Archive for February, 2017

Velocity Accelerators®: Business Process Improvement

Posted February 26, 2017 By Fletcher Groves

An overwhelming portion of SAI Consulting’s work, in and out of homebuilding, has been about enabling clients to structure themselves around their core-critical business processes;  Business Process Improvement is the area of our practice for which we are most recognized.

A similar statement can be made for Continuum Advisory Group, the consulting firm that joins SAI in the facilitation of Pipeline workshops™ and Pipeline seminars™.

There is a good reason for our firms’ collective focus on improving (and managing) business processes, and it is simply this:

It is the most basic, most fundamental proposition in all of business:  the reason an enterprise exists – every business enterprise, certainly every homebuilding enterprise – is to make money;  the way an enterprise makes money is by delivering value to its customers and other stakeholders;  that value can only be delivered through the work that the enterprise performs;  that work has to be performed in some manner of workflow;  the most common form of that workflow is work performed in processes.

Make money . . . by delivering value . . . through the work you perform . . . in processes.

From a business standpoint, processes are critically, centrally important;  they exist – they matter – whether homebuilders are intentional about them or not.

How important is Business Process Improvement to a homebuilding company?

Important enough that we sacrificed one of the highly-regarded Pipeline games™, so that we could elevate improvement of workflow to the level of a Velocity Accelerator®.

We make the point that Pipeline workshops™ are about thriving on the velocity side of Return on Assets®, but better process workflow pays off on both sides of economic return;  it drives higher margins and higher velocity;  it drives a higher Return on Sales just as much as it drives higher Asset Turn.

The most visible element of BPI (and BPM) is the mapping of process workflows;  process mapping involves far more than documenting the current workflow;  it includes redesigning those workflows in ways that improve them, which invariably reveals other issues – root causes, core problems.

Which makes understanding and improving workflow the means to a much more important end.

Business Process Improvement is the tip of the spear, the front-end of a continuous improvement methodology in which the activities and elements of workflow that add value are preserved, the activities and elements that add no value are eliminated, and the remaining activities and elements that enable value are refined to make the workflow more clear, more consistent, more streamlined, more connected, more succinct, more fit for its intended, defined purpose.

The analogy from our Pipeline workshops™ is that we want a shorter, straighter pipe.

Because it is so foundational, it is impossible to overstate the importance of understanding and improving the way work is performed, before starting down the long road on other improvement initiatives, before the process of continuous improvement moves anywhere else.

In addition to being the means to a more important end, and the front-end of a process of continuous improvement, BPI ushers in a new perspective.  It shifts the organizational view away from the structure of work performed in functions. towards the flow of work performed in processes;  BPI shifts the perspective from vertical to horizontal;  it rotates a homebuilding enterprise 90 degrees from vertical, lays the enterprise on its side, and aligns its workflow with the value it seeks to create.

It’s about getting horizontal.

Finally, processes are also one of the elements of the operating model that forms any strategic value discipline that serves to deliver exceptional levels of the specific and distinctive value demanded by a narrowly-defined segment of homebuyers.

 

Business Process Improvement is one of the four Velocity Accelerators® (along with Critical Chain Project Management, Epic Partnering™, and Building Information Modeling) that will be explored at the next Pipeline workshop™, April 5-6, 2017, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.  Cost is $875.00.

Sponsored by BUILDER and BuilderMT.

Details:  www.buildervelocity.com

 

Pipeline Workshops™: Velocity Accelerators®

Posted February 19, 2017 By Fletcher Groves

If you had to choose a single word to associate with a Pipeline Workshop™, it would be velocity – speed in a purposeful direction.  We want to elevate velocity to an equal standing with the other component of economic return, which is margin.  In each Pipeline workshop™, we select specific areas of production management for a deeper dive – more discussion, pointed and challenging exercises from the RB Builders: Lessons for the Pipeline© business case, etc.

We call these areas Velocity Accelerators®.

Velocity Accelerators® tend to be important areas that do not receive sufficient industry attention;  in fact, beyond a passing understanding, they are often the first meaningful exposure to those areas that builders attending a Pipeline workshop™ have experienced, making these sessions something of a mini-boot camp.

