Archive for March, 2017

Architecture: Elegance and Allusion

Posted March 29, 2017 By Fletcher Groves

(first posted on Escape from Averageness® in June, 2012, reposted in April, 2014)

After I was a commercial banker – and before I was a management consultant – I was a homebuilder.  There was a stint with Arthur Rutenberg Corporation, but the majority of my time in homebuilding coincided with my role as an in-fill residential developer.  The driving force – the focus of my energy and interest – was always residential architecture;  residential architecture, broadly and generally, but, particularly and specifically, the residential architecture of my native state of Florida and of the South.

An energy and interest in architecture is not enough to be a homebuilder or run a homebuilding company;  it is necessary (at least, desirable), but it is not sufficient.  I realize that, and I am fine with it;  my avocation does not need to be my vocation.

I like the consulting work that I do, I like that my clients are largely homebuilding companies, and – after all – I can build my own house anytime that I need to satisfy the tangible expression of my creative drive (everyone warned my wife, when we were married thirty-five years ago, that I would sell every home we ever had out from underneath her).

One of the qualities, or attributes, that I sought in the homes that my companies offered were designs that were hallmarks of elegance:  design and finish that was refined, dignified, tasteful;  more to the point, design and finish that was simple, suitable to its purpose, easily-built, enduring, appropriate;  plans that recalled the accuracy and practicality of master builders;  plans where fenestration, for example, made sense – worked – from a design standpoint.

The other attribute I sought was allusion:  an indirect reference and meaningful interpretation of historical design;  plans and materials that were native, indigenous, particular, familiar, informal, plainly simple;  designs that were re-collective, what is termed vernacular.

Ron Haase (Prof. Emer., University of Florida School of Architecture), on the matter of allusion, in his book Classic Cracker: Florida’s Wood-Frame Vernacular Architecture:

“ . . . architecture requires that we understand the potential in historic allusion, and how this idea differs significantly from that of historic illusion.  Illusion, after all, is mere copy, often shallow and only skin deep.  As such, it presents itself at a mockery of its historic precedent.  Historic allusion, on the other hand, digs deeper into the essential meaning of the precedent.  It is more critical in its response and more open-ended in its interpretation.  It takes the form of a metaphor heightening our awareness of its relationship to the original.  By doing so, we link history to the present and build a bridge of community across time.”

Elegance and Allusion:  two complementary design terms that are largely absent from the description and reality of the plan portfolios of most homebuilding companies.

Excuse from this discussion, homes built for individuals who can afford to build anything they want;  they have the right to do that, even if those custom, one-off designs are little more than indulgent expressions of personal net worth and affluence, and statements of their own perceived significance.

Excuse from this discussion, also, builders – like Art Rutenberg – who singlehandedly defined their own style of architecture (even if that style has now edged into luxury and illusion).

Instead, focus on what remains, on what is the vast production-to-semi-custom span of the builder spectrum.

In that group, I see little of the design thinking that I have described.  Instead, I see complicated designs with impractical layouts and difficult dimensions.  I see plans with purposeless space, both size and volume.  I see plans with design elements that make no sense.  I see plans with no coherent scale.  I see fenestration without a working purpose.  I see a thoughtless confusion of style, with no connection to geography or history.  I see plans that offer a shallow illusion of architectural style, not a meaningful, interpretive allusion.

The point is not a strict typological adherence.  The point is that there is benefit in preserving the logic and order of the design elements found in various styles, be it formal (Georgian, Federal, Greek Revival) or vernacular (dogtrot, shotgun, i-house) or regional (saltbox, single house).  The point is that there is benefit in reflecting the indigenous materials of a region.  There was, after all, practical reasons homes were built in this manner;  today, Lean design shares the same practical interests, in simplified roof designs, common dimensions, single plate heights, multiple floors sharing smaller footprints and roof areas.

There is no distinctiveness in shallow illusion.  Rather, allusion helps, particularly if it promotes regional distinctness.  And – distinctiveness resonates;  therefore, it sells.

Finally, there is a difference between inspiration and old-fashioned;  plans need to live for today, but harken to the past.

That elegance and allusion is still there, if we take the time to look for it;  it is still there, if we make the effort to create it.

 

Architectural Treasures of Early America Series is a ten-volume series (The National Historical Society, 1987) from material originally published in 1930 as The White Pine Series of Architectural Monographs.

