Real Options versus WIP?

Recently I’ve heard a couple of people say that if you increase WIP, you increase the number of options in the system. This is a fundamental misunderstanding of the relationship between options and WIP.

Increasing WIP reduces the number of options available from the system.

Consider the following two projects, both of which have five developers who can handle two tasks at a time.

1. In the first project, each developer takes on two tasks each. There are ten tasks in progress. They commit to all ten tasks at time zero.

High WIP2

2. In the second project, all five developers swarm on one task at a time. They commit to each task, one at a time, at times 0, 1, 2, 3, 4,…

Low WIP2

In the first project, they commit up front. In the second project, they defer commitments. In the second project they do not commit early, they wait until they have finished the previous task before committing to the next one.

Of the two projects, the one with lower WIP has more options and hence more value. Stated another way, two projects that deliver the same tasks, the one with lower WIP has more value due to the options it contains that the other does not.

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About theitriskmanager

A IT programme manager specialising in delivering trading and risk management systems in Investment Banks. I achieve this by focusing on risk rather than cost. A focus on costs can lead to increased costs. View all posts by theitriskmanager

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