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5 Types of Constraints That May Affect a Business Plan

In everyday language, “constraint” might simply mean any inconvenience, limitation, setback, restriction or fluctuation in capacity. ​Sometimes it seems like constraints are lurking everywhere. ​But in Dr. George’s Theory of Constraints, the word “constraint” refers to something very specific.

What is a Business Constraint?

According to Dr George Friedman, a business constraint is anything that interferes with the profitability of a company or business endeavour. Improving profitability requires the removal or reduction of business constraints. Common business constraints include time, financial concerns, management and regulations.

Indeed, every businessperson with a vision of where they are going, and specific strategies and goals to get there, will face challenges or barriers that limit them from achieving success. Most times, when confronted with solving problems or making improvements, business owners or managers feel overwhelmed. They lack the time, money, or resources to correct the problems they are experiencing. They often feel like their hands are tied, and they don’t know where to begin.

In other words, every business operation has something limiting it from reaching its full potential. Note that some of these conditions exist to limit sales or production output. This limit or constraint determines the maximum capacity of the system. Have it in mind that by removing or improving the single constraint, the system is elevated to a higher level of performance.

A business plan needs to be realistic so it is important to set out in detail the constraints that are likely to act as limitations to business activity. Business plans , according to Investopedia, are important documents used to attract investment before a company has established a proven track record. They are also a good way for companies to keep themselves on target going forward.

Even though they are very useful for new businesses, every company is expected to have a business plan . Normally, the plan is reviewed and updated periodically to see if goals have been met or have changed and evolved. Sometimes, a new business plan is created for an established business that has decided to move in a new direction.

There are several constraints that can affect how well a business plan is implemented. The constraints that may affect the implantation of a successful business plan include;

What are the Types of Constraints That May Affect a Business Plan?

Legal constraint.

Have it in mind that when a business is setting up a business plan, it is expected to abide by the laws to ensure that the business will not face any legal action against it. Legal changes tend to happen all the time over the course of a business’ running.

Legal changes can force the business to change the way it operates and also have an impact on how employees have to set up rules to ensure the safety of its employees. Also note that changes to tax laws and minimum wage can have a massive effect on the finance of a business.

The categories that legislation changes fall into are Health and safety. Health and safety can look at how the business is protected against fire and precautions that are taken for various dangers. Examples of laws that may affect these rules are food hygiene, environmental health – weights and measures. Employment laws also changes the way that businesses are allowed to handle employees and regulations that they are expected to follow to ensure that employees are chosen fairly.

Financial Constraint

Note that to implement a business plan with success, having enough money to back up the business plan is imperative. Ideally, there are many things that can be considered as collateral, assets such as your house and car can be used as the backup strength behind your loan.

Banks are more likely to offer loan services to someone who has a good credit history. Funding may not just come from external sources, funding could also come from your own savings and inheritance, this type of finance providing may be a lot safer than taking out a loan as you do not stand to lose personal assets , as you are not in debt to a bank.

Additionally, as part of a successful business plan, considering financial implications is very crucial. Looking at finance required for the startup cost will allow you to analyze how much money you are going to need for start up and running costs.

Technological Constraint

Many customers now opt to use the internet to buy products as it is an easier and more convenient way to shop, in many cases the internet is also cheaper. Businesses have adapted to this change by creating websites to visit and purchase items from. The younger generation prefers to use digital technology to shop online. Older people will perhaps stick to their traditional methods. You must also understand that these changing factors take a toll on businesses too.

Environmental Constraint

The implementation of a business plan can be constrained by a host of factors in the business environment. For instance, legal constraints determine how they produce (e.g. Health and Safety and Product Safety laws). Social constraints determine the tastes and buying patterns of consumers.

For instance, in recent years consumers have turned increasingly to healthy foods as an alternative to ones that are heavily saturated in fats and contain high levels of sugar. During the process of putting together a business plan, you will need to be constantly aware of these environmental constraints and how they alter over time.

You may need to take what is termed an anticipatory approach i.e. to anticipate changes that are likely to take place in the future in the business environment. By anticipating change, businesses are able to adjust the way they operate to be ahead of competitors.

Competitive Constraint

When building a business, it is very much unlikely that you are going to have a product or service that does not already exist. Note that when there are existing similar products to your own this is called competition. Competitors will always have an effect on how much profit your business makes.

Therefore, when marketing your product you must ensure that you are showing how it is better than competitors in the sense of value for money and quality. The strength of the competition is a key constraint on business plan success. Businesses need to position themselves in such a way as to limit the effect of the competition.

Studying business constraints are important to businesses that want to plan ahead. Businesses that take a reactive approach i.e. which only change when or after the environment alters, will be left behind. By anticipating change, businesses are able to adjust the way they operate to be ahead of competitors.

More on Business Plan Tips

Five types of business constraints that impact the business

A business constraint is a restriction that might hinder achieving the business’s goals, including fiscal conditions, physical restraints, financial limitations, and time limits. There are many types of constraints that may affect a business plan . Finding the most effective deployment plan within your business constraints is essential to ensure the success of your deployment. In this article, we’ll look at the various conditions that could affect the business plan while choosing the type of project to deploy and the business limitations are a significant aspect.

Table of Contents

What is a Business Constraint?

Anything hindering a company or venture from reaching financial success is considered a business constraint. Reducing or eliminating constraints to business operations can improve a company’s profits. Finance, management, and regulations are common business problems.

In the real world, there will always be challenges and obstacles to business success for entrepreneurs who have an idea about where they’d like to go and specific goals and strategies for achieving it.

Most management and business owners find themselves overwhelmed when tackling problems or improving their business’s performance. Their problems can only be solved without funds, time, or resources. Most of the time, they need help figuring out where to start since they’re stuck in a bind. Every company has a particular issue that prevents its full potential.

The most frequent reasons are the limitations in sales and production. Given this constraint, the system must operate at a specific level. Keep in mind that the removal or increase of one restriction can improve the system’s overall efficiency.

5 Major Types of Business Constraints Legal Constrain.

Businesses must make sure that their plans align with the law, as various types of limitations could affect the goal of a business. The law is constantly changing for businesses. As a result of these changes, companies may need to change their operations and establish guidelines to protect the safety of their employees. Tax laws are evolving, and minimum wage laws can negatively impact a company’s financial situation.

The changes to legislation fall in the heading of health and safety. Businesses can examine their health and safety plans to determine how they can safeguard themselves from fire and other hazards and methods to prevent risks. The most general laws impact the workplace regulations for food and sanitation and the use of measurements and weights. The rules governing employment are constantly changing in many ways, not only the way businesses are permitted to treat their employees of employees, but also the guidelines they have to follow when hiring employees.

Here are the five most important kinds of business constraints.

Financial constraints.

Having enough money to finance the business plan and execute it effectively is crucial. You could use your house or car as collateral in the ideal situation. You can also utilize collateral to aid your business. The banks are more likely to give loans to customers with good credit scores.

The need for outside money is only sometimes necessary. You can, for example, take out a loan using your savings account or inherit money—an investment made through your savings.

The advantage of this type of financial arrangement is the assets will not be at risk because you don’t have to pay back the bank any money. Furthermore, the business plan should take into account the financial consequences. An analysis of the expense of a new venture will reveal the amount needed to cover the operating and start-up costs.

Environmental Constraint

Companies can be adversely affected by the conditions. Due to delays in the shipping from overseas suppliers in Canada or the loss of revenue to retailers due to the winter storm of 1996, which caused them to close down or not store for days at an. The reason for this is that the majority of people purchase these kinds of items during winter months, usually between November and March.

Natural disasters, including floods and earthquakes, can not only damage furniture and structures. They can also impact transport systems, food production, services, and food handling. The interruptions caused by these disasters can pose a risk to workers who work in certain areas.

Competitive Constraint

Suppose a company in your area has advantages over your company; that is considered a restriction on competition. The products and services they offer are of better quality or have lower costs. This restriction is believed to be the least harmful for businesses that compete with one another since it may cause them to lose market share.

Competitions that provide superior products or services compared to those offered by your company or have lower costs for their services could pose a severe threat to your business when you’re on the same level as a competitor with more significant competitive advantages. This could risk competing companies since they could decrease their market share.

Technological Constraint

Today, many people shop online due to its convenience and ease. It’s often cheaper as well. Businesses that have profited from this development have started websites that let customers shop and purchase items. Younger generations prefer digital technology to shop online. Older people might choose traditional methods of conducting business. Also, it is essential to understand that companies, too, can be affected by such changes.

Frequently Asked Questions

How can you overcome the constraints for your business.

Performance indicators and the weaknesses of operations are a way to identify operational weaknesses. Textual rules outline the functional or business processes that define how an enterprise operates its business.

What are the social constraints that impact how a business?

Social norms affect consumer choices and purchasing habits. The consumption of healthy food items has grown in the last few years as consumers seek alternatives to food items that are high in fats and loaded with sugar.

What are the three types of constraints?

Project managers need to be aware of three fundamental constraints that must be considered: scope, time, and cost—also called “The Project Management Triangle” or “the Triple Constraint.

Conclusion.

Take proactive steps to ensure that your business remains in a position to compete. Companies must stay ahead of the curve in a constantly evolving market by anticipating changes and adjusting. This is why we create future strategies by looking at the limitations. Visit us regularly if you want to research the business constraints in greater depth or need assistance making plans to tackle these challenges!

Steven Brown

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A business plan needs to be realistic, so it is important to set out in detail the constraints that are likely to act as limits on business activity.

Typical constraints facing the business include:

• The size of the market. The extent of the market determines a business’s ability to make sales. You can’t make sales if there are no customers out there.
• The nature of demand in the market. It is important to identify the nature of your customers and their requirements through detailed market research.
• The availability of supply. A business often depends on supplies. For example, a clothes retailing business needs to acquire garments, in the appropriate quantities, prices and at the right times.
• The nature of the competition. The strength of the competition is a key constraint on business success. Businesses need to position themselves in such a way as to limit the effect of the competition.
• The availability of finance. Businesses need to have the right quantities of finance at the right times to match their needs. Liquidity and cash flow are thus very important. It is necessary to have funds when they are required to meet the pressing needs of the business.
• The quality and skills of employees. Human resource is one of the most important resources of any organisation. It is essential to have the right number of people with the appropriate skills to enable the business to achieve its business objectives.
• The quality of direction and management. Directors and managers of a business need to have the right skills and abilities e.g. to create well-structured plans and to motivate and lead other members of the organisation. In creating a business plan you, therefore, need to identify the key constraints and set out plans for dealing with any pressing constraints.

A constraint: is a factor that limits or holds back the possible success of a plan.

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Business constraints are your friend: How understanding limits can unlock business value

Business leaders are operating in an environment of limited resources, limited time, and other business constraints. It’s a fact of everyday life for business leaders: you need to make tradeoffs for optimal resource allocation. Constraints make these business decisions more complicated. But that doesn’t mean that constraints are “bad,” or that you should see them as an obstacle to your success. Instead, business constraints are something that need to be faced head-on, examined, analyzed, and dealt with. 

With the right strategic analytic approach, business constraints can actually be helpful to your business performance by giving you a framework to innovate. If business constraints are a “box” of limits on what you can do, they also present a kind of creative freedom within that box. When you know the defined limits of what you’re working with, you can start solving for constraints within that box. Constraints give you focus and motivation to find a way forward. 

Let’s learn more about how business constraints affect your business performance – and how you can use them to boost your success. 

Business Constraints: What They Are and How They Work 

Business constraints are real-world rules, boundaries, and limitations that affect your business operations. These constraints can include material resources, budget limits, or product design specifications. 

