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

Posted September 9, 2021 By Fletcher Groves

(posted on Escape from Averageness® every year, on the anniversary of 9/11, with the title “I remember where I was . . . I remember who I was with.”)

September 11, 2001.  8:46 AM.  On this date, twenty years ago, 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”, arranged by Professional Builder, that included a number of top consultants serving the homebuilding industry.

My role was to be the Process Architect for Fidelity Homes.

Sitting across the table were David Hunihan and Todd Menke, two then-young builders, eager to take their experience with a larger homebuilding company and pursue a National Housing Quality award.  We had been underway for a couple of hours, when David was pulled away by a telephone call.  It was David’s 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, besides, 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.

The late 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, Florida 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.

The events of 9/11 remain a matter of, now increasingly, unfinished, unaddressed business for this country.  And, yes, it is admittedly difficult to address unfinished business when the risk associated with that business is constantly changing.  Osama bin Laden is dead, Al-Qaeda is a remnant, ISIS was destroyed (for now), Suleimani is dead, but the intentions they all fomented remain.

Vanquished within the space of three months following 9-11 by small groups of CIA agents and the Northern Alliance with US air support, the Taliban has now, in the space of the last three months, undone everything that was accomplished in Afghanistan at such a high cost and sacrifice, the safe havens destroyed, all the hopes provided, all the assurances made.

It has created the world-wide perception that the United States of America has become “a pitiful, helpless giant” (The Wall Street Journal, August 21, 2021).

The threat of terrorism has not ended;  far from that, it is alive today on four or more continents;  it is worse now than before;  the Taliban re-takeover of Afghanistan has opened the doors to what will almost certainly become ransom, torture, and genocide.  By the way, domestically-speaking, is Antifa, at its heart, really any different?

Time has only increased my feelings about 9-11.  We were attacked, twenty years ago, because of who we once were, and to which we must resolutely and unapologetically return.  We see it as unfinished, unaddressed business;  our enemies see it the same way.

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

Complete.  Utter. Destruction.

Whether the outcome of complete and utter destruction of an enemy can be accomplished by merely cutting off its head(s), or has to be achieved through the complete annihilation of its being(s), doesn’t matter.

It doesn’t matter what we think of issues like American Exceptionalism, our place in the world, or the tradeoff between national security and the constitutional rights to privacy of US citizens.

It doesn’t matter what we think of the threat of terrorist attacks on our own soil, or the never-addressed murder of US diplomats and security personnel in Benghazi, or the ramifications of decisions not to intervene decisively in Iran and Syria, or the perilous withdrawal of remaining forces in Afghanistan and Iraq, or the ebb and flow of ISIS, Al-Qaeda, the Taliban, and all of the other bad actors.

It doesn’t matter what we think about the question of what happens when Iran or North Korea become terrorist regimes with nuclear weapons, or the aspirations of China and Russia, or the use of cyber warfare, or the employment of infectious diseases as weapons of mass destruction.

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 problem is not the threat of future terrorist attacks or rogue regime nuclear attacks, or the threat of Chinese global dominance, or any of the rest.  The problem is the terrorists and their sponsors;  the problem is rogue the nuclear regimes and their enablers;  the problem is the Chinese Communist Party and its intentions.

The problem is countries that have always been and will always be our enemies.

And, the solution is not negotiation, or attrition, or containment, or control, or minimization, or dismantlement of the threat, or nation-building, or mounting an international coalition against terror, or imposing sanctions, or providing more humanitarian aid, or granting political asylum, or opening our borders to the massive illegal immigration of people who expect to have the privileges of living in America without accepting the responsibilities of being Americans, or teaching Critical Race Theory, or promoting equity over equality, or creating “deeper understanding”, or becoming more woke, 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.  There are circumstances recorded in scripture when the children of God are instructed to destroy their enemies (Deut. 20:16-17 is an example).  And, yes, at some point, the one, true God, in His righteousness and omnipotence, will impart His own, all-encompassing justice.

However – absent divine command or divine intervention – we cannot afford the “problem of conjecture”, as Henry Kissinger described it.  We have now assured ourselves that there will be war;  if not an outright nuclear war, then a conventional war over who will have nuclear weapons, or who can use the threat of those weapons to expand their empires.  Enemies that already have nuclear weapons no longer fear us;  the ones that hope to obtain those weapons will not fear us, either.

