theory of constraints (jawad)

May 21, 2013

Theory of Constraints (TOC) USING THEORY OF CONSTRAINTS IN PROJECT MANAGEMENT

Dedication

I am dedicating this report to my loving FATHER & MOTHER.

Through their encouragement and help it would not have been possible for me

To accomplish this task within specific time limit. I was provided with every

facility by my parents who were necessary in order

to complete this report.

Acknowledgement

I am very thankful to “ALMIGHTY ALLAH” the most beneficent, the most

merciful who has given me the strength to complete this task.

I am indebted to SIR WASEEM from whom I have gained much experience

regarding research work of Project Management as well as it will be helpful for me

in my future. SIR WASEEM guided me from every aspect of this project in very

easy and prescribed manner that helped me in completion of my project on time. I

am thankful to my Loving Teacher SIR WASEEM who provided me his Precious

time in guiding me

Furthermore, I am also thankful to my colleagues specially Arooj Rehmat,

Shumaila Rafique & my Brother Hammad without whose guidance and support it

would not have been possible for me to accomplish this task on proper time.

The last but not the least I convey my credit and thankfulness to FEDERAL

URDU UNIVERSITY OF ARTS, SCIENCE & TECHNOLOGY

ISLAMABAD (FUUAST) who provided me chance to put step in professional

life. In the end I would like to thanks my all loving teachers because I am here just

due to the efforts of my great Teachers.

Table of Contents

Abstract .........................................................................................1

Keywords .......................................................................................1

Introduction ...................................................................................1

The Concept ...................................................................................3

Literature Review............................................................................3

Managing Scope .............................................................................5

Managing Cost and Time .................................................................6

Time ............................................................................................6

Cost .............................................................................................6

The student syndrome ..................................................................7

METHODOLOGY ..............................................................................9

CONTINOUS IMPROVEMENT BY USING TOC (Theory of Constraints) .9

Conclusion ................................................................................... 13

Works Cited .................................................................................. 14

Appendices .................................................................................. 17

Theory of Constraints (TOC) 1

Theory of Constraints (TOC) Using Theory of Constraints in Project Management

Muhammad Jawad-ul-Hassan Department of Business Administration

Federal Urdu University Of Arts, Science & Technology, Islamabad, Pakistan.

Abstract The theory of constraints (TOC) is a multi-systems methodology that has been developed to assist

people and organizations to think about their problems, develop breakthrough solutions and

implement those solutions successfully. This paper describes a literature-based research project

examining the application of TOC. This paper provides useful insights about the development of the

TOC body of knowledge, The development of the TOC body of knowledge has been largely practice-

led, manifested not only in the diverse nature of application areas and in the diverse use of TOC tools,

but also in the broader evolution of TOC methodology, methods and tools. By reviewing past articles

and by visiting websites I am here to conclude this article that Organization can increase its

performance efficiently and effectively if an organization is able to handle all the constraints then

results will be more positive and that will help the organization to run smoothly in future.

Keywords Time, Scope, Cost, TQM, Continuous Improvement

Introduction Goldratt (1984) proposed the theory of constraints (TOC) as a scientific process for generic

problem solving, particularly in manufacturing industries and it has been developed over the past

20 years (Bradbury-Jacob and McClelleand, 2001; Dettmer, 1997; Houle and Burton-Houle, 1998;

Kendall, 1998; Mabin and Balderstone, 2000; Scheinkopf, 1999). The TOC is an intuitive framework

which is developed by Goldratt for managing efficient organizations. Application in the TOC

framework is the want to improve performance of organizations continually, through on-going

process of improvement. The theory of constraints emphasizes “the importance of defining and

understanding the global goal of the organization as a condition for success”. This concept is based


on the assumption that resources available for managers and organizations are limited, and should

therefore be directed towards a well-defined and focused goal. According to the TOC, the goal of a

corporation should not be defined using terms such as technology, share of market, automation,

quality or human resource development, but as the ability to generate profits in the present and in

the future.