Business constraints are also used in predictive modeling, such as parameter constraints, structural constraints, and data constraints. Imposing constraints on a predictive model helps make sure that the model provides useful and interpretable results that are not too complex or overfitted to a certain data set.  

Every business leader has to make informed business decisions based on the real-world constraints that they’re facing. You can do that with guesswork and hope your outcomes are successful. Or, you can leverage data analytics and factor the constraints into a predictive model to identify optimal decision paths with cost-benefit analysis that takes all your variables into account and achieves constraint satisfaction. 

What Life Is Like With and Without Constraints

It might sound better to run a business or manage a project that has no constraints, where the sky’s the limit to pursue ideas and develop solutions. But recent research from the Harvard Business Review shows that business constraints can be useful for innovation.

When there are no constraints, people tend to follow the “path of least resistance” in solving problems. Constraints can provide useful boundaries that help people focus, synthesize information, and develop new solutions. 

For example, the Harvard Business Review article explains how GE Healthcare created a revolutionary MAC 400 Electrocardiograph (ECG) machine, by imposing strict constraints of time (18 months), budget ($500,000) and product specifications (the ECG should cost $1 per scan and should be battery-powered and portable for rural locations). 

Another example is how Jony Ive, former Design Chief at Apple, created a constraint on the design of the iPhone 4. He required the design team to use a specific type of scratch-resistant aluminosilicate glass; all other design and production decisions had to work around this limitation.

In the same way that children need limits to help them grow, business teams also need guidelines to help them innovate – with creative focus and cost-effective discipline. Business constraints can help your team focus their thinking, manage costs, and ship projects on-time and on-budget.    

How to Leverage Business Constraints

Constraints are not your enemy; they can be a helpful guide that gives your team a clearer framework to focus and succeed. Constraints can be leveraged to ensure that business leaders have data-driven information in order to make business decisions. 

By understanding constraints, analysts can create better predictive models, and provide analytics to business leaders, who can then make a truly informed decision based on logical conditions. 

For an example of how this works in a business analytics solution: Analytic Solver® makes it easy for users to add real-world constraints to their optimization or stochastic optimization model. The constraints are bound on the variable that reflects reality. They express real-world limits. A constraint is always going to have a formula in it, such as “less than” (<) or “equal to” (=). 

Building real business constraints into your modeling and optimization projects can help you get better visibility into the true cost-benefit analysis of your business decisions. It can also help you build better relationships with business stakeholders to get buy-in for high-level decisions. 

Real-World Example of Solving for Business Constraints: Canadian Football League 

The Canadian Football League (CFL) used Analytic Solver® to optimize their game schedule, which included nine teams playing a total of 81 games across a 20-week season. Multiple objectives vied for priority in building the schedule:

• Revenue: the most lucrative time slots must be assigned to the largest revenue-generating teams
• TV Ratings: optimize TV ratings
• Rest Days: all teams must be given an equal number of days off before their next game

The League ultimately decided to optimize the schedule for Rest Days, so the teams would be relatively equally rested, and would create a more competitive, exciting product on the field. In order to optimize the schedule for this strategic goal, the CFL used several business constraints within Analytic Solver®, including:

• Game times must be viable for the most viewers in all four Canadian time zones
• Since all CFL games are broadcast on the same Canadian TV network, overlapping double-headers were not allowed
• Each team must have at least five days of rest between games (except for a few specific instances)
• All traditional rivalry games must be played on Labor Day

By working within these known business constraints, the CFL was able to create a season schedule that was optimized for its most important strategic goal: competitive, fun-to-watch football between well-rested teams. But the CFL didn’t stop there. They took the “rough draft” schedule back to negotiations with teams and TV broadcast partners, listened to their feedback, and made adjustments benefiting all parties. 

The optimization model, and subsequent schedule, required flexibility. Games between high-profile rivalries were moved to Saturdays in order to optimize TV ratings. Trevor Hardy of the CFL, optimization modeler, believes that scheduling is “25% science and 75% art.” Using Analytic Solver® and his knowledge of the model components, he adjusted the model to be, perhaps, less mathematically perfect, but more perfect for the business needs of the CFL and its stakeholders.

Want to see how Analytic Solver® can drive better business outcomes for your team? Start your Free Trial.

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Project Management Constraints: Types & How To Manage Them

Galen is a digital project manager with over 10 years of experience shaping and delivering human-centered digital transformation initiatives in government, healthcare, transit, and retail. He is a digital project management nerd, a cultivator of highly collaborative teams, and an impulsive sharer of knowledge. He's also the co-founder of The Digital Project Manager and host of The DPM Podcast.

Constraints rule your project. Keeping them in mind at every stage of your project will ensure you avoid scope, budget, or timeline overruns. Learn how to predict constraints, strategies for managing them, and what tools to use.

In my experience, getting a small business off the ground is like managing any other project, except there are probably more constraints in small business startups. Entrepreneurs also typically over-allocate themselves to too many tasks, hitting resource constraints far more frequently because of the lack of formalized project management systems and procedures.

Need expert help selecting the right tool?

With one-on-one help, we guide you to your top software options. Narrow down your software search & make a confident choice.

In this write-up, I’ll talk about what project management resource constraints are. I’ll give many examples of project constraints for easy visualization. I’ll then go over some of the methods you can use to handle resource constraints, particularly for allocating resources with competing demands and maximizing resource utilization . Then I’ll link you to the tools that will bolster your resource management strategies.

The Importance Of Understanding Project Constraints

Imagine you are the head of the COVID-19 vaccination program at your company. Your daily target is 96 doses. Since your company is 960 strong, you estimate that everyone will have the first dose in 10 working days.

Given an interval of 21 days between doses, you estimate that you will complete the project in 33 calendar days.

Great! You got your bosses to sign off on your project management plan and schedule.

But five days into your vaccination schedule, you are way behind your target vaccination rate, and this has you asking: what went wrong?

Well, a lot of things. You allotted 15 minutes to each person from arrival to vaccination, but it actually took 20 minutes. And you did not account for tardiness. You had three nurses available, but you needed at least one more on floating duty to manage incidents. And your venue was too small!

The long and short of it is: you forgot to identify and plan for your project constraints. And these constraints are the reason you are behind.

The Theory Of Constraints

In the context of the Theory of Constraints by Eliyahu Goldratt, constraints are the weak links in a system. According to this framework, you can strengthen constraints (or leverage them) to improve output or production.

In the Theory of Constraints, which originated from the manufacturing industry, constraints cause the bottlenecks that slow production down and, ultimately, the rate at which you make money.

To illustrate, in a box-making plant, the number of boxes a box-making machine can make per minute is a definite constraint. If a machine can make only 50 boxes per minute, your plant’s production is constrained to 3,000 boxes per hour and 24,000 in an 8-hour shift.

In project management, the Theory of Constraints provides a framework for looking at constraints as limiting factors that could be systematically handled or dealt with so they cease to be a roadblock to project success.

I am not saying that projects cannot succeed when project management constraints are present. But a project constraint will restrict you and limit your options.

Properly accounted for, project management constraints will not prevent a successful project outcome.

Thus, a good project manager always considers project management constraints in his project management plan and subsidiary plans (e.g., project scope management plan, project schedule management plan, human resource plan, resource management plan , etc.).

What Are Project Management Resource Constraints?

Project management resource constraints are what they seem: constraints that limit the resources available to a project.

Project management resources are the inputs you need to complete a project. They include but are not limited to people, equipment, time, and money.

A resource constrained project is the norm rather than the exception. A project is a temporary endeavor, so time is a constrained resource. It has a budget, so money is constrained.

There are specific staff and people involved – and adding more is not frictionless – so people, too, are constrained resources. Hardware, software, and other equipment – all of these resources are limited as well.

Types of Constraints (The Triple Constraint Theory)

The triple constraint theory is a popular framework for appraising the competing demands on a project.

From the perspective of the triple constraint model, the three constraints of time, cost, and scope comprise a triangle that defines project boundaries, thus the moniker project management triangle or iron triangle.

• The time constraint: Projects have a set time or schedule. How many days, weeks, months, or years will the project take? Projects need to have a definite beginning and end. Finishing on time is a success.
• The cost constraint: Projects have budget constraints. How much money will you spend on the project? The project budget accounts for wages, commissions, and the cost of raw materials, equipment, and software, among other things.
• The scope constraint: Projects have a definite scope. Describe the project deliverables. Outline the processes involved. These and more make up the project scope of work .

According to the triple constraint theory, the triple constraints of time, scope, and cost are interrelated.

A change in one inevitably leads to change in at least one of the remaining two. Change the project scope, adjust either schedule or cost. It is as project managers say. If you want it fab and fast, spend more.

This framework emphasizes the need to prioritize. Project managers can only satisfy one or two of the constraints simultaneously, never all three.

If you want to minimize costs (low cost) yet complete the project in the shortest time possible (short time), accept trade-offs in the project output (scope). You cannot have it big, fast, and cheap all at the same time.

Triple Constraint Example

Let me paint you a picture.

Imagine you are leading a cake-making project. The project constraints in this scenario include:

• how soon you need the cake (time or project schedule),
• how much you can spend on making it (cost or project budget), and
• what flavor, color, height, design, and diameter it should have (project scope).

If the stakeholder wants a simple, two-tier chocolate cake, you can finish the project in about four hours. If they fancy a:

• two meters at the base,
• gravity-defying,
• chocolate-and-vanilla flavored,

You will need more ingredients and components (increase cost) and need a week (extend time).

If the stakeholder needs the cake in 10 hours (schedule compression), you will need to hire extra people, and they will have to work for ten hours straight.

You will also need to provide efficiency-boosting tools (multiple ovens, a blast freezer, and a couple or more industrial-grade mixers, among others).

The above example demonstrates, albeit a bit simplistically, an indisputable fact of project management. Project constraints compete with each other, and they limit project execution options.

Not to put too fine a point on it, this cake-making project example demonstrates the interrelatedness of project constraints.

A simple cake means a shorter project schedule. A complex cake requires more time. A complicated cake and a short time to completion mean a higher cost due to project crashing (adding more workers and tools) or project fast-tracking (the cake supports, the cake decorations, the filling, and the frosting, are made while the cakes are baking).

The reverse is also true. If you cannot amend the project budget, you need to adjust the cake complexity and the project schedule.

Managing project resource constraints, therefore, means balancing project trade-offs. You have to sacrifice something for something you want more.

Thus, a five-layer, gravity-defying, chocolate-and-vanilla geode cake two meters in diameter at the base ready in 10 hours on your initial, shoestring budget is incredible! But it is also impossible.

An Example Of Constraints In Projects: Ecommerce Apps  

Our company developed a mobile app. It is nothing groundbreaking—a simple eCommerce app. Unlike big e-commerce platforms, it is hyper-locally focused and provides an eCommerce platform for local merchants: farmers, groceries, online sellers, stores, and restaurants.

The app has two competitors: another locally developed eCommerce app and an international eCommerce platform. The first provides consumers access to 150 merchants, while the other provides access to 450.

Our goal is to catch up with the bigger platform by opening at least 450 merchant stores on our app as soon as possible.

We are a lean start-up, so we have only one business development officer, Janjan. On any given day, he presents to four merchants, and he signs three of them.

However, one month into his business development activities, our app had a dismal 12 stores open.  An analysis of his activities revealed why.

