Question

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Question 01.

Explain in detail Eliyahu Goldratt’s Theory of Constraints with a brief note on its application in Project Management.

Answer 1

Explain in detail Eliyahu Goldratt’s Theory of Constraints with a brief note on its application in Project Management.

Theory Of Constraints(TOC) is the project management concept developed by Dr. Eliyahu M. Goldratt in 1984. It is a organizational change method that mainly focused on improvement of the profit.It is essential to have at least one constraints for every organization. A constraint is the factor that limits the company from getting more of whatever it tries for , usually it is profit. The TOC identifies the organization limiting factor that stands against in the way of achieving the organizational goals and it systematically improve these limiting factor till the time it becomes no longer limiting factor. In manufacturing process the constraint is often referred  as bottleneck. Many other non- manufacturing constraints exists such as sales department ability to change the market demand into orders.Most of the business viewed as the set of process that converts the set of inputs into the salable outputs. TOC takes specific scientific approach to improvement, it hypothesizes every complex business which includes manufacturing system as well and many linked activities , one of them acts as the constraints upon the whole system. So the final goal of any company is to make the good profit- both in short term as well as in long terms. TOC provides the powerful set of tools to achieve the desired goal that includes- five focusing steps such as identify, exploit, subordinate, elevate and repeat- these process helps to identify and eliminate the constraints;The thinking process which include- Current reality tree, Evaporating cloud tree, Future reality tree and strategy and the tactics tree - these helps to analyze and resolve the problems; throughput accounting which uses the core measures as throughput, investment and operating expenses - these factors helps to measure the performance and guides the management decisions.

The goal, Eliyahu proves that most of the business have few true constraints, since the focus needs to be on the constraints, Implementing the theory of constraints will result in substantial improvement without trying up a great deal of resources. The TOC is that inherently prioritizes the improvement activities . The current constraints will always have top priority. The environment which needs urgent improvement, TOC offers highly focused methodology for developing the quick improvement.

The successful theory of constraints will have the advantages as follows

• As the primary goal of the most of the organization is to improve the profit
• Focusing all attention of one critical area will makes the improvement fast
• Optimizing the constraints will results the more products to be manufacture - means which improves the product capacity
• The optimizing the constraint will enables the faster and smoother product flow - reduce the lead time
• It eliminates the bottleneck which means there will be less work in progress- which in turn reduce the inventory.

Goldratt provides the foundation for achieving the goal and changes in the business through TOC which includes three measures . These measures improves the profit using TOC

Throughput: the rate at which the entire business generates the money through sales for a product or service and not through the production. Goods are not considered as a asset until and unless they are sold. throughput represents the all incomes coming into an organization

Inventory: all the money which the business invest in the item it intends to sell or the material that the firm intended to transform into salable items. The inventory represents all the money is tied up inside the business. It includes raw material, obsolete items, equipment's, facilities, work in progress and finished goods.

operating Expenses : the money that the organization spends in converting the inventory into throughput . it represents the money going out of the organization . for example : depreciation of assets, direct labor, consumable supplies, utilities etc.

All these three measures are interrelated. changes in the one measure will impact the changes in the one or more of the two. Minimizing the operation expense and inventory will result in improved throughput.