American Vernacular (J. Kemp, Viking Penguin, 1987)

A Field Guide to American Architecture (C. Rifkind, Bonanza, 1980)

The Houses of St. Augustine (D. Nolan, Pineapple Press, 1995)

The American Builders Companion (A. Benjamin, Dover, 1827 orig., 1969)

Legacy from the Past (Colonial Williamsburg Foundation, 1971)

Charleston: Homes and Gardens (E. Davis, J. Iseley, Legacy, PSOC, 1975)

Historic Savannah (M. Bell, J. Iseley, Historic Savannah Foundation, 1982)

Plantations of the Low Country (Wm. Baldwin, A. Baldwin, J. Iseley, Legacy, 1985)

Caribbean Style (S. Slesin, S. Cliff, et al, Clarkson Potter, 1985)

Classic Cracker: Florida’s Wood-Frame Vernacular Architecture (R. Haase, Pineapple Press, 1992)

 

(excerpted and adapted from the RB Builders: Lessons from the Pipeline© business case study used at Pipeline workshops™)

It is the first quarter of 2017.  RB Builders is aiming – yet again – to extend its reputation as a builder that thrives on both the margin and velocity sides of Return on Assets, by expanding into another new geographical market, via the late-2016 acquisition of a fourth existing homebuilding operation.

Like previous years’ acquisitions, the newly-acquired division serves segments of the new home market deemed compatible with RB Builders’.  And – like its predecessors – the newly-acquired building division has historically generated lower operating results and business outcomes than what RB Builders considers acceptable;  in fact, this is the worst-performing of all the acquisitions, to-date, from the standpoint of both margin and velocity.

As with its predecessors, RB Builders believes that it has once again acquired a building operation with satisfactory land/lot positions.

To date, RB Builders has completed the conversion to the enterprise management technology system and started the conversion of the business and operating processes;  RB Builders is confident that it can continue its track record for unifying, developing, and improving the capabilities of existing teams at acquired divisions, transforming them to ones that reflect the savvy, motivated, and mutually-accountable homebuilding team of the parent operation.

This road has become a familiar path for RB Builders.

HISTORY OF RB BUILDERS:  Nine years earlier, at the beginning of 2008, and shortly after the end of the halcyon period known as the Age of Homebuilder Entitlement®, RB Builders had begun its own transformation process, with the objective of extracting itself from what it self-described as “the tar pits of averageness”.

RB Builders had essentially used four initiatives:  (1) a team-based performance compensation plan directed at achieving targeted results above a baseline to a single business outcome, paid-out on achievement of a series of progressively-weighted milestones;  (2) a method of sharing numbers that produced full operational and financial transparency;  (3) an accounting system that connected operating performance to business outcomes very effectively, via actionable data;  and (4) a focused process of continuous improvement that consisted of a prioritized series of consecutively-ordered initiatives, all with short durations aimed at achieving targeted, defined, measurable results.

As a result of this program, RB Builders had made massive strides.

During the ensuing five-year period (2008-2012), annual Revenue had grown from $50 million to more $121 million, an increase of almost 250%.  During the same period, the number of closings had increased more than 225%, from 200 houses per year to 453 houses per year.  Despite the margin pressure from increasing market share so dramatically, overall Gross Margin had actually increased slightly, from 22% to 24%;  as a result, RB Builders’ Gross Income had grown by more than 250%, from $11 million $29.5 million.

During this five-year period, Operating Expense had increased 30% (from $8.5 million to $11 million), far less than the same-period increase in Revenue.  As a result, RB Builder’s Net Income had risen from $2.5 million to $16.5 million, more than six times what it had been before the company began its transformation;  Net Margin had almost tripled, from 5% to 14%.

In 2008, RB Builder’s cycle time had been 180 days;  by the end of 2012, cycle time had been reduced to 65 days.  In 2008, the average amount of work-in-process had been 100 houses under construction;  by the end of 2012, the company been able to reduce its average work-in-process to 80 houses under construction.  The reductions in cycle time and work-in-process had occurred despite more than doubling the annual number of closings.

In 2008, RB Builders had targeted an inventory turn of 2.5x, which was actually an improvement from the preceding year;  in 2012, by keeping its work-in-process at 80 houses and closing 453 houses, RB Builders had been able to more than double its physical inventory turn, to 5.7x.

In 2008, RB Builders turned the value of its assets two times;  in 2012, it turned the value of its assets almost five times.  Because it had managed to maintain margins while improving velocity, RB Builders saw its main barometer of economic return – Return on Invested Assets – increase almost six-fold during the five-year period, from 11% in 2008 to 64% in 2012.

In 2013, RB Builders had moved all of its raw land holdings and developed lot inventory off of its balance sheet, and into subsidiaries, which would have served to further increase Asset Turn – and ROIA – had those measures been restated to reflect the remaining assets.