Janjan’s Activities

• He presents to a target merchant.
• He signs the merchant.
• He helps the merchant prepare his app listing collaterals.
• He assists in listing down the products that would go on the app.
• He takes pictures of the products.
• He shows the merchant how to use the app and upload his products on his online store. Or Janjan does it himself.
• He teaches the merchant the rules of the app – how he gets rated, ranked, etc.
• He teaches the merchant how to process customer orders: accept orders, get a rider for delivery, accept payments, and monitor delivery status.
• After the store opening, Janjan also resolves issues such as when a merchant fails to accept orders within acceptable timeframes, has difficulty uploading or updating his products, or closes his store without permission.

Janjan is doing too many tasks. He is working within capacity, but the rate of onboarding was too slow.

His workflow means Janjan has at least three encounters with a merchant. And his onboarding follow-up tasks are eating all of his time. As such, even if he has a conversion rate of 75%, he is not onboarding merchants quickly enough.

Given the current onboarding rate, we would have to wait more than a year to open 150 stores and more than three years to open 450 stores. To be profitable, we must open 450 stores as soon as possible.

So what should we do? What we did was to combine project crashing and fast-tracking. Specifically, we:

• hired two onboarding support staff,
• left Janjan his critical task of presenting to and signing merchants,
• split the remaining onboarding tasks between the new hires
• shortened the duration of the onboarding support tasks

Under the new system, Janjan kept his critical tasks of presenting to and signing merchants. His consistent 75% batting average will let us sign more merchants faster. We split the onboarding support tasks, which depended on Janjan signing merchants, between the two new hires.

The above illustration shows timeline compression – from merchant presentation to store opening – through fast-tracking and project crashing . We can repeat the above cycle, day in, day out.

Therefore, after Janjan presents to and signs three merchants on the 19th, he will hand off the merchants to the two onboarding support staff. On the 20th, Janjan presents to and signs more merchants. And he will do the same on the following days.

The onboarding staff will deal with three merchants every day. And within three days of signing the first three merchants under the new workflow, on the 22nd, three new stores will open on our app. We will then launch three new merchants every day after that.

To sum up, in five days (from the 19th to the 23rd), Janjan will sign 15 merchants. And within eight working days (from the 22nd to the 28th), all 15 stores will be open on the app.

Our combined fast-tracking and project crashing approach will gain us 78 new sign-ups in one month (26 working days). And we will catch up with our local app competitor in less than two months and with our international app competitor in approximately six months.

To further increase our onboarding rate, we could hire another business development officer like Janjan. For every business development officer hired, we would add two new onboarding support staff.

NCG, an outside provider, might also have to hire additional staff to create promotional materials and promote our stores on their platform.

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How Do Resource Constraints Differ From Assumptions And Risks?

Resource constraints, assumptions, and risks all contribute to the success or failure of a project. But how do you tell them apart?

Resource Constraints

Resources are the project inputs and tools you need to complete your project. They include but are not limited to human resources, financial resources, and material resources.

Resource constraints are factors that limit the supply of these resources . For instance, in a software development project, the number of engineers on payroll is a resource constraint. The availability of workflow automation tools and powerful computers is also a resource constraint.

Resource constraints are real-world limiting factors . You know how many people you have in your project team, what skills your team has, what tools and software you can use, the ready materials you have at your disposal, and how much money you can spend.

Resource constraints affect how you map out activities, task durations, and project dependencies on a project schedule network diagram. For instance, if you have one DevOps engineer in charge of two concurrent tasks, you have a resource constraint.

And what happens if you are a contractor in charge of simultaneously implementing multiple construction projects?

You probably have a limited number of excavators, backhoes, pile boring machines, graders, and loaders. You also probably have a limited number of engineers, site managers, foremen, and surveyors.

While you can rent more equipment and hire more people, you cannot do so without pushing your budgetary constraints.

In this case, resource allocation and project scheduling are complicated even more by the need to allocate constrained resources across multiple projects in a way that will minimize average project delay and will not excessively inflate the budget.

Resource constraints, in a multi-project context, affect not only resource allocation but also project selection decisions . A contractor has to decide whether or not to accept another project while several other projects are ongoing.

Assumptions

Assumptions are things you surmise to be true . They are truths you take for granted based on your experience or information given by consultants, stakeholders, or team members.

Assumptions are untested , and their truth is assumed. However, based on these assumptions, expectations for project milestones , deliverables, and costs, among other things, are created.

In other words, project managers build assumptions into project management plans without first testing whether they are true. Assumptions may very well be invalid , and when they are, projects could get delayed, and costs could increase.

For instance, suppose you had to build a two-story, five-room house. Your project management plan indicated you would finish the project in two months. In the end, however, you needed three months.

Upon inspection of your schedule management plan, you would realize that you made the following assumptions beforehand:

• that you had all the human resources (engineers and skilled labor) you needed,
• that the cost of labor would not increase,
• that the equipment you had will never break down, and
• that there would be good weather throughout.

As it was, the equipment broke down, and you needed a replacement. That took a week. There was also a typhoon, which delayed the work further.

I am not saying you cannot and should not make assumptions. It would be impractical to wait until you know everything before starting a project. Expert project managers, moreover, will have enough knowledge to make valid assumptions.

However, you must identify and log all assumptions made to mitigate potential effects if your assumptions turn out to be false.

If resource constraints are real and assumptions are things you believe are true, risks are things you are unsure will transpire but will affect your project if they do .

Risks may have either a positive or a negative effect . Opportunities affect projects positively, while threats have a negative impact.

Suppose you have an ongoing construction project, and a building code amendment is pending. If approved, you can cut expenses on parking construction. That is an opportunity.

But what if a bill that raises the minimum wage is pending approval? If approved, your labor costs will rise. That is a threat.

You plan for risks, but you cannot be sure they will occur . Project planning considers risks (through a risk management plan ) so that, if they do arise, you will have risk mitigation measures in place to minimize or maximize their effects.

Why Is It Important To Predict Potential Resource Constraints?  

Benjamin Franklin called it. “By failing to prepare, you are preparing to fail.”

And in project management, failure conventionally means overshooting the project deadline, exceeding the project budget, underdelivering on project scope, underwhelming on output quality, and delivering a poor customer experience, among other things.

You are likely to fail when you do not account for potential resource constraints. Project managers agree. According to the Pulse of the Profession 2017 by PMI , the organizations surveyed attribute recent failures primarily to:

Resource constraints you fail to account for will trip up your resource management planning . In the planning stage, you will not be able to set clear expectations. Consequently, stakeholders could get frustrated.

You will find efficient and effective allocation and utilization of resources difficult. You will be unable to create workaround plans for constraints you never even realized were or could be there.

A Few Strategies For Managing Resource Constraints In Your Projects

The work breakdown structure is a good approach. At its core, it is a scope control tool. It makes a good foundation for the application of the critical path method in project management. And you can use it as a basis for resource allocation and utilization.

After identifying all of the individual tasks that make up your project, you can determine the human and non-human resources each activity or phase requires. You will get a clear picture of your resource requirements and thus procure, allocate, and manage them effectively.

How To Allocate Project Resources With Competing Demands

Resources with competing demands are typical at the organizational level.

If a construction company has multiple projects with overlapping schedules, there would be competing demands on personnel and equipment. If an app development company manages several projects simultaneously, there would be competition for developers and adjunct roles.

So how should you allocate project resources with competing demands?

1. Utilize an Automation Tool

Allocating project resources amidst competing demands is a complex task. Leveraging a project scheduling software can simplify this process, allowing for more effective resource management. Thus, you can allocate and manage your resources effectively.

2. Prioritize

Project managers are short-sighted and can see only their project requirements. There is a need for a broader and longer view.

At the organizational level, rank projects according to priority and allocate resources accordingly. Resource managers may have to prioritize a project which is part of a program with high business value over a stand-alone project with a lesser impact on the bottom line.

In like manner, when project managers face competing resource demands at the project level, they must subordinate resource allocation decisions to the priorities indicated in the project charter , whether they be timely completion, quality standards, budget, or something else.

To illustrate, if the primary goal is timely completion, the project manager will have to prioritize allocating resources to critical path activities.

3. Decide Early

Organizational managers should be decisive about allocating resources across projects, and project managers should be just as keen when allocating resources across project tasks. And both must decide early enough to prevent issues.

Thorough project planning is therefore essential. A good project plan will tell a project manager what resources he needs, when. He can then look at historical resource requirements and available resources to create a resource forecast.

Based on this resource forecast , he can hire extra people or procure equipment to avoid over-allocating available resources.

Use a project planning tool to simplify project planning.

4. Establish SOPs For Managing Competing Demands On Resources

Especially at the organizational level, a manager cannot randomly commit resources to a project. There must be a system in place for handling resource requests.

Such a system must have clear and established standards on

• prioritization of projects (as well as prioritization of tasks),
• what constitutes resource under- and over-allocation,
• what qualifies as resource under- and over-utilization, and
• the thresholds/triggers for the procurement of additional resources, among other things.

5. Resource Optimization

Resource optimization is at the heart of managing constrained resources, matching resource demand as closely as possible to resource availability .

There are two main resource optimization techniques: resource leveling and resource smoothing .

Resource leveling is the process of keeping resource demands fairly level by adjusting activity start and finish dates. Resource leveling could alter the critical path to resolve a resource scheduling problem.

In the above example, both Reese and Diana are over-allocated. They have to work on activities scheduled for the same day – a definite project scheduling problem. To finish both activities that day, Reese would have to work 12 hours, while Diana would have to work 16 hours.

Since Diana and Reese can work only eight hours each (that is their resource capacity), resource leveling is applied, adjusting the schedule so that Reese and Diana work only on Activity 1 on Day 1. They then work on Activity 2 on the second day, and Diana works on Activity 3 on the third day. The project ends one day later than planned.

In resource leveling, therefore, resource availability or capacity takes priority over schedule.

Resource smoothing minimizes resource peaks and dips without changing the critical path and without delaying project completion. Resource smoothing is a resource optimization technique for time-constrained projects.

To illustrate, suppose Reese, Diana, and George are resources for a project that ends in 5 days. There are three activities in the project. Activity 2 succeeds Activity 1, while Activity 3 succeeds Activity 2. Activity 3 will commence on Day 5 because the necessary equipment is available only on that day.

After resource smoothing, Reese finishes Activity 1 in two days and Activity 2 in another two days. George, too, is spread out a little more evenly, performing his tasks for Activity 2 in two days. Even Diana’s Activity 2 work is spread out over two days.

How To Maximize The Utilization Of Resources

How effectively are you using your resources? Their utilization rate will tell you. Resource utilization is the percentage of available hours spent on billable activities. Billable activities directly earn money, lead to business value, or directly impact project objectives .

To illustrate, an app developer is working on billable activities when he is working on code. It is the opposite when he is answering emails or on personal breaks.

Maximizing resource utilization means getting as much productivity or value as you can from your resources without overloading them.

More on resource utilization metrics here .

Calculate Your Resource Utilization

The first step to maximizing resource utilization is calculating how many hours your resources spend on work that earns you money or benefits (i.e., productive work). Conversely, you can compute how much time they are losing on routine administrative tasks, personal breaks, and other activities.

Now, divide the number of hours the resource spends on productive work for a given time interval by the available resource capacity, then multiply the result by 100.

You can measure yearly, monthly, weekly, or daily resource utilization.

For example, our business development officer, Janjan, works 40 hours a week or eight hours a day. Every day, he uses six hours on the money-making, critical task of presenting to and signing clients.

He spends the remaining time on emails, team meetings, reports, other administrative tasks, and personal breaks. Janjan’s daily resource utilization rate, therefore, is 75%.

Ideal Resource Utilization Rate

An ideal resource utilization rate is 80%. Beyond that, it is over-utilization. You risk burnout, demotivation, disengagement, and ultimately project delays and costly remediation measures.

