Archive for November, 2019

Pipeline Workshops™: Come. Participate. Learn.

Posted November 24, 2019 By Fletcher Groves

In the weeks leading up to a Pipeline workshop™, we explain to attendees what they are about to experience.  We describe the tools that they will have to learn to use, the facts of the business case they will have to confront.  We forecast the take-aways, the knowledge, the enhanced capabilities.

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

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, that they need to check their sense of entitlement at the door.

Despite all of this, most attendees admit afterward they should have studied more, prepared harder, in advance of the workshop.

We 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 – that thinking.  It is designed to challenge your beliefs, to change the way you see production.

Pipeline workshops™ are intended to test your understanding of how homebuilding production systems work and how daily operating decisions drive business outcomes.

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

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

Here are examples of what we are talking about:  the RB Builders: Lessons from the Pipeline© business case, which is revised every year, requires the use of financial tools like Breakeven Analysis (using a variable costing approach, using Cost-Volume-Profit Analysis), the DuPont identity (for determining ROA), and the Cost of Variation.  It requires an understanding of production physics, including Little’s Law* and the Law of Variability Buffering.  It requires the application of a combination of improvement methodologies (Theory of Constraints, Lean Production, Six Sigma).

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

If you want it all handed to you, don’t bother to attend.  If all you care about is binder material you can underline and put on your bookshelf, don’t waste your time.  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.

On the other hand, if you are determined to create sustainable competitive separation, by learning to thrive on the velocity side of Return on Assets®, by learning to excel at a discipline that 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.

 

Pipeline workshop™ No. 13 will be held March 25-26, 2020, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.  The cost is $895.00;  the cost during early registration, open December 4, 2019 through January 8, 2020, is $750.00;  for team pricing, ask (flgroves@saiconsulting.com).

Sponsored by Specitup.

For more details:  www.buildervelocity.com

*We will entice you a bit with 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. 13: Save the Date

Posted November 18, 2019 By Fletcher Groves

The latest in the series of production management workshops in the open, sponsored Pipeline channel, Pipeline Workshop™ No. 13 will be held March 25-26, 2020, at the Ponte Vedra Inn and Club in Ponte Vedra Beach, Florida.

“This is my second attendance to the Pipeline Workshops™.  All I can simply say is WOW!  Fletcher and his team strive to improve the workshops and make [them] even more relevant.  I especially enjoyed playing the Pipeline Game™ again and learning about [the] Velocity Accelerators®.  I look forward to attending in the future!”  (Carlos Alvarez, President, Alvarez Homes, Baton Rouge, LA)

“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)

“The Pipeline Workshop™ completely changed my approach to meeting my company’s productivity and profitability goals.  I came away with several actionable items that I was able to implement right away.  Any homebuilder with an open mind, who is willing to challenge the traditional ways of thinking that our industry has grown comfortable with, will benefit greatly by attending.”   (Ryan Band, Unbridled Homes, Louisville, KY)

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

And – we keep making it better.

Previously, we had trended toward doing more with the Velocity Accelerators®, doing as many as five of these deeper dives in a workshop.  Last year, beginning with Pipeline Workshop™ No. 11, we decided to narrow the focus, reducing the number of deeper-dives from five to just three – Business Process Improvement, Critical Chain Project Management, and Epic Partnering™ – while still touching on the remainder.

The emphasis was placed on what is immediately-available, while still casting a vision toward the future.  Pipeline Workshop™ No. 13 continues this approach, but substitutes Open-Book Management and Team-Based Performance Compensation for Epic Partnering™.

Doing fewer Velocity Accelerators® allows us to do more production scenarios with the Pipeline game™, the best simulator and business game in the business.

Pipeline workshops™ are now in their seventh year.  During that time, we have:  (1) shortened the game, made it faster to play, easier to understand;  (2) early on, introduced an operating statement format that mirrors the particular characteristics of homebuilding operations;  (3) found ways to transfer the learning faster, make the connection between operating decisions and business outcomes more quickly;  and (4) begun to examine areas of disruptive innovation (for example, looking at what happens – what has to happen – when an outsourced building model becomes an integrated building model).

Pipeline workshops™ are completely 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 rigorously 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 merely being in the homebuilding business, and being in the business of building homes.

And – we find a way to make it incredibly fun:  the Ponte Vedra Inn and Club is a terrific AAA Five Diamond oceanfront golf and tennis resort;  we provide a relaxing and enjoyable reception on the Historic Inn’s putting green at the end of the first day;  we offer recommendations on outstanding local dining;  there are plenty of opportunities 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 without more, in some cases, doing more with less;  dealing with variation;  managing homebuilding production as the multi-project-with-surrounding-supporting-and-embedded-processes type of workflow that it really is;  placing the emphasis on the actions that accelerate production 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. 13 opens December 4, 2019.

Come.  Participate.  Learn.

 

Here is the permanent link to the website:  www.buildervelocity.com  As soon as early registration opens, all of the information, including the agenda and schedule, will be updated, along with 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 (open December 4, 2019 through January 8, 2020) is $750.00;  for team pricing, inquire here:  (flgroves@saiconsulting.com).

 

“You are building houses. Simplify your life.”

Posted November 10, 2019 By Fletcher Groves

It is interesting, the discussions you can get into with clients.  This is the response I recently provided to a senior manager at one of my homebuilding clients, regarding his questions, statements, and ideas about production management and key performance measures.

