Homebuilding is an industry that leverages equity with debt, therefore, some version of Return on Assets is the best measure of a homebuilding enterprise’s economic return.  The most useful version of ROA is the DuPont identity, which expands economic return into two components:

Margin (Return on Sales) and Velocity (Asset Turn).

From an operational perspective, the vast majority of assets on a builder’s balance sheet ought to be houses in some stage of construction, particularly when raw land and developed lot inventory is held off-balance sheet;  which means, when we calculate Return on Invested  Assets, we can reasonably associate Asset Turnover (financial term) with Inventory Turn (operating term).

The point is to thrive in this business, not just survive in it.  To do that, a builder has to do well on both the margin side and the velocity side of ROA.  That understanding fundamentally proposes two questions:  (1) How much can I make on every house?  (2) How many houses can I build with a planned, finite, and controlled amount of inventory and production capacity?

As a builder, consider this scenario:  You have a competitor that has exactly the same work-in-process, overhead, working capital requirements, borrowing capacity, and risk profile.

If you generate a Gross Margin of 24% and turn your inventory twice a year, you will be outperformed by this competitor that generates a Gross Margin of only 18%, but turns its inventory four times a year;  you will be outperformed in terms of Revenue, outperformed in terms of closings;  you will be out-performed – better than two-to-one – in terms of Net Income and Return on Assets.

You will struggle to compete;  in fact, you will struggle to survive.

It is the picture of a slow, marginally-productive homebuilding company versus a fast, highly-productive homebuilding company;  your competitor generates 85% higher Revenue and 40% more Gross Income than you do, and does it with the same amount of assets.

It is also a picture of the difference between a 180 day cycle time and a 90 day cycle time, and if that contrast is too stark, then consider this:  your competitor – the one with the 18% Gross Margin and a 4x turn – produces almost the same ROA as you do with a 24% Gross Margin and a 3x turn;  that’s the picture of your competitor’s 90 day cycle time versus your 120 day cycle time.

In the face of clear differences in economic outcomes, remember this:  in this scenario, your competitor is exactly the same size as you, when the real measure of size is the amount of work-in-process you each have to carry.

What creates competitive separation – the distance between competitive position?  It lies in doing the important-yet-difficult things.  The demands of higher productivity are so tough, require so much rigor, so much discipline, so much resolve, that most builders won’t even go there.

It’s not a choice between higher margin or higher velocity;  it’s the challenge – and the opportunity – of producing higher margin and higher velocity.

Pipeline workshops™ are a two-day immersion into the production physics – into the principles and disciplines – that enable homebuilders to thrive on the velocity side of economic return, to thrive on the velocity side of Return on Assets.

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;  the cost during early registration, open through December 31, 2017, is $750.00;  for team pricing, inquire here (flgroves@saiconsulting.com).

Sponsored by BUILDER, BuilderMT, and Specitup.

For more details:  www.buildervelocity.com



Pipeline Workshops™: Finding TrueNorth

Posted November 25, 2017 By Fletcher Groves

Scott Sedam is President of TrueNorth Development, Inc., and is the industry’s foremost Lean Production practitioner.  A well-known, well-respected Lean Building purist, Scott has roots that go back to Edwards Deming and Total Quality Management.  He is a friend, and longtime fellow consultant.

In 2013, after the first edition of The Pipeline: A Picture of Homebuilding Production© was published, and as I was planning the first Pipeline workshop™, I suggested that Scott attend as SAI’s guest.  I wanted him to see the workshop for himself.

I wanted his opinion of the workshop, but I also wanted him to share with those first-time-ever attendees his thoughts on applying Lean Thinking beyond the margin side of economic return, towards what we were now terming the velocity side of Return on Assets.

Scott graciously came to the first workshop in March 2014, functioned like any attending builder in the discussions and in the Pipeline games™, and was a panelist (with me) on blending improvement methodologies towards a solution that works best for homebuilding.