A significantly lower figure (e.g., lower than 70%) is under-utilization. You are not using your resources in the best way possible, so you are not getting as much value from your resources as you should. Underutilized resources are also at risk of demotivation and disengagement.

What can you do to keep your resource utilization levels at around 70-80%?

1. Track Activities

A full-time employee gets paid for 40 hours a week, 2,080 hours a year. However, an employee is not working on money-making or business-value tasks all the time.

Deduct absences, personal breaks, and administrative tasks from the total available time to come up with productive hours.

This can be a bit different if you’re working with independent contractors who are paid according to their output. If you have people in your team where you’re not sure if they’re regular employees or freelancers, tests like the ABC test (if you’re in California) can help you out.

What are they doing at work? What are they spending their time on? You can use time tracking software or project tracking software with integrated time tracking functions for this purpose.

2. Allocate Resources According to the Ideal Resource Utilization

Under-utilized resources need to be assigned to more money-generating tasks to fill the gap in utilization. Conversely, over-utilized resources must be “smoothed out” to prevent burnout.

3. Guard the Project Scope

When the project scope becomes bigger than initially anticipated, your resources will be overloaded and over-utilized. Avoid project scope creep by starting with a clear project scope statement and plan.

4. Resource Forecasting

Anticipate future resource demands and resource capacity, so there would be fewer instances when you have to under-utilize or overload resources. These capacity planning reports will help.

5. A Holistic View of Resources

A resource manager should have a holistic view of resource capacity and utilization. Keep utilization at ideal rates, and maximize their corresponding business values.

By assigning a resource to a higher-value project, you can realize more business value from it than if you let it languish at a lower-value project.

Tools For Managing Constraints

You can flex your mental prowess and use pen and paper to write out a plan by hand. Calculate resource demands and capacities and plot out your network diagrams and Gantt charts , also by hand. Use MS Excel or Google Sheet for some help on calculation.

But the better way is to use any of the many project management tools available. A specialized project management software will have all the features you need for managing projects and working around project constraints. For example, a digital marketing PM software will have more focus on features that unlock remote collaboration, approvals, and certain marketing resource-specific workflows like involving freelancers and other external stakeholders.

A good resource management software will give you a comprehensive view of resource capacity, allocation, and utilization for your company. Just what resources do you have, and how are they being utilized? Resource management software will give you the answer.

The best resource planning tools enable effective resource allocation decisions. Quickly fulfill or decline requests for resources. Expedite resource reallocation to maximize utilization. Make data-driven hiring decisions based on current and forecasted resource requirements.

And sophisticated project management software and tools have functions that go beyond resource scheduling and management. Use them for estimation, project planning, and even budget management.

Check out our list of the best resource scheduling software here .

Need expert help selecting the right Project Resource Management Software?

If you’re struggling to choose the right software, let us help you. Just share your needs in the form below and you’ll get free access to our dedicated software advisors who match and connect you with the best vendors for your needs.

How To Plan Resources For Multiple Projects: 6 Expert Tips

What Is Resource Scheduling & How To Do It In 5 Key Steps

Resource Forecasting: Best Practices, Steps & Examples

The Theory of Constraints (TOC): Principles, Techniques, & Applications

• Business Cost Reduction , Business Improvement , Business Process Management , Business Strategy , Lean Management
• April 7, 2024

Table of Contents

Imagine you’re in a race, but no matter how fast you run, you can’t seem to get ahead. It’s as if an invisible wall is holding you back. This is a scenario many organizations find themselves in, struggling to meet deadlines and stay within budget. The invisible wall? Bottlenecks that are silently eating away at your productivity. But there’s a silver lining – the Theory of Constraints (TOC).

First introduced by Eliyahu M. Goldratt in his seminal book “The Goal: A Process of Ongoing Improvement,” TOC is more than just a management philosophy—it’s a systematic approach to pinpointing and leveraging the constraints within a system. Whether you’re in manufacturing, project management, or any other industry, TOC offers valuable insights into how to enhance productivity and achieve goals.

In this blog, we’ll dive deep into the Theory of Constraints, exploring its fundamental principles, its application in project management, its relationship with lean manufacturing, and practical tools for implementation. By the end, you’ll have a clear understanding of how TOC can revolutionize the way you approach problem-solving and drive continuous improvement within your organization. Let’s unlock the potential of TOC together.

What is the Theory of Constraints?

The Theory of Constraints (TOC) is a management philosophy developed by Eliyahu M. Goldratt, outlined in his book “The Goal: A Process of Ongoing Improvement.” At its core, TOC is a method for identifying and leveraging the constraints within a system to improve overall performance and achieve organizational goals.

• Identifying Constraints: TOC recognizes that every system has at least one constraint that limits its performance. These constraints can be anything from machinery and materials to policies and people.
• Systematic Approach: Rather than focusing on individual components or processes, TOC takes a holistic view of the organization as a system of interconnected parts. It emphasizes the importance of addressing constraints to enhance the entire system’s effectiveness.
• Five Focusing Steps: TOC is structured around five key steps:
• Identify the constraint
• Exploit the constraint
• Subordinate everything else to the constraint
• Elevate the constraint
• Avoid inertia and repeat the process
• Continuous Improvement: TOC is not a one-time fix but a continuous process of improvement. It encourages organizations to constantly identify and address constraints to optimize performance over time.

In essence, the Theory of Constraints provides a framework for understanding and improving the factors that limit productivity and hinder goal attainment within an organization. By applying its principles, businesses can streamline processes, increase throughput, and ultimately drive greater success.

Enroll the Theory of Constraints Comprehensive course.

Key Principles of the Theory of Constraints

The Theory of Constraints (TOC) is built upon several key principles that guide its application in various domains. Understanding these principles is essential for effectively leveraging TOC to improve organizational performance. Here are the key principles of the Theory of Constraints:

1. Identification of Constraints

• TOC emphasizes the identification of constraints, which are factors that limit an organization’s ability to achieve its goals.
• Constraints can be physical, such as machinery or resources, or they can be policy-related, such as regulations or protocols.
• By identifying constraints, organizations can focus their efforts on addressing the most critical bottlenecks that impede progress.

2. Exploitation of Constraints

• Once identified, constraints should be exploited to their fullest potential. This involves maximizing the utilization of constrained resources to enhance overall system performance.
• Strategies for exploiting constraints may include optimizing workflow, improving resource allocation, or implementing specialized techniques to increase efficiency.

3. Subordination of Non-Constraints

• TOC advocates for subordinating non-constraints to the constraints. This means ensuring that non-constrained resources and processes support and align with the needs of the constrained elements.
• By aligning all activities with the goals of the constraint, organizations can prevent non-constraints from creating unnecessary barriers to performance improvement.

4. Elevation of Constraints

• Elevating constraints involves taking actions to increase the capacity or effectiveness of constrained resources.
• This may involve investing in additional resources, redesigning processes, or implementing new technologies to alleviate constraints and improve system performance.

5. Continuous Improvement

• TOC promotes a culture of continuous improvement, wherein organizations constantly strive to identify and address constraints to achieve higher levels of performance.
• Through ongoing analysis, adaptation, and refinement, organizations can sustainably enhance their processes and achieve their strategic objectives.

6. Integration with Lean and Six Sigma

• TOC can be integrated with other improvement methodologies such as Lean and Six Sigma to create a comprehensive approach to organizational improvement.
• By combining TOC principles with Lean’s focus on waste reduction and Six Sigma’s emphasis on process variation reduction, organizations can achieve synergistic effects and drive significant performance improvements.

By adhering to these key principles, organizations can effectively apply the Theory of Constraints to optimize their processes, maximize resource utilization, and achieve superior performance outcomes.

Applying TOC in Project Management

The Theory of Constraints (TOC) is not limited to manufacturing; it can also be effectively applied in project management to identify and overcome bottlenecks that hinder project success. Here’s how TOC principles can be applied in project management:

1. Identifying Constraints

• In project management, constraints can manifest as limitations in time, scope, or cost. Identifying these constraints is crucial for understanding what is holding the project back.
• Tools such as Flow Charts, Swim Lane Diagrams, and Root Cause Analysis can help map out processes and pinpoint where constraints exist.

2. Managing the Constraint

• Once the constraint is identified, the next step is to manage it effectively. This involves finding ways to increase efficiency in the constrained area.
• Solutions may involve reallocating resources, adjusting schedules, or optimizing workflows to ensure the constraint does not hinder project progress.

3. Evaluating Performance

• After implementing solutions to manage the constraint, it’s essential to evaluate performance to determine if the changes have been effective.
• If the constraint continues to negatively impact project performance, further adjustments may be necessary. If successful, the focus can shift to identifying and managing new constraints.

4. Continuous Improvement

• Similar to its application in manufacturing, TOC in project management is a continuous improvement process. It requires ongoing monitoring and adjustment to ensure optimal project performance.
• By continually identifying and addressing constraints, project managers can streamline processes, enhance productivity, and deliver successful outcomes.

In project management, the Theory of Constraints provides a systematic approach to overcoming obstacles and achieving project goals. By applying TOC principles, project managers can effectively manage constraints, optimize resources, and deliver projects on time and within budget.

Relationship Between TOC and Lean Manufacturing

The relationship between the Theory of Constraints (TOC) and Lean Manufacturing is one of the complementary philosophies aimed at enhancing organizational performance. While they approach improvement from different angles, both methodologies share common objectives and can be integrated to achieve synergistic effects. Here’s an overview of the relationship between TOC and Lean Manufacturing:

1. Shared Goal of Continuous Improvement

Both TOC and Lean Manufacturing share a common goal of driving continuous improvement within organizations.

While TOC focuses on identifying and alleviating constraints to improve system performance, Lean Manufacturing aims to eliminate waste and streamline processes to enhance efficiency.

2. Focus on Value Stream Optimization

Lean Manufacturing emphasizes the optimization of value streams, which involves identifying and eliminating non-value-added activities to enhance flow and reduce lead times.

Similarly, TOC advocates for the subordination of non-constraints to constraints to ensure optimal utilization of resources and minimize delays in the value stream.

3. Integration of TOC Principles in Lean Practices

Many Lean practitioners recognize the value of TOC principles and incorporate them into their improvement initiatives.

For example, TOC’s focus on identifying constraints aligns well with Lean’s emphasis on identifying bottlenecks and addressing them to improve flow.

4. Synergistic Effects of Combined Approaches

Integrating TOC and Lean Manufacturing can lead to synergistic effects, wherein the strengths of each approach complement one another to achieve superior results.

By leveraging TOC’s constraint-focused approach alongside Lean’s waste reduction techniques, organizations can achieve significant improvements in both throughput and efficiency.

5. Application of TOC in Lean Tools and Techniques

TOC can be applied within various Lean tools and techniques to enhance their effectiveness.

For example, TOC’s Drum-Buffer-Rope (DBR) methodology can be integrated with Lean production scheduling to synchronize production flow and minimize inventory.

6. Continuous Learning and Adaptation

Organizations that embrace both TOC and Lean Manufacturing foster a culture of continuous learning and adaptation.

By continuously refining their processes and practices based on insights from both methodologies, organizations can sustainably improve their performance over time.

The relationship between TOC and Lean Manufacturing is characterized by shared objectives, complementary approaches, and synergistic effects. By integrating the principles and practices of both methodologies, organizations can achieve enhanced operational efficiency, improved throughput, and sustained competitive advantage.

