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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).

 

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“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.”

 

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I remember where I was . . . I remember who I was with . . .

Posted September 11, 2019 By Fletcher Groves

(this post is placed on Escape from Averageness®, every year, on the anniversary of the 9/11 attacks)

On Tuesday morning, September 11, 2001, eighteen years ago, at 8:46 AM, I was in the offices of Fidelity Homes, in Venice, Florida, commencing a process mapping engagement to give this start-up homebuilding company a state-of-the-art set of business processes.  SAI Consulting’s involvement was part of a large pro bono effort, called “From the Ground Up”, that was arranged by Professional Builder, that included a number of top consultants serving the homebuilding industry.

I was the Process Architect for Fidelity Homes.

Sitting across the table were David Hunihan and Todd Menke, two young (at the time) builders, eager to take their experience in homebuilding and pursue a National Housing Quality award.  We were well underway, when David was pulled away by a telephone call.  It was his wife, Lauren, asking if he was aware of what was going on in New York City.

As the events continued to unfold, in New York City, in Washington DC, in western Pennsylvania, we finally decided that it was impossible to focus on mapping workflow, and, anyway, under the circumstances, whatever we were doing did not seem all that important.  We cancelled everything for the rest of the day, and, in our own ways, watched and tried to process what was happening.

Bill Lurz, then a senior editor at Professional Builder, joined us the following day.  We finished the project two days later, and I drove back to my family in Ponte Vedra Beach through a tropical storm.  On that day, the welcome home had extra meaning.

The article for “From the Ground Up’ was written and published in Professional Builder.  I told the full story of Fidelity Homes in a six-part series on Escape from Averageness® in 2011, coinciding with the tenth anniversary of the 9/11 attack.

I still consider the events of 9/11 to be a matter of unfinished business for this country, because we still haven’t accomplished what we set out to do.  Time has only increased my feelings about it.  We were attacked, eighteen years ago, because of who we were, because of who we unapologetically remain.  Our enemies see it as unfinished business, as well.

Evil is the enemy of good;  that evil has an ever-more-radical face, both secular and non-secular.  In the presence of that evil, we have failed to clearly state what war is;  we have dismissed the understanding of war as the complete and utter destruction of an enemy.

It doesn’t matter what we think of issues like American Exceptionalism, our place in the world, the tradeoff between national security and the constitutional rights to privacy of US citizens, the threat of terrorist attacks on our own soil, the still-unaddressed murder of US diplomats and security personnel in Benghazi, the ramifications of decisions not to intervene in Iran and Syria, the continuing involvement in Afghanistan, the ebb and flow of ISIS, Al-Qaeda, the Taliban, and all of other bad actors, the question of what happens if Iran or North Korea become terrorist regimes with nuclear weapons.

The discussions on all of those matters miss the point.

The discussions miss the point, because they don’t address the root cause of the problem.  The core problem is not the threat of future terrorist attacks or rogue regime nuclear attacks.  The problem is the terrorists and their sponsors;   the problem is rogue nuclear regimes and their enablers.

And, the solution is not attrition, or containment, or control, or minimization, or dismantlement of the threat, or mounting an international coalition against terror, or imposing sanctions, or providing more humanitarian aid, or granting political asylum, or creating deeper understanding, or negotiating peace, or peace, itself.

It is true that, as Christians, we are told to love our enemies.  It is also true that love and forgiveness do not remove consequences, and that scripture is filled with instances when the children of God were instructed to destroy their enemies.  And – yes – at some point, the One, True God, in His righteousness and omnipotence, may decide to impart His own justice to this situation.

However – absent divine intervention – we cannot afford the “problem of conjecture”, as Henry Kissinger described it.  We have now assured ourselves that there will be a war;  if not a nuclear war, then certainly a war over who will have nuclear weapons.  Competitors that already have nuclear weapons no longer fear us;  the ones that hope to obtain them will not fear us, either.  We are now in a far more dangerous, more deadly situation than we were in the aftermath of 9/11.

“Fleury.  Tell me what you whispered to Janet, in the briefing, to get her to stop crying about Fran, you know, before all this, before we even got airborne.  What’d you say to her?  You remember?”

“I told her we were gonna kill ’em all.”

(The Kingdom, Universal Pictures, 2007)

 

Pipeline Workshop™ No. 12: Change the Date

Posted September 10, 2019 By Fletcher Groves

Pipeline Workshop™ No. 12, scheduled for October 17-18, 2019, is being rescheduled and combined with Pipeline Workshop™ No. 13, which will be scheduled for the first quarter of 2020.