When applying the TOC to a manufacturing organization Gardener and Blackstone defined

TOC is the primary goal of such an organization as the maximization of long-run profit. In order to

maximize the efficiency of resources used in the organization, the TOC requires that after clearly

defining the goal, the organization establish specific measurements that will enable management

to determine the impact of any action on the objectives and goals of the organization.

If we want to understand better the unique approach of the TOC, it is very important to

examine the relationship of TOC to other powerful techniques used such as JIT (Just in Time) and

TQM (Total Quality Management). The JIT and TQM philosophies are emphasizing customers,

management commitment, lead time, statistical process control (SPC), market share, eliminating

waste, simplification and throughput, among other factors, as the key to achieving continuous

improvement. They provide a variety of excellent techniques designed to support the

improvement process. However, both philosophies are used in the concept that helps the

organization to run smoother and efficiently.

The Theory of Constraints, on the other hand, uses a view point in the different manners

Umble and Spoede. In order to strengthen the chain of the organization, one must strengthen the

weakest link. If a link other than the weakest is strengthened, the strength of the whole chain is

not increased. The concept of a chain can be used to represent processes in any organization. Using

multiple dimensions, complete organizations can be modelled as process grids made of sets of

interlaced chains. In simple words we can say that to achieve the organization’s goal, every link –

resource, or functional area – must perform its job effectively.

Now, the overall framework of the TOC relies on the fact that an organization must always

have constraints that limits the organization from achieving higher performance in terms of its

goals and objectives. Constraints must have to exist, or else performance would be unlimited. The

TOC identifies the weakest links within the organization as constraints. As defined by Umble and


Spoede “TOC is an overall management philosophy which emphasizes constraints identification

and management as the keys to focusing limited time and resources on areas where potential

returns are greatest.”

The Concept The concept of the TOC can be summarized as:

• Every system must have at least one constraint. If it were not true, then a real system such as a

profit making organization would make unlimited profit. A constraint therefore, “is anything that

limits a system from achieving higher performance versus its goal” (Goldratt E. , Computerized

shop floor scheduling, (1988))

• The existence of constraints represents opportunities for improvement. Contrary to conventional

thinking, TOC views constraints as positive, not negative. Because constraints determine the

performance of a system, a gradual elevation of the system’s constraints will improve its

performance.

Literature Review Reviewing the literature of TOC in the manufacturing sector supports a view that TOC can be

associated with an increase in productivity for both individuals and organizations. The Theory of

Constraints (TOC) is an approach to continuous improvement of an enterprise, developed primarily

by Eli Goldratt, Goldratt defines a constraint as `Anything that limits the performance of a system

relative to its goal. In particular, TOC has simultaneously increased throughput and reduced both

operating expenses and inventory (Rand, 1984); (Meleton, 1986); (Chase, (1998)); (Bushong, 1999);

(Miller, 2000)). Researchers including (Willcocks, 1991)), (Packwood, 1998) and (McNulty, 1999)

have examined the impact of change programmes such as business process re-engineering (BPR) in

an industry and concluded that these programs helps in generating profit in an organization.

(Hammer, 1993) define BPR as reconceptualization of business processes with a key role for IT in

the redesigned solutions. In many cases, this meant reducing several of the chains in the system

and therefore making it more efficient. The theory of constraints (TOC) is a set of concepts and

techniques developed by E. Goldratt and others over the past 15 years. It is reported that this set of

concepts form a continuous improvement system that can be applied to any environment


(Dettmer, (1997)). TOC is best viewed as consisting of three legs: logistics concepts, problem

solving concepts, and performance measurement concepts (Spencer, (1995)). The goal of a business

is `to make money in the present as well as in the future’ (Goldratt E. a., 1986) and thus the

performance of a business is measured by net profit and return on investment.