Tools and Techniques for Implementing TOC

Implementing the Theory of Constraints (TOC) involves utilizing various tools and techniques to identify, exploit, and manage constraints within an organization’s processes. These tools provide a structured approach to analyzing constraints and formulating effective solutions. Here are some key tools and techniques for implementing TOC:

1. Current Reality Tree (CRT)

• The Current Reality Tree is a graphical tool used to depict the cause-and-effect relationships that contribute to the current state of a system.
• By identifying the root causes of undesirable effects or constraints, the CRT helps pinpoint areas for improvement and guides decision-making towards addressing the most critical issues.

2. Five Focusing Steps

• The Five Focusing Steps provide a systematic framework for addressing constraints and improving system performance.
• These steps include identifying the constraint, exploiting the constraint, subordinating all other activities to the constraint, elevating the constraint, and repeating the process to achieve continuous improvement.

3. Drum-Buffer-Rope (DBR)

• DBR is a production scheduling methodology that aims to synchronize workflow and optimize throughput in accordance with the capacity of the system’s constraint.
• By establishing a drumbeat (pace of production) based on the constraint’s capacity, buffering critical resources, and implementing a signalling mechanism (rope) to control workflow, DBR minimizes idle time and maximizes overall system performance.

4. Future Reality Tree (FRT)

• The Future Reality Tree is used to envision the desired future state of a system by identifying and implementing necessary changes or improvements.
• By outlining the cause-and-effect relationships between proposed interventions and desired outcomes, the FRT provides a roadmap for achieving the organization’s goals and overcoming constraints.

5. Throughput Accounting

• Throughput Accounting is a management accounting approach that focuses on optimizing the flow of value through the organization.
• By prioritizing decisions based on their impact on throughput (rate of generating money), TOC encourages organizations to align their actions with the goal of maximizing overall system performance.

6. Buffer Management

• Buffer Management involves monitoring and managing the buffers (inventory or time) associated with critical resources or processes.
• By ensuring that buffers are appropriately sized and replenished, organizations can mitigate the impact of variability and uncertainty on system performance, thereby improving reliability and responsiveness.

7. Critical Chain Project Management (CCPM)

• CCPM is a project management methodology derived from TOC principles, focusing on identifying and managing the critical chain of tasks within a project.
• By protecting the critical chain from interruptions and uncertainties through the use of buffers, CCPM aims to enhance project delivery speed and reliability while minimizing resource contention and multitasking.

8. Evaporating Cloud (EC)

• The Evaporating Cloud is a conflict resolution tool used to identify and resolve underlying conflicts or assumptions that hinder problem-solving and decision-making.
• By clarifying conflicting perspectives and generating creative solutions, the EC facilitates consensus-building and promotes effective collaboration towards achieving organizational goals.

These tools and techniques provide valuable resources for organizations seeking to implement the Theory of Constraints and drive continuous improvement. By leveraging these tools effectively, organizations can identify, address, and overcome constraints to enhance performance, optimize resource utilization, and achieve their strategic objectives.

The Theory of Constraints (TOC) offers a powerful framework for organizations to identify, manage, and overcome constraints that limit their performance and hinder goal attainment. By focusing on the systematic identification of constraints and the application of targeted interventions, TOC enables organizations to optimize their processes, enhance throughput, and drive continuous improvement.

Through the key principles of TOC, including the identification of constraints, exploitation of constraints, and synchronization of activities, organizations can streamline operations, minimize waste, and maximize value delivery. Additionally, the relationship between TOC and lean manufacturing highlights the complementary nature of these methodologies in achieving operational excellence and fostering a culture of continuous improvement.

By implementing tools and techniques such as the Current Reality Tree, Five Focusing Steps, Drum-Buffer-Rope, and others, organizations can effectively diagnose issues, develop solutions, and monitor progress towards achieving their objectives. These tools provide valuable insights and guidance for decision-making, enabling organizations to make informed choices that align with their strategic goals and drive sustainable performance improvements.

In conclusion, the Theory of Constraints offers a holistic approach to organizational management, emphasizing the importance of identifying and addressing constraints to unlock hidden potential and drive success. By embracing TOC principles and leveraging its tools and techniques, organizations can navigate complex challenges, optimize their operations, and achieve greater levels of efficiency, effectiveness, and competitiveness in today’s dynamic business environment.

Additional Resources

• “ The Goal: A Process of Ongoing Improvement” by Eliyahu M. Goldratt – This seminal work by Goldratt provides a detailed exploration of the Theory of Constraints and its application in improving organizational performance.
• “ Lean Thinking: Banish Waste and Create Wealth in Your Corporation” by James P. Womack and Daniel T. Jones – This book offers insights into lean manufacturing principles and how they can be integrated with TOC to drive operational excellence.
• “ Thinking, Fast and Slow” by Daniel Kahneman – While not directly related to TOC, this book provides valuable insights into decision-making processes and cognitive biases that can impact organizational performance.
• “ The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses” by Eric Ries – This book explores lean startup methodologies and their alignment with TOC principles in driving innovation and agility.
• Online Courses and Training Programs – Theory of Constraints Online Course with Certification by Robert Chapman

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How to Identify and Manage Constraints in Project Management

By Kate Eby | July 11, 2022

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One of the most difficult pieces of the project management puzzle is balancing project constraints. We’ll teach you how to identify and manage constraints in your own projects.

In this article you’ll find the six main types of project constraints , examples of project constraints by type and industry , and a downloadable project constraints starter kit to help you stay organized.

What Are Project Constraints?

Project constraints are the limits within which a project must operate. The six main project constraints are time, cost, scope, quality, resources, and risks. Managers must balance these constraints in order to ensure successful project completion.

“Project management is the practice of delivering a solution subject to constraints. Constraints are things that limit or put boundaries around your projects. Scope, schedule, and cost are the big three, but risk, quality, resources, regulations, and other factors are also relevant,” explains Alan Zucker, Founder of Project Management Essentials, LLC .

The Theory of Constraints assumes that there is always at least one constraint present that prevents a company from moving forward. In most cases, that is time, cost, or scope, which together make up the triple constraint triangle . Sometimes called the iron triangle , these three are often considered to be the most pervasive constraints and are therefore the most important to account for.

Project managers initially outline constraints in their project charter and expand upon them in their project plan .

What Are the Six Constraints of a Project?

The six main project constraints are time, cost, scope, quality, risks, and resources. There might be additional constraints based on the size of your project or your industry. Most project managers focus only on managing these six.

This six-constraint model is useful for remembering that a single constraint can affect any or all other constraints, sometimes in ways you might not expect. It is important to remember that altering one element of a project might result in a need to balance one or more of these constraints. Think of this model as a six-circle Venn diagram where all circles overlap.

These are the six most common constraints in project management:

• Time: Time refers to individual task and project deadlines. Project managers usually manage time with such tools as calendars and scheduling software.
• Cost: Cost refers to the financial costs of your project, including labor, materials, equipment, and more. Project managers usually handle and represent cost in the project budget.
• Scope: Scope refers to all tasks that the project does and does not cover. These first three constraints — time, cost, and scope — represent the triple constraint triangle and are closely related. A change in one will likely mean changes for the other two.
• Quality: Quality refers to the level of quality required for satisfactory completion of a project. How you manage time, cost, and resources will directly impact quality.
• Resources: Resources refer to any resource you need to complete a project. These include those you have available and those you still need to acquire. Resources can cover time, people, equipment, facilities, software, or anything else your project requires.
• Risks: Risks refer to all possible circumstances that might affect your project, both positively or negatively. Risks can be either internal or external constraints depending on the source of the risk.

Internal Project Constraints

Most project constraints come from factors that are within an organization’s control. Internal constraints include time, cost, scope, quality, resources, certain risks, and more. Organizations can take many actions to manage these constraints.

We’ve outlined each of these internal constraints below:

• Cost: The financial capital your company has available to spend determines the budget for your projects.
• Organizational Decisions: An organization chooses the methods it will use to get the job done. There might be additional constraints based on the project management methodology chosen, the physical size of the office, the organizational layout of the company, hiring and staffing procedures, or internal training.
• Quality: Company leaders set both the desired level of quality and the methods for determining that quality.
• Resources: The resources available for use on your project are determined by the allocation and acquisition strategies of your organization.
• Risks: Internal project risks can refer to finances, organizational strategy, or performance. Proper risk management practices help keep these constraints in line.
• Scope: Project stakeholders and managers determine a project’s scope internally.
• Sustainability: An organization’s commitment to sustainability might be related to external factors such as legislation and public approval, but organizations manage the constraints surrounding it internally. Sustainability is closely related to both resource and organizational constraints.
• Time: Executives and project managers determine project schedules and deadlines internally.

External Project Constraints

Some project constraints exist outside the control of an organization and its employees. These constraints include social, economic, technological, legislative, environmental, and security factors. It is important to account for these external constraints when possible.

We’ve outlined some common external project constraints below:

• Economic: Economic constraints relate to the changing global or local economic environment as a whole. They can also refer to competitor strategies, recessions, upturns, or anything else having to do with the overall economic climate.
• Environmental: New legislation or shifting public opinion might create environmental constraints, which means they are closely related to social and legislative limits. They also refer to the environmental impact of your processes and products. 
• Legislative: Legislative constraints are rules and regulations you must operate within to remain on the right side of the law. They can also include new certification or permit requirements based on new policies. Political shifts or new laws often lead to these types of constraints.
• Risk: External risks include major weather events, employee leave, market volatility, or changing legislation. External risk constraints are caused by external factors and can be difficult to manage because they are hard to predict. However, most project managers find that the benefits of managing project risks greatly outweigh the costs.
• Security: Security constraints refer to the need to protect sensitive data and materials. These are often closely aligned with technological constraints. They can also include building security or restricted access to equipment.
• Social: Social constraints include the likes of customer satisfaction and public opinions of your brand, policies, and products. 
• Technological: Technology can refer to any equipment or software you use to get your work done. Changing technology can lead to new opportunities. It can also leave you constrained if you use outdated technology.

Internal and External Project Constraints Venn Diagram

Use this project constraints Venn diagram to quickly reference the various types of internal and external constraints you might encounter in your projects.

Project Constraints Examples

Project constraints are present in every project. This is true for projects of any size and in any industry. We asked experts to share examples of project constraints, including legislative, resource, time, and risk constraints. 

Some real-life examples of project constraints from the experts include the following:

• Legislative Constraints: Legislative constraints can run the gamut from what you are allowed to produce to how you are allowed to produce it. Some industries have their own regulatory bodies that decide how companies can conduct business and threaten retaliation when they don’t comply. “Anything involving healthcare faces a slew of regulatory constraints, from HIPAA protections for patient information to regulations regarding care and treatment plans or even regulations regarding what healthcare employees can and cannot accept from vendors,” says Beran.
• Resource Constraints: Resource constraints are often closely related to costs. Your resources might be constrained if you are unable to purchase supplies at as high a quality as you have in the past because of price changes from the supplier, or you might not be able to hire additional highly specialized staff for a particular task. Resources can also include the equipment you use to produce your goods. For example, they can become constrained in this scenario if your equipment is aging or outdated and unable to keep up with production demands.

• Time Constraints: Sometimes balancing constraints means prioritizing them. “Time is often the most critical constraint. Sometimes it does not matter how good your product is if you can’t deploy it as scheduled,” explains Marcos Isaias , Project Manager at Claro RD. “Let's say we create a Mother’s Day offer for our product. It does not matter how much the scope and cost have to change if we are committed to launching the product before Mother’s Day. For this reason, if we have to increase costs or reduce scope to maintain the target launch date, it is acceptable because it is justified.”
• Risk Constraints: Managing risk constraints means asking yourself what is the acceptable level of risk for each project. This level will likely differ among projects, so it is important to consider risk constraints individually. “A project manager must be able to predict possible failures at every stage of the project and plan for them appropriately,” says Hauer. “Playing out what-if scenarios and devising contingency plans are examples of this. What happens if a vendor fails to deliver? What if one or more resources are lost due to illness or transfer? What if the market swings dramatically? What if a competitor releases a product that is similar to ours at the same time?” He continues, “When managing risks as a constraint, you must determine your organization's and stakeholders' risk tolerance zones, which entails identifying a reasonable range of reactions within appropriate bounds. If a supplier fails, for example, you will look for another within X pricing, Y delivery time, and Z quality parameters. Your stakeholders must select how much risk they are willing to bear in order to enjoy the project's proposed advantages by defining a zone of tolerance.”

