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Pipeline Workshop™ No. 16: Save the Date

Posted June 11, 2021 By Fletcher Groves

Pipeline Workshop™ No. 16 will be held October 14-15, 2021, at the Ponte Vedra Inn and Club in Ponte Vedra Beach, Florida.

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

“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)

Pipeline workshops™ are now in their eighth consecutive year, and we have worked constantly to enhance and improve it.  Over the years, we have:

(1) improved the best production simulator and business game in the industry (the Pipeline Game™), made it faster to play, easier to understand;

(2) introduced an operating statement format to the game that mirrors the particular characteristics of homebuilding operations;

(3) found ways to transfer the learning faster, to make the connection between operating decisions and business outcomes clearer, quicker, more direct;

(4) started to examine areas of disruptive innovation (for example, outsourced building models that become integrated building models);

(5) introduced an MBA-level business case (RB Builders: Lessons from the Pipeline©);

(6) emphasized important and emerging areas we call Velocity Accelerators®.

Pipeline workshops™ are unique, completely unlike any other homebuilding conference (and, under current COVID-19 restrictions, they are the industry’s only significant event that is conducted live, not virtually).

The learning split is 70% simulation/business case, only 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’ correct understanding of production management principles and disciplines, 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 being in the homebuilding business, and simply being in the business of building homes.

Our venue, the Ponte Vedra Inn and Club, is a terrific AAA Five Diamond oceanfront golf and tennis resort dating back to 1928;  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 abundant 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, hopefully doing more with less;  dealing with variation;  managing homebuilding production as the type of workflow that it really is – multi-project management with surrounding, supporting, and embedded-processes;  placing the emphasis on 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. 16 opens June 21, 2021.  The attendance fee is $895.00.

Sponsored by Simpson Strong-Tie.

Come.  Participate.  Learn.

 

Here is the permanent link to the workshop 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 full attendance fee is $895.00;  the early registration attendance fee (June 21, 2021 through July 30, 2021) is $750.00;  for team pricing, inquire here:  (flgroves@saiconsulting.com).

 

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One Homebuilder’s Stress Test: Why We Map Processes

Posted June 5, 2021 By Fletcher Groves

Business Process Improvement – the documentation, analysis, measurement, design and redesign, improvement, and management of operating/business processes – is the area for which SAI Consulting is most recognized.  We have done more pure work with processes – and done it longer – than anyone connected with the homebuilding industry.

There is a good reason why so many of our consulting engagements have involved structuring an enterprise around its critical business processes:  The only way an enterprise makes money is by creating value;  the only way it creates value is through the work that it performs;  and it performs much of that work in processes.

As valuable as that proposition is, it does not do it justice.  Process mapping is far more than documenting, analyzing, measuring, understanding, then redesigning and improving workflow;  mapping processes serves to connect work to operating performance, and operating performance to business outcomes.

In that sense, process mapping administers something of a stress test;  some pass it, others do not.

In 2006, at the height of the Age of Homebuilder Entitlement®, we were engaged by a previous winner of the National Housing Quality Award to map its business processes;  understand, in order to be awarded this distinction, the company’s processes had to have been previously vetted and judged as part of the NHQ examination.

There were troubling indicators, right from the start.

As the work unfolded, we pointed out discrepancies between supposed operating performance and supposed economic returns.  We explained the associated production physics, and questioned whether the stated performance could have possibly occurred.  We highlighted the declines in operating performance and business outcomes, to which they seemed completely oblivious.

From a process standpoint, we observed that this company had “a very iterative product design process exposed to an impulsive/compulsive design mentality”, that this was a process with 132 discrete process activities – involving 33 handoffs, 19 reviews, eight approvals, 14 sections of activities where the work of one person or department was subsequently revised.  The project team was unwilling to self-classify a single one of these 132 activities as value-adding;  it classified almost 30% of them as completely non-value-added.  This was a process that took upwards of 12 months to design a new plan.

New Plan Design was the poster-child for poor process design, but it was not a sclerotic aortal mess.  That would be their Start-to-Closing process, where we calculated cycle time at 279 days, and demonstrated that this process could not possibly be achieving the 5.2x asset turn that was being asserted.

We stressed the need to establish a set of operating and business measures as the performance requirements for the new process designs, yet the team failed to produce a comprehensive, connected set of operating and business outcomes.  The need for (or importance of) performance requirements did not strike a chord with either the executive group or the process teams.  Given the existing level of operating and business performance, we told them that we found “the level of disinterest – the lack of resolve – disturbing”.

