(This week’s post on Escape from Averageness® was written by former Continuum Advisory Group senior consultant and Pipeline workshop™ colleague Brandon Hart, 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 the 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.

We 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 (February 28 – March 1, 2018), we are once again doing a Velocity Accelerator® on Building Information Modeling, in which we will 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 there.

 

Come.  Participate.  Learn.

Building Information Modeling is one of the five Velocity Accelerators® highlighted (along with Critical Chain Project Management, Epic Partnering™, Business Process Improvement, and Open-Book Management and Team-Based Performance Compensation) at the next Pipeline workshop™, February 28 – March 1, 2018, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.

Cost is $895.00;  for team pricing, inquire here (flgroves@saiconsulting.com).

Delivered by SAI Consulting and Continuum Advisory Group.

Sponsored by BUILDER, BuilderMT, and Specitup.

Details:  www.buildervelocity.com

 

      

At every Pipeline workshop™ we have ever done, one of the most important takeaways, one realized by virtually every homebuilding company executive in attendance, is simply this:  something has to be done with the notoriously fragmented value stream that defines their industry, if they are going to have any hope of managing production as a system.

In their landmark 1996 book, Lean Thinking, Jim Womack and Dan Jones defined a value stream as “the set of all the specific actions required to bring a specific product through the three critical management tasks of any business.”  They went on to describe a set of processes, which they termed tasks:  a problem-solving task, an information management task, and a physical transformation task.

By definition, a value stream does not belong to an industry;  it is enterprise-specific;  each value stream belongs to its enterprise;  thus, every homebuilding company has its own value stream.

Nevertheless, it would be a challenge to cite another industry, in which the sequence of tasks in the most common versions of that industry’s core-critical process (start-to-completion, i.e., the physical transformation task) is entirely performed by separate entities, as is the case in the homebuilding industry.

Look at the value stream of almost any homebuilding enterprise, and you will find a combination of independent, separately-owned, non-proprietary, non-exclusive, unaffiliated businesses, each having their own goals.

In her final comments to the team at RB Builders (The Pipeline: A Picture of Homebuilding Production©), the intrepid, results-based consultant reviews the components of RB Builders’ production management system – the RB-IPS – and says this:

“It is a production management system that specifies the means by which RB Builders fosters epic relationships of mutual interest with its building partners and supply partners.  The RB-IPS provides both the process and the program for progressively transforming subcontractors and suppliers into true partners, into trusted allies, joined by shared, mutual interests.”

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.

We have a term for that chosen practice:  we call it strip-mining the value stream.

Is vertical integration the answer?  We have been suggesting, for almost 20 years, that builders at least consider that possibility, that they find a way to discontinue the strip-mining operation.  That suggestion usually falls on deaf ears, or dismissed as a radical, undoable notion.

Which is where opportunity always lies, in radical, undoable notions.

Whether or not vertical integration has a future strategic role to play in the homebuilding industry remains to be seen.  It is an area that has been covered in the Lessons from the Pipeline© business case at previous Pipeline workshops™, and it is a new section in the second edition of The Pipeline: A Picture of Homebuilding Production©, which was released for publication two years ago.

The outcome of the vertical integration question doesn’t change the underlying imperative.  Success in unifying the effort of even the existing value stream has profound ramifications, on both the margin and velocity components of Return on Assets;  and success in unifying the value stream has profound implications for creating competitive separation.

With or without vertical integration, addressing the issue will require Epic Partnering™.

Come.  Participate.  Learn.

 

Epic Partnering™ – the attributes of the relationships being fostered, the program, the process – is one of the five Velocity Accelerators® (together with Business Process Improvement, Critical Chain Project Management, Building Information Modeling, and Open-Book Management and Team-Based Performance Compensation) that will be explored at the next Pipeline workshop™, February 28 – March 1, 2018, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.

The cost is $895.00 per person;  for team pricing, inquire here (flgroves@saiconsulting.com).

Delivered by SAI Consulting and Continuum Advisory Group.

Sponsored by BUILDER, BuilderMT, and Specitup.

Details:  www.buildervelocity.com

 

      

Velocity Accelerators®: Business Process Improvement

Posted January 24, 2018 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.

It is a similarly important area for Continuum Advisory Group, the consulting firm that joins SAI in the facilitation of open, sponsored 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 premise 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 always 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, drives a higher Return on Sales as much as it drives higher Asset Turn.