Project Constraint Examples by Type and Industry

In this chart, you’ll find examples of each of the six main types of constraints in the construction, IT, and marketing industries.

Project Constraints Report Example

Download Project Constraints Report Template with Example Data Microsoft Word | Google Docs  

Use this project constraints report template to outline and share your project’s constraints. This customizable template includes space to detail the six main project constraints, as well as a section to share additional constraints. Use this template along with your project plan to help keep track of and manage your project constraints.

How to Identify Project Constraints

In order to identify project constraints, you have to identify boundaries in your project. These can be elements like your budget, timeline, or quality standards. Review these to find your project constraints. 

“Foundational project documents, such as your project charter, will provide insight into some of the initial constraints. They describe what your customers want, roughly how much they are willing to spend, and how long they are willing to wait. While these documents may define the initial expectations, project managers should expand those boundaries once they learn more about the project,” says Zucker.

“Agreements, including contracts, internal service agreements, policies, regulations, and standards, are another source for identifying and understanding project constraints,” he continues. “Local regulations might stipulate construction or development standards. Contracts might define resource, cost, or quality constraints. Stakeholders, which include customers, the project team, senior leadership, or the general public, might also provide us with essential constraints. For example, a homeowners association might limit the color choices on your exterior trim.”

To aid in the creation and organization of these documents, you may consider using our template starter kit to identify and describe the constraints found in your project.

Project Constraints Template Starter Kit

Download Project Constraints Template Starter Kit

Use this starter kit to ease the process of working with project constraints. You’ll find everything you need to get started identifying and managing constraints in any project, including the project constraints report template found above. These templates are all fully customizable to suit the needs of your organization. Each template can be downloaded individually below, or as a set in the complete kit.

In this kit, you’ll find:

• A project charter template for Microsoft Excel to help you begin to organize your project thoughts and identify potential constraints.
• A project budget template for Microsoft Excel to identify and manage cost constraints.
• A project schedule template for Microsoft Excel to help map out time constraints.
• A scope statement template for Microsoft Word to help identify what is within the scope of your project, as well as what is not.
• A blank version of the project constraints report template for Microsoft Word found above on this page, to outline and share all of your project constraints with stakeholders.

For more help identifying and managing project constraints, check out our collections of project charter templates and project assumption templates .

How Do Project Constraints Affect Each Other?

When you change one project constraint, it will often impact the others. For instance, if a budget decreases, project managers will need to adjust the resources and timeline. Consider all constraints to ensure that projects are successful. 

A good project manager knows how to stay within project constraints, but they also know when they can exceed them. The triple constraint triangle is one of the best examples. When scope increases, so must cost and time to balance it. In this scenario, if these constraints are not balanced, the project will cost more, take longer, and decrease in quality.

“On the market, there will always be some expectations. Managers should always be prepared to make accurate assessments at the start of a project. They should also be able to identify how and whether any adjustments made along the journey will affect the quality of the final product,” explains Max Hauer, Founder and CEO of Goflow .

When you exceed constraints, the project manager should determine the cause and decide whether or not the project should continue in its current form. Often, they will implement changes to avoid exceeding other constraints or exceeding any one constraint too much. This is why project managers should always build emergency funds into budgets and account for lead and lag time. By doing so, they can patch small holes before they become large ones.

“Balancing is admittedly tricky,” says Molly Beran, an experienced project manager and Founder of Projects By Molly, LLC . “In the past, I've done my due diligence to get as many constraints out in the open as possible and tried to figure out which ones work together and which ones compete. For example, you may have a budget constraint of not spending over a certain dollar amount, but you also have a time constraint of getting a project done in four weeks. If you have too much work and need more resources within those four weeks, it can be hard to meet both the budget and the time constraint.”

How Are Project Constraints and Dependencies Related?

Project constraints and dependencies both deal with project operations. Dependencies are the relationships between tasks that determine the order of work. Constraints are the boundaries in which the team must operate.

Project dependencies refer primarily to the order in which related tasks must be started and finished. Constraints refer to the limits of elements such as cost, time, and scope. Dependencies might also rely on certain constraints. For example, if you are constrained by having only one translator on a team, you must wait for them to finish translating an article before you can publish it. This will impact the time it takes to publish articles.

“Dependencies and constraints are both critical components of every project. Projects are fundamentally a collection of interconnected tasks with a priority order and connectivity to one another, resulting in project management dependencies,” Hauer explains. “Constraints, on the other hand, occur because a project has a set of requirements, a deadline for completion, and other features that limit how you can approach the project. You may also be constrained by the technology you have access to or a lack of devoted resources.”

How to Manage Project Constraints

In order to manage constraints, learn how to identify and understand them. Communicate with your team, maintain flexibility, and manage your resources well. We’ve asked experts for advice on how to manage project constraints.

These are some of the best practices for managing project constraints, according to experts: 

• Be Flexible: When possible, be flexible. Adaptability can save you some headaches in the long run. “You can often make some trade-offs by considering alternatives. Usually, there are multiple options for achieving a project goal. If you consider your options, you may avoid forcing these hard choices,” says Zucker.
• Communicate: Encourage open communication within your team, and maintain open communication with project sponsors. Identify constraint issues early on in the process, and discuss them as soon as possible. “Having a constant flow of communication with the team regarding the constraints is vital. Having weekly sessions with the team and creating reports to circulate to all stakeholders will help you be in control of all project limitations and allow you to act on time if you see any constraint changes,” says Isaias.
• Create a Process for Approaching Constraints: Make identifying constraints a required part of the project initiation phase of project planning, and check their balance periodically. “To successfully manage project constraints, you need a process. The process should describe how you will identify constraints initially and on an ongoing basis. Constraints should be documented, reviewed, and analyzed periodically. Ask yourself, ‘Is this constraint still valid? Have we been honoring the constraint? Are there alternatives for addressing it?’” suggests Zucker.
• Create a Project Budget: Many cost constraint issues can be resolved by creating and maintaining an up-to-date project budget. Use one of our customizable project budget templates to construct a thorough budget for your next project.
• Create a Project Schedule: A well-considered schedule can help a team balance or avoid many time-based constraints. To learn how to create a comprehensive schedule of your own, check out this guide to project scheduling .
• Create a Risk Management Plan: Many constraints are related to potential project risks. One of the best ways to combat them is with a solid risk management plan. Browse this collection of risk management plan templates to create your own.
• Identify and Understand Constraints: The most important thing you can do is to learn how to identify the constraints and understand the ways that they affect one another. “When constraints compete, the best way to manage them is to identify the trade-offs of each constraint. Project managers can do this in a number of different ways: listing out the pros and cons of each, projecting out into the future with what-if scenarios, or simply spelling out what it would take to meet each constraint and what would be gained or lost by prioritizing one over another,” explains Beran.
• Manage Your Resources: Almost all constraints are resource based. Resources include such factors as time, money, labor, equipment, and more. Adopting solid resource management practices will help inform your constraint balancing practices.
• Stick to Your Project Plan: All successful project managers know the value of a good project plan . By outlining your early project assumptions and sticking to your initial plans, you are more likely to anticipate and manage conflicts between constraints. 
• Use Software: Many project management software solutions include functionality to create schedules, track budgets, and manage risks, which all aid in managing project constraints.

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• 6 project constraints and how to manage ...

6 project constraints and how to manage them for project success

Project constraints are the general limitations of a project, including time, costs, and risks. Understanding project constraints is important because they affect project performance. In this piece, we’ll discuss project constraints in detail and explain how to manage them.

Have you ever been to the circus and watched the performers do a balancing act? They somehow manage to hold multiple plates up in the air so gracefully that it feels like they must be using magic. But balancing doesn’t require magic—just focus and skill. If a performer were to misplace their hold on a single plate, all the plates would come crashing down. 

What are project constraints?

Project constraints are the general limitations that you need to account for during the project life cycle. For example, a cost constraint means that you’re limited to a specific project budget, while a time constraint means you must complete your project within a specified timeframe. 

Most project constraints impact one another, which is why constraint management is crucial for project success. If you decide that you must expand the project timeline , then you’ll likely need more money to complete the project as well. Your project scope will also expand when the time and cost of your project expand. 

There are six common project constraints to consider as you make your way through the phases of project management. In this article, we’ll go through each constraint in detail and explain how you can manage it. No matter what type of project you’re working on, using project management software can help you visualize your project schedule and manage all of your project constraints in one place. 

The triple constraints of project management

The triple constraints of project management—also known as the project management triangle or the iron triangle—are scope, cost, and time. You’ll need to balance these three elements in every project, and doing so can be challenging because they all affect one another. 

There are trade-offs when balancing scope, cost, and time, and you must decide what you’re willing to sacrifice in order to maintain project alignment and functionality. 

For example, your project can only stay within scope if your project’s budget and time allotments stay steady. If you want to finish the project in less time, your scope must also decrease to balance out the project unless you’re able to make adjustments to the budget.

Project scope refers to a project’s magnitude in terms of quality, detail, and deliverables. Time and money are dependencies of project scope, because as the project scope grows, the project will require more time and money to complete.

You’ll need to be aware of scope creep throughout each project phase and work hard to prevent it. You can prevent scope creep by creating detailed project plans and getting project stakeholders to sign off on everything before production begins.

Cost constraints include the project budget as a whole and anything of financial value required for your project. Items that may be a cost constraint include:

Project cost

Team member salaries

Cost of equipment

Cost of facilities

Repair costs

Material costs

Include any items in this section that require you to pull from your company’s financial resources.

Time management is essential for project success, and there are various time constraints you’ll face during each phase of your project. When you try to increase your project timeline, there will be consequences like extended deadlines, adjustments to the team calendar , or less time for planning.

Time elements in your project that can lead to constraints may include:

Overall project timeline

Hours worked on project

Internal calendars and goalposts

Time allotted for planning and strategy

Number of project phases

Scope, cost, and time are called the iron triangle because these three constraints can be difficult to maneuver around each other while maintaining project quality. For example, if you cut your budget or increase your scope, you’ll likely need to compensate by loosening up on time. You can do this by extending deadlines, adding hours, or adjusting your project schedule .

Other common project constraints to consider

While scope, cost, and time are the triple constraints of project management, there are three other project constraints you may encounter in your project life cycle: risk, resources, and quality.

Project risks are any unexpected occurrences that can affect your project. While most project risks are negative, some can be positive. For example, a new technology may be released while your project is in progress. This technology may help you finish your project quicker or it may cause more competition in the market and reduce your product value. 

You can determine project risks using risk analysis and risk management strategies to keep them at bay. Some risks you may face include:

Stretched resources

Operational mishaps

Low performance

Lack of clarity

Scope creep

Time crunch

Use a risk register to assess the likelihood and severity for each project risk, then mitigate the most likely and severe risks first.

Resources tie closely with cost constraints on your project because these project requirements cost money. Without proper resource allocation , can experience lower project quality, an increased budget, and timeline delays. 

Some resources to consider include:

Equipment or materials

Use a resource management plan to ensure you have the resources you need for every element of your project so that this constraint doesn’t negatively affect other project areas.

