Session 17: Critical Chain – Project

Management, Social Cost – Benefit

Analysis

Rohit Kapoor
IIM Indore
 Introduction
• In 1997, Dr. Elihayu Goldratt introduced – Critical
Chain
– “Time was more important than cost for project
managers”

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 Critical Chain: the Human Side
• People plan & execute the Project – not
computer programs
• Unintended consequences
– Estimating project duration

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 Critical Chain: the Human Side
• Student Syndrom

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 Critical Chain: the Human Side
• Parkinson’s Law
“Work expands to fit the allotted time”

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 Critical Chain: the Human Side
• Execution based on Priority

• Message – Eliminate multi-tasking

– and make resource allocation decision based on project priority

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 Planning Mode
• Scheduling Backwards

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 Planning Mode
• As – Late – As – Possible Scheduling
• Benefits
– Not incurring costs earlier than necessary
• Drawback
– All the tasks become critical in tracking mode

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Planning Mode – An Illustration
• Target End Date of March ‘31

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 Critical Chain
• Longest chain of activities that considers
both
– activity dependencies & resource dependencies
• Identification of Critical Chain

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 Inserting Buffers
• Project Buffer
– protects the target end date against overruns in
critical chain projects
• Determination of project buffer size
– Assume 50% of the length of critical chain tasks
• Feeding Buffer – At the point where the feeding
chain intersects with the critical chain
– Assume 50% of the length of feeding chain

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Inserting Buffers

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 Tracking Mode
• Resource Allocation Decisions
– allocate the resource to the project with the goal of
minimizing buffer penetration
– Advantages: Politics and persuasion out of the
allocation process, optimizes the resources

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Finish Early

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Simulation – CPM/CCPM

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 Summary of the Steps
• Come up with aggressive estimates
• Construct an ALAP schedule
• Indentify the critical chain
• Determine the appropriate buffer positions
• Determine the appropriate buffer sizes
• Insert the buffers into the schedule

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A Simple Project Illustrating a
Normal Early Start Schedule

1.1 (30) 1.2 (20)

3 (30)
2.1 (20) 2.2 (10)

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 A Small Exercise
A-2 A-4
Red Green
15 10 B-6
Magenta
C-2 C-4 10
Blue Green
5
5

E-2 E-4
Blue Green
15 5 F-6
Magenta
G-2 G-4 5
Red Blue
15 15
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 Multi – Task Critical Chain
• Objective – Maximizing the total project
throughput of the organization
• Constraints: 1) project priorities 2) Key resources
• Identification of “Drum” resource
– Always in the most demand
– Limited by the capital cost

“Synchronize the projects”

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Project Synchronization

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Project Synchronization -
Solution

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 Summary
• Projects will be completed faster
• The project team’s morale and effectiveness will improve
• Project managers, resource managers, and executives
– will have a simple, highly effective macro-level method for
evaluating project performance
• and making resource decisions using green-yellow-red buffer management.

• Executives will have an effective tool for making decisions

on task
– based upon project priority and organizational capacity using the
project synchronization capabilities.

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 Evaluation of Public
Alternatives: Social – Cost
Benefit Analysis
Rohit Kapoor
 An Illustration
• An inland state is presently connected to a sea – port by means of a rail
road system
• The annual goods transported is 1,20,00,000 ton kilometer (1.2 Crore ton
kilometer)
• The annual transport charge is Rs. 32/ton/km
• Within the next 15 years, the transport is likely to increase by 9,00,000 ton
kilometer per year
• It is proposed to improve a river flowing from the state to the sea – port at
a cost of Rs. 3,25,00,00,000 (Rs. 325 Crores) immediately
• This will make the river navigable to barges and will reduce the transport
cost to Rs. 9/ton/km
• The project will be financed by 9% bond at par
• There would be some side effects of the change-over as follows:
– The railroad would be bankrupt and be sold for no salvage value.
– 280 employees will be out of employment. The state will have to pay each of
them a welfare cheque of Rs. 60,000/year for another 15 years
– The reduction in the income from the taxes on the railroad will be compensated
by the taxes on the barges
• Whether the project should be undertaken by the state?
 Benefit – Cost Ratio
• Ratio
= Total equivalent benefit/Total equivalent cost

Final Take?