Consider:

Start-to-Completion – the sub-process of Prospect-to-Closing that is the aorta of workflow in a homebuilding company – is not process management;  it is multi-project management with embedded and supporting processes, and all of the non-supervisory work is performed by external resources (trades and suppliers).

Since it is not managed like a process, we don’t map it.

Yet – yet – the results from dozens of process mapping engagements we have performed that don’t even consider Start-to-Completion, nevertheless reveal that fully 25% of all the work a homebuilding company performs – the work that consumes a building company’s overhead – is completely non-value-adding.

Ponder that revelation for a moment.

Here is the bottom-line:

If your Operating Expense represents – meaning it consumes – eight percent of Revenue, you are throwing away $20,000 of every $1,000,000 in income you generate.

 

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.

Lastly, 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.

 

Come.  Participate.  Learn.

Business Process Improvement is one of the five Velocity Accelerators® (along with Critical Chain Project Management, Epic Partnering™, Building Information Modeling, and Open-Book Management and Team-Based Performance Compensation) that will be explored at the next Pipeline workshop™, February 28 – March 1, 2018, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.

The cost is $895.00 per person;  for team pricing, inquire here (flgroves@saiconsulting.com)

Delivered by SAI Consulting and Continuum Advisory Group.

Sponsored by BUILDER, BuilderMT, and Specitup.

Details:  www.buildervelocity.com

 

      

Pipeline Workshops™: Velocity Accelerators®

Posted January 22, 2018 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.

They are known as 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 workshop (Pipeline Workshop™ No. 9, February 28 – March 1, 2018, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida), we are highlighting five Velocity Accelerators®:

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 of engagement.

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 both 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 – benefit in excess of cost – 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 extraordinary 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 purely a velocity proposition.

Building Information Modeling (BIM).  Building Information Modeling (BIM) explores building design in a 3D model of the three spatial dimensions of width, height, and depth (some would also say time and cost), and links to multiple databases with information on costs, schedules, specifications, engineering data, and more.

BIM integrates, consolidates, and links information;  it makes data more accurate, useful, and manageable.

Much like Epic Partnering™ and BPI, BIM has implications for both the margin side and velocity side of ROA:  on the margin side, better, more collaborative designs with fewer design errors, more accurate job cost books, job budgets, and purchase orders;  on the velocity side, plans that are easier to build, more dependable job schedules, shorter cycle times, faster inventory turns.

Plus – a more satisfying homebuying experience and a higher quality product.

BIM holds the possibility of “making product 35% faster and 25% less costly to build”, according to Continuum AG’s Clark Ellis.

Yet, for all its promise to transform the homebuilding industry, BIM has had a shallow adoption curve, largely because implementing BIM requires too much determination and resolve, a different mental model, and a willingness to abandon past practices.

Which is where opportunity lives.

Open-Book Management and Team-Based Performance Compensation:  The efforts of a homebuilding company to improve operating performance and business outcomes will become far more difficult – if not fail – if it does not succeed first in creating a homebuilding team that works toward commonly-held and commonly understood business goals, versus being a collection of so-called teammates working toward individual goals.  What would be missing, is an underlying business logic that forms the necessary context for understanding everything else.

To become the kind of savvy, motivated, mutually-accountable homebuilding team required to compete effectively in the business world, everyone on the team has to learn the “business” of homebuilding, they have to understand their individual responsibilities as part of the overall team, and they have to understand what is at stake, individually and collectively.

That is the role of Open-Book Management.

It is not enough that teammates understand the business outcome that is at stake, they must each have a personal stake in that business outcome.

That is the role of performance compensation.

 

We like the balance between these five 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 held at the Ponte Vedra Inn and Club, Ponte Vedra Beach, Florida, on February 28 – March 1, 2018.  The cost is $895.00 per person;  for team pricing, inquire here (flgroves@saiconsulting.com)

Delivered by SAI Consulting and Continuum Advisory Group.

Sponsored by BUILDER, BuilderMT, and Specitup.

Details:  www.buildervelocity.com

 

      

(We welcome BuilderMT and Sales Simplicity President Tom Gebes as a guest writer on Escape from Averageness®, as BuilderMT invests in the capabilities of its clients through their sponsorship of Pipeline workshops™;  here, Tom reports on variation and errors in two front-end processes that impact both margin and velocity)

Making money in home building is easy.

Want to see how you do it?  I’ll tell you.

First, focus on the front-end of your business, and break the home-selling process into two parts:  1) Prospecting and Contact;  and 2) Options Selection and Contract.

