A Message to Management Technology Providers to the Homebuilding Industry

It is time to wake up.  It is time to change – time to reform and re-form – your thinking regarding the type of workflow that homebuilding is and how it can be best managed with the technology you provide.



In the lead-up to every open, sponsored Pipeline workshop®, we make the same point to builders, for the purpose of explaining the production principles and disciplines the workshop espouses.

We state it in these terms:

The nature of the workflow in homebuilding production is project portfolio management, managing what can be large amounts of work-in-process, managing what can be a large number of construction jobs, which clearly meet the definition of projects.

Yes, there is workflow performed in processes, but those processes are a different type of workflow, and they are generally embedded in, and enabling and supporting of, the larger, more primary scheme of managing a project portfolio.

The process of building a home – what we call Start-to-Completion – 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, accepted method of project scheduling is the Critical Path Method (CPM), which evolved from the Program Evaluation and Review Technique (PERT) in the 1950s;  CPM has been in existence for almost 70 years, and it is the method used in every homebuilding ERP.

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

And – what is the cost of that added safety?  What is the cost of specifying 95% probabilities of on-time completion over the mean (50%) probability?

Statistically, insisting on that amount of task safety 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 human behavior then conspire to waste, which is why jobs never finish early, are almost always late, despite all of the purported safety.

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 a profitable builder – a builder operating above breakeven – it is even worse;  it is Gross Income that would have 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 builders.

CPM was never designed to contend with the production environment homebuilding presents.  CPM is not the problem (the problem is variation and resource conflict), but it 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 the explanation of an exercise excerpted from the RB Builders: Lessons from the Pipeline© business case study used in a recent 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 CPM builds into task durations and CCPM builds into its project buffer.  CCPM installs a release mechanism that “pulls” starts into the system and keeps work-in-process at the levels required to produce faster cycle times.

CCPM implements simple, visual tools to manage production.

Builders can put a number of these practices into place without necessarily changing the scheduling algorithms from Critical Path to Critical Chain.  They can use add-on applications that convert existing scheduling applications from CPM to CCPM.  Or, they can implement standalone CCPM software applications.

But – Critical Chain will not be a complete, integrated solution for the homebuilding industry until its management technology providers wake up and address it.