©hard-lessons.com

I will simply refer to him as Gary (because it has nothing to do with his real name);  his part of the discourse has been reduced somewhat to get to the essence.  Bear in mind as you read this – Gary submitted all of his questions, statements, and ideas on his own initiative.

I just answered his questions.

Give him credit for even taking the time to think in these terms, and having the courage to speak his mind and ask the questions.

This is how real learning occurs.

Gary:  “My brain has been wrapped around this question for a while.  I am not an accounting guru but I am a good strategist.  I haven’t thought through what I am sending you from a double-entry accounting perspective, but I would like to follow a logical progression of a ROIA strategy.

“Since WIP is a Balance Sheet account, I have been confused with an over simplification of how our team has used ROIA as the main measure of success.  Although I totally agree with using it as a main measure of success, I worry that misapplying it may lead to poor decision-making.”

Fletcher:  “As long as you are talking about money, Work-in-Process is a Balance Sheet account.  And, Return on Invested Assets is the best measure of economic return, the best measure of enterprise success.  However, ROIA (or any related measure) is an outcome, the result of something else.  It is not a driver.  It is the ultimate lagging indicator (like looking at the scoreboard after the game is over), not a leading indicator.

“As such, it can be generated, but it cannot be managed.

“If you want to look at what needs to be managed when ROIA is the ultimate outcome, look at the Key Performance Indicators, Return on Sales (margin) and Asset Turnover (velocity).  Even the KPIs are largely outcomes, the result of other actions.

“All of this thinking was explained, sometime back, in [your company’s] Current Reality Assessment®.  Go to the Intermediate Objectives (IO) Map.”

Gary:  “As an example, WIP right now is being viewed as the number of homes under construction, not the dollar volume of homes under construction.  To oversimplify my concern, if all I am worried about is completing houses in 90 days, I may tend to make non-market-driven decisions early-on and only sell starter homes that I can finish quickly.  If the market is asking for something different, I will soon find it hard to keep my pipeline full.”

Fletcher:  “Well, that contention is also correct, as long as you are now not referring to the Balance Sheet.  But, understand, many measures (such as Work-in-Process) are like coins;  they have two sides, heads and tails;  they have an operating (physical) side and a financial side, but they are the same coin, regardless of which side you are viewing.

“So – yes – WIP is both the number of homes under construction and the dollar value of those homes.  Just for the record, since those homes under construction are never fully drawn in terms of progress draws, Asset Turnover will always be faster than Inventory Turn.

“But, why would cycle time be the only measure, the most important measure, the measure that drives every other decision?  It is a necessary condition that affects just one side of economic return.”

Gary:  “If I am going to be market-driven, I might find that the biggest area of demand for my services, for example, is downsizing active adult empty nesters.  They are going to want a more substantial home than a starter home with more amenities which will take longer to complete.  They will tend to pay cash for their home.

“From an accounting perspective, I would be receiving progress payments throughout the job which I would also collect profit on.  This would decrease my Inventory (WIP) account and add money to my Cash and Retained Earnings on the Balance Sheet and my Income Statement.  Even If I had not finished the home, this would still have an on-going effect on my ROIA.”

Fletcher:  “First of all, Revenue is not recognized on Work-in-Process (and certainly not Net Income or any other residual measure);  WIP and Inventory are transfer accounts.  Typically, even completed Inventory is not transferred (and, thus recognized) until it is closed.  That is when it moves from the Balance Sheet to the Income Statement.”

Gary:  “Given that ROIA is calculated as EBITDA / Inventory (WIP), how do you calculate Inventory (WIP) in various scenarios:  (1) a spec home where the contractor is carrying the cost of construction;  (2) a pre-sold home where the contractor is carrying the cost of construction:  (3) a pre-sold home where the buyer is paying the cost of construction and a portion of the profit all the way through.

“If velocity is a function of going from dig to close, that doesn’t necessarily reflect how a Balance Sheet would look at it, given my revenue recognition policy for the above scenarios.  If, on the other hand, a Balance Sheet inventory carry is reduced by every progress payment with its accompanying profit, it changes the picture.

“That allows a builder to not be as concerned about the size of the home they’re building but how fast they are bringing in profit draws from that home and ultimately completing them.”

Fletcher:  “ROIA is calculated for a specific period of time on the Income Statement and at a specific point in time on the Balance Sheet.  If you take that fact, and add the fact about acceptable transfers, it begs the question:  Why are you focused on recognizing Income Statement accounts during construction?  And – why are you focused on ROIA during construction?

“If you are that concerned with the time value of money, I am surprised you are not advocating discounted cash flow, as well.

“I think you are way too far into the weeds on this, to the point of making it very difficult and complicated to manage your production.

“I believe a far better approach would be to set your expectations, restrictions, and limitations – your acceptable guidelines – upfront on every plan you offer (and every lot, if that is a consideration), on the possible financing arrangements, and then let the market speak.

“Make [your company] indifferent to what any buyer chooses.

“Then, run your production system;  schedule your starts, control your work-in-process, manage the constraint, build as fast as you can (run everything as a relay race), regardless of what you sold before you started, or what you started before you sold.”

Gary:  “With this thought process, I have been toying around with a modified equation that might look at pipeline size a little differently.  Instead of units, I would look at it as dollars under construction and the total square feet that represents.  I would then put a limitation on our team for a pipeline size that equates to square feet under construction vs. number of units under construction.”

Fletcher:  “You are building houses.  Simplify your life.”