Note to the Reader This White Paper originally appeared as “Driving the Relocation 500, which appeared in the October 2001 issue of Mobility Magazine, the publication of the Employee Relocation Council. Due to space requirements, we were not able to fully present the concepts behind the concept in the Mobility Article. This White Paper continues the conceptual presentation from the article. We would also like to thank Dr. James Holt Ph.D. PE of Washington State University at Vancouver for his assistance with the content of this White Paper. His guidance as to the workings of the Theory of Constraints has been immensely beneficial. Introduction As an integral part of your corporate structure, human resources is faced with two goals. First, you need to find those individuals who will fulfill your staffing needs in order for you to remain competitive in the marketplace. Second, you need to locate these candidates in the most cost-effective manner. What have you done to increase the corporate bottom line recently? By properly using, the relocation benefits that you have available, you can increase your bottom line both talent wise and financially wise. This DBAI White Paper provides you with a different way to view how you deliver the relocation benefit to your employees. Effects of a vacancy on the Corporate Entity No matter what the size of the business entity at some point they are confronted with the impact of the departure of an employee either voluntarily or by corporate edict. In either case, this presents a series of effects on the corporate operation. One of these outcomes, which became apparent during the recent era of re-engineering, was that unfortunately there is not a corresponding reduction in the workload as the number of employees is reduced. So for each day that the position is unfilled, someone has to fill in the gap. The department management or fellow workers need to complete their own work and those of the person who has left. This leads to a lower level of both productivity and morale So in looking at our new perspective on the supply chain we need to consider how to shorten the timeline in order to raise the productivity and the morale of the operation. This is what this paper is about- how to shorten the vacancy cycle and thus reduce costs. In The Beginning The relocation industry is nearly 0 years old. Over the years we find that very little has changed in the way we gather information and assist firms in acquiring and relocating employees. In today’s competitive market, corporations feel that in order to recruit the best employees they must increase their relocation benefits. However, at the same time, corporations feel that in order to be fiscally responsible they must reduce the relocation benefits they offer. This creates an interesting dilemma. Corporate recruiters claim the relocation benefit is a significant perk, which is necessary to entice the best employees to join the firm. The time used to be when if an employer stated that they provided a relocation benefit that was sufficient. Today, the same response draws the response of what do you provide. Corporate accountants claim the cost of relocation benefits is too high and takes too long. Both sides are right. Industry timelines say it can take over 500 days for a new employee to move, become assimilated and be up to full productivity in the new location It is important to understand the value an employee to the corporation. Each employee is hired for a purpose that provides much more in return for the firm than just the cost of the employee. A very conservative estimate is a 2-to1 pay back. That is, the employee returns throughput to the firm at least twice their salary (else, they would not be hired in the first place). For an employee earning $150,000 per year, the firm expects a $300,000 benefit or about $1000 per day. In this era of high technology some key jobs, top performers or most high tech jobs the Return is expected to be more like seven to one. No wonder cost accountants are complaining. Consider the lost benefits to the firm if the relocation process leaves a position empty for even 100 days. That’s over a million dollars! Direction for a SolutionIf we examine the relocation process closely, we see that it looks and feels like a project. The process calls for certain tasks to be completed in a certain order. These tasks also create other tasks, which are completed in parallel. While there is some commonality between relocations, each is unique based on the needs of the transferee and the family. Because of this uniqueness, it is difficult to predict how long it will take for any individual action. These are the same characteristics facing other project managers. These characteristics include structural dependency, a high degree of uncertainty, and bad statistics. In further support of the project concept we note that traditional projects suffer the same problems as a relocation project. They tend to take longer than expected, cost more than budgeted and often do not produce the desired result Project management is a mature area of study. However, recent breakthroughs in the management of variability have drastically improved the on time delivery, control costs and improve project quality. The breakthrough is centered on the Theory of Constraints developed by Dr. Eliyahu M. Goldratt. What is the Theory of Constraints? Every individual and likewise every organization thrives to reach that ultimate place where we have reached as close to perfection as we can. We see it in the bowler who pushes to get the 300 game. We see it in the golfer, who tries to obtain that hole-in-one; we see it in the business enterprises in trying to be the best for their customers as they can We have a problem reaching that goal because our systems and processes contain obstacles that we have thrown into the works. Dr. Goldratt’s work demonstrates for us how to identify those obstacles Dr. Goldratt’s work focuses on the few limiting factors of any system. His basic rules are 1. Find the constraint Find those parts of the project process that are consistently holding up the rest of the project flow. Finding the critical chain, the longest sequence of activities and resource combinations, is not too difficult if a proper network is prepared. Many software programs can point out the critical path and then you can sort out the resource issues. 