Getting The Most Out Of Scarce Production Resources
Resource constraints are a fact of life for every firm. From large Fortune 500 companies to small, single-location organizations, there’s a limit to how much capital can be deployed on new projects. Besides the obvious constraints – cash, limited capital, cost of hiring – there are nonfinancial issues as well.
Resource optimization software can not only help to adapt more efficiently to these resource constraints, but it can also minimize idle time, anticipate parts shortages, free up labor and equipment to be shifted among tasks, and otherwise get the most out of your labor and capital. In addition, it lets you perform what-if analyses to identify dependencies and make mid-course corrections when you have multiple projects underway at the same time.
Traditional, standalone project management software is a good start, but a resource optimization program that takes data directly from your enterprise resource planning (ERP) system can coordinate projects across your company. A system that knows where every worker, tool, and machine is at any given time can pay off in many ways:
- Projects can be completed sooner than initially projected, because the software can automatically adjust schedules when another project releases a required resource (for example, a worker or machine) or when a company increases available labor, machines, or tools.
- Resources can effectively be reassigned (cross-teamed) so idle time is minimized.
- Multiple simultaneous projects can be more efficiently executed when resource usage is optimized.
- The number of people or machines you need to add can be evaluated through what-if analyses based on different projects’ deadlines, priorities, and resource requirements.
Resource optimization software helps project managers make smarter decisions by giving them more complete information on what resources are doing at a given time. It also provides them with more flexibility, because resources can be deployed based on the exact amounts of time and work they are required to perform or the individual activities within a project.
The ABCs of activity-based costing and budgeting
In traditional costing based on generally accepted accounting principles (GAAP), overhead costs are allocated by units of production, without regard to the actual cost-driving activities. On the planning side, resources are often assigned based on incomplete knowledge of the actual demand for them.
Prof. Robert S. Kaplan of Harvard Business School and Steven R. Anderson, founder and chairman of Acorn Systems, explain that “the supply of most of a company’s resources – personnel, equipment, and buildings – is committed in advance of a period, before the demand for them is known exactly. A company pays for these committed resources, whether or not they are used during the period.” (Time-Driven Activity-Based Costing; Harvard Business Press, 2005.)
This means that managers end up overallocating resources, to make sure they have what they need to get projects done on time. With better information about exactly how long activities are likely to take and what resources are available at any given time during a project, production forecasting can be improved.
To address costing more realistically, Activity-Based Costing (ABC) allocates overhead to units of production more accurately than traditional cost accounting which simply divides the total overhead by the number of units. Activity-Based Budgeting (ABB) applies the same principle to planning, using measured amounts of time and materials when deciding on the level of manpower, tools, materials, parts, etc. to be made available for a given project or production run.
Watch out for those unknown unknowns!
Regardless of how good your forecasts are, sometimes unanticipated events put projects behind schedule – machines break down, priorities change, a flu bug puts everyone out sick, and all of a sudden, you’ve got a problem meeting deadlines. Conversely, a project might be ahead of schedule because you get an unusually high-quality shipment of parts or raw materials. Either way, you need to be able to shift resources quickly to take advantage of excess capacity when a project is finished ahead of schedule, or when the time estimates turn out to be wrong.
This is where a resource optimization program pays off – it can immediately shift a worker, tool, or machine from one project to another, for a specific amount of time, to fill a need on another project, then bring the resource back to its original project when the short-term task has been completed. Instead of having to overallocate resources to a particular project to make sure it is completed on schedule, your organization can redeploy resources on short notice to wherever they’re needed.
In this simple example, Electrician #01 is booked from 7:00 to 8:30 a.m., then from 2:00 to 5:00 p.m. that afternoon. Traditionally, this electrician would have been put on this project from 7 a.m. to 5 p.m. without knowing exactly what tasks she was going to be doing on a given day. If someone else needed an electrician for a few hours that day, they’d have had to find one somewhere else. But with the details available in an advanced resource optimiztion system, you can confirm that Electrician #01 is available between 8:30 a.m. and 2:00 p.m. and put her on another project, as long as she’s back in time to resume work on the first project at 2:00.
What-if and sensitivity analyses
With resource optimization software, a task can be as long or as short as you want – an individual worker can be assigned to any number of short tasks. The “what-if” comes in when you need to determine the level of resources needed to keep multiple projects on schedule. If several projects are going on, and resource constraints or production delays prevent them from being completed on schedule, a what-if analysis will show the effects of adding resources. A scheduling sensitivity analysis is one of the greatest benefits of an enterprise-wide software tool for resource optimization. Here’s how it works.
In this example, Electricians #1 and #2 are both scheduled for multiple tasks at various times on Oct. 16 – but they aren’t working on this project on Oct. 15—meaning they’re available to work on a different project.
Dependencies may exist among multiple simultaneous projects that compete for an organization’s resources. If one or more projects have fallen behind schedule, a what-if analysis can be used to determine how many additional resources are needed in order to get the projects back on schedule. For example, adding a couple of electricians and letting the software recalculate the schedules, or reducing another project’s demand for electricians, can show how the dependencies between projects that are competing for the same resources affect the overall work flow.
Lean manufacturing is about reducing waste. Resource optimization software provides an enterprise-wide “scheduling engine” that always has complete information on the level of resources available in each part of the organization. This means fewer shortages of parts and materials, less idle time (for both labor and machinery), and a closer match between production pace and delivery schedules.
By analyzing the actual time and resource consumption incurred by a project – as recorded by a resource optimization program – an organization can do a better job estimating future projects. With a more complete picture of the demand for these resources and an understanding of the way projects actually unfold over time (by comparison with the original plan or schedule), enterprises in any industry can employ successful continuous improvement strategies.
Hernan J. Clarke is the president, CEO and founder of 4Sight Technologies , a worldwide leader in Business Intelligence (BI), resource optimization, and continuous improvement enterprise software and IT professional services. With more than 15 years of experience as a leading expert in the field of computing project management, Clarke is passionate about guiding enterprise-wide transformations for global organizations that enforce lean and Six Sigma standards and drive innovation, efficiency and quality.