Archive for August, 2018

Velocity Accelerators®: Business Process Improvement

Posted August 18, 2018 By Fletcher Groves

An overwhelming portion of SAI Consulting’s work, in and out of homebuilding, has been about enabling clients to better 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:

The most basic, most fundamental premise in all of business is this:  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, sometime ago, we sacrificed one of the highly-regarded Pipeline games™, so that we could elevate improvement of workflow to the level of a Velocity Accelerator®.

At SAI, we repeatedly make the point that Pipeline workshops™ are all about thriving on the velocity side of Return on Assets®, but better process workflow pays off on both sides of economic return;  it drives both 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 within Prospect-to-Closing that is the aorta of workflow in a homebuilding company – is not, at its core, process management;  it is multi-project management;  it is project portfolio management, with embedded and supporting processes;  it is workflow in which 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 like it is a process.

Yet – yet – the results from the dozens of process mapping engagements SAI has performed that don’t consider Start-to-Completion, nonetheless show that fully 25% of all the work a homebuilding company does perform – 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 – just eight percent of Revenue, you are throwing away $20,000 of every $1,000,000 in Revenue you generate.

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

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 internal structure of work performed in functions. towards the value-producing flow of work performed in processes.  BPI shifts the perspective from vertical to horizontal;  it turns 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 the centric element 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™, September 26-27, 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

 

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Pipeline Workshops™: Velocity Accelerators®

Posted August 11, 2018 By Fletcher Groves

If you had to choose a single word to associate with a Pipeline Workshop™, it would be velocity – a vector measure that means speed in a purposeful direction.

We want to elevate velocity to an equal standing with margin, because, together, they are the components of economic return.  In each Pipeline workshop™, we select specific areas of production management for a deeper dive – more discussion, the use of pointed and challenging exercises from the RB Builders: Lessons for the Pipeline© business case, etc.

These areas 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, Velocity Accelerators® are often the first meaningful exposure to these areas builders attending a Pipeline workshop™ have experienced, making these sessions something of a mini-boot camp.

For the upcoming workshop (Pipeline Workshop™ No. 10, September 26-27, 2018, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida), we are highlighting five areas:

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;  it is both a program and a process.

Epic Partnering™ has profound implications on both the margin velocity sides 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;  value-delivering work has to be performed in some manner of workflow, which includes work 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).  Developed 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 essentially project portfolio management with surrounding, supporting, and embedded 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.  Moreover, CPM is oblivious to the devastating 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.

As with Epic Partnering™ and Business Process Improvement, BIM has implications for both the margin side and velocity side of Return on Assets:  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.

Building Information Modeling 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 a lot of money, 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 – it will likely 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 today 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.

But, 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 September 26-27, 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

 

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

Posted August 4, 2018 By Fletcher Groves

The fundamental understanding that emerges from the DuPont identity regarding Return on Assets is this:  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 – without fail – takes a backseat to action on the margin side of ROA.

Pipeline workshops™ are aimed at changing that paradigm.

The motivation to attend a Pipeline workshop™ starts with the willingness to acknowledge and remedy what amounts to a profound lack of knowledge regarding production principles and disciplines.

You heard me right.

In the homebuilding industry, there is a profound absence of knowledge regarding production systems.

Disagree?  Think you already know this stuff?  Really?  Prove it.  You – and your team – take the test.

  1. We say that a homebuilding production system is a pipeline. What determines the size, capacity, length, and cost of the pipe?  What determines flow?
  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 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 those activities represent?
  5. What type of workflow is homebuilding?  Is it process management, project management, or a combination of both?
  6. True or False:  A production system that balances 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. In what three ways will a production system protect itself from variation and uncertainty?
  8. In scheduling a portfolio of jobs, ________ _____ is the algorithm that considers both task dependency and resource contention.
  9. Calculating the cycle time of a production system requires knowledge of what operational measures?  Determining the level of necessary work-in-process requires knowledge of which operational measures?  Estimating the rate of closings requires knowledge of what operational measures?  How are they connected?
  10. True or False:  Building reasonable safety into task durations is not the best way to insure a high percentage of on-time completions.
  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 is the best use for each of them?
  14. True or False:  CCPM (Critical Chain Project Management) does not adjust the job schedule to reflect delays.
  15. What three human behaviors consume the time safety built into a job schedule?
  16. How does the matrix for managing starts in a push release system differ from the same matrix in a pull release 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 enables a builder to calculate both a breakeven point and a breakeven rate.
  20. How does velocity differ from speed?

(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 parameters that include 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™ is at the Ponte Vedra Inn and Club, Ponte Vedra Beach, Florida, on September 26-27, 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

 

Answers:

(1) size is the amount of work-in-process, capacity is the rate of throughput (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, flow is controlled by the valve that allows starts to occur at the rate of closings;  (2) even-flow 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 closings, expressed in units, cycle time expressed in days;  if two are known, the third can be calculated;  (10) True;  (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) procrastination (student syndrome), expand to whatever time is allowed (Parkinson’s Law), multi-tasking;  (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) False;  (20) velocity is a vector measure;  it is speed in a specific direction;  velocity is targeted, purposeful speed.