Gold Rates

Where Does Goldrat Come From?

The Year of the Gold Rat

As Chinese astrologers know, this year is the Year of the Gold Rat. Those born under this sign are said to be quick-witted, resourceful and driven to create order.

Like Deming, Goldratt saw organizations as systems. He developed important thinking about why they operate as they do, and how to improve them.

The Goal (1984)

The Goal is a management-oriented novel written by Eliyahu Goldratt with Jeff Cox. Its protagonist, Alex Rogo, finds himself in charge of a troubled manufacturing operation. The central theme is that any manufacturing system consists of processes and constraints. The processes are the resource flows, and the constraints (like inadequate capacity at a machine tool) limit total system throughput. At any given point in time, one particular constraint is the critical one; when it is eliminated, throughput increases. Goldratt used this fictional story to teach his Theory of Constraints theory.

The book tells how Rogo uses his knowledge of TOC to save the company. In the course of doing so, he discovers that most of the plant’s problems stem from poor planning and scheduling. Among the techniques he employs are planning horizons, GANTT charts, and the limiting constraint concept. The limiting constraint is the fastest-moving, highest-priority activity in the system, which limits all other activities. By identifying and eliminating the limiting constraint, all other activities will improve.

While the book is fictional, the concepts in it are real. Goldratt’s Theory of Constraints is a method of managing manufacturing processes that has been implemented by thousands of businesses worldwide. It is based on the simple but powerful premise that any process can be improved by focusing all resources on removing bottlenecks from the system.

For example, if an operator can remove the bottleneck from a process by reducing the inventory level in the machine tool, throughput will increase. In turn, this will make the other machines in the factory work more quickly, and overall throughput will increase.

As a result, the process becomes more efficient and profitable. In addition to removing bottlenecks, the TOC philosophy seeks to eliminate waste and unproductive activities such as padded deadlines.

After a stint working for Creative Output, which produced Optimized Production Technology, a software program that helped manufacturers streamline their operations, Goldratt founded the Avraham Y. Goldratt Institute, or AGI, to promote his Theory of Constraints and help companies implement it successfully. He also continued to develop tools to help companies succeed.

It’s Not Luck (1994)

This 1994 sequel to The Goal follows Alex Rogo’s rise through the ranks at UniCo, now over-diversified and under-profitable. It’s Not Luck, like The Goal, uses a business novel format to teach Goldratt’s Theory of Constraints. The focus is on resolving conflicts, optimizing processes and driving organizational success.

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The book starts out with a dilemma for Alex Rogo, the main character: three companies have been recently acquired by UniCo and are on the verge of collapse. If Alex can turn them around they will be sold for maximum profit. If he fails they will be closed down. Either way he and his team will be out of work. Alex is tasked with turning them around, and using what he learned from his mentor Jonah, he succeeds.

Throughout the book, it’s clear that the key to success is detailed and accurate information. Providing such information allows for informed and logical decisions, which in turn allow the attainment of goals and targets. Additionally, it shows that when constraints are removed accomplishments move forward quickly and even the most unlikely stretch goals can be met.

While some readers may find the plot of It’s Not Luck hokey or contrived, it does achieve what it sets out to do: deliver a number of important management lessons in a palatable form. It is the type of book that is more likely to be read in the lunch room, on a long plane ride or at a company retreat than at a sandy beach.

Although Goldratt originally started out as a physicist, his experience working with manufacturers led him to develop important thinking about why businesses operate as they do and how to improve them. This thinking, combined with his talent for presenting it, resulted in The Goal and It’s Not Luck, books that are not only highly readable, but offer important lessons that can be applied almost immediately.

Critical Chain Project Management (CCPM)

If you’ve ever worked in project management, you’ve probably noticed that plans rarely come out exactly as they are planned. In fact, according to a recent survey by the Project Management Institute, 65 percent of projects are late or over budget. That’s where the Critical Chain Method (CCPM) comes in. The CCPM is an extension of Goldratt’s Theory of Constraints (TOC) mentioned in The Goal, and it is designed to create steady production through the project.

The idea behind the CCPM is that every project has a critical sequence of tasks which must be completed before the project can finish. These tasks are the longest path through the project and consider task interdependence as well as resource constraints. The CCPM also uses buffers to protect the project end date.

Buffers in a CCPM schedule are strategic safeguards which protect the project end date by providing contingency time for the Critical Chain. The project manager calculates the late start, late finish, and total float for each task on the Critical Chain by performing a backward pass through the timeline of tasks. Then, the project manager adds a buffer equal to the estimated duration of the longest task on the Critical Chain. Project managers also add buffers for non-critical activities which have no impact on the project’s final deliverable, and a deferral buffer before the starting date of each activity.

To maximize the effectiveness of a CCPM, team members must buy-in to its radical approach. For example, employees are expected to work on one task until it’s complete – no multitasking or gold plating allowed. Team leaders must be committed to monitoring buffer expenditure, and renegotiating project deadlines as necessary.

Getting team members on board with CCPM can be difficult. To succeed, the process requires a radical shift from using dates and milestones to tracking progress by how much of the buffer has been consumed. Unless managers are comfortable with this, the whole process could end up being quite chaotic and unproductive. However, the benefits of a CCPM can be significant. A team that focuses on this methodology can bring projects in sooner, and reduce lead times for future deliveries.

Thinking Processes

Several Thinking Processes help us to conceive new ideas, to fully develop them by means of analysis and to operationally deploy the actions needed to implement these ideas (knowledge). Within this framework, they strengthen and fortify the faculties of the intellect responsible for judging, reasoning and understanding.

Although the term thinking is often equated with the ideational activity of daydreaming, it should be clearly differentiated from such undirected activity. Thinking is a conscious, planned, structured and purposeful activity. It uses percept, images and concepts. It also involves evaluating and making choices and decisions.

The aim of thinking is to reach a predefined goal by analyzing and comparing alternatives and deciding which one will give the best results. The process of thinking includes a variety of cognitive operations such as judging, analyzing, inquiring and reasoning, but the most important ones are deliberation and problem solving.

In decision-making, a combination of two families of cognitive operations are involved: System 1 thinking and System 2 thinking. The former is an automated mode of thinking triggered by subconscious pattern recognition that draws on similar experiences and situations. It is a powerful tool that enables us to make rapid decisions under time constraints and when there is no time to think. The latter is the analytical type of thinking that requires a more conscious effort to be used.

A great number of Thinking Process tools and trees are available to support the process of changing from current reality to desired reality. The most well-known are the Flow Chart and a tree called the evaporating cloud (also known as the Conflict Resolution Diagram or CRD). Another one that has gained popularity in recent years is the core conflict cloud.

These Thinking Processes provide a very useful way of verbalizing the tacit knowledge that is created by individuals and converting this information into organizational knowledge. It is during this transformation, when the knowledge becomes explicit, that it can be shared among all employees. As a result, the Thinking Processes allow people to work together in a common language. This common language helps to reduce misunderstandings and misinterpretation that can lead to incorrect actions and decisions.