2. Exploit the Constraint There is always some discretion in projects about what resources will be available at what time and the proposed precedence of activities. Exploiting the Constraints means we closely scrutinize the critical chain and insure that only work that must absolutely be in the critical chain is included and that the resources are provided in such a way as to shorten the critical chain as much as possible Another part of Exploiting the Constraint is to estimate the activities along the critical chain in a way that accurately reflects the work expected. Too often, individual activities are estimated at safe estimates. “I might be able to do this task in 2 or 3 days, but there is a chance I will have some problems, so I’ll tell my boss it will take 5 days. Then, I will be safe at meeting my estimate.” This is normal human behavior. It is the concept of local safety. But, what we want is global safety. If the work is not due for 5 days (at the end of the estimate) and the person thinks they have only 2 or 3 days’ worth of effort, the person often delays starting the activity and works on some other task. Then, when problems do occur, they happen so late that the safety of making a 5-day estimate have no valueExploiting the Constraint means scheduling tasks at the median estimate and starting tasks as soon as possible. And, if a task finished early, the next task or activity along the critical chain should start immediately. Consequently, the critical chain is not inflated or idle at any time. This is analogous to the baton in a relay race. The project (the baton) moves quickly through the tasks without delay even though individuals (racers) may be idle from time to time. In this approach, there are no milestones in the traditional sense. With a milestone, there is virtually no chance of completing early. With the critical chain approach, we move as quickly as possible, which means we could often beat a milestone. 3. Subordinate the rest of the system to the constraint If those in the system understand the value of the project (its value to the final customer, not the cost of doing the project) and the importance of the critical chain in achieving that value, then subordination to the critical chain is easy. Everyone that touches the critical chain prepares in advance so as not to delay the actions along the critical chain. Resources are alerted in advance. Sub-projects are completed in advance of when they will be needed. Contracts are negotiated to deliver capability when requested and are not to be timed to a fixed milestone There will always be variability along the critical chain. We removed much of the individual safety by scheduling by median estimates. We must now restore safety to the whole project. The central limit theorem states that the variability in the total system will be less than the variability at any of the links. Adding a project buffer to the end of our critical chain gives that system protection. The size of the project buffer can be much smaller than the sum of the individual safety times. A rough guide is to use a project buffer equal to half the sum of the individual safety times (that were removed when using median task duration times). 4. Elevate the constrain In order to resolve the constraint so that we in essence remove it from the process, we need to elevate it to the prime goal position. This enables the project manager to remove its influence from the project spectrum. 5. If the constraint moves, don’t let the inertia be the constraint You have corrected the environmental conditions, which were causing the constraint. This allows the project to continue. If the constraint is corrected do not let the correction create a new constraint. Go back to step 1 and follow the process until such time as the all the constraints are removed from the project. Implementation We have looked at the theoretical concepts of how the Critical Chain is constructed. It is time to bring the concept into the real world. Shown below are the steps to implement the Theory of Constraints process. STEP #1 – PRIORITIZE OUR PROJECTS Often there are many overlapping projects that use common resources. It should be clear to all participants what Priority One means. They should never let Priority One sit idle and work on Priority Two or Three. For example, the Real Estate Broker has your Broker Price Opinion to complete and also prepare the listing papers for two other sellers. The BPO must take precedence. STEP #2 – SCHEDULE AGGRESSIVELY This means we strive to schedule all the tasks in the system at the mean expected task time (removing the local safety time). The removed safety is aggregated and restored at the new locations where it is necessary to protect the critical chain (project buffer and feeder buffers from the sub-projects). All activities are scheduled at the latest possible time dictated by the median task duration times and the aggregated buffer. STEP #3 – NEGOTIATE FOR CAPABILITY It is important to realize when we are negotiating with those parties who are outside of the relocation chain that you want them to produce results. You do not really care how they do it. You shouldn’t negotiate on man-days or the number of resources required. You want your vendor’s best efforts and prompt reply once you tell them to start. Don’t force a milestone that guarantees you cannot get the work earlier if needed STEP #4 – COMMUNICATION As the project progresses, each active task should report, “time remaining.” It does