Archive for February, 2020

Velocity Accelerators®: Critical Chain Project Management

Posted February 22, 2020 By Fletcher Groves

One of the areas we always single-out for deeper discussion in a Pipeline workshop™ – areas we call Velocity Accelerators® – deals with the unrealized, under-appreciated benefit that would come from replacing the current method of scheduling houses under construction.

The nature of the workflow in homebuilding production is project portfolio management;  it is about managing what can be large amounts of work-in-process, about managing what can be a large number of houses under construction.  Yes, there is workflow performed in processes, but those processes are a different type of workflow, and they are generally embedded in, or enabling and supporting of, the larger, more primary function of managing a project portfolio.

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.

At its core, homebuilding is multi-project management.

The current method of project scheduling is a reference to its algorithm, known as the Critical Path Method (CPM), which evolved from the Program Evaluation and Review Technique (PERT) in the 1950s;  Critical Path has been in existence for almost 70 years;  it is the algorithm, thus, the method, used in every homebuilding ERP.

PERT and CPM were designed for one-off programs with large, complex structures (think, Polaris weapons system, the 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, Critical Path offers only a buffer of additional time – individual task durations lengthened to protect the completion date of each task, but not necessarily insuring the completion date of the project.

And – what is the cost of that added safety?  What is the cost of specifying highly-probable (95%) probabilities of completion over average (50%) probabilities of completion?

Statistically, it lengthens the job schedule by a factor of 1.64.  Which is how 90-day job schedules become 150-day job schedules.  Built-in safety that three well-known, yet typically un-checked, types of behavior then conspire to waste.

For the most part, builders are oblivious to the effects of variation on their production system.  Yet, the cost of that variation is apparent and simple to calculate;  it is the Gross Income lost from all of the closings that never occurred, from houses that were never built with the capacity that was available.

For an already profitable builder, it is Gross Income that would have clearly become Net Income, and ultimately, Net Profit.

It’s a lot of money.

Moreover, CPM considers task dependency (the predecessor-successor relationships of tasks) in its work breakdown structure, but it does nothing to 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 homebuilders.

Critical Path was never 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 both task dependency and resource contention, and it replaces the padded durations intended to protect the completion date of every task with a smaller project buffer that is fully-capable of protecting the completion date of the project/job;  in the process, CCPM becomes much more aware of system capacity and constraints.

Understand what this different, changed approach means:  it means that Critical Chain substantially reduces the duration of projects – the cycle time of houses under construction – without impacting the reliability of their completion dates.

Consider this excerpt from one of the exercises in the RB Builders: Lessons from the Pipeline© business case being used in the upcoming Pipeline Workshop™:

“RB Builders’ newly-acquired division has a construction schedule of 120 calendar days, but its calculated cycle time is actually 180 calendar days.  It is widely agreed that the division should be able to build its homes in far-less than the 120 days called for by the schedule, because that duration reflects ‘highly certain’ task durations.

“Switching from CPM to CCPM would immediately reduce the schedule from 120 days to 97 days, cutting the schedule by almost 20% with no diminution of confidence;  it would reduce the actual 180 day cycle time by almost half (46%).”

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 Critical Path builds 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.  They can use add-on applications that convert existing CPM scheduling applications to CCPM.  They can implement standalone CCPM software applications.  However – Critical Chain will not be a complete, integrated solution for the homebuilding industry until its management technology providers wake up and address it.

It all starts with obtaining the knowledge necessary to insist on that change.

Come.  Participate.  Learn.

 

Critical Chain Project Management is one of three Velocity Accelerators® (along with Business Process Improvement, and Open-Book Management and Team-Based Performance Compensation) that will be explored in depth at the next Pipeline workshop™, March 25-26, 2020, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.

Delivered by SAI Consulting.

Sponsored by Specitup and Simpson Strong-Tie (Specitup is currently in the process of writing its own CCPM app;  come hear what they have to say about it).

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

Details:  www.buildervelocity.com

 

Be the first to comment

Velocity Accelerators®: Business Process Improvement

Posted February 15, 2020 By Fletcher Groves

A large share of SAI Consulting’s work, both in and out of homebuilding, has been about enabling clients to effectively structure themselves around their core-critical business processes;  Business Process Improvement is the area of our practice for which we are most recognized.

There is a very good and simple reason why SAI focuses so much effort on documenting, redesigning, reengineering, improving, and managing business processes:

The most basic, most fundamental premise in business is this:  business enterprises exist to make money;  the way enterprises make money is by delivering extraordinary levels of distinctive value to their customers and other stakeholders;  that value is delivered through the work that enterprises perform;  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;  processes exist – andit  matter – whether homebuilders are intentional about them or not.

We repeatedly 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 both higher margins and higher velocity, drives higher Return on Sales and higher Asset Turns.

Consider:

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

Start-to-Completion is not managed like a process, so we don’t treat it as a process;  we don’t map it like a process;  we don’t document it as a process;  we exclude it from process management.