This was a builder that had produced a Return on Assets of only 4.7% in 2005;  in that era, economic return should have been eight-times that level.  Moreover, this was an enterprise that six weeks earlier had been forced to take the gut-wrenching action of laying-off 40 teammates.  We made our point very clear that the real situation on economic return was certainly much worse than they were saying, that the measly 4.7% ROA they were asserting overstated the company’s true performance, because a Net Income Margin of less than one-percent (that is correct, .9%) was being masked by the impossible-to-achieve 5.2x asset turn.

We told this client that we had worked with many other builders, of all shapes, sizes, rationales, and arguments, and that their processes were not just badly-designed;  they were also the outcome of flawed thinking on how to best understand and satisfy the requirements and expectations of their chosen market segment, and craft a solution that satisfies the requirements of all of their stakeholders.

We told this team that velocity was a lot of what this effort was about.  It was about finding ways to design better, more productive processes, in order to increase productivity and reduce cycle time.  We told them that processes were the logical starting point, the first step in the quest toward a “more-without-more” mentality – more output, more revenue, for the same investment in WIP and production capacity.  We told them that – given their distressed condition – this project likely needed to be about what happens with both components of Return on Assets;  it likely needed to be about achieving both higher margin and higher velocity.

We said to them, “There is a long road ahead . . . the start of an effort that never really ends.  The process of continuous improvement means just that:  a continuous process of improvement”.  We asked them the same questions we ask every other builder with whom we work:  Does the world really need one more average homebuilding company?  Will “average” performance – operating, business, or otherwise – be sufficient to sustain a homebuilding company in the future?

We told them that they were not an average homebuilding company in intent or reputation, but they were significantly below-average, in terms of performance.  We told them, as John Kotter says, that their situation required a sense of urgency.  We warned them of the consequences of failing to brutally confront reality.

We completed the documentation, analysis, and redesign of their processes.  We told them this was only a start.  Whether it was a good start – whether it would be sustained, whether it would produce the results it was intended to produce – was up to them.

That was in 2006;  in 2008, they filed Chapter 11.

 

(originally published on EFA® in August 2010 under the same title;  re-edged and republished in June 2013, as part of our initial retrospective “Above Average: The Best of Escape from Averageness®, 2009-2012”;  updated and re-posted in April 2020, as a reflection on two other builders’ more recent, self-inflicted struggles with their business processes;  updated and re-posted here, as part of our second retrospective, “Still Above Average: The Best from Escape from Averageness®, 2009-2021”)

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The Cost of Process Variation and Waste

Posted May 29, 2021 By Fletcher Groves

(originally published on EFA® in August 2012 as “The Cost of Tolerating the AS-IS State of Business Processes”, reduced to its essence, updated, and republished as part of two retrospectives, “Above Average: The Best of Escape from Averageness®, 2009-2012” in 2013 and “Still Above Average: The Best of Escape from Averageness®, 2009-2021” in 2021)

SAI has been mapping business processes – documenting, analyzing, improving workflow – in the residential construction industry for more than two decades.  During that period, we have managed dozens of engagements, across a broad spectrum of geographical markets and builder types, multiples of processes, involving tens of thousands of discrete steps.

Most of our clients are well-managed homebuilding companies, some of them exceptionally well-managed by the standards with which this industry is judged.  The list includes past National Housing Quality (NHQ) Award winners and past winners of Professional Builder’s Builder of the Year award.  All of them, at the very least, were forward-thinking enough to be concerned with improving their business processes in the first place.

Nevertheless, the data from these process mapping engagements, anecdotal or otherwise, in its totality, suggests that fully 25% of the work these otherwise very competent builders were performing added no value whatsoever;  it is almost certain that the actual percentage of non-value-added work was considerably higher.  No two process steps have equal weight, but acknowledging the percentage of non-value-added work has merit;  it has validity in assessing whether a process is badly-designed, is being poorly managed, or both.

If you are a homebuilder, the point is this:  What are such badly-designed and/or poorly-managed processes costing you?

What are they really costing you?

The most basic – the most universal – proposition of business – applicable to any industry, but applied here to homebuilding – is this:  the goal of a homebuilding enterprise is to make money;  the way it makes money is through the value that it delivers to its homebuyers;  that value is delivered by the work the enterprise performs, and that work has to be performed in some method of workflow.

The effort to deliver homebuyer value costs the homebuilding enterprise something.

Set aside, for now, the substantial costs a homebuilding company incurs in the business sub-process known as Start-to-Completion (STC).  For a number of reasons, we exclude STC as a process from the scope of a process mapping engagement (see the original post).  The cost of that part of the effort to deliver value – including all of the very real cost of wasted effort associated with scrap, jobsite conditions, jobsite mistakes, scheduling conflicts, design issues, etc. – is not reflected in the data we just referenced.