A constraint is usually considered to be something negative, something to be eliminated if

possible. What makes TOC different from traditional approaches to management is that TOC

considers a constraint to be a focusing point around which a business can be organized or

improved? Every business has at least one constraint; without a constraint a business would earn

infinite profit. Since no business does earn infinite profit, each must have a constraint. A constraint

might be lack of market, a policy imposed internally or externally, or a resource internal to the

company. In this paper we will explore how constraints can be used as focal points in organizing a

business. Ten years ago, TOC had been applied only to production. Today it has been applied to a

wide range of things including Operations, Finance and Measures, Projects, Distribution and Supply

Chains, Marketing, Sales, Managing People, and Strategy and Tactics.

There are two major components of TOC (Theory of Constraints). First, a philosophy which

the working principle of TOC. It consists of the different steps of on-going improvement programs

etc. The second component of TOC is a generic approach for investigating, analyzing, and solving

complex problems called the thinking process (TP).

There are three constraints in TOC named as Time, Cost and Scope. Now what is the

relationship between these constraints with the Project management? In other words we can say

that how TOC can be used in Project Management. So, now we have to study these constraints

further more.

Project Management Success depends on balancing the core project components of Scope,

Cost and Time. This is often referred to as the Project Scope Triangle or the Project Quality

Triangle. Scope refers the quantity and quality of what needs to be delivered in the project. Cost

refers the financial cost of the project (material and resources) and time refers to the amount of

time in which the complete project must be delivered.


Managing Scope These are the functional elements that, when completed, make up the end deliverable for the

project. Scope refers to the quality and quantity of project deliverables specific to a particular

project. Scope, unfortunately, has a tendency to increase as a project progresses. This can be due to

a number of factors. Often as the project progresses it becomes more clearly defined and we

realize the actual requirements as opposed to the perceived requirements we based our estimation

on. Sometimes people, both on the customer and vendor sides, can get caught in the trap of

'wouldn't it be good if it could do. So we need to be constantly mindful of our scope and stick to it.

Adding scope means increased cost in terms of project budget and possibly project time, so project

managers need be on top of scope issues:

Ensure you have formal, written, agreement on the scope of the project - if the scope is

'fuzzy' you'll get stuck in issues of what is in scope and what is out of scope. It helps when

you can clearly see that a proposed item is a variation from what is document.

Recognize the scope creep - know your specification/requirements. Recognize a variation to

the agreed document and highlight it as a project issue.

Assess the Impact and determine the options. Assess the time and cost impact of the

increase in scope and present this to whomever you need in order to get a decision.

Depending upon the level of autonomy the project manager has within the project you may

be able to make decisions upon the outcome yourself. Otherwise present the options to the

decision makers in a succinct manner to enable them to make an informed decision.

Revise the Plan - depending upon the outcome of your discussions you may need to:

Remove other functions to accommodate, increase time, increase the resourcing (and


associated costs), increase the material costs to accommodate. Whatever your outcome,

document it and make sure everyone is clear of the impacts on the project. Revise your plan

to reflect the changes.

Managing Cost and Time

Time This refers to the actual time required to produce a deliverable. Which in this case, would be the

end result of the project. Naturally, the amount of time required to produce the deliverable will be

directly related to the amount of requirements that are part of the end result (scope) along with

the amount of resources allocated to the project (cost).

Cost This is the estimation of the amount of money that will be required to complete the project. Cost

itself encompasses various things, such as: resources, labor rates for contractors, risk estimates,

bills of materials, et cetera. All aspects of the project that have a monetary component are made

part of the overall cost structure.

The following tips relate to both cost and time:

Careful estimation - being able to estimate against clearly defined scope is the best way to

go here, but we all know, that this is often not the reality. Fixed price, up front quoting can

make this very difficult and we often have to work with what we have at the time. Use you

and your team's knowledge of how long a task takes, refer to past projects. Know that you

will most likely underestimate, so don't base everything on best case scenario, give yourself

a little breathing room.

Contingency time planning - be mindful of applying an adequate time contingency. This

contingency should be based upon the level of detail of scope you have to work with, your

knowledge of your organization and it's current level of resourcing, the size of the project

and external factors that may impact upon the project, such as dependencies on other

projects. Remember to factor in adequate review and approval times and keep in mind the

more people involved in review and approval, the longer it takes.