Afterwards, in September 2014, this is what Scott wrote in a discussion on the BUILDER group on LinkedIn:

“If you are ready to challenge your brain, get out of your well-sealed ‘Builder Box’ and make a huge leap forward in understanding schedule and its impact, come to this workshop and bring a few of your better thinkers.

“The roots of [this] workshop are in Goldratt’s Theory of Constraints, which is at first-blush exceedingly simple, but you can spend years studying the intricacies.  Fletcher puts it all in builder language and forces you to go deep into the impact of our most common builder practices.

“If all builders learned and followed the principles in [a Pipeline workshop™], our industry would take a huge leap forward.  The winners would not be the builders alone, but also homeowners and especially our suppliers and trade contractors.  Fletcher does not know I am writing this, but I strongly recommend his Pipeline Workshop™ to everyone who has the will to change for the better.”

Come. Participate.  Learn.


The next Pipeline workshop™ is February 28 – March 1, 2018, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.  The cost is $895.00 per person;  the cost during early registration (through December 31, 2017) is $750.00;  for team pricing, inquire here (flgroves@saiconsulting.com).

Sponsored by BUILDER, BuilderMT, and Specitup.

For more details:  www.buildervelocity.com


Pipeline Workshops™: Come. Participate. Learn.

Posted November 19, 2017 By Fletcher Groves

In the weeks leading up to a Pipeline workshop™, we explain to builders what they are about to encounter.  We describe the tools that they will have to learn to use, the facts of the business case they will confront, the knowledge they will take away from it, what they should expect to see.

We explain the challenging, disruptive, competitive nature of the learning – the degree of interaction, the level of intensity – they will experience.

At a Pipeline workshop™, it is learn-by-doing, applying production principles and disciplines to production simulation, and measuring the resulting operating performance and economic return.  We communicate our expectation that builders come prepared to learn that way, that there is no place to hide.  Nevertheless, many attendees tell us afterward they should have studied more, they should have prepared harder, in advance of the workshop.

Clark Ellis and I make no apologies for the extraordinarily demanding nature of a Pipeline workshop™.  It is intended to not just inform your thinking, but also to reform – and to re-form – it.  It is designed to challenge your thinking, to change the way you think.  It is intended to test your understanding of how production systems work and how daily operating decisions drive business outcomes.

We constantly remind builders: there is a big difference between being in the home building business, and being in the business of building homes.

So – you have to come to a Pipeline workshop™ prepared for what is going to be thrown at you.

For example, exploiting the RB Builders: Lessons from the Pipeline© business case study, revised and used at every Pipeline workshop™, requires the use of certain financial tools like Breakeven (CVP Analysis), the DuPont identity (ROA), and the Cost of Variation.  It requires an understanding of operational measures, like Little’s Law* (cycle time).  It requires the application of various improvement methodologies, like Theory of Constraints, Lean Production, and Six Sigma.

You can read the book.  The Pipeline: A Picture of Homebuilding Production, Second Edition© is carried in stock on amazon.com;  it is also available directly from the publisher’s bookstore (virtualbookworm.com).

But — if you want it all handed to you, don’t bother to attend.  If all you want is binder material you can underline and highlight, and put on your bookshelf, don’t come.  If you aren’t willing to own what you take away from it, a Pipeline workshop™ is not for you.  If you believe improving the margin side of Return on Assets is the only game in town, a Pipeline workshop™ is about a different game.

But, if you are determined to create sustainable competitive separation, by thriving on the velocity side of Return on Assets®, by excelling at a discipline other builders find too difficult, too rigorous, too daunting, then a Pipeline workshop™ is precisely the right place for you to be.


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;  the cost during early registration, open through December 31, 2017, is $750.00;  for team pricing, inquire here (flgroves@saiconsulting.com).

Sponsored by BUILDER, BuilderMT, and Specitup.

