Mark Woeppel on Management and Execution

Probabilistic project scheduling uses an understanding of the variation in project tasks and the project environment (project risks) to make a quantitative prediction of a range of project outcomes. Instead of providing a fixed date to answer a question such as “When is first oil?” probabilistic scheduling provides a range of answers of the type, “There is a 50% chance of achieving first oil by date x or sooner, and a 90% chance of achieving it by date y or sooner.”

A more general application of probabilistic planning also considers the range of project costs and returns. This evaluation focused on the range of outcomes for key project dates, such as first oil. Quantifying the range and probability of outcomes can aid project planning and decision-making.

Probabilistic scheduling provides a method to quantify the risk management process. Quantifying the impact of potential risks improves decision-making affecting the control of those risks, and potentially on the overall financial viability of the project. It specifically aids the upfront recognition of critical issues and proactive management of those issues.

So how does better planning result in shorter project lead times? 

First of all, there are fewer surprises.  Having done a proper job of evaluating project risk and task durations, you’re prepared to deal with the “murphys” that always occur during project execution.  Since you’ve already prepared, you can respond much quicker, without wasting time.

Second, a good project plan moves these potential risk events off the critical path (if possible!).  By moving risk events off the path that determines project delivery, eliminating disruption to your deliveries.  That doesn’t happen without planning.

Third, the tasks themselves are stripped of the safety that most project plans have, with all task safety aggregated at the end of the critical chain.  Saftey aggregation allows you to manage the safety as a project level item, rather than letting it be dispersed to every resource in your project.  That means that you need less, and the overall project duration is shorter with greater certainty of completion on time.

Ok, I have a white paper that explains this much more.  Get it here.

So you’ve been hit by the economic crisis, eh?  Demand has softened up a bit, sales are uncertain.  You’re wondering what you’re going to to do with all that extra capacity.  You don’t want to lay anyone off, but if sales don’t pick up, you can’t stay solvent.  Here are some things you can do to avoid layoffs while keeping the wheels on and position yourself for the recovery.

Focus on customer service. I’m not talking about being nicer, I’m talking about the basics of performance.  The number one reason that customers change suppliers is because of reliability issues.  Not price, not quality.  On time delivery.  Are you delivering on time?  Are your lead times consistent with the competition?  Don’t give your customers a club to hit you with.  This is entirely under your control.

I have a number of customers that improved their on-time performance and not only improved the customer service, but actually increased revenues.  They became the suppliers of choice simply because they could be counted on to delivery the goods when the customers were in a tight spot.

Build customer relationships. I’m not talking about buying more steak dinners or tickets to the ball game (although building relationships is always good), I’m talking about finding new ways for your firm to add more value to your customers.  Take a look at your value proposition.  Can you find a way to deliver more value?  You have all those skilled people.  Can you redeploy them to find new ways of helping your customers?  New services?  Modifications to existing products or services?

One of my customers was able to increase the amount of business with a key customer because they added a service to keep their product on site for on demand consumption.   It cost them very little, but it cemented a critical relationship, locked out other suppliers and positioned them for more business with that supplier.

Conserve cash. Eliminating non-essential spending is a common strategy, but there are other opportunities to improve your cost structure now and position yourself for even better profitability when things turn around.

• Look at your receivables risk.  Maybe it’s time to offer discounts on those old debts to encourage customers to pay immediately.  Better something now than nothing later.
• Renegotiate your materials pricing.  Now is a good time to re-evaluate your supplier’s performance and pricing.  There is never a better time to negotiate long term agreements than when the price is low, just ask Southwest Airlines!  They saved nearly$2 B in fuel costs in 2008 because of their hedging strategy.
• Look at your compensation strategy, especially sales commissions.  Are you paying for results achieved lately or a long time ago?  Often we believe that sales reps are due a commission for life. That turns hunters into farmers.  In this economy, you need hunters.  Are you creating the incentive to generate new business or hang on to old business?
• Take a fresh look at outsourcing.  Do you have the capability to bring some of  that work you had sent offshore back home?  Sure, your people cost more, but anything you can do in-house will go a long way to cover your fixed costs and help you retain your people.