For the upcoming Pipeline Workshop™ (April 5-6, 2017, in Ponte Vedra Beach, Florida), we have four Velocity Accelerators®, up from three in the Fall 2016 workshop:

Epic Partnering™.  Builders attending Pipeline workshops™ consistently emphasize the need for stronger trade-partnering, better coordination, more cohesiveness, a more unified approach to managing the trade side of production.

They acknowledge the obvious:  they do not have the internal resources necessary to perform “the set of all specific actions” required to bring houses through the start-to-completion process, and they are completely dependent and reliant on skilled construction resources that are in short supply;  they understand that they can no longer dictate the terms.

Developing the business relationships that unify a builder’s value stream is a program of milestones and features, and it is a transformative process;  a program and a process.

Epic Partnering™ has profound implications on the margin side and the velocity side of economic return.

Business Process Improvement (BPI).  The most basic, most fundamental proposition in the business of building homes is this:  the reason a builder exists is to make money;  the way a builder makes money is by delivering value to its homebuyers and other stakeholders;  that value can only be delivered through the work that the building enterprise performs;  that work has to be performed in some manner of workflow, most commonly performed in processes.

Make money . . . by delivering value . . . through the work a builder performs . . . in processes.

BPI is the front-end of a process of continuous improvement, one that fundamentally changes the perspective of workflow, and becomes the driving component of the operating model that forms a builder’s strategic value discipline.

As with Epic Partnering™, BPI improves both margin and velocity.

Critical Chain Project Management (CCPM).  Now more than sixty years old, the scheduling algorithm known as the Critical Path Method (CPM) was never intended to function in the environment of homebuilding production, which is project portfolio management with embedded and supporting processes;  CPM was never designed to function in environments in which velocity is important, where faster cycle time and higher inventory turns are critical drivers of business outcomes;  and, CPM is oblivious to the effect variation has on the scheduling of a production system.

CCPM is the leading edge – the future – of project scheduling for homebuilding;  it promises significant improvements in managing homebuilding production – faster cycle times, faster inventory turns;  enabling homebuilders to generate more Revenue, more Gross Income, with a planned, finite, and controlled amount of work-in-process and production capacity.

Unlike either Epic Partnering™ or Business Process Improvement,  Critical Chain is a pure velocity proposition.

Building Information Modeling (BIM).  To paraphrase and expand on fellow Pipeline workshop™ associate Clark Ellis’s description, BIM explores building design in a 3D model of the three spatial dimensions of width, height, and depth (some would say it goes beyond 3D to include the dimensions of time and cost), and links to multiple databases with information on costs, schedules, product specifications, engineering data, and more.

Much like Epic Partnering™ and BPI, Building Information Modeling has implications for both the margin side and the velocity side of Return on Assets:  better, more collaborative designs, with fewer design errors;  more accurate cost books, job bills of material, job budgets, purchase orders;  more dependable job schedules, shorter cycle times and faster inventory turns;  overall, a more satisfying homebuying experience, higher overall quality;  better, more accurate, more useful, easier to manage data.

Yet, for all its promise to transform the homebuilding industry, BIM has had a very shallow adoption curve to this point.  In part, that is because implementing BIM requires determination, resolve, a different mental model, and a willingness to abandon past practices.

Which is precisely where opportunity typically lies, in areas where few will dare go – and, in areas where few will go well.

The possibility of “making product 35% faster and 25% less costly to build”, as Clark points out, is a compelling outcome to pursue.

 

We like the balance between these four Velocity Accelerators®:  a blend of immediate, mid-term, and long-range initiatives that accelerate velocity, but also improve margins.

Come.  Participate.  Learn.

 

The next Pipeline workshop™ will be April 5-6, 2017, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.  Cost is $875.00.

Sponsored by BUILDER and BuilderMT.

Details:  www.buildervelocity.com

 

Pipeline workshops™ are size-limited, intense, interactive, comprehensive immersions into the principles and disciplines of homebuilding production.

In recent workshops, we have added the RB Builders: Lessons from the Pipeline© business case study and a robust set of problem-solving exercises built around the velocity accelerators, but most attendees and observers would still agree that the most compelling part of the Pipeline workshop™ is the Pipeline game™:  teams of geographically-diverse builders that are required to go through a progression of scenarios that is both a simulation of home building production and a business game.

