“[The Pipeline games™] were a brilliant way to demonstrate and drive home the significance of cycle time improvements and improving trade partner efficiencies on ROA and Net Income.” (Keith Porterfield, COO, Goodall Homes, Gallatin, TN)
Simulating production principles is a significant part of a Pipeline workshop™. We repeatedly hear that the opportunity to simulate production in a progressive series of scenarios enables builders to “see” production more clearly. Both a production simulator and a business game, The Pipeline game™ is what makes Pipeline workshops™ so intense, so interactive, so competitive, and so worthwhile.
The Pipeline game™ has always been a tremendous tool for teaching both production and business principles, but we constantly improve it, introducing changes that make it even better.
One change was shortening the duration of the game, so that we can run more scenarios in the same amount of time. Shortening the game had the additional benefit of making every operating decision more consequential, and making the results more realistic, easier to comprehend, therefore, more intuitive.
A change we are introducing in the upcoming Pipeline workshop is to run multiple production scenarios in each Pipeline game. We sacrifice some of the competitiveness created by multiple teams running the same scenario, but we gain the additional insight from being able to run far more scenarios within a single Pipeline workshop. There is the additional benefit of having each team discuss/explain the thinking and results of unique scenarios.
The most significant change was made to more realistically reflect the outsourced nature of homebuilding production. Previous versions of the Pipeline game™ used the resources to reflect both the capacity of the system, and the cost of that capacity. That arrangement is realistic for a manufacturing operation or even a project management organization, but a more accurate reflection of homebuilding production is to separate capacity and cost.
In homebuilding, the external resources that determine production capacity are a part of Cost of Sales (which makes them a direct, variable cost); Cost of Sales is a measure of product cost, not capacity cost; it is Operating Expense – the indirect, non-variable cost of internal resources associated with overhead – that determines capacity cost.
In the original version of the Pipeline game™, using the resources to reflect capacity and cost required us to essentially disregard Revenue and Cost of Sales, and focus on Throughput, which is more closely related to residual Gross Margin.
In the improved version of the Pipeline game™, we bring Revenue and Cost of Sales back into the picture; in effect, we now account for the margin side of Return on Assets. The external resources in a Pipeline game now define the production system’s capacity, and their cost is reflected in Cost of Sales, stipulated as a percentage of Revenue; they are now the true, variable costs associated with production. This represents a significant stride in reconciling Revenue, Cost of Sales, Throughput, and Gross Income, which makes operating decisions easier to connect to financial outcomes.
Operating Expense is now an imposed (budgeted) value, reflecting the cost of the internal capacity required to manage work-in-process; that makes Operating Expense an indirect, non-variable cost, as it relates to Revenue – and the completions and closings that produce it. These changes also allow us to realistically simulate the effects of two different building models – the traditional completely outsourced model and an integrated model that turns some of the unmarked subcontract labor into employees.
The effect is now a Pipeline board game that is much more reflective of a homebuilding operation, with lessons that are now much easier for builders to understand, with operational possibilities that never existed before, now possible to explore.
The improved version of the Pipeline game™ was played at 2014 and 2015 Housing Leadership Summits; it was explained at the 2014 BuilderMT-Sales Simplicity Client Conference; and, it has been used at the two most-recent Pipeline workshops.
Come. Participate. Learn.
The next Pipeline workshop™ will be held at the Ponte Vedra Inn and Club, Ponte Vedra Beach, Florida, on October 14-15, 2015. Cost is $795.00.
Sponsored by BUILDER and Continuum Advisory Group.