For more details:  www.buildervelocity.com


*We will help you out a bit on Little’s Law.  Consider this scenario:  C/T=120 days;  WIP=80;  Closings=240.  Little’s Law says:  CT = (WIP ÷ C) x 360;  WIP = (CT x C) ÷ 360;  C = (WIP ÷ CT) x 360.  Therefore:  CT = (80 ÷ 240) x 360 = 120 days;  WIP = (120 x 240) ÷ 360 = 80 units;  C = (80 ÷ 120) x 360 = 240 closings.



Pipeline Workshop™ No. 9: Save the Date

Posted November 12, 2017 By Fletcher Groves

Pipeline Workshop™ No. 9 will be held February 28 – March 1, 2018, at the Ponte Vedra Inn and Club in Ponte Vedra Beach, Florida.  The latest in the series of production management workshops in the open, sponsored Pipeline channel, it is sponsored, once again, by BUILDER and BuilderMT.

“The Pipeline workshop™ was really effective in showing how operational decisions affect business outcomes and how risky a ‘more for more’ approach to growing a home building company really is.  The Pipeline games™ were not only fun, but they were super-effective in showing how unbalancing the production system, managing the constraint resource, and managing the right amount of WIP, creates predictable operational results and maximizes financial outcomes.

“At the end of the day, running a successful business is about how much money you make on the amount of money you invest.  The Pipeline workshop™ helped me understand this better than any workshop or seminar I’ve ever attended.

“I highly recommend it.”  (Charles Roberts, VP – Operations, Providence Homes, Jacksonville, Florida)

Welcome to the most intense, demanding, interactive, and challenging homebuilding production management learning experience on the planet.

And – it just keeps getting better.

In recent workshops, we lengthened the schedule, enabling us to do more with the deeper-dive velocity accelerators;  for Pipeline Workshop™ No. 9, the five velocity accelerators are Business Process Improvement, Epic Partnering™, Business Information Modeling, Critical Chain Project Management, and OBM/Team-Based Performance Compensation – a good mix of immediately available velocity acceleration, currently possible velocity acceleration, and the future of velocity acceleration.

We continue to refine the scenarios in the Pipeline game™, which is both a production simulator and a business game.  Over the course of all the Pipeline workshops™, we have:  (1) made the game shorter, faster, and easier and quicker to grasp;  (2) switched to an operating statement format that mirrors the attributes of homebuilding operations;  and (3) found ways to transfer the learning and knowledge with fewer games.

Pipeline workshops™ are unlike any other homebuilding conference.

The learning split is 70% simulation/business case, 30% lecture;  the format is intense, interactive and competitive;  the Pipeline game™ production simulations and the RB Builders: Lessons from the Pipeline© business case test attendees’ understanding of production management and challenge their ability to solve production problems.

Pipeline workshops™ build an intuitive, instinctive understanding of production principles and disciplines, and they draw the subtle-yet-crucial distinction between being in the homebuilding business, and being in the business of building homes.

Moreover – we make it all incredibly fun:  the Ponte Vedra Inn and Club is a terrific AAA Five Diamond oceanfront resort venue;  there is a great reception at the end of the first day;  recommendations on outstanding local dining;  plenty of opportunity for networking.

Creating a visual image of homebuilding production;  establishing the connection between operating decisions and business outcomes;  building a new way of thinking systemically towards solving core problems and managing constraints;  managing limited capacity and resources, doing more with less;  dealing with variation;  managing homebuilding production as the multi-project type of workflow that it truly is;  placing the emphasis on the actions that accelerate velocity.

The fundamental proposition of a Pipeline workshop™ is this:  thriving on the velocity side of economic return – thriving on the velocity side of Return on Assets – is the best way to create sustainable competitive separation.

Registration for Pipeline Workshop™ No. 9 opens November 15, 2017.

Come.  Participate.  Learn.


In advance of registration, here is the link to the website:  www.buildervelocity.com  When registration opens, so will the event registration and hotel reservation links.

