Constraint Improvement Value
Value an hour freed on your bottleneck at its real contribution rate and gate the project on payback, not annual value alone.
Payback test
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Based on your results, these related decisions are available.
How this works
An hour recovered on the system's binding constraint is worth that constraint's full contribution rate, since that hour directly translates into more throughput for the whole system. Improvement value is the constraint's hourly value times hours freed per year, gated on payback against project cost.
Key terms
- Constraint: the bottleneck resource, the one whose capacity limits the whole system's output.
- Payback: project cost divided by annual value, compared against the evaluation window.
Assumptions
- The resource is a genuine system constraint, freed hours convert directly to throughput
Limitations
- Single constraint, does not model the constraint moving to a different resource after the improvement
Sources
Theory of Constraints (Goldratt), standard constraint-value costing.
Worked example
$100,000/year in recovered value looks like an easy approval at a glance. Checking payback against a $250,000 project cost reveals it actually takes 2.5 years to pay back, missing a 2-year evaluation window, a naive value-only check would wrongly approve it.
Common use cases
- Deciding whether a bottleneck-improvement project is worth funding
- Comparing multiple constraint-improvement candidates on real payback
- Justifying a capital project by pricing the constraint's own hourly value, not a generic rate