Lead-time alert: When the economy gets bad, project-based companies create more cash
By staying away from the traditional “cut back on all expenses and lay people off” approach, successful project execution management-oriented companies can generate more money more quickly. Not only will the project approach keep companies vibrant now, but it will increase market share and enlarge profits in the near future when the economy returns.
Sanjeev Gupta, CEO & president, Realization Technologies
More new products introduced faster yields increasing cash flow. Project execution management shortens lead times so companies can accelerate cash generation.
If you want to hurt a company then hurt its cash flow—after all, lack of cash will destroy a company. That’s what happens in bad times. So when the economy is down and a company feels threatened, everyone in the organization should be focused on creating increased cash flow.
But what do most companies do? Without thinking through the solutions to their problems, sometimes real—often times perceived—they take the knee-jerk actions of slashing development programs, laying people off, and halting travel. This is the traditional, shameless way of handling a crisis. It harms the company both now and in the future.
The better way for a projects-based business to survive now and be primed for increased growth in the future is to accelerate project completions. By delivering more current projects on time—in some cases even faster—the company puts more money in the bank sooner. That helps now.
But there’s a future by-product as well. When demand picks back up, this company will have sufficient capacity and shorter lead times to promote to its customers. Even its workforce will more motivated. Meanwhile, the competition will have laid people off and not made lead-time improvements.
If a company happens to be in consumer products, acceleration of new product development projects will assure it garners increased market share when the economy picks up again.
Do what seems counterintuitive
Instead of cutting back and doing layoffs, how can your company accelerate project completions in these tough economic times?
You may need to temporarily freeze 25 percent of your projects. Then you would accelerate the remaining projects using a simple priority process—e.g., project due dates. In other words, the project that is due first gets the first shot at resources. Remaining resources are given to the project due next, and so on. You might then deploy any remaining resources on "Full Kitting" (preparing for execution) the frozen projects. As in-process projects are completed, you will unfreeze the frozen projects one by one.
Do things differently; get different results
Many companies have discarded their old ways and are executing projects differently. Known as project execution management and based on Eliyahu M. Goldratt’s Critical Chain concepts, it defies conventional management wisdom. It includes holding back some projects at first to assure that all projects are completed sooner. It means not measuring people to task-level estimates. It also means not trying to keep people busy all the time, and instead providing them with clear and synchronized task priorities.
How well does it work? From the Gulf of Mexico to the English Narrows to other offshore sites, drilling rig manufacturers are reporting that project execution management does provide increased revenue opportunities. For instance, one organization completed the design engineering of a first-class rig in 35 percent less time, going from a previous 15 months to just nine months, picking up six months of extra capacity.
In product engineering, a hull structure design was completed in 44 percent less time, dropping from nine months to five. Why? Event schedules are now determined by capacity in the yard and buffer signals, not subjective due dates. Just as important, perhaps, such a process removes the conflict in scheduling between sister locations, letting each locality make good resource decisions based on their capacity and overall synchronization.
A leader in the generic pharmaceutical industry, Dr. Reddy’s Laboratories had completed only six projects in three months. Within the first three months of using project execution management, they completed 11 projects for a 183-percent increase!
And as evidenced by the number of presentations at pharmaceutical conferences, Critical Chain definitely increased its presence in the pharmaceutical industry. One speaker at the DIA/PMI Project Management conference, held last October in Washington, observed that pharma was placing more importance on project management to meet goals and deliverables than in the past because opportunities were fewer, R&D budgets were shrinking, and regulatory pressures were greater. Thus it’s more important than ever for them to meet deadlines to have a competitive edge.
What about the introduction of new high-tech products? For e2v Semiconductors , its cycle time on projects was running 38 months. Using project execution management, cycle times were reduced 40 percent—down to 23 months. Another company, eircom , reduced its cycle time of delivering telecommunications networks from 70 days to 30 days. In other words, they are now able to deliver more than twice as much product as before—certainly a boost in revenue production.
Organizations as varied as high-tech product development, construction companies, aircraft maintenance and repair, and even satellite design and building are reporting impressive gains in project speed and throughput. In fact, the U.S. Air Force Warner Robins Air Logistics Center won the prestigious Franz Edelman award for saving $2.37 billion in aircraft replacement costs by accelerating the maintenance and repair of C-17 aircraft using this new approach.
You too can generate cash
There is little reason to continue doing the “same old same old” when it is obvious it’s not working. Worse yet, in a tough economy, it is simply irrational not to concentrate on the most important project of all: raising more cash more quickly.
Today more than ever, organizations must deliver more projects/ new products faster, oftentimes with fewer resources. This is a goal that can be achieved as proven by the many companies doing just that. By staying away from the traditional “cut back on all expenses and lay people off” approach, successful projects-oriented companies can generate more money more quickly. Not only will the project approach keep companies vibrant now, but it will increase market share and enlarge profits in the near future when the economy returns.
About the author : Sanjeev Gupta is CEO of Realization Technologies , a pioneer and leading provider of execution management solutions to more than 200 companies.
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