Focus sales efforts on the stars in your product portfolio. Don’t waste your effort on selling marginally profitable products.  Make sure your sales efforts are geared to sell the products that maximize the highest rate of return.  That means focus on the products that generate the fastest return.  It may not be the highest margin products that deserve the attention, but those products that earn the highest turnover.

For example, if you have a product that generates $5 in gross margin once a month, it’s not worth as much as a product that generates $2 in gross margin every week.

Reduce your lead times; finish early. Focusing on project or product lead times improves your rate of cash generation.  Reducing your lead times also reduces your cash requirements.  Less work in process equals less investment equals more cash flow.  If you have projects in the pipeline, early finish equals early benefit.  It may be worth the investment to focus on bringing those projects in early.

When business is down, managers often take a defensive approach and hunker down and wait for the storm to pass.    Use this time as an opportunity to make your business more competitive.   You’ll be healthier now and in a great position to respond when the economy picks up.

Breakthrough in scheduling simplifies managing a plant, while making it more responsive, improving on time delivery and throughput.

Imagine if…

• Your plant ran on auto-pilot – people know what to do, and they do it!
• Every resource is synchronized to your customer’s need
• You deliver every order not only when you promised it, but sooner.
• Your team is engaged in more fire prevention than fire fighting

Every order is delivered on time, in less time, with minimal management intervention.
The Maximum Flow System is a set of tools and processes to schedule and manage your order fulfillment efforts that involve planning, management, and ongoing improvement that results in:

• 20% more throughput
• 25% shorter lead times
• 15% more sales
• 20% more cash flow every month
• Improved labor productivity of 15% or more

Despite the advances in information technology and systems, most plants manage the order fulfillment process of prioritizing and managing customer orders as if it were an art, using a craftsman approach, rather than treating order fulfillment as a system, requiring a process to manage and control. Rarely is the order fulfillment process treated as a process, with sequential steps and appropriate controls. Instead, order fulfillment is delegated to the resource owners (the plant) who have a bigger incentive to be “efficient” than deliver on time. As a result, the important task of customer satisfaction is an afterthought in process improvement. In the end, orders are thrown over the wall from sales to production, like hand grenades that might explode into a product that satisfies the customer.

The Maximum Flow System causes people to synchronize their day to day efforts towards the delivery requirements of the customer, which results in on time delivery of the customer’s order, with less effort and management intervention.

The Maximum Flow System Coaching Program

The Maximum Flow System Coaching Program will teach you not only what you need to do to improve performance, but the sequence of implementation steps and the obstacles to success.  Everything you need to consistently deliver on time while eliminating the firefighting and chaotic nature of the plant.  Enrolling the program will make you the beneficiary of the lessons I’ve learned in organizations from small to large, from simple to complex, from custom products to standard products, and more.

Click here to read more…

On April 29, 8am-9:30am PST, I’ll be presenting a webinar on Critical Chain Project Management. This event is sponsored by the Theory of Constraints Certification Organization (TOCICO).

This one hour presentation (with a half hour for questions) by me, Mark Woeppel, will present the core concepts of the CCPM method as it applies to three main areas of projects: execution, planning & project portfolio management.

You’ll learn:

• The main reason most projects fail deliver on their promises of on time delivery, budget & scope.
• The core ideas behind CCPM
• Why CCPM delivers real results
• A strategy to improve your project performance

Free for TOCICO Members
Non-Members $40
All proceeds go to TOCICO

To enroll, click here

Continuous Improvement (CI) organizations must be profit centers, not cost centers.  Too often, these organizations are established with little thought as to how they will function with the rest of the organization.  As a result, the CI organization goes about aimlessly “improving”, with no bottom line results from their effort.  No results = no buy-in.  No buy-in = resistance to change.  Resistance to change reinforces the lack of results.  Without any real results for their effort, people become discouraged.  If the cycle is not broken, the improvement initiative fails and management moves on to the next “thing”.  People become even more cynical because they think it’s the next “flavor of the the month”.

