Cycle Time: Measured or Calculated?

It is the most basic, most fundamental proposition of business:  the reason an enterprise exists is to make money;  the way it makes that money is through the value it delivers to customers and other stakeholders;  that value is delivered by the work the enterprise performs, and that work is performed in end-to-end sets of activities called processes.

The fact that the work performed in these processes is also what consumes an enterprises’ resources and occupies its capital, means that we need to pay attention to process workflow.  In particular, we need to pay attention to the duration of that workflow, what we call cycle time.

In a homebuilding company, the core-critical process – the aorta of value creation – is the process known as start-to-completion.  We all know that the cycle time of the start-to-completion process is the length of time required to build a house, expressed in days.

There are, however, two distinct methods for determining cycle time;  duration can be measured, or it can be calculated.

When it is measured, cycle time reveals the average duration – the statistical mean – of a specified group (range) of houses that were built.  When cycle time is calculated, it expresses the relationship between two important operating measures – the rate of closings and the amount of work-in-process – over a specified time period.

The measured and calculated versions of cycle time provide very different, but important, management perspectives.  One is about managing production as a system;  the other is about uncovering the forensics of problems, in order to prevent the further recurrence of errors and waste.

In your respective building companies, how do you treat cycle time?  Do you measure it?  Do you calculate it?

How do you use it?