The site also provides information about the workshop, provides reviews from builders who have attended previous workshops, and provides a downloadable Adobe PDF file with detailed information about the venue, agenda, and schedule.

The cost is $895.00 per person;  the cost during early registration (opens November 15, 2017, runs through December 31, 2017) is $750.00;  for team pricing, inquire here (flgroves@saiconsulting.com).

Sponsored by BUILDER, BuilderMT, and Specitup. 


If you are attending the 2018 International Builders Show in January, Scott Jagoe, Trent Cragun, Doug French and Fletcher Groves III hope you will make the time in your schedules to attend this IBS education session, and learn why improved workflow is so vital to a homebuilding enterprise.


Wednesday, January 10 | 10:30 – 11:30 AM

Location: OCCC – West Concourse, Level 3, Room W 304 A

Format: Building Knowledge Session  Level of Content: Advanced

Who Should Attend: Single Family – All, 55+ Housing Builders & Developers

Track: Business Management & Operations

Speaker(s): Trent Cragun, Lifestyle Homes, Logan, Utah | Doug French, Stylecraft Builders, College Station, Texas | Scott Jagoe, Jagoe Homes, Inc, Owensboro, Kentucky | Fletcher Groves, SAI Consulting, Inc., Ponte Vedra Beach, Florida


What The Session Is About:

It is the most fundamental proposition in all of business:  As a builder, you make money by delivering value to stakeholders, principally to your buyers;  that value is created by the work you perform through some means of workflow;  the workflow in homebuilding is essentially project portfolio management enabled by embedded, surrounding, and supporting processes.

In order to deliver more value, you have to improve the workflow;  you improve the workflow by removing the non-value adding steps and making the remaining value-adding steps flow more smoothly and effectively.

In order to improve the workflow, you have to know how to redesign it, document it, implement it, and manage it.  You have to know how to put workflow in the proper strategic and operational perspective, so that it creates sustainable competitive separation.  You have to be able to disseminate the knowledge.

That is what this session does.


What You Will Learn:

  1. Learn to incorporate the design and role of processes into your company’s overall strategic design and operating model.
  1. Learn to document the existing state, and then the redesigned and improved state, of every process in your building operation in navigable, teachable process models.
  1. From a panel of three established builders who have been through BPI, learn what attributes, characteristics, and design elements make good processes.
  1. See a demonstration of one of the most capable and usable process flowcharting and process modeling apps.

This presentation has two segments:

  1. An explanation of Business Process Improvement, in terms of how understanding and improving workflow fits into the larger picture of a builder’s strategic value proposition/discipline and its operating model (structure, systems, culture, teammates); further, an explanation of how BPI moves from workflow performed by typically undefined means in a little known current state, to a highly-developed state of faster, more productive, more effective, more value-generating processes; finally, how those processes support everything a builder does.  The presentation provides a demonstration of the iGrafx Origins app that is used to create the cross-functional flowcharts and process models documenting workflow.
  1. A panel of three very successful builders that have been through Business Process Improvement, and can share their insights into their experiences with BPI, and the benefits they derived.


Why You Should Attend:

Do you understand the cost of tolerating the current state of process workflow?

Most of the workflow in a builder’s Start-to-Completion (STC) process is project portfolio management performed by external resources (trade partners), included in Cost of Sales.  STC, however, has workflow performed in embedded processes by internal resources (teammates) included in Operating Expense, and there is all the internal workflow performed in surrounding and supporting processes.

The results, from dozens of SAI BPI engagements over two decades, show there is one problem identified for every two process steps, there is one non-value-adding characteristic for every four to ten process steps, and 25% of the all the work performed adds no value whatsoever.

This means that 25% of a builder’s overhead is being wasted;  even a builder with a very manageable 12% overhead is losing 3% to his bottom-line every year, $30,000 in lost Net Income per $1.0 million in Revenue.

That is exactly why we map processes.


More:  https://www.buildersshow.com/Search/EducationSession.aspx?id=554799