Archive for March, 2015

Critical Chain Project Management: A Manifesto for Change

Posted March 29, 2015 By Fletcher Groves

One of the Velocity Accelerators – areas of learning – in a Pipeline workshop™ deals with the benefits-driven imperative for replacing the method currently used to schedule homebuilding production.

In terms of the workflow that has to be managed, the nature of homebuilding production is project portfolio management.  While it also has embedded, enabling, and supporting processes, homebuilding production is essentially the management of multiple projects that share resources.  It is the structuring and the management of a portfolio of job schedules, with interdependencies and interactions of tasks and resources.

The Critical Path Method (CPM) of project scheduling evolved from the Program Evaluation and Review Technique (PERT) in the 1950s;  it has been in existence for more than sixty years.  PERT and CPM were designed for programs with large, complex structures (Polaris weapons system, Manhattan Project), but CPM is now the de facto standard for scheduling all types of projects:  construction, aerospace/defense, software development, product development, research.

The problem with CPM is that it was not designed for managing a portfolio of projects, and it was not designed to function in environments where velocity is important, where faster cycle time and higher inventory turns are critical drivers of business outcomes.  In environments where it must contend with variation and uncertainty, CPM offers only a buffer of additional time – individual task durations lengthened (padded) to protect the completion date of the task, but not the completion date of the project.

(Note:  you do have to hand it to builders that assert fast cycle times, but remain oblivious to the effects of variation on their production systems.  Whether the protection mandated by production physics is in the form of longer duration, higher work-in-process, or excess capacity, the cost of that variation is the same:  the cost is the Gross Income lost from all of the closings that never occurred, from houses that were never built with the capacity that was paid-for;  and, it is Gross Income that likely would have dropped straight to a builder’s bottom-line, as Net Income, and ultimately, Net Profit.)

Moreover, while CPM considers task dependency (the predecessor-successor relationships of tasks) in its work breakdown structure, it does not consider resource conflict;  it does not consider situations in which tasks of different projects/jobs in a portfolio depend on the availability of resources that have insufficient capacity to meet the demand being placed upon them.

These two factors – dealing with variation and resolving resource conflict – are anathema to builders.

CPM was not designed to contend with the production environment homebuilding presents.  It might only be a symptom of the problem (the problem is variation and resource conflict), but CPM is benign to the solution.  ProChain Solutions’ Rob Newbold (Project Management in the Fast Lane) told me that he would go further, saying:  “CPM supports values that perpetuate the problems of homebuilders.”

Chain

Which brings us to Critical Chain Project Management.

Developed in 1997, Critical Chain addresses both task dependency and resource contention, and it replaces padded durations intended to protect task completion dates with buffers that protect the completion date of the project/job;  CCPM is much more aware of system constraints.  Most importantly, Critical Chain reduces the duration of projects – the cycle time of houses under construction.

Consider this illustration from The Pipeline: A Picture of Homebuilding Production©:

On a calendar basis, RB Builders has a construction schedule that calls for 120 days, but its achieved cycle time is 180 days.  Yet, there is widely-held agreement within the company that RB Builders should be able to build its homes in far-less than 120 days, because the schedule reflects “highly certain” task durations.

Statistically, the “long tail” of a standard deviation (bell) curve reflecting the difference between 50% confidence and 95% (“highly certain”) confidence lengthens the duration of project schedules by a factor of 1.64.  If RB Builders is highly-confident – 95% confident – it can complete a house in 120 days, it stands to reason that it would also be confident that it can complete half of those houses in no more than 74 days.

Since 50/50 outcomes are not acceptable, CCPM restores the confidence level by taking half of the task time difference between the 95% confidence (120 day) and 50% confidence (74 day) durations, and pooling the risk in a buffer that protects the project completion date from variation.  That results in a schedule of 97 days (74 schedule days + 23 buffer days), 23 days faster than the current schedule, and 83 days faster than the current cycle time.

The resulting reduction in cycle time would double current inventory turn;  RB Builders might have to trade-off margin for higher sales volume, but that would be acceptable, because higher velocity acting upon the same margin would nearly double Return on Assets;  and, depending on the overall condition of the market and market share, RB Builders may not face consideration of a margin trade-off.

Critical Chain Project Management does more than just reduce the length of construction schedules.  It also specifies a set of rules preventing behaviors that consume (and waste) the safety built into task durations.  It installs a release mechanism that pulls starts into the system and keeps work-in-process at the levels required to produce faster cycle times.  It implements simple, visual tools to manage production.

Builders can put some of these practices into place without changing the scheduling algorithms from Critical Path to Critical Chain:  they can change behavior by requiring ALAP starts (Newbold informs me that “requiring meaningful priorities” is better wording), and by eliminating ASAP starts and task due dates;  they can implement pull release mechanisms;  they can instill a relay race mentality to the transition of work between predecessor and successor tasks/resources.