Project quality is the measure of how well your project deliverables meet initial expectations. Every project constraint affects project quality because project quality is the ultimate result of your project. However, project quality is also its own constraint because there are aspects of the project that can result in poor quality that aren’t necessarily related to cost, time, resources, risk, or scope. These include:

Lack of communication

Poor design or development skills

Too many project changes

You must manage project quality as its own entity while also balancing the other five project constraints if you hope to achieve high project performance. If you fail to manage your constraints, the result can be low project quality and low customer satisfaction.

How to manage project constraints

There are strategies you can use to manage and balance project constraints as they arise. Using project management methodologies like the PMBOK Guide’s phases of project management and Agile practices, which encourage flexibility and collaboration, are a few ways to control project constraints.

You can also use the following tips to strengthen your project management plan : 

Understand your constraints: You can’t manage your project constraints unless you understand what they are. Once you know your project constraints, you can plan around them. For example, during project planning, assess what risks you might face as well as what resources you’ll need and what those resources will cost.

Plan and strategize: When you consider all six of the most common constraints in your project plan , you can move forward with a better perspective for what’s ahead. Your project plan should include strategies to mitigate constraints and balance the triple constraints of scope, cost, and time. You can also implement strategies to address additional project constraints , like trying to prevent project risks from occurring.

Control project quality: You can control project quality by regularly monitoring your project plan and processes. As your team handles various tasks throughout project execution, use work management software to ensure everyone is staying on track. Establish a change control process so that if changes occur, you can prevent scope creep.

Manage risk: Use risk analysis to identify, assess, and prepare for potential project risks. With a strong risk management plan in place, you can keep the most damaging project risks at bay and prepare for any unexpected risks that may occur.

Communicate effectively: Team communication is essential for successful management of project constraints. Without strong communication, you may think you’re balancing your constraints while another team member is unknowingly disrupting your hard work. When you discuss every aspect of the project with your team, you can work together to reach project goals. 

Embrace flexibility: You must embrace flexibility in order to effectively balance project constraints. There will be times when you’ll need to compromise on project elements in order to stay within scope. If you aren’t flexible, you’ll end up sacrificing project quality. Keeping your customers or stakeholders satisfied should be your top priority, which means accepting trade-offs when necessary. 

See constraints in real time with project management tools

Keep track of  your project constraints through every phase of the project life cycle in order to ensure the project quality meets stakeholder expectations. When you encounter a situation where you must adjust one project constraint, like the project schedule, consider how that will affect other project areas—like cost and scope—and balance your constraints as necessary. 

Project management software can help you visualize project constraints in real time. When you need an efficient way to control elements of your project and share the information with others, the various tools available within a project management system like Asana make it easy. 

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Constraints that can impact on the successful implementation of a business plan

There are several constraints that can affect how well a business plan is implemented.  The constraints that may affect the implantation of a successful business plan are;

Environmental

Technological

Competitive

When a business is setting up a business plan it has to abide by laws to ensure that the business will not face any legal action against it.  Legal changes can happen all the time over the course of a business’s running.  Legal changes can force the business to change the way a business operates and can have an impact on how employees have to set up rules to ensure the safety of its employees.  Changes to tax laws and minimum wage can have an impact on the finance of a business.  

The categories that legislation changes fall into are

Health and safety

Health and safety can look at aspects of how the business is protected against fire and precautions that are taken for various dangers.   Examples of laws that may affect these rules are food hygiene, environmental health – weights and measures.

Employment law

Employment laws can change the way that businesses are allowed to hire employees and regulations that they must follow to ensure that employees are chosen fairly.  Examples of laws that will have to be followed in these cases are Minimum wage laws and contracts of employment.

Consumer Protection

This looks at how information is kept about customers, when a customer makes a purchase with the business; the business has to ensure it has the consumer’s permission to keep the data.  This data has to be kept securely within the business.  Examples of laws that will have to be followed in these cases are data protection, trade description and sale and supply of services act.

Eu law will have to be taken into consideration by a business when trading with other countries and shipping out packages.

This is a preview of the whole essay

Within society there are many changing trends and fashions, these will have to be looked at and planned for variances when producing the business plan.  Market trends often change and the sales of your product of service can and will change depending on these.  Effective business’s will adapt to these ever changing markets and will find ways to ensure that their sales are not affected during these market variances.  Pressure groups can always have an effect on how well the business does, pressure groups may be concerned with recycling and healthy eating and finding a way to satisfy these pressure groups whilst keeping costs low will help the business gain profit as well as holding a good reputation.  

Government may also direct pressure at your business’s if you are in such areas as the tobacco industry or fast food market.  These type of industries may be linked to health problems and will often b taxed leading to a decline in profits.

Businesses will have to take stakeholders i.e. anyone with an interest in their business into account, these stakeholders will often pressure the business and can effect the reputation of the business in a good or bad way depending on how the business looks after these stakeholders.

Business suppliers can also vary on the basis of the businesses mission statement and objectives.  Businesses should take into account weather they are going to choose their suppliers because they are cheap or because they are environmentally sound and treat employees well.  Reputation and costs will change with this judgement in choosing suppliers.

Business’s will often have to look at they way they market their products in accordance with the publics financial constraints.  A business may wish to sell their product as being economically sound or as a luxury product as they have discovered that members of the public have the wealth to purchase them.

To implement a business plan with success having enough money to back up the business plans is essential in order to get your business off the ground.  There are many things that can be considered as collateral, assets such as your house and car can be used as the backup strength behind your loan.  Banks are more likely to provide loan services to someone who has a good credit history.

Funding may not just come from external sources, funding could also come from your own savings and inheritance,  this type of finance providing may be a lot safer than taking out a loan as you do not stand to lose personal assets, as you are not in debt to a bank.

As part of a successful business plan, considering financial implications is vital.  Looking at finance required for the start-up cost will enable you to judge how much money you are going to need for start up and running costs, a business should then consider the profit it could potentially make and then decide accurately well they are likely to succeed.

If you are taking out loans for your business and gaining finance that has to be paid back you should work out when this money is going to be coming out of your business, your revenue should be able to cover this and before implementing your business plan you should be certain that you can afford to pay these costs.

Cash flow problems may be caused by lack of interest and custom in you products, this can be a major problem for any business as it can lead to poor credit ratings and increased interests on the company’s debts.

In today’s society one huge and controversial problem that has had a lot of media coverage is environmental changes.  For many business’s this has become a new selling point for their products, and for others they have found it difficult to cope with pressures from local environmental organisations who are demanding attempts to help the environment.

It is widely realised that in today’s society a company’s display of care for the environment is a great selling point to customers.  Companies who are seen to cause harm to the environment in some ways generally gain a lot of negative media attention which can lead to harm in sales and profits.

 A business will have to decide weather they want to focus their company image on being friendly to the environment and encouraging recycling or not having pro active efforts to upkeep the environment.  If a company uses recycled and environmentally friendly materials it can lead to an increase in costs.

With the development of use of computers and technology in society the business world is ever changing and adapting to meet these changes.  If a company is always aiming to be at the top of the market they will have to keep investing in the new technology to ensure they can constantly keep making top quality products.  When a company adapts to these changes in technology competitors will often have to follow the trends to ensure their business does not fall behind.

Technological advances are also changing the way custom is made, many customers now opt to use the internet to buy any products as it is an easier and more convenient way to shop, in many cases the internet is also cheaper.  Business’s have adapted to this change by creating websites to visit and purchase items from.

When setting up a business it is unlikely that you are going to have a product or service that does not already exist.  When there are existing similar products to your own this is called competition.  Competitors will always have an effect on how much profit your business makes.  When marketing your product you must ensure that you are showing how it is better than competitors in the sense of value for money and quality.

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• Constraints

Dive into the pivotal world of constraints in managerial economics , a core concept within Business Studies. This detailed guide provides vital insights into understanding the definition and importance of recognising constraints, illuminated through real-world examples. You'll explore the theory of constraints, its key principles, and its practical application in managerial economics. Lastly, learn how to effectively manage constraints through popular methods, and witness their success through case studies. By comprehending and managing constraints, you can unlock business potential and drive improved performance.

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How did Starbucks manage its business constraint?

What is the Five Focusing Steps process in TOC?

What is the Critical Chain Project Management technique for managing constraints?

What is the difference between internal and external constraints in business?

Can constraints lead to innovation in business? Provide an example.

How does the Theory of Constraints (TOC) function in managerial economics?

Why is understanding constraints important in business?

What are the three main concepts of the Theory of Constraints (TOC)?

What are the four steps in a practical approach to managing business constraints?

What is a 'constraint' in the context of business studies?

What does the Theory of Constraints (TOC) explain?

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Understanding Constraints in Managerial Economics

Definition of constraints in business studies.

For instance, financial limitations, limited skilled workforce, regulatory rules, market competition, supply chain issues and much more; all qualify as constraints in a business context.

• Internal constraints: These are challenges that arise from within the organisation.
• External constraints: These aspects are typically outside of the firm's influence.

The Importance of Recognising Constraints

For instance, a constraint in finance will push the management to make budget-friendly decisions, while a constraint in manpower will lead to workforce optimisation.

Real World Examples of Constraints in Business

Take, for instance, the introduction of emission guidelines by governments across the globe. This external constraint forced auto manufacturers to reevaluate their production methods and eventually led to the development of electric and hybrid vehicles, a market that is now seeing exponential growth.

The Theory of Constraints Explained

Key concepts of the theory of constraints.

• Every system must have at least one constraint, if not more.
• The performance of any system is defined by its most prominent constraint.
• The overall system's throughput is improved by managing the constraints effectively.
• Identify the system's constraint
• Exploit the system's constraint
• Subordinate everything else to the above decision
• Elevate the system's constraint
• If the constraint has been broken (resolved), go back to step 1.
• Throughput: The rate at which the system generates money through sales
• Operating Expense: All the money the system spends, even if it does not sell anything

Application of the Theory of Constraints in Managerial Economics

Efficient Management Strategies for Constraints in Business

Popular constraints management techniques.

• Critical Chain Project Management (CCPM): This technique is typically used in project management scenarios and focuses on resource scheduling. It ensures that projects are completed on time by managing the project's resources effectively.
• Lean management: Originating from the Toyota Production System, Lean management identifies and reduces waste in a system. It recognises constraints as forms of waste and undertakes process improvements to eliminate or reduce these.
• Six Sigma: This method aims to improve the quality of process outputs. It uses statistical methods to identify constraints and reduce variability in processes, thereby increasing operational efficiency.
• Kaizen: A continuous improvement process that engages all members of an organisation. It encourages problem-solving techniques to identify and overcome constraints.
• Total Quality Management (TQM): It is a management approach that focuses on long-term success through customer satisfaction. It recognises constraints and follows a continuous improvement process to exceed customer expectations.

Practical Approach to Handling Business Constraints

• Identification: Identify the constraints within the system. Use tools like SWOT analysis or PESTLE analysis to understand the environment and identify constraints.
• Analysation: Once identified, analyse the negative impact of these constraints on your business operations or project. Prioritise these based on their impact.
• Planning: Develop a plan to overcome these constraints. Use creativity and innovation to find solutions. The solution might involve resource re-allocation, improved technology, process changes, or even changes in organisational culture.
• Execution: Implement the plans and monitor the results. Review the effectiveness of the solutions and make changes if necessary. Remember, managing constraints is a dynamic process and requires continuous effort.

Case Studies: Successful Management of Business Constraints

Starbucks: Facing increasing competition and falling sales, Starbucks identified its constraint - customer satisfaction. It closed 7,100 stores for three hours to retrain baristas to make the perfect espresso. This move improved customer satisfaction, leading to increased sales and market share.

