In terms of workflow, home building production is project portfolio management. While it also has embedded, enabling and supporting processes, the essence of home building production is the management of multiple projects that share resources. It is the structuring and management of a portfolio of job schedules, with interdependencies and interactions of tasks and resources.
One of the areas of learning in a Pipeline workshop deals with this imperative: replace the Critical Path Method currently used to schedule home building production.
CPM evolved from Program Evaluation and Review Technique (PERT) in the mid-1950s; it has been in use for over 60 years. PERT and CPM were designed for programs with large, complex structures (Polaris weapons system, Manhattan Project), but CPM is now the de facto standard for scheduling all types of projects: construction, aerospace/defense, software development, product development, research.
The problem with CPM is that it was not designed for managing a portfolio of projects, and it was not designed to function in environments where velocity is important, where cycle time and inventory turns are critical drivers of business outcomes. In environments where it must contend with variation and uncertainty, CPM offers only a buffer of additional time–individual task durations lengthened (padded) to protect the completion date of its task, but not the completion date of the project.
Moreover, while CPM considers task dependencies (the predecessor-successor relationships of tasks) in its work breakdown structure, it does not consider resource conflicts; it does not consider situations in which tasks of different projects/jobs in a portfolio depend on the availability of resources that have insufficient capacity to meet the demand placed upon them.
These two factors–dealing with variation and resolving resource conflict–are anathema to builders.
CPM was not designed to contend with the production environment home building presents. It might only be a symptom of the problem (variation and resource conflict), but CPM is benign to the solution. ProChain Solutions’ Rob Newbold (Project Management in the Fast Lane) told me that he would go further: “CPM supports values that perpetuate the problems of home builders.”
Which brings us to Critical Chain Project Management.
Developed in 1997, Critical Chain addresses task dependency and resource contention, and it replaces padded durations intended to protect task completion dates with buffers intended to protect the completion date of the project/job; CCPM is much more aware of system constraints. Most importantly, Critical Chain reduces the duration of projects–the cycle time of houses under construction.
Consider this illustration from The Pipeline: A Picture of Homebuilding Production:
On a calendar basis, RB Builders has a construction schedule of 120 days. It achieves a cycle time of 180 days. Nevertheless, there is agreement that they should be able to build homes in less than 120 days, because the 120 day schedule reflects “highly certain” task durations.
Statistically, the “long tail” of a standard deviation (bell) curve reflecting the difference between 50% confidence and 95% (“highly certain”) confidence lengthens the duration of project schedules by a factor of 1.64. If RB Builders is 95% confident it can complete a house in 120 days, it must also be confident that it can complete half the houses in no more than 74 days.
Since 50/50 outcomes are not acceptable, CCPM restores the confidence level by taking half of the task time difference between the 95% confidence (120 day) and 50% confidence (74 day) durations and pooling the risk in a project buffer. That would result in a schedule of 97 days, 23 days faster than the current schedule, 83 days faster than the current cycle time.
The resulting reduction in cycle time would double inventory turn; even if RB Builders traded-off margin for higher sales volume, higher velocity acting upon the same margin would nearly double Return on Assets; depending on the condition of the market, a margin trade-off may not even be necessary.
CCPM would also specify a set of rules preventing the behaviors that consume (and waste) the safety built into task durations. CCPM would install a release mechanism that pulls starts into the system and keeps work-in-process at the levels required to produce faster cycle times. CCPM would implement simple, visual tools to manage production.
Builders can put some of these practices into place without changing the scheduling algorithms from Critical Path to Critical Chain: they can change behavior by requiring ALAP starts, and eliminating ASAP starts and task due dates; they can implement pull release mechanisms; they can instill a relay race mentality to the transition of work between predecessor and successor tasks/resources. But, they would still be enslaved to a scheduling methodology that does not work well in its industry vertical.
Builders can be partially excused for a lack of awareness, for not knowing to insist on a CCPM option, for not being capable of developing their own scheduling modules. But, where are the voices of the management technology companies on Critical Chain?
Why is there a settling for a status quo that doesn’t work for home building, that doesn’t provide licensees, users, and clients with the best solution? Where is the strategic discipline to provide management technology that contributes to sustainable competitive separation?
In my view, the onus is upon them.
Rob Newbold told me he would be harsher: “In my experience, technology companies will only go where their clients and competitors take them; until clients demand, vendors will ignore. You might be better off with a call to arms for the builders to demand better.”