The principal reason driving our decision is that one of the longtime sponsors of Pipeline Workshops™ (Specitup) is on the cusp of adding important management technology tools directly related to “pipeline-thinking”, and we want them included.

However, these tools will not be available in time to include them in Pipeline Workshop™ No. 12.

We think these tools are an important, practical, working addition to the production principles and disciplines taught in a Pipeline workshop™.  So, we have decided to delay Pipeline Workshop™ No. 12 and combine it with Pipeline Workshop™ No. 13, which will take place in March of 2020.

Like every Pipeline workshop™ that has ever been held, combined Pipeline Workshops™ No. 12-13 will be held at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.

Check back on Escape from Averageness® (www.escape.saiconsulting.com) for updates.  Registration for the combined Pipeline Workshops™ No. 12-13 will open in early December.

Come.  Participate.  Learn.

 

Pipeline workshops™ are a size-limited, intense, interactive, comprehensive, industry-specific immersion into the principles and disciplines that drive homebuilding production.

Now finishing their sixth year, we have made a lot of additions and changes to improve these events.  For one, we have added the RB Builders: Lessons from the Pipeline© business case with its challenging set of problem-solving exercises;  many of those business case exercises deal with another component we have added, what we call the Velocity Accelerators®.

Nevertheless, most attendees and observers will tell you that the most compelling part of a Pipeline workshop™ is the Pipeline game™, in which teams of geographically-diverse builders go through a progression of production scenarios that produce business outcomes;  a production simulator that simultaneously covers both the home building business and the business of building homes.

It is the same Pipeline game™ we have used at Housing Leadership Summits. at CertainTeed Builder Advisory Groups, at Builder 20 Groups, at Pipeline workshops™ held privately for large builders, and at Builder Technology Summits.

Pipeline Games™ reinforce the production principles taught in the Pipeline workshop™, including:  (1) the effect of variation on a production system, (2) pull scheduling according to the capacity of a constraint resource, and (3) the importance of connecting operating decisions made on matters like flow (of sales, starts, and closings), cycle time, capacity utilization, and the level of work-in-process, to the critical business outcomes of profitability and return on assets.

You could look at the results from any previous workshop.  The results never lie.  Consider this set of results.  In every category – from Revenue, to WIP levels, to Inventory Turns, to Cycle Time, to Net Income, to Return on Invested Assets – the teams made remarkable progress towards targeted performance, often exceeding expectations.

Look at the results, and you will see something else:  the teams rarely started out that way.

The game has changed, so the metrics have changed.  And, you clearly have to play the Pipeline game™ – see the measures and calculate the results for yourself – in order to fully understand what the axis values mean;  instead, focus on the performance trends (y-axis), as the games in this workshop progressed (x-axis).

This was Revenue . . . higher . . .

This was inventory turn . . . faster . . .

This was cycle time, expressed in days . . . shorter . . .

This was Net Income Margin . . . better . . .

This was Return on Assets, a reflection of its co-equal components:  Net Income Margin (margin) and inventory turn (velocity) . . . higher . . .

After the initial shock of shattered instincts, every metric was in precisely the direction you would want, precisely the direction you would expect, if the underlying production principles are true, and if real progress is being made.

Like the builders attending every Pipeline workshop™, the builders attending this workshop clearly learned from their participation.

They learned the principles and disciplines of homebuilding production.

Pipeline games™ teach builders to “see” production;  they simulate the environment – fast-paced, rapidly-changing, filled with uncertainty, risk, and variation – in which homebuilding production decisions must be made.  It is learning based on experience and action, not words.

Pipeline games™ compress the learning curve.

In a Pipeline workshop™, the progression of the games mirrors the progression of the learning.  In the book that gave rise to the workshops (The Pipeline: A Picture of Homebuilding Production, Second Edition©), this is how they were described:

“Change is a necessary condition to any improvement effort, but change is difficult, disruptive, time-consuming, and costly;  the effort can fail to produce the desired – the intended – result.  Learning needs to occur without so much cost, disruption, and risk.  Managing production and improving operating and financial performance becomes intuitive and simple, but there is much to understand.  It is counter to what is taught, therefore, difficult to grasp;  it must be learned, and that is harsh when it occurs at the cost of real operating performance and actual business outcomes.”

Come.  Participate.  Learn.

 

The next Pipeline workshop™ will be held at the Ponte Vedra Inn and Club, Ponte Vedra Beach, Florida, on October 17-18, 2019.  The cost is $895.00 per person;  for team pricing, ask flgroves@saiconsulting.com

Delivered by SAI Consulting and Continuum Advisory Group.

Sponsored by Specitup.

Details:  www.buildervelocity.com