But, builders would still be enslaved to a scheduling methodology that does not work well in its industry vertical.

Builders can be partially excused for a lack of awareness, for not knowing to insist on a CCPM option, for not being capable of developing their own scheduling modules.  But, where are the voices of the management technology companies on Critical Chain?

Why is there a settling for a status quo that doesn’t work for homebuilding, that doesn’t provide licensees, users, and clients with the best solution?  Where is the strategic discipline to provide management technology that contributes to sustainable competitive separation?

In my view, the onus is upon them.

Newbold is harsher:  “In my experience, technology companies will only go where their clients and competitors take them;  until clients demand, vendors will ignore.  You might be better off with a call to arms for the builders to demand better.”

 

“Bulls–it.”

Posted March 22, 2015 By Fletcher Groves

(excerpts from The Pipeline: Picture of Homebuilding Production©)

“Managing a production system requires concentration”, said the intrepid, results-based consultant.  “It requires focus.  Focus requires prioritization of tasks.

“If a task is the most important, critical step in a process – the pacemaker, the constraint, the bottleneck, the task that determines the throughput of the entire system – then you cannot divert attention to a task that is not as critical.  Even if it is not the system constraint, multi-tasking without focus and priorities is counter-productive.”

She drew two simple charts.

“Look at the first chart”, she said.  “You have four projects in-process, which you choose to work on at the same time.  You do them concurrently.  You multi-task them.  The tasks on each project requires one week to complete.  When will the first project be completed?”

Multi-tasking

“Week 4”, said the VP of Sales.  “For that matter, all of the projects will finish in Week 4.”

“So – does multi-tasking meet the requirements of homebuilding?  Does this look like the way we want to schedule jobs?  Is this even-flow?”, she asked.  “Let’s look at the alternative, which is to complete a project – in its entirety, all of its tasks – before moving on to the next project.

“Look at the second chart.  Same deal, but you do the projects in sequence.  You complete them one-at-a-time.  You don’t multi-task.  In this case, when will the first project be completed?”

“End of Week 1”, replied the VP of Sales.

“In the first table, when does the first throughput occur?”, she asked.

“Early in Week 4”, said a superintendent.

“In the second table, when does the first throughput occur?”, she continued.

“End of Week 1”, he said.

“All of this work is being performed by the same resource”, she said,  “Now, look at when the next resource gets to work on a project.  In the first table, the second resource gets all of the projects completed by the first resource essentially at the same time, at different points during Week 4.  In the second table, the second resource gets Project 1 at the end of the first week.

“It’s the same amount of work.  In either case, the first resource should finish all four projects by the end of Week 4, so we get the same amount of throughput from it during the entire four-week period.

“But – we get the throughput much faster when it does not multi-task its projects.

“Which system requires the most capacity?”, asked the intrepid, results-based consultant, pointing to the two diagrams depicting the effect of multitasking.  “Which system carries the most work-in-process?  Which system has the most complexity?  Which system costs more?”

“The one that kills more of my brain cells”, answered one superintendent.

“It’s an illustration of the finite capacity and variability buffering we have been talking about”, she said, ignoring him.  “If you fix the amount of capacity and increase the amount of inventory, yet do nothing about variation and uncertainty, the system has no choice but to lengthen cycle time.  That’s the undesirable effect of multi-tasking.

“But, multi-tasking is not the only behavioral tendency that causes the long durations that we are concerned with”, she continued.  “We pad duration to create safety, but then we waste all that safety, by waiting until the last moment, by letting the work expand to the allowed time, and – yes – by working on multiple jobs at the same time.”

“That might be the case in ‘real’ project management, but not on my jobs”, argued another superintendent, one of the younger ones.  “My framers have full crews on each job.  Same with the electricians, plumbers, masons, and everyone else.”

“Bulls–t”, said the VP of Construction.

“I can’t tell you how many times your framer leaves three guys on your job and sends the rest of the crew to get another job started”, he said.  “It happens all the time.  It happened to you last week.  The truss package showed up a week late on Lot 40.  The same day, the trusses showed up on Lot 47 three days early.

“Two jobs with trusses on the ground, and one framing crew to fly them.  Where’s the crane?  On Lot 47.  Which job is behind schedule?  Lot 40.  So, why don’t we send the crane to Lot 40?  Because we can’t.  Lot 40 has a purchase order issued to another crane operator.

“A lot of times, it’s not even their fault.  We tell them to do something, because we can’t seem to get our own act together on resolving the resource conflicts between open jobs.

“But – it’s not one behavior.  It’s all of it – the multi-tasking, the waiting until the last minute, the pacing of work to consume the allotted time.  There is variation in all its forms.  Different outputs from repeated applications.  There is risk and uncertainty.  Things that are indefinite, indeterminate, and unknown.  Weather.  Delays.  Mistakes.  Failed inspections.