Here is the point:  even with the exclusion of Start-to-Completion workflow, the results from dozens of process mapping engagements, performed over decades, suggest that 25% of all the process 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 – eight percent (8%) 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, an effort which invariably reveals other issues – the core, root causes of 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.

In the language of a Pipeline workshop™, 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, and towards the flow of work performed in value-adding 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.

Business Process Improvement is about getting horizontal.

The relevance goes beyond the processes themselves.  Processes are the centric element of the business operating model that forms any strategic value discipline that serves to deliver exceptional levels of the specific, distinctive value demanded by a narrowly-defined segment of homebuyers.

Come.  Participate.  Learn.

 

Business Process Improvement is one of three Velocity Accelerators® (along with Critical Chain Project Management, and Open-Book Management and Team-Based Performance Compensation) that will be explored in depth at the next Pipeline workshop™, March 25-26, 2020, 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.

Sponsored by Specitup and Simpson Strong-Tie.

Details:  www.buildervelocity.com

 

Be the first to comment

Pipeline Workshops™: Velocity Accelerators®

Posted February 8, 2020 By Fletcher Groves

If you had to choose one word to associate with a Pipeline Workshop™, it would be velocity – a vector measure defined as speed made good in a purposeful direction.

We want to elevate velocity to an equal standing with margin, because margin and velocity are the co-equal components of economic return, and the two conditions necessary for achieving sustainable competitive separation.  Which is why, at every Pipeline workshop™, we select specific areas of production management for a deeper dive – for more discussion, the use of pointed, challenging RB Builders: Lessons for the Pipeline© business case exercises, etc.

These areas are known as the Velocity Accelerators®.

Velocity Accelerators® tend to be important areas that never receive sufficient attention;  in fact, beyond a passing understanding, Velocity Accelerator® sessions are often the first meaningful exposure builders attending a Pipeline workshop™ have had to these areas.

For the upcoming workshop (Pipeline Workshop™ No. 13, March 25-26, 2020, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida), we are highlighting three areas:

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 is mostly 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.

BPI improves both the margin and velocity sides of economic return.

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 effect variation has on the scheduling of a production system.

Yet, Critical Path is the scheduling algorithm used in every ERP system designed for homebuilders.

CCPM is the leading edge – the future – of project scheduling for homebuilding;  it promises significant improvements in the management of homebuilding production – faster cycle times, faster inventory turns;  managing variation;  enabling homebuilders to generate more Revenue, more Gross Income, with a planned, finite, and controlled amount of work-in-process and production capacity.

Critical Chain is about improvement on the velocity side of Return on Assets.

One of our sponsors, Specitup, is coming out with their own CCPM app, and they will be sharing that information.

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, as opposed to being a collective 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.

Open-Book Management and Team-Based Performance Compensation affect both the margin and velocity sides of economic return.

 

The reason we are only highlighting these three Velocity Accelerators® at this workshop, instead of the five or so we have highlighted in previous workshops, is to give these three areas sufficient emphasis.  We still intend to touch briefly on two other 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 both a program and a process, consisting of milestones, rewards, education, features, and rewards.

Epic Partnering™ is transformative, and it has implications on both the margin and velocity sides of economic return.

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™, Open-Book Management, and Business Process Improvement, BIM has implications for both sides of economic return, for both the margin side and the velocity side of Return on Assets:  better, more collaborative designs with fewer design errors, more accurate job cost books, job budgets, and purchase orders (margin);  plans that are easier to build, with more dependable job schedules, shorter cycle times, faster inventory turns (velocity).

By some estimates, BIM can make product 35% faster and 25% less costly to build, with a more satisfying homebuying experience and a higher quality product.

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

Which is where opportunity often lives.

One of our sponsors, Simpson Strong-Tie, will be sharing information on their BIM Pipeline and Quickstart Toolkit apps.

 

We like the balance between the three selected Velocity Accelerators®:  a blend of immediate and long-range initiatives that accelerate velocity, but also improve margins.

Come.  Participate.  Learn.

 

The next Pipeline workshop™ will be held March 25-26, 2020 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.

Sponsored by Specitup and Simpson Strong-Tie.

Details:  www.buildervelocity.com

 

We are fortunate to have Specitup and Simpson Strong-Tie as Pipeline Workshop™ sponsors, because not only do they support the teaching of Pipeline principles and disciplines, they also apply them in their own operations and on behalf of their licensees and users.

Because they are implementors, not just proponents, Specitup and Simpson are particularly qualified to participate in the discussions, contribute to the RB Builders: Lessons from the Pipeline© business case exercises, and help to facilitate the Velocity Accelerators®.

They enhance the learning. 

 

 

Specitup is an award-winning software solution for home builders to get homes to market faster with accurate and profitable selling prices.  Not an estimating or production program, Specitup is a new breed of software that includes plan/options/spec’ing management combined with comprehensive financial analysis.

Any builder that wants to shorten time to market, get deeper insight into profitability, and grow their business needs Specitup.