not matter how much time has passed, only what remains to be done. This communication alerts those that follow in the chain prepare for commencement of their part of the “race STEP #5 – BUFFER MANAGEMENT As activities in the project are completed and as “time remaining” reports come in, it is easy to see where on the project time line, the actual execution falls. We could be behind or we could be ahead of the timeline. If we are late, we do not reschedule, we us buffer management. Buffer management is a technique to manage our resources by directing them in priority order to the work that could jeopardize completing the entire project by the end of the project buffer. If we are late on any task, we penetrate the project buffer (or a protective feeder buffer). If the buffer penetration is minor, we do not get upset. If the penetration is a major one, we direct our efforts at resolving the problems that caused the penetration. STEP #6 – TEAM APPROACH We have long stipulated that the various vendors who are delivering the different segments of the process need to operate as a single entity, not as individual islands. Part of this process means that every member of the team needs to be on the same page as how we are delivering services. In implementing the team approach, we expect that the team members recognize that there may be times when they need to step out of their comfort zone, and assist with other aspects of the process. For example, if we promised the title company that we will have a certain document to the transferee and there is nobody around to get it to them, then maybe the real estate broker needs to become a courier for an afternoon. An Example of the Relocation Critical Chain Planning Confucius stated that “I hear and I forget; I see and I remember and I do and I understand.” To assist you in better understanding this process, the easiest method to enable you to remember and understand is to walk through a hypothetical relocation and demonstrate how TOC changes the approach to obtaining its goals- more productive employees in less time. STEP #1 – IDENTIFICATION OF POSITION The overall relocation process begins with the hiring manager when he/she identifying to the corporate human resources function that they have an open requisition for a position within their department. STEP #2 – JOB DECRIPTION The second step in the chain is the hiring manager taking the time out of his other duties to review the job description. The purpose of the review is to ascertain whether since the last time the position was vacated that there have been no changes in the either the requirements or the functions of that position. STEP #3 – HR DEPARTMENT INVOLVEMENT With the job description finalized and the job requisition finalized, the human resources department begins the search for an acceptable candidate to fulfill the requirements of the position. Interviews are scheduled with both the human resources department and with the hiring manager. Once the interviews have been completed, the hiring manager informs the human resources department of the candidate they feel will best fulfill the open requisition for talent. STEP #4 – OFFER EXTENSION With the information in hand, human resources then extends the offer to the candidate. With any such scenario, the candidate takes some time to review the offer and then finally accept or reject the offer. When the new employee accepts the offer, a reporting date is set and the relocation process begins. Industry norms tell us that in normal scenarios, the expected duration of this first phase of the process is approximately 180 days. STEP #5 – EMPLOYEE MOVE The final steps of the process involve the employee moving to the new area, reporting for work and hopefully being at full productivity levels. We discussed earlier the concept of critical chains. In the process we have described the longest sequence of activities consists of the following steps: 1. Seeking the Candidate 2. Extending the Offer 3. Acceptance of the Offer 4. Employee Moves 5. Employee Reports to Work 6. Employee and Family are happy Since we cannot control what the corporation does during their part of the project (job search and interviews), let’s take a close look at what we can do in the “Employee Moves” block of the project. We find that the Employee Moves task is also a project. It starts when the candidate has told the employer that they will accept the corporate offer of employment. The project ends when they are ready for work. In the meantime the newly hired employee is responsible for completing approximately 500 separate activities in order to complete the transfer to the new location. We can demonstrate this by taking one segment of the process and demonstrate its operation. The easiest segment to follow is the house-hunting trip. After discussions within the real estate industry, the safe estimate, which we stated earlier, is an 85% probability of completion, for the length of time taken up by house-hunting activities is thirty-two (32) days.
Figure 1: Before Estimate of 32 days… Each activity holds its own safety time
Destination Broker is contacted 1 day
Destination Broker contacts employee 6 days
Broker Previews properties 8 days
Broker shows homes to family 16 days
Contract is signed 1 day
The first step is for the corporation either on their own or through a relocation consultant to identify a qualified real estate broker in the destination area. Part of the identification process is to negotiate with the broker who can provide the capabilities that we are requiring. The question posed to the broker is “here is what we need and how soon can you deliver the services.” If the broker can’t meet your needs you go to another broker and repeat the process.Once the broker is identified the remainder of the process comes into play. Since we have negotiated for capability, we expect the broker to do their best to make contact with the transferee and the family.