Stop it.

Take control of your improvement efforts by forcing the CI organization to justify their existence.   The return on your improvement investment should be at least 5 to 1.  Every year.  Without realized returns, the continuous improvement organization is mere window dressing.  Rather, it’s worse than window dressing, it’s poison; it is harming the organization.  Hurting your ability to move forward.

Fortunately, taking control is fairly straightforward:

Insist that all “improvement” projects are commissioned by a senior manager who is accountable for the results.

Being “commissioned” means being “sent”.  The senior manager sends a group to get something done, a task they’re quite accustomed to.  They’re given a budget, specific goals, and a time line.

This ensures that every project will be linked to the strategic objectives of at least one senior manager and linked to the global objectives of the organization (presuming the senior manager’s goals are in line with the rest of the organization).  It prevents local projects that are done just for the sake of “progress” or “tool adoption”.  After all, if the project doesn’t move the organization towards its strategic goal, how could it be called “progress” at all?

Ensure the local process owner is accountable for achieving the results.

No improvement project is done in a vacuum.  It’s done in someone’s area of responsibility.  That “someone” should be actively involved in the project, ensuring that the results are achieved by the people doing the work.

The senior manager gives the task to the project team and makes the process owner accountable for results.  This ensures that the project doesn’t become something extra the process owner has to do, but is central to what the process owner is doing.   If there’s resistance to change, it will rectified quickly!

Put teeth into your structure by reducing budgets of organizations that improve.

This may seem counter intuitive, because we shouldn’t reward improvement with penalty.  That’ s not what I’m suggesting. A cut in the budget is not a punishment, it is a reward (if your process owner sees it otherwise, you have a different problem that I can’t discuss here).   When the project is completed, a portion of the improvement goes from the local area back to the general fund or to other uses.

For example, let’s say that a project reduces expenses by $10,000 per month.  The process owner’s budget would then be reduced by that amount.  A portion of that, say 40%, would go to fund the continuous improvement department, 10% would go to a reward fund, and 50% is returned to the corporate budget for reallocation (to profit!).  If the savings is in payroll, people don’t get released, they are reallocated to areas where they can contribute.

In a sense, the process owner writes a check from his budget back to corporate.  This encourages him to be certain the improvements are real, not simply phantom “savings” that are bookkeeping tricks.

Building financial and organizational accountability into your continuous improvement process forces the improvement community to focus on the real needs of the organization and on projects that have concrete results.  Without accountability, your improvement efforts will be a show with the rest of the organization watching and applauding, but not participating.

According to Kishore Sengupta, an associate professor at France’s Insead business school, says that project managers says with 10 or more years of experience collectively generated higher costs and more errors and missed more deadlines than less-experienced colleagues.

Mr. Sengupta developed a simulation program for project management that demonstrates when project managers fall into the patterns of behavior that worked in past projects generally did worse than less experienced project managers.

“The more experience we have, the more overconfident we get,” Mr. Sengupta says.

All of us fall into patterns of behavior.  This is especially true when that behavior was successful in the past.  How do we internalize this lesson and prevent behavioral inertia?

This has profound implications for managing change efforts, since successful managers believe they already have the answer.  In order to be effective, they must be made aware that the strategies of the past may not apply to the present.  It takes some internal honesty to question yourself.

If you’re managing a project, the buffer burn ratio is a reliable way to determine if your management strategies are effective.  If they are, you’ll see buffer recovery.  If not, you’ll see continuing consumption of the project buffer.  The good news is you’ll see it before the project is late – in time to discover your strategies are not working as you hoped.

The buffer burn ratio is essential to understanding the risk of completing the project on time.

