Theory of Constraints: A Guide for Project Managers

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Project management is everywhere—the term is experiencing a moment.

People have come to realize that much of the work they do is a project with a beginning, middle and end, and that the discipline of project management offers proven methodologies and tools to get their jobs done more productively and efficiently.

In fact, project management is such a broad topic, it’s like an omnivore, eating up other management ideas and applying them. One such idea is the theory of constraints. While the theory of constraints is typically used in manufacturing, it can be helpful in controlling most any project.

What Is the Theory of Constraints?

Basically, the theory of constraints says that a small number of constraints prevents any management system from achieving more of its goals. There is always at least one constraint, and the theory of constraints uses what is called a focusing process to identify that constraint, and then restructures to address it.

Think of it like the old axiom, “A chain is no stronger than its weakest link.” The theory of constraints works to find that link and lessen its vulnerability. That applies to processes, organizations, individual team members, whatever or whoever is a risk to the successful completion of the project.

Origin

The theory of constraints as a management philosophy was introduced in 1984 with the publication of The Goal by Eliyahu M. Goldratt, an Israeli business management expert. He focused his theory on project management with another book, Critical Chain, which came out in 1997.

But the idea has deeper roots. A similar concept was developed in Germany in the early 1960s by Wolfgang Mewes. It isn’t exactly the theory of constraints, but comes close to its main points, focusing on a theory of bottlenecks, which is another way of saying constraint.

Fundamentals

The theory of constraints’ key assumption is that an organization can be managed by measuring these three things, which together are referred to as throughput accounting.

  1. Throughput: The rate at which the system generates “goal units” (or money) through sales
  2. Operational Expense: Money spent when generating “goal units”
  3. Investment: All the money that is invested in the system (inventory, machinery, etc.)

Before any goal is achieved, however, there are conditions that must be met. Usually, these are safety, quality, legal obligations and so forth. For-profit organizations have a goal of making money, but the theory of constraints can be used with nonprofits, whose goals of making money are secondary.

steps to focus process in the theory of constraints

What Is the Focusing Process?

If at least one constraint is limiting the success of a project, then the obvious solution is to identify that constraint. However, even if you remove all the constraints, the project won’t necessarily succeed. There are always other risks and mitigating factors at play. But if one can remove constraints, then the path to success is that much clearer.

The focusing process is the instrument by which constraints can be found and, therefore, dealt with. What it really does is provide a roadmap to handle the constraint once it has been discovered.  It is a five-step process.

  1. Identify the Constraint: Before you can strengthen the weak link in the chain, you must find it.
  2. Decide How to Exploit It: Make quick improvements with existing resources.
  3. Subordinate Everything to the Above Decision: Make sure all other activities in the process are aligned with the resolution of the constraint.
  4. Alleviate the Constraint: If the constraint remains, think about what else can be done to address it, such as adding resources.
  5. Repeat as Needed: This process is a cycle, in that it begins but doesn’t end—one must always be vigilant about addressing the constraint, wherever it might show up.

These five steps are used to make sure that there are always improvements and those efforts are focused on the project constraints.

What Is a Constraint?

To identify and rectify a constraint, it is crucial to understand what a constraint is. A constraint is anything that stops you from achieving your goal, and a constraint can show itself in various ways. However, the theory of constraints maintains that there are not an endless number of constraints, but at least one and at most only a few.

Internal & External Constraints

Constraints can be internal, such as when the market demands more than you can deliver, or external, such as when you produce more than the market will bear. With the latter, the organization must focus on ways to create more demand for its product or service.

Some examples of internal constraints are equipment, such as the way the equipment is currently being used limits your ability to produce more. People is another internal constraint, which can reveal itself by lack of skills, personnel and behavioral issues. Finally, policy, whether written or unwritten, can prevent you from making more product or expanding services.

Remember, that a constraint is a limiting factor. Therefore, a problem that occurs in a project or organization is not by definition a constraint, even if it occurs with equipment, people or policies. A constraint is something that is preventing you from getting more throughput, even if nothing else is wrong.

Thinking Process in the Theory of Constraints

The theory of constraints is a way to solve problems inherent in your project that are preventing you from achieving more of your goals. Part of the theory of constraints is the methodology called the thinking process, which is made for complex projects with many interdependencies.

The thinking process is a cause-and-effect tool, which helps you to identify the root cause of undesirable effects and remove them without creating new ones. To do this, ask yourself these three questions:

  1. What needs changing?
  2. How should it change?
  3. What action will change it?

There are many tools that can facilitate this process. You can diagram the current state that needs changing with a current reality tree, which traces the problem to its root. An evaporating cloud tree evaluates potential improvements, and a future reality tree helps document what the future state will look like. Finally, a strategy and tactics tree will assist with the implementation plan to achieve that future state by creating a logical structure to organize what you’ve learned and derive solutions.

What is Throughput Accounting?

When accounting in the theory of constraints, you’ll be differing from traditional accounting methods. The theory of constraints looks at accounting as the counting of bad behaviors. Financial concerns are secondary to selling goods or services (throughput).

Remember, throughput accounting is made up of throughput, or rate you make money through sales, operating expense, the money spent to product “goal units,” and investment, the money tied up in what you need to make and sell your product or service.

Measuring Throughput

Throughput accounting has these four measurements:

  1. Net Profit: throughput minus operating expenses
  2. Return on Investment: net profit divided by investment
  3. Productivity: throughput divided by operating expenses
  4. Investment Turns: throughput divided by investment

Management decisions are guided by how well they can achieve improvements that increase throughput, reduce investment and reduce operating expenses. However, increasing throughput is the most important of the three, as the theory of constraints is less interested in cutting costs than on building sales.

How the Theory of Constraints Works with Lean Manufacturing

Both the theory of constraints and lean manufacturing are methods to improve the effectiveness of your project. They do, however, have different means to their ends.

While the theory of constraints is about identifying and removing constraints that limit project throughput with the primary goal of increasing manufacturing capacity, lean manufacturing is more concerned with removing waste from the process and reducing costs.

Focus on What’s Important

But both share a focus on the customer and can work together. For example, not every constraint is worth addressing, due to limited resources for one, so the theory of constraints can help you prioritize while lean manufacturing offers tools and techniques to achieve improvements.

Lean tools can also help identify the constraint through tools such as value stream mapping, which engages teams in problem solving, and Gemba, which encourages understanding real-world issues. Lean tools can also help exploit, subordinate and evaluate the constraint with a variety of different techniques.

The benefits of hybrid techniques are just another way that project management cannibalizes methodologies and applies them to controlling work for better results. Having more tools in your toolbox means you have more options to address process and the problems that arise during it.

What can handle all these different methods and still provide managers with an easy-to-use interface? ProjectManager.com—a cloud-based project management software with the tools for any project, no matter how you choose to manage it. From a real-time dashboard to online Gantt charts with a collaborative platform, everything you need to work efficiently is in one place. See how it can help you by taking this free 30-day trial now.

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