Ensuring that you stay on track.
Time to Act
November 2016 Vol. 5 No. 11
Charlie Goodrich

Understanding, determining and monitoring the critical path are all important in ensuring that the necessary work in your organization gets done properly and on time.

But what exactly is the critical path? Today's newsletter explains and offers recommendations for staying on track.

Charlie Goodrich
Founder and Principal
Goodrich & Associates
In this issue...
Why Laying Out the Critical Path Must Always Be Step One

I've written several newsletters over the past few years regarding the importance of understanding the critical path. We covered it in "Closing the Books Quickly," "Patience is a Waste of Time," and "Working in Parallel," to name just a few.

But what exactly is the critical path? It is the sequence of tasks determining the minimum time needed to get something done.

Shorten the critical path; the work gets done faster. Let the tasks on the critical path take longer; then the work takes longer too. The elapsed time to complete the work won't change if the tasks not on the critical path take somewhat longer.

Understanding the critical path is, well, critical to getting anything but the simplest things done on time or, better still, faster.

There are five steps to figuring out the critical path:
  1. Lay out the tasks necessary to get something done.
  1. Identify which of those tasks must be completed before another specific task can start.
  1. Line up each task in a flow chart based on those dependencies. So if task D can't start before task A is completed, task D is linked to task A (but not tasks B or C).
  1. Estimate the time needed to complete each task.
  1. Make the lines in the flow chart represent the time to complete each task.
The longest line that snakes through the tasks that are dependent on another task is the critical path.

Easy in theory? Absolutely. Just follow the steps above.

Easy in practice? Not really. There are many things to consider and many variables to contend with along the way. That said, here are some suggestions for finding the critical path in any situation...

To begin with, you need to thoroughly understand the work needed to achieve the objective. You need to know what the tasks are, what the dependencies are and how long each task should take to complete.

If you have done the work in the past, in some form or other, you have a great starting point. For example, in my corporate days, there were many instances in which I was able to shorten the time to close the books and report. For this particular situation, I can almost figure out the critical path in my sleep. Same for laying out the steps to develop a 13-week cash flow for the first time.

Still, having done something before can also suggest the need for extra caution. Things may look the same but the circumstances may be very different.

Often, for example, I am brought into companies once they have made the decision to file for bankruptcy. I am there to advise and assist in preparing to file for bankruptcy and for guidance during the first 30 to 90 days in bankruptcy. There is a certain flow of work or tasks that varies little between cases.

What varies quite a bit, however, are the particular circumstances - and that affects the critical path. Sometimes, the hardest part is gathering the books, records and other information needed to file, sell the business and so forth. Other times, the biggest hurdle is in reaching an agreement between significant secured creditors. In still other instances, the difficulty lies in getting the company and the secured lender to agree on financing or the use of cash collateral.

The point is, even when you know the steps, a quick analysis of the situation may reveal that the critical path this time is quite different from the critical path last time.

Finding the critical path in unfamiliar situations

And those are instances in which you are familiar with the situation. What if you need to know the critical path for something you have never done before? Or, even if you have done it before, today's circumstances are radically different?

In these cases, begin by looking at your own prior experience. Ask others what they think must be done. Consider outside experts who have done it before (knowing just what must be done, how and how long, is what experts are good at).

Above all, when the terrain is new for you, listen, listen, listen.

When I was in the rent-a-car business, I was immediately charged with consolidating seven accounting offices into one regional office. I learned that the decision to consolidate had been made 18 months prior to my arrival and was well known in all seven accounting centers. People had left and those that remained were leaving. Everything was falling apart quickly.

The industry was completely new to me so I traveled extensively and listened to what people thought needed to be done. Many had been in the industry for a long time and with different companies. I had lots of in-house experts and I listened. And I used my experience with similar functions in other businesses as a reference point. We developed a high level list of tasks and from that, a critical path emerged. We followed it, adjusted along the way, and nine months later all accounting was being done in a single, brand new, regional office.

When the critical path goes awry

What happens when the critical path deviates from expectation? Maybe an unforeseen task is needed or a non-critical task takes longer (so it is now critical).

The answer? Make adjustments, of course. Monitor progress on the tasks; keep an eye out for dependencies you weren't aware of at the outset; reallocate resources as needed. If you don't, the critical path will stray.

Periodically monitor the critical path with status meetings and updates. Increase the frequency of your monitoring when your confidence in your knowledge of the work to be done is low (such as in my rent-a-car example).

And don't forget to monitor by walking around. People need to feel free to tell you if things have changed, or your understanding of reality turns out to be misguided in some form.

In summary, always remember that when it comes to getting anything but the simplest of things done, an understanding of the critical path is essential - the critical path is critical. If you begin by getting your arms around the critical path at the outset, you'll save time, money, rework and frustration.

Please share with your colleagues
Heard on the Street

A new President means it is time to talk about tax reform.

This short article by Fernando Martin, Senior Economist with the Federal Reserve Bank of St. Louis, shows why it will be hard to meaningfully cut income taxes for the middle class.

You can read it here.

About Us

Goodrich & Associates is a management consulting firm. We specialize in helping our business clients solve urgent liquidity problems. Our Founder and Principal, Charlie Goodrich, holds an MBA in Finance from the University of Chicago and a Bachelor's Degree in Economics from the University of Virginia, and has over 30 years experience in this area.

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