Pipeline Workshops™: Velocity Accelerators®: Critical Chain Project Management

One of the areas we highlight for deeper discussion in a Pipeline workshop™ – the areas we call Velocity Accelerators® – deals with the unrealized, under-appreciated benefit that would come from replacing the outmoded current method of scheduling.

The nature of the workflow in homebuilding production is project portfolio management;  it is about managing what can be large amounts of work-in-process, about managing what can be a large number of houses under construction.  Yes, for certain, there is workflow performed in processes, but those processes are a different form of workflow, and they are generally embedded within, or enable and support, the larger, more primary function of managing a project portfolio.

The process of building a home – what we call the Start-to-Completion process – is actually 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.

At its core, homebuilding is multi-project management.

The current method of project scheduling is a reference to its algorithm, known as the Critical Path Method (CPM), which evolved from the Program Evaluation and Review Technique (PERT) in the 1950s;  Critical Path has been in existence for almost 70 years;  despite its age, CPM is the algorithm, thus, the method, used in every ERP, serving every industry vertical, including homebuilding.

PERT and CPM were designed for one-off programs with large, complex structures (i.e., the Polaris weapons system, the Manhattan Project), but the Critical Path Method has become the de facto standard for scheduling all types of projects:  aerospace/defense, software development, product development, research, and – yes – construction.

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 critical, where faster cycle time and higher inventory turns are critical drivers of business outcomes.

Where it must contend with variation and uncertainty, Critical Path offers only a buffer of additional time – individual task durations lengthened to protect the completion date of each task, but not insuring the completion date of the project.

And – what is the cost of that added safety?  What is the cost of specifying supposedly highly-reliable (95%) probabilities of completion over average (50%) probabilities of completion?

Statistically, this supposed solution lengthens the job schedule by a factor of 1.64 (two standard deviations).  Which is how a 90-day job schedule becomes a 150-day job schedule.  It is a built-in safety that three well-known, yet typically un-checked, types of behavior then conspire to waste.

For the most part, builders are oblivious to the effects of variation on their production system.  Yet, the cost of that variation is apparent and simple to calculate;  it is the Gross Income lost from all of the closings that never occurred, from houses that were never built with the capacity that was purposely made available and paid-for.

For an already profitable builder, it is Gross Income that would have clearly become Net Income, and ultimately, Net Profit.

And, it’s a lot of money.

Moreover, while CPM considers task dependency (the predecessor-successor relationships of tasks) in its work breakdown structure, it does nothing to resolve resource contention;  it does not consider situations in which tasks of different projects/jobs depend on the availability of resources that do not have sufficient capacity to meet the demand being placed upon them.

These two factors – dealing with variation and resolving resource conflict – should be anathema to homebuilders.

Critical Path was never designed to contend with the production environment homebuilding presents.  Critical Path Method is not 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.”

Which brings us to Critical Chain Project Management.

Developed in 1997, Critical Chain addresses both task dependency and resource contention, and it replaces the padded durations intended to protect the completion date of every task with a smaller project buffer that is fully-capable of protecting the completion date of the overall project/job;  in the process, CCPM becomes much more aware of system capacity and constraints.

Understand what this different, changed approach means:  it means that Critical Chain substantially reduces the duration of projects – the cycle time of houses under construction – without impacting the reliability of their completion dates.

Consider this excerpt from one of the exercises in the RB Builders: Lessons from the Pipeline© business case being used in the upcoming Pipeline Workshop™:

“In order to increase velocity (through shorter cycle time and faster inventory turns), RB Builders is having your division implement scheduling software that changes the scheduling algorithms from the Critical Path Method (CPM) to Critical Chain (CCPM);  the implementation of Critical Chain Project Management will occur during 2024.

“As part of the early learning on Critical Chain, RB Builders wants you to try your hand at modifying the Work Breakdown Structure (WBS) of a generic 150-day job schedule, so that you can see how two specific, necessary objectives are accomplished:  (1) sensibly reducing the job schedule from 150 days to 120 days, and (2) achieving this shorter duration without diminishing the reliability and certainty of meeting the job completion date.”

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 Critical Path excessively builds into its 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 a number of these practices into place without changing the scheduling algorithm from Critical Path to Critical Chain.  They can use add-on applications that convert existing CPM scheduling applications to CCPM.  They can implement standalone CCPM software applications.  However – Critical Chain will not be a fully-complete, integrated solution for the homebuilding industry until its management technology providers wake up and address it.

It all starts with obtaining the knowledge necessary to insist on that change.

Come.  Participate.  Learn.

 

Critical Chain Project Management is one of three Velocity Accelerators® (along with Business Process Improvement, and Open-Book Management and Team-Based Performance Compensation) that will be explored in depth at the next Pipeline workshop™, March 23-24, 2022, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.

Attendance is limited to only 30 attendees.  The cost is $945.00 per person.  For team pricing, inquire here (flgroves@saiconsulting.com).

Delivered by SAI Consulting.  Sponsored by Simpson Strong-Tie.

For more details:  www.buildervelocity.com