That is because, on an Income Statement, that cost should be classified as Cost of Sales.

Cost of Sales is considered to be a converted or transformed cost, and the cost of the non-value-adding effort is passed on, largely hidden, in the form of higher pricing from the sub-contractors and suppliers that perform all of the work.  The cost of non-value-adding effort contained in Cost of Sales diminishes Gross Income;  it depletes the value delivered to the homebuyer, who paid more than he should to receive the benefit for which he contracted.  It can be affected by non-value-adding effort in areas outside of Cost of Sales, as well.  It is significant.  It is expensive.

But, it is not the issue being discussed.

This discussion is about the consumed cost of non-value-adding effort, reflected in a homebuilding company’s Operating Expense.  Whether you choose to view Operating Expense as a productivity issue or as an excess capacity issue – as a consumed cost that should be leveraged (our preference), versus a consumed cost that should be reduced – there is clearly a pointlessly-incurred cost associated with wasted effort, associated with effort that produces no value.

That cost diminishes Net Income.

How much?

A number of years ago, John Caulfield highlighted data from one of the Shinn Group’s annual Financial and Operations Studies, based on information provided by 450 builders that were participants in the Shinn Builder Partnership programs.  More than two-fifths of the builders surveyed reported Operating Expenses above 25% of Revenue (at the time, Shinn’s recommended target was to keep Operating Expense at less than 25% of Revenue, but, in so many words, urged builders to keep Operating Expenses significantly lower, at under 20% of Revenue).

Out of the Shinn data and the SAI data, let’s consider a favorable scenario:  a hypothetical homebuilder with favorable overhead (20% of Revenue) and a low level of wasted effort (25%) within that overhead.  That makes this hypothetical builder’s cost of wasted effort five-percent (5%) of its Revenue;  for every million dollars of Revenue, the cost is $50,000, a cost that comes right off the builder’s bottom-line.

That cost is one thing, if you are a homebuilding company the then-size of Pulte (an annual cost that then represented a mere $197.5 million in lost-but-potentially-recoverable Net Income).  It’s another matter, one that likely strikes closer to home, if you are a homebuilder with Revenue in the $40 to $45 million range – a range bracketed, at the time, by two of the consistently successful builders that SAI had taken through the effort to map their business processes, and who’s data was included in our calculations:  Jagoe Homes (Owensboro, KY) and Charter Homes & Neighborhoods (Lancaster, PA).

Let’s be clear:  If you are the then-size of a Jagoe or a Charter, and – unlike Jagoe or Charter – you do nothing to improve the AS-IS, do nothing to remove the waste and variation associated with the current state of the processes you depend upon to deliver value to your homebuyers, that bogie is a cool $2.1 million, incurred every year.

Not exactly chump change.

 

(introduced on builderonline.com in November 2014;  published on Escape from Averageness® in June 2016, as the second in a two-part series about a new consulting deliverable we were launching;  updated and republished here as part of our latest retrospective, “Still Above Average: The Best of Escape from Averageness®, 2009-2021”)

From time to time on Escape from Averageness®, we share high-level outcomes from selected consulting engagements, in order to provide different insights.  In this case, the insight is into how a focused, prioritized process of continuous improvement should work, a process that starts with a complete understanding of current reality.

Building Urgency Towards Results® is a two-part series summarizing the analysis and initiatives from one of the first Current Reality Assessments® we ever conducted [in the years since, we have conducted almost a dozen CRA®s].  Part I is about assessing and understanding current reality;  Part II, what follows, is about determining the best way forward from that reality.

Continuing from Part I:

From the UDEs and the IO Map, the team developed a Plan Forward, a roadmap to get them from where they were, to where they wanted to be.  As such, the plan represented a planned, purposeful commitment to achieving that goal.  It was a series of initiatives with short durations, conducted in consecutive order, aimed at producing rapid, targeted, measurable improvements in areas of operational performance that drive improvements to a specific business outcome.

Fully-defined in terms of order, relationship, responsibility, completion dates, requirements, and outcomes, the Plan Forward was a focused course of action that addressed the cause-and-effect relationship between the root causes of problems and their visible symptoms;  the Plan Forward was also tailor-made for use with an open-book, team-based approach to performance compensation.

All of the so-called P-initiatives in the Plan Forward flowed from the assessment of current reality, the UDEs, the IO Map.

The team decided to focus on eight initiatives:

 

P-1:  Strategic Direction:  Confirm the specific direction the company is committed to take, in terms of its value proposition, value discipline, target market, product type, architectural style and design, revenue and closings, and production size and capacity.

