Used in thousands of companies and taught in hundreds of business schools, The GOAL by Eliyah Goldratt is one of the most influential novels within operations management. Set in a manufacturing environment, the book describes a systematic approach to running and improving an organization. Yet, the concepts described are not unique to the Manufacturing industry.
The goal of an organization is to increase throughput while simultaneously reducing both the inventory and operating expense. From an accounting point of view, “Throughput” is defined as the net revenue made from selling a product or service.” Inventory” is defined as the money tied up in fixed assets to enable Throughput. “Operating Expense” is defined as the money spent to produce Throughput. However, these current definitions are not easily transferrable to the operations and management world, specifically Enterprise Performance Management projects.
As identified in our previous blog, Structuring flexibility in your EPM project: A guide for Maximizing Project value, the goal of Enterprise Performance Management “EPM” software is to drive profitable growth by delivering predictable results, improving transparency and compliance, and increasing business alignment.
The diagram below shows how the Throughput, Inventory, and Operating Expense definitions can be translated to meaningful terms within the EPM realm.
The goal still remains to increase Throughput while simultaneously reducing both the Inventory and Operating Expense. However, reducing implementation costs does not necessarily mean not hiring a consulting partner or choosing a partner with the lowest bid. As the saying goes, you get what you pay for. Reducing implementation costs also includes optimizing delivery of your EPM project to reduce inventory and deliver overall project benefits faster. The most commonly used strategy for delivering a project faster is to utilize more resources. However, all organizations have constraints that limit their ability to delivery projects. Unless these constraints are addressed, increasing resources only increases the project implementation costs while leaving Inventory unconverted.
TOC proposes five (5) steps for optimizing EPM project delivery with regard to the organizational constraints and EPM goals:
- Identify the project constraints
- Decide how to exploit the project’s constraints
- Subordinate everything else to the decision made in step 2
- Elevate the project’s constraints
- Continue to evaluate for new constraints
Identify the project constraints
Projects have many constraints. The key is to identify that constraint that affects project flow more than any other. Common project constraints within the EPM include
· Challenges with metadata and a lack of a common chart of accounts
· Challenges with sources of data and data cleanliness
· Lack of resource commitment and availability
· Unclear or unknown requirements
Decide how to exploit the project’s constraints
Even though many constraints may be important, one primary constraint should be identified and all other activities within the project should be staggered in such a way to squeeze maximum value from the primary constraint without overloading it.
Subordinate to the constraint
The key to this step is to make the primary constraint the focus of attention and eliminate rules and assumptions that inhibit the maximum value that can be provided by the primary constraint. Agreement must be made that additional tasks and activities are not to be interjected above and beyond the capacity of the primary constraint.
Elevate the constraint
Once all other activities have been subordinated to the primary constraint, it is highly likely that the primary constraint will become a further bottleneck within the project flow. At this point, additional time and resources can be added to the primary constraint in order to increase project flow.
Continue to evaluate for new constraints
As may have been recognized, constraints never disappear. They just shift from one area to another. Once the identified project constraint no longer becomes the primary project constraint, Steps 1 through 5 should be repeated again with a new primary constraint in mind.
Even if not utilized, these five (5) steps produce a new way of thinking about EPM product delivery. Used at strategic points, they can reduce project implementation costs while accelerating benefits. When implementing wide-scale Organizational Change, any advantage helps.