Monday, January 23, 2006

Financial Flush Method (FFM)

Financial Analysis Concept known as Flush by Jeff 'SKI' Kinsey, Jonah After something like 40 or 50 years of stagnation, Dr. Eli Goldratt and his colleagues reinvented project management. It is called "Critical Chain Project Management" (CCPM). There is also a version for development teams that share resources among multiple projects. In fact, Tony Rizzo actually applied this multi-project version first. But I digress... In the last chapter of "Critical Chain", Goldratt gives us one last jab in the ribs, after exposing the critical chain method. The book explains how to insure that projects finish on time and within budget. Great news for mere mortals. But then, almost as an afterthought (which is was not!), he introduces a method to decide which projects should actually be launched! The poor word choice for this concept: Flush Think in terms as in "getting back to flush" or even, with regard to cash. As Goldratt justified a radical new approach to production (the concept that resources are finite, not infinite), and as he explained in Critical Chain Project Management (again, resources are finite, among other concepts), he makes another leap of brilliance: cash (to be used as working capital) is finite as well. Therefore, we need better measurements than those in use today. Refresher in Finance 101 (Managerial Accounting):
  • Banks want to know: "What's in it for me?"
  • Customers want to know: "What's in it for me!"
  • Business owners want to know: "How should I use my limited funds?"
Anyone around the Constraints Management method for more than about two days, knows that there has to be a method to determine a "win-win-win" solution. For the bank (source of funding, not necessarily from a bricks and mortar building type bank), the customer, and for the business with more projects than cash to implement them all.

First, we must consider problem solving 101 (Goldratt style):

  1. What to change?
  2. What to change it to?
  3. How to cause the change?
Answer #1: We must change how we pick the projects that we are going to implement. As constraints management folks know, when considering vendors or suppliers, price is way down the list of priorities. It is far more important that the vendor be reliable. Reliable in terms of a suitable (quality) product delivered at the agreed upon time and place. Suppliers on the other end of the phone/fax/email from me understand this concept very well. I tell the story often and with prejudice! I do not care when delivery of my purchased goods are promised (within reason), just make sure they are delivered when promised. When you are building high end custom motorcycles to order (using sDBR {simplified Drum-Buffer-Rope}), job shop fashion, the lack of parts is a death wish. If this concept (of reliability over price) is foreign to you, stop. Do not read any further. You will not comprehend Flush. Or Critical Chain Project Management. Or how to turn million dollar loses into profits in less than 90 days. All of which are true, valid, proven concepts. Part two next Monday. -ski (c)Copyright 2006, Jeff 'SKI' Kinsey, Jonah All rights reserved.
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