Purpose:  Provide strategic clarity.

Prerequisites:  None

Duration:  15 business days

 

P-2:  Team-Based Performance Compensation Plan:  Design and implement a Gross Income Milestone Plan, one based on the confirmed strategic direction, and providing for the payout of a GI Reserve reflecting the difference between a GI Baseline and a GI Target.

Purpose:  Become a company of business-people;  provide teammates a stake in the outcome.

Prerequisites:  P-1 complete

Duration:  5 business days

 

P-3:  Business Process Improvement:  Part I:  Completely analyze the current state of every critical business process, documented as cross-functional flowcharts.  Part II:  Redesign all of those critical business processes to provide significantly improved workflow, and then document them as IDEF0 process models (a hierarchical series of graphic and supporting text diagrams).

Purpose:  Implement elegant workflow solutions:  get horizontal;  clear the fog;  simplify the workflow;  attack variation, waste, and non-value-adding work;  take the freed-up internal resource capacity and deliver higher value work.

Prerequisites:  P-1 complete

Duration:  35 business days

 

P-4:  “Pull” Release Mechanism for Starts:  Implement a Start Release process designed to sequence the rate of job starts to (1) the completion of jobs already in the production system, and (2) the number of previously-released jobs in front of the most constrained resource.

Purpose:  Increase velocity:  reduce cycle time, manage capacity, reduce/control work-in-process;  synchronize starts and closings.

Prerequisites:  P-1 complete, P-3 complete

Duration:  9 business days

 

P-5:  Identify-Exploit-Elevate the constraint:  Identify the external resource that has a combination of the least capacity and/or the highest demand on that capacity;  partner with that resource to optimize its capacity, insure that it is never idle, and then – as a final resort – arrange for more capacity.

Purpose:  Increase velocity:  manage capacity, control work-in-process.

Prerequisites:  P-1, P-3, P-4 all complete

Duration:  5 business days

 

P-6:  Job Schedules:  Reduce current calculated cycle time (see Little’s Law) from 206 days to under 150 days, by removing all of the task duration safety and adding a project buffer to protect the job completion date (see Critical Chain).

Purpose:  Increase velocity:  reduce cycle time, by shortening the job schedule.

Prerequisites:  P-5 complete

Duration:  10 business days

 

P-7:  Plan Portfolio:  Expand and enhance the existing/current portfolio of floorplans and elevations, using the new Plan Review process.

Purpose:  Increase margins:  increase value delivered, by increasing the benefit and/or reducing the cost;  insure that the plan portfolio is a compelling differentiator in the company’s housing market;  strive for floorplans/elevations that are desirable-yet-buildable, buildable-yet-desirable.

Prerequisites:  P-1, P-3, P-6 all complete

Duration:  90 business days

 

P-8:  Job Budgets and Job Costs:  Apply the new Job Budgeting/Costing process to every floorplan and elevation in the expanded/enhanced plan portfolio to produce accurate and complete job budgets.

Purpose:  Increase margins:  produce accurate and complete job budgets;  use better specifications;  obtain better pricing.

Prerequisites:  P-3 complete, P-7 complete

Duration:  41 business days

 

Eight initiatives, to be completed in nine months.  Focused.  Prioritized.  Manageable.  Measurable.  Results-Driven.

Expected Results:  strategic clarity;  better processes;  everyone with a stake in the outcome;  cycle time reduced from 209 days to 150 days;  Inventory Turns increased from 1.7x to 2.4x;  Gross Margin increased from 17% to 22% (albeit on a useless absorption costing, NAHB-comparative basis).

Not too shabby.

I told our client it was a good start, but it is too modest;  I told them not to stop there.

Based on the UDEs and the IO Map (and we suspect the CRT had it been developed), and in the midst of developing the Plan Forward, I warned them that there remained a lack of clarity, boldness, and urgency, and advised them to address the deficiencies.

I told them that they understood the current situation, and they had a plan, but that is all they had.  It was up to them.  I told them that the hard work lay ahead, and it had to start right then.

If it was a different client, in a different situation, under different economic circumstances, it would have no doubt have resulted in a different plan.  But – whatever the situation – this is the type of urgency that continuous improvement needs to foster.

 

(introduced on builderonline.com in November 2014;  published on Escape from Averageness® in June 2016, as the first in a two-part series about a new consulting deliverable we were launching;  updated and republished here as part of our latest retrospective, “Still Above Average: The Best of Escape from Averageness®, 2009-2021”)

From time to time on Escape from Averageness®, we share high-level outcomes from selected consulting engagements, in order to provide different insights.  In this case, the insight is into how a focused, prioritized process of continuous improvement should work, a process that starts with a complete understanding of current reality.

