System-wide Management by Criticalities: Hierarchical balancing of stochastic resources

Abstract

In a companion paper I argued that Management by Constraints (MBC) should be improved by replacing Step 4 (elevate the constraint) by a revised version that seeks to match the criticality of each constraint (defined as the probability it will be the binding constraint in any period) with its economic value. The result is Management by Criticalities (MBC II). In this paper I show how the principles of MBC II can be pursued in hierarchical systems. Instead of asking subsystems to meet rigid objectives (as in Management by Objectives or Policy Deployment), we ask them to meet the demand placed on them with a specified service level, defined as the complement of the criticality. In effect, the result is a combination of MBC and of policy deployment aimed to improve both.