Progress on a project is measured by the ratio of work to be completed to the amount of buffer remaining.  The ratio tells us when a project is in danger of not being completed on time.  For example, a project that has 100% of the work remaining and 100% of the buffer remaining has a ratio of 1:1; it’s on schedule. A project that has 80% of the work remaining and 40% of the buffer remaining has a ratio of 8:4; clearly, it’s at risk of not finishing on time.  This the Buffer Burn Ratio.

When tasks are delayed, they consume the buffer , potentially threatening the project completion date.  By identifying which tasks are creating the highest buffer burn ratio, the project manager knows which task to focus on right now. His efforts can then be directed to solving that problem, thus causing the entire project to move forward.

Buffer Burn Ratio Fever Chart

Read the full article about learning from the past at the Wall Street Journal here.

The main reason organizations don’t realize maximum output from their capacity is that planning and execution behavior is not aligned with the global purpose of the organization. There are two behaviors that account for this misalignment.  They are:

• Over-production; Making more than the customer (or the next step) requires. Usually manifested as batching behaviors and
• Releasing work too early into the system (allowing overproduction); resulting in high work in process inventory.

These two deeply embedded behaviors are the result of management’s beliefs about the proper way to deploy resources to the work. There are countless policies, procedures and measurements that reinforce the erroneous idea that in order to manage well means to keep workers and/or machines producing as much as possible, as fast as possible. We have been taught that idle resources are major waste. Those that have implemented ToC (and Lean) realize this thinking is fundamentally flawed.

Managers must change their processes, policies and measurements to reinforce behaviors that lead to more flow, not greater resource efficiency. The very nature of efficiency must be redefined, from the resource level to the system level, from individual production to system production.

How do you get managers to realize that this deeply held definition of efficiency (the sum of local improvements is equal to improving the system as a whole) is leading to shortages of capacity?  It’s  not a small task.  The thinking is institutional; managers are not even aware of this hidden assumption. Beyond the realization that the assumption is wrong, how do you get changes in behavior? Despite conventional wisdom, behavioral research demonstrates that people don’t necessarily act from the beliefs they have, but from the reinforcements they receive. Therefore, in order to get people to change behavior, you must not only find the erroneous assumption(s) and kill it, you must also identify the reinforcement mechanisms that drive the undesirable behaviors and change those, too.

Many companies think they at capacity because their delivery performance is suffering. This is a logical conclusion, but most organizations waste at least 20% (I think it’s really closer to 50%, but I’m being conservative) of their available capacity through synchronization mistakes and poor policy choices . Managers must remember that the output a system generates is a function of how resources are managed, not just the total number resources it owns.  To find this lost production capacity, managers often use lean manufacturing techniques to increase their output. However, when applying these techniques the results are uncertain. A recent study (see related article on this blog) demonstrated that only 2% of companies implementing lean techniques fully achieve their objectives and less than a quarter (24%) achieve significant results.

While Value Stream Mapping looks at behavior, it doesn’t look at the causes of the behavior.  It does not identify the root causes for organizations losing output from their capacity.  Without eliminating the causes for behaviors, you cannot eliminate them.  For example, you cannot stop people from eating unless you can eliminate the cause of it – hunger.  You can remove the food to prevent people from eating, but once food appears, they’ll eat again.  In the same way, we must address the behavioral causes for lost capacity and create new reinforcements for the correct behaviors.

With a few changes focused on identifying the causes of behavior, you can improve the results of your VSM efforts.

• Create a process map of the value creation process
• Identify excess and shortages of inventory
• Identify the behaviors that create the inventory, delay and shortages
• Identify the formal behavior reinforcement mechanisms
• Identify the informal reinforcement mechanisms
• Identify process activity errors that waste capacity
• Assess information quality for decision making
• Assess decision processes for downstream impact

To make the most of the system’s capacity one must ensure management is reinforcing behaviors that maximize flow. Flow behaviors are most often blocked by local efforts to achieve high efficiency, but there are deeper manifestations of the efficiency concept that must be identified and rooted out before a process can be transformed.