Building Urgency Towards Results® is a two-part series summarizing the analysis and initiatives from one of the first Current Reality Assessments® we ever conducted [in the years since, we have conducted almost a dozen CRA®s].  Part I, what follows, is about assessing and understanding current reality;  Part II is about determining the best way forward from that reality.

Together, these two parts present a summary of the process.  It is also a picture of the candor and directness that must exist to make the process work.

The purpose of a Current Reality Assessment® is to:  (1) set forth a focused, prioritized, and measurable process of continuous improvement, with targeted economic outcomes;  (2) create a forward-looking plan, consisting of consecutive initiatives with short durations aimed at achieving the targeted outcomes;  and (3) build a sense of urgency towards the achievement of those outcomes.  That sense of urgency is held by everyone on the team, fueled, in part, by everyone having an economic stake in the outcome (stakeholders are not stakeholders if they don’t have a stake).

It is also a picture of the type of urgent, focused, rapid-results process of continuous improvement that is one of our requirements for working with clients – and being compensated – on the basis of the progress achieved toward a specific financial outcome;  in a Results-Based Consulting® arrangement, we have exactly the same stake in the economic outcome that our clients have.

The proceedings of any Current Reality Assessment® are determined by the particular situation and the period, and reflective of the specific business model.  However, those particulars and specifics notwithstanding, the principles of continuous improvement never change.  This client happened to be a $25 million, semi-production builder that strives for a 50/50 mix of inventory and presale homes, all in communities that it develops, communities in which it is the exclusive builder, and its CRA® reflected those circumstances.

Current Reality Assessments® require advance planning, preparation, data gathering, and analysis, but the onsite portion of the assessment can be completed in a matter of days.  This client took an aggressive stance, by agreeing to our recommendation that all three elements of their CRA® be completed in the course of a single day.

Those three elements were:  (1) the assessment of the current situation, the current reality;  (2) the plan forward from that current reality (the series of initiatives based on an Intermediate Objectives (IO) Map and Current Reality Tree (CRT), two of the logical thinking processes in Theory of Constraints practiced by Goldratt, Newbold, Kendall, and others);  and (3) the development of a team-based performance compensation plan (a progressive series of payouts of a reserve created from the milestone achievements related to a single business outcome targeted above an agreed baseline).

The one-day onsite schedule was intended to break complacency and force a sense of urgency.  We also knew that it might prove to be an impossible achievement – which it did.  So, we had to help the team complete the unfinished elements of the CRA® remotely over the course of a week.

The assessment looked at 12 operational areas, with the functional team from each area establishing their performance and current situation, and identifying what they felt were the symptoms of root-based, core problems (Theory of Constraints refers to these symptoms as the visible, undesirable effects – the UDEs – of problems that, while not-yet identified, will nevertheless have to be addressed and solved, because treating the symptoms of the problem will not work).

UDEs emerged from every operational area, on a range of issues, including:  the rate and consistency of sales;  the lack of clarity concerning strategic direction and purpose;  the mechanism and resulting pattern of starts;  the lack of synchronization between sales, starts, and closings;  the excessive level of work-in-process;  the excessive length of cycle time;  lower-than-desired Gross Margins;  vague branding;  and the lack of documented workflow (prior to the CRA®, we had done a private channel Pipeline workshop™ for this client, so they were well-aware of the production issues).

Mindful that UDEs only reflect the symptoms of the real problems, the team required a couple of iterations of the IO Map to define the system and its goal, establish the Critical Success Factors (CSFs) for achieving that goal, and establish the Necessary Conditions (NCs) for achieving those CSFs.

From the UDEs and the IO Map, the team developed the Plan Forward, the roadmap that would get them from where they were then, to where they wanted to be.  As such, it represented a planned, purposeful commitment to a measurable outcome.  As required, it was a series of initiatives with short durations, conducted in consecutive order, aimed at producing rapid, targeted, measurable improvements in areas of operational performance that drive improvements to a specific business outcome.

Fully-defined in terms of order, relationship, responsibility, completion dates, requirements, and outcomes, their Plan Forward met the necessary conditions of being a focused course of action that addressed the cause-and-effect relationships between problems and symptoms of problems, and being tailor-made for use with an open-book, team-based approach to performance compensation.

All of the so-called P-initiatives in the Plan Forward flowed from the assessment of current reality, the UDEs, the IO Map.

Next:  Part II:  Developing the Plan Forward