Toyota: By using Lean Management and Kaizen, Toyota identified and managed constraints, enhancing its production system. They continuously look for bottlenecks in their systems and devise solutions to overcome these. This approach has made Toyota one of the most efficient auto manufacturers and a market leader.

Tesco: In the 1990s, Tesco identified a key constraint - a shift in customer buying behaviour. They exploited this constraint by introducing the Clubcard, collecting consumer data, and personalising offers. This strategy transformed Tesco into one of the largest retailers globally.

Constraints - Key takeaways

• Definition of constraints in Business Studies: A 'constraint' refers to any factor that restricts or limits the decision-making and operational capabilities of an organisation. Examples include financial limitations, limited skilled workforce, and market competition.
• Types of constraints: Constraints are generally divided into internal and external. Internal constraints arise from within the organisation, while external ones are typically outside of the firm's influence.
• The theory of constraints (TOC): It suggests that any system, regardless of its complexity, is governed by a few key factors–the constraints, which dictate the pace at which goals are achieved. It proposes an efficient way to manage these constraints with its Five Focusing Steps process.
• Practical application of the Theory of Constraints in managerial economics: Plays a significant role in making pivotal decisions related to operations, supply chain management, and strategic planning by helping identify constraints and optimise resources for improved performance.
• Efficient Management Strategies for Business Constraints: Techniques include Critical Chain Project Management (CCPM), Lean Management, Six Sigma, Kaizen, and Total Quality Management (TQM). These techniques help handle constraints and turn them into opportunities, thus contributing to business success.

Flashcards in Constraints 12

Starbucks identified its constraint - customer satisfaction. They temporarily closed many stores to retrain baristas to improve the quality of their espresso, which improved customer satisfaction and increased sales.

The process includes: 1) Identifying the system's constraint, 2) Exploiting the system's constraint, 3) Subordinating everything else to the above decision, 4) Elevating the system's constraint, and 5) If the constraint has been broken (resolved), return to step 1.

Critical Chain Project Management (CCPM) is a technique used in project scenarios and it focuses on resource scheduling. It ensures projects are completed on time by managing resources effectively.

Internal constraints arise from within the organisation, while external constraints are aspects typically outside that are beyond the company's control.

Yes, for example, the introduction of emission guidelines was an external constraint that led auto manufacturers to invent electric and hybrid vehicles.

In managerial economics, the TOC assists in operational decisions, supply chain management, and strategic planning. It helps identify constraints in order to optimise their performance, facilitate coordination, and enhancing their output, thereby maximising profitability and competitive advantage.

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Understanding Legal Constraints: Key Considerations for Businesses

10 burning legal questions and answers about legal constraint.

The Intriguing World of Legal Constraints

Legal constraints are an essential component of the legal system, shaping the way individuals and organizations operate within the boundaries of the law. The complexity and intricacy of legal constraints make them a topic of great interest and admiration.

Legal Constraints

Legal constraints refer to the limitations and restrictions imposed by the law on various activities and behaviors. Serve maintain protect and justice society. Contract to regulations, legal constraints a range areas impact daily lives.

Examples of Legal Constraints

Let`s take a closer look at some common examples of legal constraints:

Impact of Legal Constraints

Legal constraints play role shaping practices, innovation, and interactions. Legal chaos injustice prevail, to a of societal order.

Case The GDPR

The Data Protection Regulation (GDPR) is example The Future of Legal Constraints. In the Union, the GDPR strict for the and of personal data. Influence beyond borders, companies individuals worldwide.

The Future of Legal Constraints

As society The Future of Legal Constraints to change. Technologies, economies, and norms present challenges require legal solutions. Ongoing over rights, currencies, and underscores the nature of legal constraints.

Legal constraints are and aspect of our system. Understanding, and to legal constraints, can to a just society.

Legal Constraints: A Contract for Compliance

These legal constraints (“Constraints”) the terms and under which the agree to with laws and in their jurisdictions. Is for the to and to the obligations in this Contract. To do may in legal consequences.

1. Compliance with Laws: The shall comply all regulations, and requirements to activities, and This but is to, laws, regulations, property and protection laws.

2. Legal Restrictions: The shall engage any or that or by law. But is to, laundering, bribery, and criminal offenses.

3. Legal Obligations: The shall all arising their activities, and This but is to, of and with orders.

4. Consequences of Non-Compliance: Failure to with the legal in this may in action, penalties, and consequences. Shall and hold the Party from arising from non-compliance.

This is by the of the in the are located. Disputes from to this be through in with the and of the jurisdiction.

5 Types of Constraint That Affects a Business Plan

By: Author Tony Martins Ajaero

Home » Business Plans

In everyday language, “constraint” might simply mean any inconvenience, limitation, setback, restriction or fluctuation in capacity. ​Sometimes it seems like constraints are lurking everywhere. ​But in Dr. George’s Theory of Constraints, the word “constraint” refers to something very specific.

What is a Business Constraint?

According to Dr George Friedman, a business constraint is anything that interferes with the profitability of a company or business endeavour. Improving profitability requires the removal or reduction of business constraints. Common business constraints include time, financial concerns, management and regulations.

Indeed, every businessperson with a vision of where they are going, and specific strategies and goals to get there, will face challenges or barriers that limit them from achieving success. Most times, when confronted with solving problems or making improvements, business owners or managers feel overwhelmed. They lack the time, money, or resources to correct the problems they are experiencing. They often feel like their hands are tied, and they don’t know where to begin.

In other words, every business operation has something limiting it from reaching its full potential. Note that some of these conditions exist to limit sales or production output. This limit or constraint determines the maximum capacity of the system. Have it in mind that by removing or improving the single constraint, the system is elevated to a higher level of performance.

A business plan needs to be realistic so it is important to set out in detail the constraints that are likely to act as limitations to business activity. Business plans, according to Investopedia, are important documents used to attract investment before a company has established a proven track record. They are also a good way for companies to keep themselves on target going forward.

Even though they are very useful for new businesses, every company is expected to have a business plan. Normally, the plan is reviewed and updated periodically to see if goals have been met or have changed and evolved. Sometimes, a new business plan is created for an established business that has decided to move in a new direction.

There are several constraints that can affect how well a business plan is implemented. The constraints that may affect the implantation of a successful business plan include;

What are the Types of Constraints That May Affect a Business Plan?

Legal constraint.

Have it in mind that when a business is setting up a business plan, it is expected to abide by the laws to ensure that the business will not face any legal action against it. Legal changes tend to happen all the time over the course of a business’ running.

Legal changes can force the business to change the way it operates and also have an impact on how employees have to set up rules to ensure the safety of its employees. Also note that changes to tax laws and minimum wage can have a massive effect on the finance of a business.

The categories that legislation changes fall into are Health and safety. Health and safety can look at how the business is protected against fire and precautions that are taken for various dangers. Examples of laws that may affect these rules are food hygiene, environmental health – weights and measures. Employment laws also changes the way that businesses are allowed to handle employees and regulations that they are expected to follow to ensure that employees are chosen fairly.

Financial Constraint

Note that to implement a business plan with success, having enough money to back up the business plan is imperative. Ideally, there are many things that can be considered as collateral, assets such as your house and car can be used as the backup strength behind your loan.

Banks are more likely to offer loan services to someone who has a good credit history. Funding may not just come from external sources, funding could also come from your own savings and inheritance, this type of finance providing may be a lot safer than taking out a loan as you do not stand to lose personal assets, as you are not in debt to a bank.

Additionally, as part of a successful business plan, considering financial implications is very crucial. Looking at finance required for the startup cost will allow you to analyze how much money you are going to need for start up and running costs.

Technological Constraint

Many customers now opt to use the internet to buy products as it is an easier and more convenient way to shop, in many cases the internet is also cheaper. Businesses have adapted to this change by creating websites to visit and purchase items from. The younger generation prefers to use digital technology to shop online. Older people will perhaps stick to their traditional methods. You must also understand that these changing factors take a toll on businesses too.

Environmental Constraint

The implementation of a business plan can be constrained by a host of factors in the business environment. For instance, legal constraints determine how they produce (e.g. Health and Safety and Product Safety laws). Social constraints determine the tastes and buying patterns of consumers.

For instance, in recent years consumers have turned increasingly to healthy foods as an alternative to ones that are heavily saturated in fats and contain high levels of sugar. During the process of putting together a business plan, you will need to be constantly aware of these environmental constraints and how they alter over time.

You may need to take what is termed an anticipatory approach i.e. to anticipate changes that are likely to take place in the future in the business environment. By anticipating change, businesses are able to adjust the way they operate to be ahead of competitors.

Competitive Constraint

When building a business, it is very much unlikely that you are going to have a product or service that does not already exist. Note that when there are existing similar products to your own this is called competition. Competitors will always have an effect on how much profit your business makes.

Therefore, when marketing your product you must ensure that you are showing how it is better than competitors in the sense of value for money and quality. The strength of the competition is a key constraint on business plan success. Businesses need to position themselves in such a way as to limit the effect of the competition.

Studying business constraints are important to businesses that want to plan ahead. Businesses that take a reactive approach i.e. which only change when or after the environment alters, will be left behind. By anticipating change, businesses are able to adjust the way they operate to be ahead of competitors.

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Key Constraints on Business Growth

Last updated 23 Jul 2021

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Business growth can be constrained in a number of ways.

• Growing businesses winning big market share may come to attention of the competition (anti-trust) authorities leading to increasing regulatory pressure
• In the UK, the Competition and Markets Authority (CMA) may decide to block a merger between two firms if they find sufficient evidence that the merger/takeover would lead to a substantial lessening of competitive pressure in a market which might subsequently lead to a deterioration of consumer welfare.

Competition

• In contestable markets, there is always the threat of entry from rival firms; technological change has in many cases had the effect of reducing barriers to entry into markets generating “creative destruction”.
• Firms that are dominant in an industry but operating inefficiently and charging monopoly prices may find that challengers firms are able to enter a market and compete away some market share & supernormal profits.
• Many small-medium sized enterprises (SMEs) run up against finance constraints including limited access to loans and risks and costs of raising equity in capital markets.
• In the aftermath of the Global Financial Crisis, commercial banks are more risk-averse when it comes to lending to businesses. In the UK, many small and medium sized enterprises complain that they cannot access loan finance at affordable interest rates. Commercial banks may charge a “risk premium” when lending to SMEs.

Size of the Market

• Businesses achieving success in local, or niche markets may find limits to scalability. There is simply not enough regular consumer spending. Other businesses successfully leverage their brand image to enter new markets.
• Niche markets target smaller groups of consumers, they are often highly profitable because suppliers can charge a premium price but have limited opportunities for economies of scale to be exploited.

Additional barriers to the growth of businesses

• Human capital weaknesses / skills shortages – e.g. businesses may struggle to recruit the skilled personnel that they need be it in complex financial services or in the construction industry
• Bureaucracy and red tape – as businesses grow so too does the legal requirements e.g. auto-enrolment of staff into a pension scheme, filing regular tax returns (including VAT) and meeting health and safety requirements
• Cost of recovering late payments – this is a particular problem for many smaller businesses. There was an estimated £6.7 billion worth of late payments for UK businesses in 2017 and this can have a damaging effect on the cash-flow of a business and perhaps threaten their survival.
• Insufficient funds to train employees and money to put aside into innovation / research
• High cost of raising fresh funding – commercial banks often charge much higher interest rates to smaller businesses even if they have a proven and viable business model and are generating solid revenues and profits.
• Business Growth
• Economic regulation
• Price Regulation
• Platform Business

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