By modifying the existing tools of process mapping and value stream mapping, one can get an understanding of the main behaviors that hide system capacity. This can result in an early stage transition from efficiency behaviors to flow behaviors, providing a systems level guide to process capability and development of the “to-be” state of the value creation process. By increasing the understanding of current capacity utilization and finding the behaviors that block systems level improvement, one can reduce the capital risk associated with adding additional fulfillment infrastructure.

A parable is a short story that conveys a profound truth.  A friend of mine, Clarke Ching, wrote this compact business book that contains a GREAT idea.  Spend 20 minutes reading it.  You’ll be glad you did.

The story’s protaganist is a software developer that fears he may lose his job.  His company is about to lose a major client and he comes up with a very simple idea to change his company’s offer, helping both his client and his company.  I found it very thought provoking – it made me think about how my firm creates and presents an offering to a client.

One would think we have the idea by now…

A recent study done by the London School of Economics and Stanford University shows that a standard of management practice is linked to the favorable financial performance of the business. The way an organization is managed has a strong effect on its performance. It also states that “Management excellence is a matter of internal policy and not just the business environment”

The study cites practices such as:

The study shows that practical management techniques actually do deliver financial results for the company, yet many organizations do not even attempt to implement such practices. “For companies, the research is good news, suggesting that they access to dramatic improvements simply by adopting good practices used elsewhere.”, says the authors.

The study of 4,600 factories in 12 countries, referenced in the September 8 issue of The Wall Street Journal, found that, “a one-point increase in a factory’s management rating (on a one-to-five scale) translated to a 25% increase in labor productivity and a 65% increase in return on invested capital.”

These results, which Harvard Business School said are, “pioneering work,” and, “a real innovation in the study of management,” led experts to conclude that, “common management techniques such as setting targets, monitoring performance and ‘lean’ manufacturing actually help companies become more productive and profitable.”

Another convicting – and humbling – finding in this research relates to the apparent inability of factory managers to accurately assess the strengths or weaknesses of their own leadership skills.

“Good management appears to be so strongly linked with good performance that it might be reasonable to expect all firms to make better practices a priority,” shares a Stanford University report about this research. “The techniques of good practice are, after all, available in the public domain in a wide range of easily accessible forms. Yet many firms are still poorly managed…The majority of firms are making no attempt to compare their own management behaviour with accepted practices or even with that of other firms in their sector. As a consequence, many organizations are probably missing out on an opportunity for significant improvement because they simply do not recognize that their own management practices are so poor.”

The authors also note a disparity between family run organizations and those that are not: “Family-run and government-run businesses are less well managed and less productive than similar plants with professional managers. Promoting successive generations of family management “significantly damages company performance,”

Remember the London School of Economics research finding above that, “a one-point increase in a factory’s management rating can translate to a 25% increase in labor productivity and a 65% increase in return on invested capital,”

You can read the article here

You can download a copy of the study here

It’s that time of the year; review your past successes and update your plans for the coming year or so…

I was doing some research on selling professional services, and ran accross the “best business brochure ever written”. It was a brochure written by Arthur D. Little for his fledgling consulting firm. In it, he describes how his team literally converted sows ears into a silk purse!

The purpose of the article? To demonstrate that the commonly accepted wisdom is not “true”, merely difficult. Secondly, along the same lines, the firm sought to make lead balloons fly. Quite successfully, too!

Here’s some insight into the process.

Here is the actual brochure

So often, when faced with a difficult situation, we accept the conventional wisdom as being “true”, when really, we haven’t looked deeply enough into the situation, challenging ourselves to find the essence of the problem.

I find the more problems I solve, the less willing I am to accept the conventional solutions. In fact, the more publicity a solution recieves as being “correct”, the more skeptical I become!

“Things that everybody thinks he knows only because he has learned the words that say it, are poisons to progress. The only way to get ahead is to dig in, to study, to find out, to reason our theories, to test them – and then hold fast to what is good”