It is the same Pipeline game™ we have used at Housing Leadership Summits. at CertainTeed Builder Advisory Groups, at Pipeline workshops™ held privately for large builders, at Builder 20 groups, and at Builder Technology Summits.

The objective of the Pipeline game™ is to reinforce the production principles taught in the Pipeline workshop™, including:  (1) the effect of variation on a production system, (2) pull scheduling according to the capacity of a constrained resource, and (3) the importance of connecting decisions made on operating matters (like flow, capacity, duration, and work-in-process) to the critical business outcomes of profitability and return on assets.

With multiple teams playing every game with exactly the same rules and understanding, the results never lie.

Look at the results from a recent workshop.  In every category – from throughput (closings), to work-in-process levels, to inventory turns, to cycle time, to net income, to return on assets – the teams made remarkable progress, often exceeding expectations.

You have to play the Pipeline game™, see the measures, and calculate the results for yourself, in order to fully understand what the axis values mean;  instead, focus on the performance trends (y-axis), as the games in this workshop progressed (x-axis).

This was Revenue . . .

This was inventory turn . . .

This was cycle time, expressed in days . . .

This was Net Income Margin . . .

This was Return on Assets, a reflection of its co-equal components:  Net Income Margin (margin) and inventory turn (velocity) . . .

After the initial shock of shattered instincts, every metric was in precisely the direction you would want, the exact direction you would expect, if the production principles are true and if real progress is being made.

Clearly, the builders attending this Pipeline workshop™ learned from their participation.  They learned the principles and disciplines of homebuilding production.

Pipeline games™ teach builders to “see” production;  they simulate the fast-paced, rapidly-changing, uncertain, risk-laden, variation-filled environment in which homebuilding production decisions must be made.  It is learning based on experience and action, not words.  They compress the learning curve, presenting production situations that are simple, fast, easy to see and understand, that can be modified and rerun, until the principles are understood.

In a Pipeline workshop™, the progression of the games mirrors the progression of the learning.  In the book that gave rise to the workshops (The Pipeline: A Picture of Homebuilding Production, Second Edition©), this is how they were described:

“Change is a necessary condition to any improvement effort, but change is difficult, disruptive, time-consuming, and costly;  the effort can fail to produce the result.  Learning needs to occur without so much cost, disruption, and risk.  Managing production and improving operating and financial performance becomes intuitive and simple, but there is much to understand.  It is counter to what is taught, therefore, difficult to grasp;  it must be learned, and that is harsh when it occurs at the cost of real operating performance and actual business outcomes.”

Come.  Participate.  Learn.

 

The next Pipeline workshop™ will be April 5-6, 2017, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.  Cost is $875.00.

Sponsored by BUILDER and BuilderMT.

Details:  www.buildervelocity.com

 

Pipeline Workshops™: What’s your Production IQ®?

Posted February 5, 2017 By Fletcher Groves

The fundamental understanding that emerges from the DuPont identity regarding Return on Assets:  remove the financial leverage (equity multiplier) from the formula, and economic return becomes a function of profitability (Return on Sales) and operating efficiency (Asset Turnover).

Economic return is margin x velocity;  it is a co-equal dependency.

Is margin proficiency necessary?  Yes.  Is it sufficient?  No.  Does superior margin hold-forth the possibility of achieving sustainable competitive separation?  Absolutely not.

We’re not alone in this assessment.

“ . . . [asset] turnover is just as important as profit margin.”  Barron’s Accounting Handbook (Siegel, Shim), 1990, 1997, p. 150.

“ . . . [improving] inventory turnover . . . increases asset velocity, one of the most under-appreciated components of making money . . . higher velocity improves productivity and reduces working capital.  It also improves cash flow, the life-blood of any business.”  Execution: The Discipline of Getting Things Done (Bossidy, Charan, 2002, p. 17)

Nevertheless, in the homebuilding industry, action on the velocity side of Return on Assets inexplicably takes a backseat to action on the margin side.  Pipeline workshops™ are aimed at changing that paradigm, but the motivation to attend a workshop starts with the willingness to acknowledge and remedy what amounts to a profound lack of knowledge regarding production principles and disciplines.

Think you already know this stuff?  Here’s one good way to find out.  You – and your team – take the test.