We are now in a far, far more dangerous, far more deadly, far more vulnerable situation than we were in the aftermath of 9/11.  It is becoming more dangerous, more deadly, more indefensible by the day, with the enemy external being abetted by the enemy within, in the context of complete, unaccountable incompetence on the part this government and its military leadership.

The solution is simple.

“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 Workshops™: Velocity Accelerators®

Posted September 7, 2021 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.

As a measure of business outcomes, we want to elevate velocity to an equal standing with margin, because those two measures – 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 highlight specific areas of production management for a deeper dive – more discussion, challenging, pointed exercises from the RB Builders: Lessons for the Pipeline© business case, etc.

These areas are known as the Velocity Accelerators®.

Velocity Accelerators® tend to be important areas that rarely 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. 16, October 14-15, 2021, 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 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 ago, the project scheduling algorithm known as the Critical Path Method (CPM) was never intended to function in the environment that constitutes 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.

Critical Chain Project Management (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;  managed variation;  more Revenue, more Gross Income, generated with a planned, finite, and controlled amount of work-in-process, production capacity, and corresponding debt.

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

Our sponsor, Simpson Strong-Tie (through its acquisition of Specitup), is coming out with their own CCPM app, and they will be available to share 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 first succeed 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 Team-Based 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 four or five we have highlighted in previous workshops, is to give these three areas sufficient emphasis.  We still intend to touch 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 – as a completely outsourced supply chain – they are completely dependent and reliant on skilled construction resources that are in limited 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, 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.

Our sponsor, Simpson Strong-Tie, will be available to share information on their BIM Pipeline and Quickstart Toolkit apps.

 

We like the balance between these 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 October 14-15, 2021, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.  Attendance is limited to only 30 attendees.  The cost is $895.00 per person.  For team pricing, inquire here (flgroves@saiconsulting.com).

Delivered by SAI Consulting.  Sponsored by Simpson Strong-Tie.

For more details:  www.buildervelocity.com

 

      

Pipeline Workshops™: RB Builders: Lessons from the Pipeline©

Posted August 28, 2021 By Fletcher Groves

It is the first quarter of 2021.  RB Builders is again aiming to extend its reputation as one of the few builders that has attained sustainable competitive separation, by learning to thrive, operationally, on both the margin and velocity sides of Return on Assets.  RB Builders plans to do so by expanding into another new geographical market, via the late-2020 acquisition of its eighth existing homebuilding operation.

Despite being the largest acquisition RB Builders has made to-date, this newly-acquired division is in-line with all but one of the previously acquired operations in terms of its target market segment.  Like its predecessors, it has historically generated operating results and business outcomes that are lower than what RB Builders considers acceptable.  As was the case with its predecessors, this new building operation has acceptable current land/lot positions.

To date, RB Builders has completed the newly-acquired division’s management technology conversion, and has started the conversion of its business and operating processes.  Despite the challenges, RB Builders’ management team is confident they can continue their remarkable track record of unifying, developing, and improving the capabilities of existing teams at the builders it has acquired, and, in the process, transforming them into teams that reflect RB Builders own savvy, motivated, and mutually-accountable homebuilding team.

This road has become a familiar path for RB Builders.

 

HISTORY OF RB BUILDERS:  Thirteen years earlier, at the beginning of 2008, shortly after the halcyon period known as the Age of Homebuilder Entitlement® came to an end, RB Builders had begun its own transformation process, with the objective of extracting itself from what it self-described as “the tar-pits of averageness”.

It was a transformation process that had four key components:

(1) a team-based performance compensation plan directed at achieving targeted results above a baseline related to a single, critically-important business outcome, with payouts based on the achievement of a series of progressively-weighted milestones;

(2) a method of sharing numbers that produced full operational and financial transparency;

(3) an accounting/costing approach that connected operating performance to business outcomes, via actionable data;

(4) a focused process of continuous improvement, consisting of a prioritized series of consecutively-ordered initiatives, with short durations aimed at achieving defined, targeted, and measurable results.

Along the way, there had been a number of important initiatives, some dealing with workflow, others dealing with scheduling, some dealing with the value stream and trade partnering, others dealing with product buildability and value, some dealing internal learning.

As a result of this program, RB Builders had made massive strides.

