Determine (and agree on) the goal of the system - define the System Throughput 1. IDENTIFY the system's constraint 2. Decide how to best EXPLOIT the constraint 3. SUBORDINATE everything else to the above decision 4. ELEVATE the system's constraint 5. If, in a previous step, a constraint has been broken, go back to step 1 Prevent INERTIA from becoming the system's constraint 9
  • 10. Five Focusing Steps -Illustration • What to change? • What to change to? • How to cause the change? 10
  • 11. Local Optima • Local optima happens when parts of the chain elements optimize their output without looking at the system as a hole. • The outcome is usually increase in WIP (or inventory) and the throughput of the organization is lower than possible. • Example : Cost accounting • Unless the consumer has bought no one in the supply chain has sold 11
  • 12. Project Management - TOC perspective • Why do projects often fail to achieve their planned targets ? • Murphy's law: Whatever can go wrong, will go wrong • Parkinson's law: Work expands so as to fill the time available for its completion Why? • Student’s syndrome • Multitasking • Gold Plating 12
  • 13. Project Management - TOC perspective • Delivery and estimation of tasks : 13
  • 14. Project Management – Critical Chain What is a critical chain of a project ? • A set of dependent tasks that define the expected lower limit of a project's possible lead time • We take into account both logical dependencies and resource dependencies • The network of tasks is "resource leveled" against a finite set of resources 14
  • 15. Project Management – Critical Chain • Remove the buffer that we have allocated for each task • Remove tasks due date • Plan Early finish (not early start) • Say No to Multi-tasking • Project Buffer • Feeding Buffer Buffer Management 15
  • 16. Project Management – Critical Chain Remove the buffer that we have allocated for each task: Estimate should be done without buffers It’s really a difficult task because task buffering is wired into our thinking 16
  • 17. Project Management – Critical Chain Remove tasks due dates • No task has planned finished date • Each task will be planned to complete until the start date of following task (Plan Early finish ,not early start) • Team members can freely express their views of task duration 17
  • 18. Project Management – Critical Chain Say No to Multi-tasking 18
  • 19. Buffer Management Buffer Management: • Buffers are a mean protect against Murphy’s Law • Buffers consumption (or expected consumption) can be indicators that something might be amiss BUFFER OK PLAN ACT Use “time to complete” task estimates to evaluate buffer consumption 19
  • 20. Project Buffers • Do not use task level buffers • Use project buffer to protect the critical chain 20
  • 21. Feeding Buffers • The critical chain is the project constraint • According to TOC we have to protect the constraint • But what if non-critical tasks take longer than expected? • We use feeding buffer to protect the critical chain tasks 21
  • 22. What’s in it for the Managers? • handling Parkinson’s and Murphy’s Law effectively (Better decisions by taking away the risk factors by some extent) • Greater chances that project will not consume the entire buffer that is padded at the end. This is because the buffer will be consumed only when something wrong happens • Multi-tasking awareness • Team spirit 22
  • 23. What’s in it for the Team Members? • integrated view of the entire project • The role of each team member is clearer • Avoid multi-tasking advantages • Prioritization is easier • No due dates for individual tasks • Team members knows they will not be blamed for inaccurate estimation 23
  • 25. Goldratt's books • The Goal (1984) TOC improving organizations , accounting aspects. (manufacturing company) continuous improvement • The Race (1986) logistical system ,drum-buffer-rope (DBR) • The Haystack Syndrome (1990) performance measurements, data vs. information • What is This Thing Called Theory of Constraints and How Should it be Implemented? (1990) -five focusing steps of on-going improvement and fundamentals of the Thinking processes • It's Not Luck (1994) marketing, distribution and Business Strategy • Critical Chain (1997) project management ,The Critical Chain method • Necessary But Not Sufficient (2000) Enterprise resource planning (ERP) and operations software • The Choice (2008) • Isn't it Obvious (2009) Retail 25
  • 26. TOC Thank you 26 Ran Zadik rzadik@gmail.com Many thanks to Goldratt Consulting