This is a longer version of an article that appeared in the May/June 2020 issue of Pro Builder.
What an “adventure” our industry is going through. The housing downturn of a decade ago was brutal, with millions of lost jobs and severe economic hardship, but at least people weren’t dying from a rogue virus. That housing crash also was something we basically understood. But COVID-19 is still mysterious and elusive.
As I write this, construction has been deemed essential in all but six states, albeit with some restrictions, and the current pattern indicates a loosening of those limitations by at least some states around mid-May. It is possible the industry just rebounds from that point and by mid-summer business seems almost like normal.
Yet, the vast majority of top docs and scientists warn of coronavirus rebounds or flash hot spots developing, possibly even into 2021. The need for social distancing and personal protective equipment (PPE) may fade away—or not—and the impacts of COVID-19, both economic and as a health crisis, could get even worse. At this point, there is no definitive answer.
The federal government has allocated hundreds of billions of dollars to help businesses with 500 or fewer employees mitigate the impact of the crisis, a standard that applies to the majority of home building companies.
The caveat, though, is that you must keep your people on the payroll. And if they are being paid, it would be great to have them do productive work. For many, that presents a challenge: What do we do when we can't do it together, at least in the traditional sense?
Epiphany No. 1: Not all group effort requires close proximity
As I pondered that question, I had an epiphany. My firm, TrueNorth Development, has very specific ideas to help answer this question. Most of our business is helping builders, suppliers, and trade contractors implement Lean methodology, yielding a wealth of productive ideas.
Simply, put, Lean is about eliminating waste in product and process, and planning with the goal of improving profit, quality, and customer satisfaction—without collateral damage. With 220 implementations among 165 builders, we’ve recorded more than 35,000 improvement ideas developed by suppliers and trades with their builder teams. And while it’s true the majority of the issues addressed require people to work together, that leaves thousands of ideas that don’t require group effort—or at least not the kind demanding close proximity.
Epiphany No. 2: Take action!
That first awakening was quickly followed by another. So many of the improvement ideas emerging from our Lean process implementations are evaluated as high importance, even critical, by the builder team participants. Yet builders have put them off for years. Could this current situation be an opportunity? Could the COVID-19 debacle prove so enabling in terms of continual improvement in home building that the shutdown actually pays for itself many times over? Think that over.
The first obstacle to addressing this opportunity is to truly understand the costs and losses from what builders are doing (and not doing) today. Consider something that’s been plaguing you for years; an issue you’ve meant to fix but that’s still steadily eating away at your margins.
These improvement ideas run the gamut of your operations, and in conversations with builders and my team, we’ve identified more than 50 specific things to work on that will pay off for years to come. Here are 20 to get you started.
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- 30 Mistakes to Avoid When Running a Home Building Company
- The Sinking of a Home Builder: You can have as many plans, elevations, and options as you like, but only if you have the systems, processes, and staff to seamlessly handle them
20 Business Improvements to Implement Now
1. Reduce variance
Excessive variance is so pervasive in our industry that my TrueNorth colleagues often call it an epidemic. It comes up in more than 90% of our Lean implementations. And although it’s true that you won’t see the variance coming through when you’re not building, most of the work you need to do to eliminate it can be done during this coronavirus downtime, and without people having to work side by side.
Before you cite your 1% variance rate and move on from this topic, there is a 99% chance you’re not measuring variance fully and accurately. That’s not a guess, it’s based on hard data gathered from our Lean implementations and other dealings with builders across the country for 23 years and counting. Before you can truly get a handle on variance, though, you must measure it correctly—and hardly anyone does. Then you have to do all of the things right upstream to eliminate variance at the source.
This isn’t a simple fix, but there’s a lot that can be done by individuals at this time, until we can work together as closely as before.
2. Run a process-flow mapping session
Builders are typically reluctant to launch a genuine process-flow analysis. But each time they do, they learn surprising things and conclude that process flow is absolutely essential.