Track your project - know when your project is heading outside of your acceptable

parameters so that you can quickly take action. The Project Plan is your key


planning, tracking and managing tool throughout the project so make sure you look at it

regularly and update it to reflect what is actually occurring.

The student syndrome Suppose you have an assignment due on the 5th of next month. You estimate that you should allow

four days to do the project task so you plan to begin on the 1st. Just before the 1st your boss

announces that the project task will now be due on the 12th, one week later. Do you still begin on

the 1st? Probably not. You will probably begin on the 8th, preserving your four day estimated time.

This reaction is known as the ‘student syndrome’ (Goldratt E. , 1999), which is the tendency to put

off starting until the last minute. The same thing happens in projects. A project plan calls for a task

to begin on the 1st and end on the 15th. But the worker knows that the 14 days allowed for this task

is extremely conservative and that he can probably finish on time if he starts on the 8th. So the

work starts on the 8th rather than the 1st and the probability of the task finishing on time is

reduced to 50%. If something goes wrong then the task may complete late. In this manner, the

buffer that is built into every task time estimate tends to disappear.

The following illustrates a case where the firm has an ‘internal’ tactical constraint (i .e. R&D

department). The organization’s ‘load’ situation is presented in Figure 1, using a CUT (cost-

utilization) diagram (Ronen, 1992) depicting the various resources in the system as bars. The height

of the bar represents the load on the resource (department, in our case) while the width

represents the relative cost of the resource (department). As can be seen in the CUT diagram,

operations are under-loaded and can take an extra load without adding extra resources. The same

holds for logistics and marketing.


Figure 2 illustrates an external-market constraint. As noted by Cox and Spencer (1998), a market-

constrained organization is ‘an organization that could produce more than it can sell’. We consider

the case where the management increases sales by allocating more resources to sales and

marketing departments (as a tactical constraint), hence being in the hands of the management to

solve. The CUT diagram describes ‘marketing’ as the bottleneck of the organization, while the other

departments are under-loaded and can take an extra load without adding extra resources.

The Triple Constraint is one of the most well-known and well respected mechanisms for signifying

the interaction of the key attributes of a project. By being fully aware of its function and

Fig: CUT Diagram for an External Constraints

Fig: CUT Diagram for an Internal Constraints


implications is an important aspect of the project manager’s role and responsibility. The triple

constraint is meant to be a asset to the project manager’s arsenal and should not be viewed as a

hindrance.

METHODOLOGY

CONTINOUS IMPROVEMENT BY USING TOC (Theory of Constraints) The basic technique used by the TOC to focus improvement in organizations comprises five basic

steps, described in Figure 1. It follows that if our mission is to improve our organizational chain,

then:

The working principle of TOC provides a focus for a continuous improvement process. The principle

consists of five focusing steps (Goldratt E. , What is This Thing Called Theory of Constraints and

How Should it be Implemented?, (1990b))which are summarized in Figure 1. The steps are:

(1) Identify the system’s constraint(s). These may be physical (e.g. materials, machines, people,

demand level) or managerial. Generally, organizations have very few physical constraints but many

managerial constraints in the form of policies, procedures and rules and methods (Goldratt E. ,

What is This Thing Called Theory of Constraints and How Should it be Implemented?, (1990b)).

Recently, Goldratt (1993, 1994) developed a technique called a Current Reality Tree to identify

Time

Cost

Scope

Organizational

Performance


policy constraints. It is important to identify these constraints and also necessary to priorities them

according to their impact on the goal(s) of the organization.

(2) Decide how to exploit the system’s constraint(s). If the constraint is physical, the objective is to

make the constraint as effective as possible. A managerial constraint should not be exploited but

be eliminated and replaced with a policy which will support increased throughput.

(3) Subordinate everything else to the above decision. This means that every other component of the

system (non-constraints) must be adjusted to support the maximum effectiveness of the

constraint. Because constraints dictate a firm’s throughput, resource synchronization with the

constraint provides the most effective manner of resource utilization. Non-constraint resources

contain productive capacity (capacity to support the constraint throughput) and idle capacity

(capacity to protect against system disruptions and capacity not currently needed) (Lockamy, 1991).