Specitup’s capabilities allow builder/users to create 7,000 options in seconds, spec the same plan differently by community, option up plans in hours, and analyze competitor offerings.

“If I can’t compete, Specitup has told me that ahead of time, and I wouldn’t have even bought the lot.”  (D Logan, Owner, Logan Homes)

“With Specitup I can add a new plan in a matter of hours. And now we don’t have to engage estimating until the house is actually sold.”  (Dan Kent, Owner Kent Homes)

To learn more, visit specitup.net. 

 

 

Simpson Strong-Tie uses technology to help builders see deeper into every element of the building process, so they can better achieve operational efficiencies, cost savings and customer satisfaction.

Since 2000, Simpson Strong-Tie has focused exclusively on residential construction and how technology can help manage every aspect of the building and home-sales process.  That focus has enriched the Simpson team with a deep knowledge of the business of building homes, and we are eager to put that learning to work for your organization.

To learn more about the technology solutions, customer support, and training we offer, visit our website:  strongtie.com/solutions/builder

 

Come.  Participate.  Learn.

The next Pipeline workshop™ will be held March 25-26, 2020 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.

Sponsored by Specitup and Simpson Strong-Tie.

Details:  www.buildervelocity.com

 

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

Posted February 2, 2020 By Fletcher Groves

Remove financial leverage (the equity multiplier) from the formula, and economic return becomes a function of profitability (Return on Sales) and operating efficiency (Asset Turnover).  That is the fundamental understanding that emerges from any application of the DuPont identity, regarding Return on Assets.

Economic return is margin x velocity.  How much do I make on every house I build?  How many houses can I build with the capacity I have?  It is a mutual, co-equal, dependent relationship.

Is margin proficiency necessary?  Yes.  Is it sufficient?  No.  Does superior margin hold-forth the possibility of achieving any degree of 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 margin side of Return on Assets will always overshadow action on the velocity 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.

The last part of that statement bears repeating.

In the homebuilding industry, there is a profound lack of knowledge regarding the operation and management of production systems.

Think you know your stuff?  Prove it.  Take the test.

  1. If a homebuilding production system is a pipeline, what determines the size, capacity, length, and cost of the pipe? What controls the flow?
  2. Is even-flow production a mechanism or an outcome?
  3. What is the best measure of size for a homebuilding company?  a. revenue  b. number of employees  c. houses under construction  d. annual closings
  4. There are three activities that describe “what happens to money” in a homebuilding business, the terms for which can be used to express and link the formulae for operating performance (productivity, cycle time, and inventory turn) to the equations for financial performance (Net Income and Return on Assets).  What are the terms for those activities?  What do those activities represent?
  5. What type of workflow is homebuilding?  Is it process management, project management, or a combination of both?  If it is a combination, which element does it favor?
  6. True or False:  A production system that balances capacity across the resources that perform the work does a better job of optimizing capacity utilization than a production system that unbalances capacity across those resources.
  7. In what three ways does a production system attempt to protect itself from variation and uncertainty?
  8. In scheduling a portfolio of jobs, which algorithm considers both task dependency and resource contention?  Critical Path or Critical Chain?
  9. Calculating the cycle time of a production system requires knowledge of what two operational measures?  Determining the level of necessary work-in-process requires knowledge of what two operational measures?  Estimating the rate of closings requires knowledge of what two operational measures?
  10. True or False:  Building reasonable safety into task durations does not ensure a high percentage of on-time completions.
  11. Which measure of operating performance is the reciprocal of cycle time?
  12. Lean Production views homebuilding as a build-to-order process.  Which resource does Lean recommend using as its pacemaker?
  13. What is the difference between measured cycle time and calculated cycle time?  What is the best use for each?
  14. What is the true cost of variation in a production system?  What is typically mistaken as the cost of variation in a production system?
  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 what factor?  What multiplier?  In statistical terms, how many standard deviations does this factor 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 a breakeven point and a breakeven rate.
  20. How does velocity differ from speed?

(answers are at the bottom of the post)

We know, just a quiz.  Like any quiz, the questions represent a very small portion of the operating 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 its underlying principles and disciplines.

It starts with what you learn in a Pipeline workshop™.

Come.  Participate.  Learn.

 

The next Pipeline workshop™ will be held on March 25-26, 2020, 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.

Sponsored by Specitup and Simpson Strong-Tie.

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) inventory turn;  (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) the true cost of variation in a production system is not wasted or excessive cost, it is the Contribution (Gross Income) from every house that was not built and closed because of variation in the system, Gross Income that would have dropped straight to the bottom-line as Net Income;  (15) procrastination (student syndrome), expand to whatever time is allowed (Parkinson’s Law), multi-tasking;  (16) the start matrix in a push system determines 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 (reciprocal .61), meaning that four out of every 10 days in the job schedule is padding (safety) intended to assure on-time completion of every task, and, therefore, the on-time completion of the job;  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.