During the initial five-year period (2008-2012), figured on a same company basis, annual Revenue had grown from $50 million to more than $121 million, an increase of almost 250%.  During the same period, the number of closings had increased more than 225%, from 200 to 453 houses per year.  Despite pressure on margins, overall Gross Income Margin had increased slightly, from 22% to 24%;  as a result, RB Builders’ Gross Income had out-paced its Revenue, growing by more than 250%, from $11 million to almost $30 million.

During this same five-year period, Operating Expense had increased 30% (from $8.5 million to $11 million), far less than the same-period increase in Revenue, and as a result, RB Builder’s Net Income had risen from $2.5 million to $16.5 million, six-times what it had been before the company began its transformation;  Net Income Margin had almost tripled, from 5% to 14%.

In 2008, RB Builder’s cycle time had been 180 days;  four years later, by the end of 2012, cycle time had been reduced to 65 days.  In 2008, the average amount of work-in-process had been 100 homes under construction;  by the end of 2012, the company been able to reduce its average work-in-process to 80 homes under construction, despite doubling the number of homes being closed.

In 2008, RB Builders had sought an inventory turn of 2.5x, which was actually an improvement from 2007;  in 2012, by keeping its work-in-process at 80 homes and closing 453 homes, RB Builders had been able to more than double its inventory turn, from 2.5x to 5.7x.

In 2008, RB Builders had been able to turn the value of its financial assets three times;  in 2012, it turned the value of those assets almost five times.  Because it had managed to maintain margins while improving velocity, RB Builders saw its main barometer of economic return (Return on Invested Assets) increase almost six-fold during the five-year period, from 11% in 2008 to 64% in 2012.

By 2013, RB Builders had moved all of its raw land holdings and developed lot inventory off of its balance sheet and into subsidiaries, a move which would have further improved Asset Turn – and ROIA – had those two measures been restated to reflect only the remaining operating assets.

By any measure, it had been a remarkable transformation.

The seven divisions that RB Builders had previously acquired have all met – or remain solidly on-track towards meeting – their own multi-year plans for significantly increasing closings and Revenue, doing so without incurring any increases in Operating Expense, all the while maintaining lower levels of work-in-process and operating under reduced construction lines of credit.

As RB Builders’ management team described it, it was a case of relentlessly finding ways to “do more without more”.

 

NEWLY-ACQUIRED DIVISION:  Near the end of 2020, RB Builders acquired this, its eighth homebuilding operation, what it refers to as RBB-8.  Unlike the outlier, never-to-be-repeated 2017 acquisition, RBB-8, despite its considerably larger size, was thought to continue the return to acquisitions in-line with RB Builders’ M&A pattern, because of similar product offerings, in the same price range.

For managerial accounting purposes only, RB Builders had converted RBB-8 to a Contribution Income Statement format based on a variable costing approach to cost allocation, the same action it takes with all of its acquisitions.

In its last year of independent operation, RBB-8 had closed 80 homes, on which it generated $20.0 million in Revenue;  with its $16.8 million in restated Cost of Sales now reflecting only its direct, variable costs, the division had generated $3.2 million in Gross Income, producing a 16% Gross Income Margin.

With its $2.4 million in restated Operating Expense now reflecting only its indirect, non-variable costs, the operation had generated $800,000 in Net Income, producing a 4% Net Income Margin.

Since it carried an average work-in-process of 40 homes under construction for the year in 2020, RBB-8 had a calculated cycle time of 180 days (despite job schedules calling for 120 days);  and, because cycle time and inventory turn are reciprocal measures, the 80 closings achieved with an average work-in-process of 40 homes under construction meant that the division had turned its physical inventory twice (2.0x) during 2020.

Adopting another one of RB Builders’ mandates, and moving all of its vacant land holdings and developed lot inventory off its balance sheet and into subsidiaries, RBB-8 now showed a restated average work-in-process of $5.7 million, based on an average per-unit LIP balance of $142,500, which consisted of a $75,000 average lot takedown draw and a $210,000 fully-funded LIP balance (100% of cost, including land;  84% of the $250,000 average sales price).

In 2020, an average work-in-process of $5.7 million and Revenue of $20.0 million gave RBB-8 an asset turnover ratio of 3.5x;  with a Net Income Margin of 4% and a restated asset turnover ratio of 3.9x, RBB-8 had generated a Return on Invested Assets of 15.6%.

 

As this newly-acquired division’s management team, here are the questions the business case exercises raise for you:

Q;  How will you address a mandate that your newly-acquired division increase its annual closings, with significantly reduced work-in-process, a likewise significantly smaller line of credit, and the same amount of overhead?