If non-constraint resources are used beyond their productive capacity to support the constraint,

they do not improve throughput but increase unnecessary inventory.

(4) Elevate the system’s constraint(s). If existing constraints are still the most critical in the system,

rigorous improvement efforts on these constraints will improve their performance. As the

performance of the constraints improve, the potential of non-constraint resources can be better

realized, leading to improvements in overall system performance. Eventually the system will

encounter a new constraint.

(5) If in any of the previous steps a constraint is broken, go back to step 1. Do not let inertia become

the next constraint. The first part of this step makes TOC a continuous process. The second part is a

reminder that no policy (or solution) is appropriate (or correct) for all time or in every situation. It

is critical for the organization to recognize that as the business environment changes, business

policy has to be refined to take account of those changes. Failure to implement step 5 may lead an

organization to disaster.


There are two types of constraints – physical and policy. Goldratt states that 99 per cent of

an organization’s constraints are policies or lack of them. When one deals with a policy constraint

only steps 1, 4 and 5 of the basic steps are utilized. These steps provide a framework for

management decision making that focuses on the goal of the organization. The technique

emphasizes the need for change as a condition for improvement. The focusing steps are aimed at

identifying areas in the organization that require change. This is another important facet of the

TOC philosophy. According to the TOC, the lack of clear organization goals to be followed by each

functional area of the organization results in pursuit of local or, worse, personal objectives which

are virtually independent of the larger objectives of the company.

These local objectives often conflict with larger, global objectives, and improvement is

slowed. In order to facilitate ongoing improvements it is important to assure adherence of the

entire organization to the ultimate global goals. Change in an organization can be achieved to a

significant extent only if management clearly and fully realizes what needs to be changed and why.


As numerous researchers have shown, the process of organizational change is one of the

most difficult to achieve. In order to synchronize the initiation, creation and response to these

essential changes the TOC proposes the following Socratic thinking process for dealing with

change

What to change? – Assessment of what are the constraints to improved performance.

Applying the TOC to the “What to change” question often leads to the identification of an

organizational constraint.

What to change to? – devising simple, practical changes to the core problem/constraint

identified. The TOC emphasizes that only simple solutions have a real chance of working in a

real organization.

How to create change? – developing strategies and actions to break undesired constraints

and manage constraints in desired areas.

An important aspect of this phase is to create ownership and commitment throughout the

organization.

In order to determine the impact of actions on the organization, Goldratt and Fox’s TOC, identifies

three basic measurements. These measurements should be adopted at each organizational level to

guide decisions relating to the management of an operation:

• Throughput. The rate at which the system produces outputs which are conforming to the

organization’s goal. For a typical manufacturing organization, this would be the rate at which the

company generates money through sales of products.

• Inventory. The amount of assets involved in the process. Again, for the typical manufacturing

organization this would be all the money the company invested in purchasing things that it intends

to process and sell.

• Operating expenses. All the money that the company spends in the process of turning inventory

into throughput.


Conclusion This paper presents a comprehensive review of academic literature on the TOC, including papers

published in referred, and non-referred journals and conference proceedings, and books. These are

classified on the basis of the TOC philosophy and its application in business disciplines. The review

shows that the vast majority of the papers have concentrated on the concept and enhancement of

TOC concept. Several articles compare TOC with other production methods such as MRP and JIT. In

the application category a number of articles report the application of TOC concepts in the area of

production and management Accounting.


Works Cited

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2. Chase, R. A. ( (1998)). Production and Operation Management. Irwin

McGraw-Hill, New York, NY.

3. Cox, J. a. (2010). Theory of constraints handbook (with Introduction by

Dr. Eliyahu M. Goldratt). New York: McGraw-Hill.

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Approach to Continuous Improvement. ASQC Quality Press, Milwaukee,

WI.

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Appendices


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theory of constraints (jawad)

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