“Things that go wrong.  Murphy.

“And – we step right into it.

“If you can’t see this, then you will have to come up with a different explanation – a different excuse – for why your jobs average 180 days, when the schedule itself specifies 120 days, and everyone acknowledges that it should only take 90 days.”

 

(The Pipeline: A Picture of Homebuilding Production© is available from the publisher website (virtualbookworm.com), as well as from amazon.com, barnesandnoble.com, and booksamillion.com;  usually in-stock on amazon.com)

 

Pipeline Games: FastTrack Learning

Posted March 16, 2015 By Fletcher Groves

Pipeline workshops™ are intense, interactive, size-restricted immersions into the principles and disciplines of homebuilding production, the most compelling aspect of which are the Pipeline games™, in which teams of geographically-diverse builders go through a progression of production scenarios that measure key operating performance metrics and economic outcomes.

Pipeline games™ are both a production simulator and a business game.

Pipeline games™ reinforce the production principles taught in the workshop;  with multiple teams of builders playing each game with the same rules and understanding, the results don’t lie.

Here are the results from games played at the just-concluded workshop.  Until you have played the game, you won’t understand some of the metrics;  nevertheless, focus on the performance trends (y-axis) as the games in this workshop progressed (x-axis):

Revenue . . .

Revenue (capture)

Inventory Turn . . .

Inv Turn (capture)

Cycle Time . . .

Cycle Time (capture)

Net Income . . .

Net Income (capture)

Net Income Margin . . .

NI Margin (capture)

Return on Assets . . .

ROA (capture)

In nearly every category – Revenue, Inventory Turn, Cycle Time, Net Income Margin, Return on Assets – the teams made remarkable progress, often exceeding expectations.  Interestingly, this was the first workshop in which we have used a series of games that builders conceded should have produced the same results throughout the series, enhancing the comparison of a progression of production approaches and techniques.

After purposely imposing the initial shock of shattered instincts resulting from unexpectedly low outcomes, every operating and business metric was in precisely the direction you would expect, when production principles are true.

That is the type of learning that occurs in a Pipeline workshop™.

Learn more:  http://buildervelocity.com/

 

Pipeline Workshops: Compressing the Learning Curve

Posted March 7, 2015 By Fletcher Groves

The intrepid, results-based consultant right-clicked the embedded video in her PowerPoint presentation and clicked run this plug-in to start it.  “I want you to watch this short video clip that some of my colleagues masterfully produced”, she said, smiling.

 

HD Pipeline Game Video TRAILER from Fletcher Groves III on Vimeo.

As the video trailer played, she opened the portfolio, removed a set of game boards, leaned them against the conference room wall, and then opened her notebook carryall, removed the zippered pouches containing the poker chips and sets of six-sided dice and placed them on conference room table.

When the clip was finished, she handed the game boards to a member of each team, and said, “I need you to clear space on your tables for these boards.”

As those tasks were being completed, she explained what was about to happen.

“Change is a necessary condition to any continuous improvement effort.  You can’t expect to get different results by doing the same things the same way.  However, change is difficult, disruptive, time-consuming, and costly;  moreover, the effort can fail to produce the intended result.  We need to be able to figure production management out, without the cost, disruption, and risk of failure associated with doing it in real life.

“What we need to do, is compress the learning curve.”

“The new approach that you will use to manage production – and thereby improve operating and financial performance – becomes intuitive and simple in practice, but initially there is a lot to understand.

“It is an approach that is counter to what most of you have been taught”, she said.  “You will need to fight your natural tendencies, challenge your paradigms, begin to think systemically.  It can be hard to initially grasp.

“In short – it must be learned.

“That kind of learning is a harsh teacher when it occurs at the cost of real operating performance and actual business outcomes.

“So – we are going to simulate the environment in which production decisions must be made, and we are going to measure the outcome of those decisions, in terms of both operating performance and economic return.  It’s going to be competitive, the pace is going to be fast, the situation will change rapidly.  There will be uncertainty, risk, and variation;  you will have to learn how to reduce it, and then, how to manage it.

“The purpose is to create learning based on what you experience and do, not simply what you hear and read.  The objective is to compress the learning curve.  The production situations you are going to encounter in these simulations reflect the circumstances you encounter in the real world of homebuilding, but they will be simple, fast, easy to see and understand.  We will modify them and run them until we learn to see, until we understand how to apply the principles.”

Addressing no one in particular, but having a particular person in mind, the intrepid, results-based consultant added, “You need to shut-up, and quit acting like you already know everything.  Entiendes?”

Satisfied, she continued.