Q:  How will you use Building Information Modeling (BIM) to improve both the margin and velocity sides of economic return?  What will your ROBIMI (Return on Building Information Modeling Investment) be?

Q:  What cost accounting practices will need to change in order for you to comprehend the type of operating decisions that must drive the targeted economic outcomes?

Q:  How will you create a savvy, motivated, mutually-accountable homebuilding team?  A team that understands the business of homebuilding as much as it understands the homebuilding business?  How will you give every teammate a significant financial stake in the outcome?

Q:  How will you answer RB Builders’ contention that unwelcome variation – evidenced solely by your 2020 calculated cycle time – is costing your division $1.6 million per year in lost Net Income, an outcome that will persist each and every year, until it is addressed.  A fact to keep in mind:  in 2020, your division had Net Income of only $800,000.  Is what they are asserting even possible?

Q:  How will you implement Epic Partnering™ (RB Builders’ program/process for creating relationships-arrangements of compelling mutually-shared interests) with your suppliers and subcontractors?  What are the attributes of the partnering relationship?  What are the components of the partnering program?  What does a transformational partnering process look like?  Is vertical integration an option to consider?

Q:  As you analyze it, are you willing to consider replacing, over time, your fully-outsourced building model (requiring a larger, shallower geographic footprint) with a fully-integrated building model (which allows a narrower, deeper footprint)?

Q:  How will you use Business Process Improvement (BPI) to remove non-value-adding work and make the remaining value-adding work flow faster, more evenly, more smoothly, with fewer mistakes and rework?  How will you build a shorter, straighter pipe?

Q:  How does using a different scheduling algorithm reduce your job schedules from 150 days to 121 days, while also assuring more reliable job completion dates?

You can always ask us to send you the business case.  You can complete it, grade it, and figure out how well – or how poorly – you did.  Were you able to answer the questions?  Were you able to solve the problems?

If you find as unacceptable – what we’ll call your “degree of attunement” – you should come to the upcoming Pipeline workshop™.

Come.  Participate.  Learn.

 

RB Builders: Lessons from the Pipeline© is the underlying business case study used at every Pipeline workshop™.  The next workshop is being held October 14-15, 2021, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.  Attendance is limited to 30 attendees.  The cost is $895.00 per person.  For team pricing, inquire here (flgroves@saiconsulting.com).

Delivered by SAI Consulting.  Sponsored by Simpson Strong-Tie.

For more details:  www.buildervelocity.com

 

      

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

Posted August 20, 2021 By Fletcher Groves

Remove any consideration of financial leverage (the equity multiplier) from the calculation of Return on Assets, and economic return becomes a function of profitability (Return on Sales) and operating efficiency (Asset Turnover).

That is the fundamental understanding that emerges from applying the DuPont identity, regarding Return on Assets.  This means that economic return is margin x velocity, which then raises two questions:  (1) How much can I make on each house I build?  (2) How many houses can I build with the finite capacity that 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?  That is highly unlikely.

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)

Those facts and admonishments notwithstanding, in the homebuilding industry, action on the margin side of Return on Assets seems to always overshadow action on the velocity side of ROA.

Pipeline workshops™ are aimed at changing that paradigm.

The real motivation to attend a Pipeline workshop™ starts with the willingness to acknowledge – and a desire to remedy – what amounts to a profound lack of knowledge regarding production principles and disciplines, and the impact they have on economic return.

Let the meaning of the last part of that statement linger for a moment:

In the homebuilding industry, there is a profound lack of knowledge regarding the operation and management of production systems, and the effect those systems have on profitability and economic return.

Disagree?  Think you know your stuff?  Really?  Then, 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 true measure of size for a homebuilding company? revenue  b. number of employees  c. houses under construction  d. annual closings
  4. What are the terms for the three activities that describe “what happens to money” in a homebuilding business, terms which can be used to express and link all the formulae for operating performance (productivity, cycle time, and inventory turn) to both measures of financial performance (Net Income and Return on Assets)? What do those activities represent?
  5. What type of workflow best describes homebuilding? Is it process management?  Is it project management?  Is it 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 poorer job of optimizing capacity utilization than a production system that unbalances capacity across those resources.
  7. In what three ways will a production system protect itself from variation and uncertainty?
  8. In scheduling a portfolio of jobs, which algorithm considers both task dependency and resource contention? Is it Critical Path or Critical Chain?
  9. Calculating the cycle time of a production system requires knowledge of two operational measures. What are they?  Determining the level of necessary work-in-process requires knowledge of what operational measures?  Projecting the rate of periodic 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. What measure of operating performance is the reciprocal of cycle time?
  12. Lean Production views homebuilding as a build-to-order process. How does Lean recommend selecting a resource to serve as the process’ 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?
  15. What three human behaviors consume the time safety intentionally 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. Increasing the likelihood – the assurance – that a task will finish on-time, from a 50% probability to a 95% probability will cause the duration of the task to increase by a factor of how much? What is the 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. What is the difference between velocity and 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 resources.