  1. If a homebuilding production system is a pipeline, what determines the capacity, length, and cost of the pipe?
  2. Is even-flow production a mechanism or an outcome?
  3. What is the most operative, useful determination of size for a homebuilding company?  a. revenue   b. number of full-time employees  c. houses under construction  d. annual closings
  4. From an operational perspective, there are three activities that describe “what happens to money” in a homebuilding business. The terms for those three activities can be used to express and link the formulas for productivity, cycle time, and inventory turn, to the equations for Net Income, and Return on Assets.  What are the terms?  What do they mean?
  5. What type of workflow is homebuilding? Is it process management, project management, or case management?
  6. True or False: A production system with balanced capacity across the resources that perform the work does a better job of optimizing the utilization of capacity than a production system that does not balance capacity across those resources.
  7. What are the three ways a production system protects itself from variation and uncertainty? Of what does it want more?
  8. Which algorithm for scheduling jobs considers both task dependency and resource contention in the Work Breakdown Structure, Critical Path or Critical Chain?
  9. Calculating the cycle time of a production system requires the knowledge of two operational measures. What are they?
  10. True or False: The best way to insure a high percentage of on-time completions is to build reasonable safety into task durations.
  11. Which measure of operating performance is the reciprocal of inventory turn?
  12. Lean Production views homebuilding as a build-to-order process. Which resource does Lean recommend using to set the pace of production?
  13. What is the difference between measured cycle time and calculated cycle time? What are the uses of each?
  14. True or False: CCPM (Critical Chain Project Management) does not adjust the job schedule.
  15. What three human behavioral tendencies consume the time safety built into a schedule?
  16. How does the start matrix in a push system differ from the start matrix in a pull system?
  17. As a matter of standard deviation, increasing the probability that a task will finish on-time, from 50% to 95% will cause the anticipated duration of the task to increase by a factor of how much? How many standard deviations does this represent?
  18. Is trade partnering a program or a process?
  19. True or False: The NAHB Chart of Accounts Income Statement prevents a builder from calculating either a breakeven point or a breakeven rate.
  20. What is the difference between speed and velocity?

(the answers are at the bottom of the post)

It’s just a quiz.  Like any quiz, the questions represent a very small portion of the production and business knowledge required to effectively manage homebuilding production, increase operating performance, generate higher Net Income, and improve Return on Assets.

Every homebuilding company has to determine how it will manage production within a specific context, within the parameters that comprise its market, its product mix, its choice of an information/management technology system, its financial situation.

But, the ability to manage production starts with an understanding of the underlying principles and disciplines.

It starts with what you learn in a Pipeline workshop™.

Come.  Participate.  Learn.

 

The next Pipeline workshop™ will be April 5-6, 2017, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.  Cost is $875.00.

Sponsored by BUILDER and BuilderMT.

Details:  www.buildervelocity.com

Answers: 

(1) capacity is the rate of output produced with a planned, finite, and controlled amount of work-in-process, length is cycle time, cost is all of the indirect, non-variable expenses associated with overhead;  (2) even-low production is an outcome, not a mechanism;  (3) c: houses under construction;  (4) money generated through sales is called Throughput, money invested in whatever will be turned into Throughput is known as Inventory or Investment, and money spent turning Inventory into Throughput is called Operating Expense;  (5) homebuilding is multi-project (project portfolio) management with embedded and supporting processes;  (6) False;  (7) higher work-in-process, longer duration, or more capacity;  (8) Critical Chain;  (9) work-in-process and throughput, expressed in units;  (10) False;  (11) cycle time;  (12) the most capacity-constrained resource;  (13) measured cycle time is the average (mean) duration of a series of jobs;  calculated cycle time reflects the relationship between the inventory (work-in-process) a production system carries and the closings (throughput) it produces;  measured cycle time is about forensics, calculated cycle time is about the system;  (14) True;  (15) procrastinate, expand to whatever time is allowed, multi-task;  (16) the start matrix in a push system both the order and rate of starts, whereas in a pull system, the start matrix only determines the order of starts (the rate of starts is governed by the rate of closings;  (17) a factor of 1.64, a reciprocal of .61; four out of every 10 days in the schedule are safety to assure on-time completion;  two standard deviations;  (18) establishing epic relationships with trade partners is both a program and a process;  (19) True;  (20) velocity is a vector measure, speed in a specific direction, speed with purpose.