“Here, we have a homebuilding production system,” she explained, gesturing to the game board.  “The board represents the resources and tasks necessary to complete each job, which are your houses.  As you know, a production system manages a portfolio of jobs, not a single job;  the chips represent the system’s work-in-process – the jobs/houses at various stages of completion, as they flow through the system.

“Variation is reflected by the probability in the dice rolls.  The tasks in each resource phase take the same amount of effort on every job, so there isn’t any variation in the amount of work, only in the length of time required to complete it.  We find comfort in the false security of achieving an ‘average duration’, and this game reflects that tendency.

“Each game represents a full year of operations and results;  each round represents a one-month time period in that year.  Before the game ever starts, you have to make some decisions about resources and work-in-process, which will, in turn, enable you to project operating performance – completions, work-in-process, capacity, etc. – and to budget financial performance – Revenue, Cost of Sales, Gross Margin, Operating Expense, Net Income, Return on Assets.

“All that stuff goes on the scorecard, before the game starts.

“As the game progresses, the scorecards also accept all of the data for each round – resource work rate, work-in-process, and completions;  at the end of the game, you have to calculate the actual operating performance – cycle time, productivity, inventory turn;  then you have to calculate the actual business outcome – Return on Invested Assets, and Net Income.”

“Put the money in the bank”, said one of the superintendents, looking toward the Vice President of Sales.  “Start making it rain, Chief.”

The intrepid, results-based consultant smiled.  She had heard it all before.

(modified excerpts from ‘The Game’ chapter of The Pipeline©)

 

The Pipeline: A Picture of Homebuilding Production© is available on the publisher website (virtualbookworm.com), through the author website (thepipelinebook.com), as well as amazon.com, barnesandnoble.com, and booksamillion.com.

The next Pipeline workshop™ will be held at the Ponte Vedra Inn and Club, Ponte Vedra Beach, Florida, on March 11-12, 2015.  Cost is $795.00.

Delivered by SAI Consulting.  Sponsored by Big Builder (Hanley Wood) and Continuum Advisory Group.

 

For more details:  www.buildervelocity.com

Epic Partnering: Unifying the Value Stream

Posted March 1, 2015 By Fletcher Groves

At a Pipeline workshop™, one of the most important takeaways, drawn by many of the building company executives in attendance, is that a notoriously fragmented value stream has to be unified, if production is ever to be managed as a system.

In their landmark 1996 book, Lean Thinking, Jim Womack and Dan Jones defined a value stream as “the set of all the specific actions required to bring a specific product through the three critical management tasks of any business.”  They went on to describe a set of processes, which they termed tasks:  a problem-solving task, an information management task, and a physical transformation task.

By definition, a value stream does not belong to an industry;  it is enterprise-specific;  each value stream belongs to its enterprise.

Nevertheless, it would be a challenge to cite another industry, in which the sequence of tasks in the most common versions of that industry’s core-critical process (start-to-completion, i.e., the physical transformation task) is performed by so many separate entities, as is commonly seen and accepted in the homebuilding industry.  Look at the value stream of almost any homebuilding enterprise, and you will find a combination of independent, separately-owned, non-proprietary, non-exclusive, unaffiliated businesses with different goals.

In some of her final comments to the team at RB Builders (The Pipeline: A Picture of Homebuilding Production©), the intrepid, results-based consultant reviews the components of RB Builders’ production management system, the RB-IPS, and has this to say about the final component:

“It is a production management system that specifies the means by which RB Builders fosters epic relationships of mutual interest with its building partners and supply partners.  The RB-IPS provides both the process and the program for progressively transforming subcontractors and suppliers into true partners, into trusted allies, joined by shared, mutual interests.”

Builders attending Pipeline workshops™ have consistently emphasized the need for stronger trade-partnering, better coordination, more cohesiveness, a more unified approach in managing production.

They acknowledge the obvious:  they do not have the internal resources necessary to perform “the set of all specific actions” required to bring houses through the start-to-completion process;  they also understand they cannot dictate that it be done, or create competitive separation by attempting to do so.

They acknowledge the current shortage of skilled construction resources.

Whether or not vertical integration has a strategic role to play going forward in the homebuilding industry (a matter which we explored in “The Road That Lies Ahead: The Giants’ Perspective on Growth Strategies, Consolidation and Other Issues” in the July, 2000 issue of Professional Builder) remains to be seen.  But, even if vertical integration never resonates in the homebuilding industry, success in unifying the effort of the existing value stream has profound ramifications, on both the margin component and the velocity component of Return on Assets;  and success in unifying the value stream has profound implications for creating competitive separation.

It will require Epic Partnering®.

 

Epic Partnering® is one of four velocity accelerators that will be analyzed during the next Pipeline workshop™, March 11-12, 2015, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida;  the cost is $795.00.

Delivered by SAI Consulting.  Sponsored by Big Builder (Hanley Wood) and Continuum Advisory Group.

Details:  www.buildervelocity.com