Critical Chain - Eliyahu M. Goldratt [14]
I keep on reading, "Project title: New production facility in Malaysia."
"May I say something?" Fred asks.
"Certainly."
"This Malaysian project is not one that I'm involved with. I deliberately chose this project because for the projects I'm involved with, I already have some strong opinions about why things are the way they are."
"And you want to present an objective evaluation. Good thinking." And I continue to read from his report, "Project status: the Malaysian plant should have been fully operational eight months ago. Currently machines are installed in all departments except for one, but only three lines out of five are already operating. Output of the plant is currently less than thirty percent of target. Anything to add, Fred?"
"Only that I've heard some complaints that the quality is not up to par. But since I couldn't get any official numbers, I didn't include it."
"Fine. Next item on Fred's report is: Financial status. I love the way you arranged it."
"Standard procedure." He plays it down, but it's apparent that he enjoys the compliment.
"Financial status," I read again. "Due to budget overruns of sixteen point two percent and delays in production, the original estimate of three-year's payback is now modified to five."
"Does everybody understand the term ‘payback'?"
Ruth probably knows the term. Nobody admits that he doesn't. Nevertheless, I explain. "Payback is the time period from investing until we expect the fruits of our investment to cover the investment. For example, suppose that you invest one hundred dollars and you get fifty dollars each year. Assuming no inflation, your payback period is two years. In Fred's case the calculations are a little bit more involved since the money is invested over a period of time. For investing in a new plant, payback of three years is considered to be a very good investment. Considering the risks, five is marginal."
"Five years is the current official estimate, but in my friend's opinion it's much too optimistic," Fred comments. "They are pushing for a formal estimate of a minimum of seven years, but since this project is the personal initiative of the CEO, I'm afraid that it will be some time before the estimate is corrected."
Fred's comments certainly help to bring his report to life. "Official explanation," I read, only to be immediately interrupted by Fred.
"Of course, I didn't interview the CEO. So what I'm calling here the official explanation I took from a memo outlining the explanations given to the Wall Street analysts."
"Even better," I say, and continue, "One: Particularly bad weather conditions that delayed construction. Two: Unforeseeable difficulties experienced by the vendors who supply the machines. Three: Longer than expected negotiations with the Malaysian government concerning employment terms."
I cannot stop myself from commenting, "There is something common to all of them. Do you see it?"
Ted is the first one to jump. "It's all somebody else's fault. The weather, the vendors, the Malaysian government."
"What did you expect?" Fred is slightly impatient. "That's corporate mentality; always blame the external world. But look at what I wrote under unofficial reasons. Here you will find finger pointing at functions inside the company.
"By the way, Professor Silver, I couldn't interview the current project leader, he is in Malaysia, but I don't think it matters too much since once the emphasis shifted from constructing the plant to running it, the project leader changed. I did interview the previous project leader and some of his people. Most of them are back at headquarters."
"Unofficial reasons given by the project leader," I read. "One: Corporate forced an unrealistic schedule to start with. Two: It was dictated that we choose the cheaper vendors, even though it was known that they are less reliable. Three: In spite of repeated warnings, efforts to recruit and