Critical Chain Sub Project Schedule 16 days plus Safety Buffer
Destination Broker is contacted 1/2 day
Destination broker contacts employee 3 days
Broker Previews Properties 4 days
Broker shows properties 8 days
Contract is signed 1/2 day
Project Buffer 8 days
we estimate the median time for the contact process is only three days. It may take more or less time then we have scheduled. If it goes longer than the three days then we will eat into our eight-day safety buffer.
The next step is for the broker to review the available properties in the area. The mean estimate for this segment of the feeder chain is four days. If the broker is faster, some of the exhausted safety buffer is recovered. With this in mind the estimate of eight days for the family to choose a home has a fifty percent chance of success. If the broker has done their job, the family may find a home in two days. It may also take them ten (10) days to find the home. The safety buffer absorbs the variation.We have negotiated on capability so that each segment of the feeder chain can be ready to pick up when the preceding activity is complete. Each vendor knows the next vendor in line so that they can pass the baton if you will to the next vendor in line. For example, if the broker can receive the same income from finishing earlier than expected they get more for their money. The goal is to make the process reliable, predictable and repeatable.
One of the key concepts in the business community today, is the idea of value-added benefits. By delivering the transferee to the new job location eight-days earlier we have added to the value of the vendor. Using the assumptions in Figure 2, this would add $8,000 to the value of the vendor. This value-added benefit can be shown in increased compensation for completing the task earlier than expected.
It is expected that the broker will contact the corporation or the relocation consultant if something holds up making contact with the transferee or their family. This is because the extended time for contact will eat into the buffer that we established in the timeline shown above. Once the contact with the transferee is complete the broker needs to immediately begin the process of searching and previewing the homes. The information on the homes that are on the finalized list can then be e-mailed to the transferee. If the agent is truly technologically inclined they can attach digital photos of the homes on the list. It then becomes imperative that the transferee and the family schedule the visit to the new area as soon as possible. Since they have already seen overviews of the homes in question they should be able to personally inspect the homes over a three to four hour time period. After they have chosen the home that best suits their needs it becomes critical that the agent prepare the contract and get it delivered to the seller within hours so as not to hold up the process.
Once the contract is accepted, the final contract needs to be delivered to both the lender and the title company. In order to keep with our aggressive schedule the brokers must be ready to become couriers to get the paperwork to the right place at the right time.
Relocation is a trying time for all concerned. If we establish its timelines by artificial time frames or by allowing the vendors to get us the reports when they can, we will find dire results. The timeline will by its nature be extended and have an upward movement in the costs involved.
The simple example given here only addresses one segment of the relocation process. A broader, more encompassing view promises to trim hundreds of days from the relocation process.
By using the components of the Theory of Constraints and using aggressive scheduling in particular, we will find that the outcome will generate happier transferees and lower overall relocation costs. Further, by using TOC tools we can innovate new processes based on this exciting new method of viewing project management.
I Saw and I Remembered I Did and I Understand
Richard Crovisier, CRP of Fry-Wagner Movers in Lenexa, KS saw this concept presented in our Road to Gold Seminar and had the following response:
“Time is not the friend of clients or their transferees during both domestic and global employee relocations. When one views relocation through the eyes that are focused on return on investment (ROI) being made in each employee, any thought process and vendor selection that reduces the duration of the relocation and that will increase the beginning of an employee’s contribution turns into significant ROI. Out-of-the-box thinking, when implemented, will contribute to improved bottom lines.”
Here is what Mr. Crovisier saw in the seminar:
Annual Salary of Candidate $75,000
Cost of vacancy $75,000 + benefits x 2
Per Diem Cost of the vacancy $1941.78
Safety Estimate 500 days
Critical Chain Estimate 250 days
Critical Chain Savings 250×1941.78=$485,445
Per Transfer Savings $485,445
IBM with 5,000 moves: $485,445x 5,000 = $2,427,225 in vacancy costs
Critical Chain Resources Information
The resources shown below are good sources to better understand the Theory of Constraints:
• Print Media
There are a number of good books on the market, which discuss the Theory of Constraints:
Dettmer, H. William. Goldratt’s Theory of Constraints (Milwaukee: ASQ Quality Press 1997)
Goldratt, Eliyahu. The Goal Second Revised Edition (Croton, NY: North River Press 1992)
——————– It’s Not Luck (Great Barrington. MA: North River Press 1994)
——————-Critical Chain (Great Barrington, MA North River Press 1997)
——————Necessary But Not Sufficient (Great Barrington, MA: North River Press 2000)
Newbold, Robert Project Management in the Fast Lane (Boca Raton, FL:The St. Lucie Press 1998)
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