It had been a remarkable transformation.

The three divisions that RB Builders had previously acquired have now met – or remain solidly on-track towards meeting – their own two-year plans for significantly increasing closings and Revenue without any increase in Operating Expense, while maintaining lower levels of work-in-process and operating under reduced construction lines of credit.

 

NEWLY-ACQUIRED DIVISION:  Near the end of 2016, RB Builders acquired this, its fourth homebuilding operation.  In its last year of independent operation, it had closed 48 houses, and generated $12 million in Revenue;  with $9.6 million in Cost of Sales now reflecting only its direct, variable costs, the operation had generated $2.4 million in Gross Income, producing a 20% Gross Margin.

With its $1.8 million in Operating Expense now reflecting only its indirect, non-variable costs, the newly-acquired operation had produced $600,000 in Net Income, resulting in a 5% Net Margin.

Since it carried an average work-in-process of 28 houses under construction throughout 2016, the division had a calculated cycle time of 210 days, despite job schedules that were typically 120 days;  48 closings and average work-in-process of 28 houses under construction meant the newly-acquired building operation turned its physical inventory 1.7 times in 2016.

Adopting the policy of RB Builders, and moving all of its raw land holdings and developed lot inventory off of its balance sheet, and into subsidiaries, the newly-acquired building operation showed a restated average work-in-process of $3.85 million;  Revenue of $12 million gave it an asset turnover ratio of 3.1x.

With its Net Margin of 5% and its restated asset turn of 3.1x, the new operation had achieved an ROIA of 15.5%.

Here is the nature of the exercises attendees will have to consider at the upcoming Pipeline workshop™:

  • How to address a mandate that the newly-acquired division more than double its annual closings over a two-year period, with less work-in-process, a smaller line of credit, and the same amount of overhead.
  • How to calculate the newly-acquired division’s ROBIMI – its Return on Building Information Modeling Investment – which involves progress on both the margin and velocity sides of economic return.
  • How to calculate the newly-acquired division’s breakeven points and rates, in both financial terms and unit (closings) terms, changing as a result of its improved operating performance and economic outcomes.
  • How to deal with RB Builders’ contention that variation – as evidenced by 2016 cycle time, and supported by other operating performance measures – is costing its newly-acquired division between $1.3 and $1.8 million in Net Income every year; keeping in mind, in 2016, the division only had Net Income of $600,000.
  • How the newly-acquired division will adapt Epic Partnering™, RB Builders’ proven program and process for creating partnering relationships and arrangements of compelling mutually-shared interests with its suppliers and subcontractors.
  • How to map workflow as part of an overall Business Process Improvement initiative intended to remove non-value-adding work and make the remaining value-adding work flow faster, more evenly, more smoothly, with fewer mistakes and rework.
  • How to use Critical Chain Project Management to modify the work breakdown structure of its job schedules, in order to reduce cycle time to 96 days (from 120 days), while assuring reliable job completion dates.

 

Come.  Participate.  Learn.

RB Builders: Lessons from the Pipeline© is the underlying business case study used at every Pipeline workshop™.  The next workshop is being held 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™: Improvements to the Pipeline Game™

Posted March 22, 2017 By Fletcher Groves

“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)

“Pipeline games™ are a very innovative way to demonstrate the critical nature and relationship between cycle time, inventory turn, margin, and return on assets.” (Vishaal Gupta, President, Park Square Homes, Orlando, FL)

“The Pipeline Game™ was a great visual tool that emphasized the importance that velocity plays in home building.  It has allowed me to begin thinking creatively about the ways I can improve my department to ultimately improve our companies velocity overall.”  (Alexa Drees, Design Consultant, Drees Homes)

Simulating production principles is a huge part of a Pipeline workshop™.  We hear repeatedly that the opportunity to simulate production in a progressive series of scenarios is what enables builders to “see” production so much more clearly.  Because it is both a production simulator and a business game, the Pipeline game™ is what makes Pipeline workshops™ so intense, so interactive, so competitive, 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.

For example, some time ago, we shortened the game, so that we could run more production scenarios in the same amount of time.  Shortening the duration of the game made each operating decision more consequential, and also made the results more realistic, more intuitive, easier to comprehend.

We also made the game more realistic, by making it depict the outsourced nature of homebuilding production.  In previous versions of the game, the resources that did the work reflected both capacity and the cost of that capacity.  That is an arrangement that reflects a manufacturing operation or project management organization;  a more realistic depiction of a homebuilding production system is to separate capacity from cost.

And, that’s because, 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;  Operating Expense – the indirect, non-variable cost of internal resources associated with overhead – is what 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 Gross Margin.