The Prospecting and Contact includes all your website lead tracking, and it is largely driven by your CRM, or whatever software you have in place to track web visits and automate the contact with the prospect.

The Options Selection and Contract part of the process is managed by your sales automation software system, which must be linked to an options management system (more on that later).

Now, here’s the trick to profitability.  In its most essential form, the gross profit margin (GPM) you expect to make as you convert your prospect to a contract should match the gross profit margin you actually experience at closing, with no slippage.

Sounds simple, right?  The core message here is that margin protection is what drives profitability.

 

Predicting Profit

Let’s take a deeper dive.  In your financial planning, it’s relatively easy to dictate what margins you expect to make.  Your workflow software should allow you to set margins as a percentage across multiple categories of products, e.g. 15% for commodities, 25% for appliances, 17% for flooring, etc.

You should be able to automatically apply those margins to the price you pay vendors for those products.  When you are applying those percentages, you take into account the labor, storage, loss, carrying costs, and waste of installing that particular option.

Simple enough, right?

The bugaboo comes when you take those ideal GPMs, developed in a planning environment, and protect them during two of the most-volatile stages of home building: the options selection process, and the construction process.

Let’s break those down.

Your gross profit margins are most at risk in the options selection process.  The main risk you have is when intersecting options are poorly managed, and options that should not be selected by your customer are nevertheless ordered.

 

Field Volatility. The Profit Killer

What kind of errors can you expect?  Let me count the ways.  For instance, a third garage bay is ordered by your buyer, and your new sales person is more than happy to sell the upgrade… except that on this lot, with this plan, the third garage bay violates the setback.  It’s not so bad if that error is caught in time, but if you don’t have the systems in place to detect the “option clash,” you will design and build the wrong home, and have to tear out the error.

Guess who eats the cost?  You do, the builder.  And guess what gets dinged?  The GPM on that house.

 

Eager Sales People

Here’s another more-subtle example.  You just finish a pep talk with your sale people, urging them to sell an additional $300 per house in upgrades.  Eager to please, your top rep pushes bay windows.  It’s a big hit.  She sells three of them on the first day.  Your estimator is pleased with himself because he catches the selection, and orders the extra windows and lumber… but he forgets to order the shingles for the roof kick-out.  The missing shingles means the roofer can’t finish, and he bills you for another half-day, just to come back to do that job.  Ouch.

And while you’re waiting for him, it rains, and the drywall in that corner of the house is ruined.  Double ouch.

You can already guess who’s paying for that one.  You, the builder.

In three decades of home building, I can easily cite a hundred examples like this.  And each one subtracts dollars from the idealized GPM you set forth in the planning stage – margins you do future corporate profitability forecasting with – only to see the volatility in the field lay waste to your plans.

At the end of the quarter, when your CFO presents his numbers to the CEO, the CEO says something like this:  “What the heck happened?  We forecasted aggregated GPMs at 22% and they came in at 16%!”

And the CFO responds:  “We had an execution problem, sir.  On 15 or our 22 starts, options were spec’d that shouldn’t have been ordered, because they didn’t fit with that model, and the tear outs and corrections killed us.”

The next thing that the CEO says cannot be printed.

 

Solutions: Software

How to fix this mess?  You need software that marries the Prospecting and Contact and the Options Selection and Contract processes;  software that automates and organizes the library of options, so only the options that fit on a model/lot/community are even allowed to be selected.

That software should have cross-over capabilities, so the options that are properly selected populate your estimating and purchasing systems, which in turn communicate with your supplier and component manufacturer.

These systems exist and run smoothly.  However, in my experience, it takes lots of pain before builders wake up to the fact that $1 spent on software saves $10 or $20 on operations, year in and year out.

So, set your margins, and protect those margins with software that regulates and automates the design and construction of your homes.

Tom Gebes is the co-founder of BuilderMT, and the president of BuilderMT and Sales Simplicity. BuilderMT and Sales Simplicity are both MiTek® companies. MiTek is a Berkshire Hathaway company.

 

Come.  Participate.  Learn.

The next Pipeline workshop™ will be held at the Ponte Vedra Inn and Club, Ponte Vedra Beach, Florida, on February 28 – March 1, 2018.  The cost is $895.00 per person;  for team pricing, inquire here (flgroves@saiconsulting.com).

Delivered by SAI Consulting and Continuum Advisory Group

Sponsored by BUILDER, BuilderMT, and Specitup.

For more details:  www.buildervelocity.com