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 October 14-15, 2021, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.  Attendance is limited to 30 attendees.  The cost is $895.00 per person.  For team pricing, inquire here (flgroves@saiconsulting.com).

Delivered by SAI Consulting.  Sponsored by Simpson Strong-Tie.

For more 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) True;  (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 measures are known, the third measure can be calculated;  (10) True;  (11) inventory turn;  (12) Lean recommends using the most capacity-constrained resource as the pacemaker, one of the areas in which Lean Thinking agrees with the Theory of Constraints;  (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;  it amounts to 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.

 

      

“The Pipeline game™ production simulations were a brilliant way to demonstrate and drive home the significance of cycle time improvements and improving trade partner efficiencies on ROA and Net Income.”  (Keith Porterfield, COO, Goodall Homes (now part of Clayton Homes), Gallatin, TN)

“The Pipeline Game™ is a great tool requiring the players to put into practice the principles taught in the workshop.  It’s a hands-on exercise that requires you to think, consider, and review the results of Critical Path versus Critical Chain.”  (Lisa Ramsey, Independent Consultant, Mark Systems, Mt. Holly, NJ)

“The Pipeline game™ was fantastic.  A force multiplier to the seminar.”  (Todd Schunk, Construction Manager, CalAtlantic Homes, Jacksonville, FL)

“The 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.

“This workshop was really eye-opening!”  (Charles Roberts, Vice President – Operations, Providence Homes, Jacksonville, FL)

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

Over the eight consecutive years they have been offered, we have made a number of additions and changes that improve the learning that Pipeline workshops™ deliver, most notably, adding the RB Builders: Lessons from the Pipeline© business case, with its challenging set of problem-solving exercises, several of which are used with another added component, what we call the Velocity Accelerators®.

Despite all the improvements, most attendees and observers will tell you that the most compelling part of a Pipeline workshop™ is the team-based simulation tool the entire workshop was built around.  Pipeline Games™ are a progression of production scenarios that produce business outcomes, a production simulator that reveals both the home building business and the business of building homes.

In addition to the open, sponsored Pipeline workshops™, we have used the Pipeline game™ at Housing Leadership Summits (now the Builder 100 Summit), at CertainTeed Builder Advisory Groups, at BuilderMT-Sales Simplicity User Conferences (now MiTek), with NAHB Builder 20 Groups, at the many private Pipeline workshops™ we have held for larger builders, and at other industry gatherings.

Pipeline Games™ reinforce the production principles taught in a Pipeline workshop™, most notably, the effect of variation and uncertainty on a production system, pull scheduling according to the capacity of a constraint resource, and the importance of connecting operating decisions – made on matters like flow, cycle time, capacity utilization, and the level of workinprocess – to the critical business outcomes of profitability and Return on Assets.

Look at the results from any of the previous 16 workshops, and you will see that the results never lie.  The following set of results are typical.  In every category – from Revenue, to the levels of Work-in-Process, to Inventory Turns, to Cycle Time, to Net Income, to Return on Invested Assets – the teams attending this workshop 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 comprehend 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 the co-equal components that comprise the measure:  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 learn to expect, if the underlying production principles are true, if those principles are being applied, and if real progress is being made.

As is always the case, the builders attending this Pipeline workshop™ clearly learned from their experience.

They learned the principles and disciplines of homebuilding production.

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

The difference is, 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 October 14-15, 2021, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.  Attendance is limited to just 30 attendees.  The cost is $895.00 per person;  the cost during early registration, open only through August 20, 2021, is $750.00.  For team pricing, inquire here (flgroves@saiconsulting.com).

Delivered by SAI Consulting.  Sponsored by Simpson Strong-Tie.

For more details:  www.buildervelocity.com