In the improved version of the Pipeline game™, we restore Revenue and Cost of Sales to 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 the cost of those resources is reflected in Cost of Sales, stipulated as a percentage of Revenue;  they are a direct, variable cost associated with the product.  This represents a significant stride in reconciling Revenue, Cost of Sales, Throughput, and Gross Income, making operating decisions easier to connect to financial outcomes.

Operating Expense is now an imposed value, reflecting the budgeted 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.

The outcome is a production simulator and business game that is vastly more reflective of a homebuilding operation, with lessons that are now much easier for builders to understand.

The improved version of the Pipeline game™ was played at the past three Housing Leadership Summits (2014-16);  it was explained at the 2014 BuilderMT-Sales Simplicity Client Conference;  it has been used in Builder 20 Club meetings;  it has been used at the CertainTeed Gypsum Builder Advisory Council;  it was played at the 2016 Builder Technology Summit;  and, it has been used at all but the first Pipeline workshop™.

 

Come.  Participate.  Learn.

The next Pipeline workshop™ will be held 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

 

(This week, we welcome Continuum Advisory Group senior consultant and Pipeline workshop™ colleague Brandon Hart as the guest writer on Escape from Averageness®, discussing the latest Velocity Accelerator®, Building Information Modeling)

A few weeks ago, between a series of meetings with a homebuilder client, I was asked if I wanted to try out their virtual reality prototype, which involved me donning a pair of heavy goggles and clumsily shuffling around within a 10’ x 10’ open space.  The open space, of course, was reality.  But, what I was seeing through the goggles was the living room of one of their best-selling house plans.

On the horizon was a beautiful, scenic mountain range, which could be easily enjoyed from the fashionable L-shaped couch that I was virtually standing beside.  From a stationary position, I could rotate in a 360° circle to see the kitchen, covered porch, downstairs bathroom, stairs, and the entrance to the first floor master bedroom.

From the master bedroom, I could walk around the bed, check out the master bathroom, and even take another look at that mountain range.  Perhaps the coolest part of this experience came from the upstairs hallway, where I could approach the banister of the stairs, bend at the waist, and see the downstairs foyer.

While not available on this particular day, the ultimate end product will include the option to change everything from the color of the walls to the structural layout of the house. You’ll be able to build your dream home and experience it, just at the small price of wearing a bulky set of goggles.

We are closer to this world than you may think.

Pulte recently announced a new virtual reality experience at divisions in Florida and New York that allows the potential buyer to virtually walk their new home.  The buyer even has the option to plug the goggles into their Smartphone and experience their new home from any remote location.

Discussions on how to apply new, innovative technology (like VR) is making its way to the top of every meeting agenda in big builder world.  While these discussions have historically led to little action, look no further than Pulte’s investment in VR to see that times are changing.  As my partner and CEO of Continuum Advisory Group, Clark Ellis, recently said in an interview with “BUILDER”, “Everything is moving toward experiential learning and experiential entertainment…the hardware is getting there, and the software is getting there, so it’s only a matter of time.” 

So what about BIM?

Looking back over the last 20 years in the residential homebuilding industry, this also belongs in the bucket of “all talk, little action”.  However, based on Continuum’s interactions with various public and private builders of all sizes, this too is changing.

To clarify, the overall lack of mass acceptance of BIM has nothing to do with its underlying value or functionality, mainly due to advancements in the software.  The problem is an overall lack of awareness of the opportunities which it creates.  The industry as a whole, with the exception of the roughly 10% of U.S. homebuilders that are using BIM technology to drive their business operations, is mostly unaware of the value that can be created with a well-organized, properly planned BIM implementation.

In other words, most homebuilders are unprepared and unequipped to understand and appropriately analyze their total potential return on their BIM investment, or their “ROBIMI” (ROBIMI, or Return on BIM Investment, is a term that Continuum uses to communicate the potential benefits of BIM).  Without a proper understanding of the benefits, most homebuilders will succumb to the all-too-common “we’re too busy” or “it’s too expensive” reaction.

SAI Consulting’s Fletcher Groves III and I are ready to change the narrative.  We’re ready to build a new level of awareness.

For the upcoming Pipeline Workshop™ in Ponte Vedra Beach, Florida (April 5-6, 2017), we are excited to announce the addition of a new BIM Velocity Accelerator®.  We’ll share the “not-so-well-known benefits” of BIM, and why you should be acting with a sense of urgency.

There is a line being drawn in the industry:  on one side is present day, where BIM remains a potential competitive advantage if properly implemented;  on the other side is some period of time in the future, where BIM will shift to being an investment that is necessary just to keep up with your competitors.

When will the industry shift to the other side of the line?  One year from now?  Three years from now?

Join us for the debate at the next Pipeline Workshop™.

See you in April!

 

Come.  Participate.  Learn.

Building Information Modeling is one of the four Velocity Accelerators® highlighted (along with Critical Chain Project Management, Epic Partnering™, and Business Process Improvement) 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

 

Velocity Accelerators®: Critical Chain Project Management

Posted March 11, 2017 By Fletcher Groves

One of the areas we single-out for deeper discussion in a Pipeline workshop™ – what we call Velocity Accelerators® – deals with the imperative of replacing the current method used to schedule jobs;  actually, the current method used to schedule a portfolio of jobs.

The nature of the workflow in homebuilding production is project portfolio management.  Yes, there is workflow performed in processes, but those processes are generally embedded, enabling, and supporting;  process workflow is different than project workflow.  The process of building a home – what we call the Start-to-Completion process – is actually the management of multiple projects that share resources.  It is the structuring and the management of a portfolio of job schedules, with interdependencies and interactions of tasks and resources.

The current method of project scheduling is known as the Critical Path Method (CPM), which evolved from the Program Evaluation and Review Technique (PERT) in the 1950s;  it has been in existence for more than sixty years;  it is the method used in every homebuilding ERP suite.

PERT and CPM were designed for programs with large, complex structures (Polaris weapons system, Manhattan Project), but the Critical Path Method has become the de facto standard for scheduling all types of projects:  aerospace/defense, software development, product development, research, and – yes – construction.

The problem with CPM is that it was not designed for managing a portfolio of projects, and it was not designed to function in environments where velocity is important, where faster cycle time and higher inventory turns are critical drivers of business outcomes.

Where it must contend with variation and uncertainty, CPM offers only a buffer of additional time – individual task durations lengthened to protect the completion date of each task, but not necessarily the completion date of the project.

For the most part, builders are oblivious to the effects of variation on their production system.  The cost of variation is always the same:  it is the Gross Income lost from all of the closings that never occurred, from houses that were never built with the capacity they paid to have;  for a profitable builder, it is Gross Income that would have become Net Income, and ultimately, Net Profit.

Moreover, CPM considers task dependency (the predecessor-successor relationships of tasks) in its work breakdown structure, but it does not resolve resource contention;  it does not consider situations in which tasks of different projects/jobs depend on the availability of resources that do not have sufficient capacity to meet the demand being placed upon them.

These two factors – dealing with variation and resolving resource conflict – should be anathema to builders.

CPM was not designed to contend with the production environment homebuilding presents.  It is not the problem (the problem is variation and resource conflict), but CPM is benign to the solution.  ProChain Solutions’ Rob Newbold (Project Management in the Fast Lane) told me that he would go further, saying:  “CPM supports values that perpetuate the problems of homebuilders.”

Which brings us to Critical Chain Project Management.

Developed in 1997, Critical Chain addresses task dependency and resource contention, and it replaces padded durations intended to protect task completion dates with buffers that protect the completion date of the project/job;  CCPM is much more aware of system constraints.  Most importantly, Critical Chain reduces the duration of projects – the cycle time of houses under construction.

Consider this exercise excerpted from one of the RB Builders: Lessons from the Pipeline© business case studies used in a recent Pipeline workshop™:

RB Builders’ newly-acquired division has a construction schedule of 120 calendar days, but its actual cycle time is 180 calendar days.  There is wide agreement that it should be able to build its homes in far-less than 120 days, because the schedule reflects “highly certain” task durations.  Switching from CPM to CCPM would immediately reduce the schedule from 120 days to 96 days, cutting the schedule by 20% with no diminution of confidence;  it would reduce the actual 180 day cycle time by almost 50%.

Critical Chain Project Management does more than just reduce the length of construction schedules.  It also specifies a set of rules preventing behaviors that consume (and waste) the safety built into task durations.  It installs a release mechanism that pulls starts into the system and keeps work-in-process at the levels required to produce faster cycle times.

It implements simple, visual tools to manage production.

Builders can put a number of these practices into place without changing the scheduling algorithms from Critical Path to Critical Chain.  Critical Chain will not be a complete solution until management technology wakes up and addresses it.

But – it all starts with knowledge

Come.  Participate.  Learn.

 

Critical Chain Project Management is one of four Velocity Accelerators® (along with Business Process Improvement, 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.

Sponsored by BUILDER and BuilderMT.

Cost is $875.00.

Details:  www.buildervelocity.com