Process-flow mapping can be performed effectively with both old processes and new processes outlined and gaps identified in a single day. Add another day and you can create a thorough outline of an improvement plan that saves a fortune in time and money right now. Next, look at departmental and other sub-processes that may warrant their own analysis, but always start with the big picture.
3. Review and update your website
Wandering around the web, I’d conclude more than half of all builders could use some meaningful enhancement of their websites, both for content and ease of use.
Here’s a simple, inexpensive analysis you can do: Write down 10 things you want potential buyers to find quickly on your website. This could include plans, options, contacts, pricing, and community amenities, but be specific, such as, “Directions to our age-targeted townhome project in Spring Grove.” Now test by asking 10 people unfamiliar with your website to pretend they are buyers. Watch as each person tries to locate everything on your list, in turn, no help given. Just observe. I guarantee you’ll find plenty of work to do on your site.
4. Reflow construction schedules
I’ve written about this ad nauseam for the past decade because schedules today compared with those prior to the big housing crash are, well, nauseating.
Across the country, at least 90% of construction schedules are longer-—by weeks—than they were a decade ago. Resist the temptation to use “the trade shortage” as an excuse, even though it may now be worse due to coronavirus. We know many builders that don’t have a trade shortage, only because they continually work on it, tightening schedules and reducing cycle time. You can, too.
5. Update all scopes of work
Seventy-five percent of builders have scopes of work, but I find no more than 25% are up to date. Of those, maybe half are truly two-way documents with input from and clear requirements for builders, suppliers, and trades alike. Perhaps half again are used as a tool for running the business. I’ll be generous and round that last number up to 10%. So at least 90% of you have work to do. Good scopes make a great difference.
6. Audit your design center
I can’t tell you how many times I’ve seen builder design centers grow in size and option sales while their profit margins on those options sink. In most cases, builders don’t even realize it’s happening. That’s because they stink at measuring the “true total cost” of the entire design and options process. Simplify the design center wherever you can, and implement total cost measurements. More than a few major changes will result.
7. Perform an energy review and make a plan
Review where you are today and plan how you’ll get to a net zero energy product, or at least net zero-ready. Some jurisdictions require it now, but many groups are pushing it nationally by 2030. It’s time to leave denial behind and start planning for this future. You’ll find builders in most cities that are already there. Study them. Create your plan. You have time now, but you won’t next quarter.
8. Review, update, or produce key checklists
How long has it been since you’ve thoroughly reviewed your checklists, including job-ready and job-complete checklists for every supplier and trade? For your customers, review your preconstruction, pre-drywall, and new-home orientation checklists.
Construction checklists should include job start, mechanical (aka “rough”), and ready-for-delivery (prior to the final customer walk). Warranty should have 30-day and 11-month checklists, or however you break it down locally. That’s 10 checklists right there to get you started, and you’ll no doubt find many more.
Of course, you’ll send the new drafts out to key constituents for their review and input. And this time, put the date of the update in the upper right-hand corner of each checklist and create a review cycle of no more than two years.
9. Audit your plans, elevations, specifications, and pricing
A thorough job here can have a monumental impact. Make all needed updates and purge all old unused plans, options, and pricing from your system. No tears. Just do it.
10. Implement value engineering
In my experience, there’s never been a plan that couldn’t be improved in appearance, function, use of materials, labor, or most any other important measure using a highly structured process that includes your design, construction, purchasing, and sales and marketing teams, as well as key suppliers and trades, and yes, engineering.
The best method is to bring these people together in an organized way. That’s difficult to do now, but you can still uncover many issues and make improvements by managing a round-robin distribution of plans to a group of remote workers. Then bring them together for a video conference review as you finish each plan.
11. Implement new plans
I estimate 25% of the plans out there today are truly up to date and ready for prime time. Another 50% are a real mishmash of good stuff and bad stuff, maybe some good elevations with marginal plans, or vice versa. Regardless, there's work to be done. Then there are the 25% desperate for a major overhaul. Right now is an ideal time to get all of your plans to good or great.
12. Commit to a building science review
There are a host of talented building scientists ready to educate us, save us real money, and reduce our liability. Most of their work is given in training groups or walking product in the field, but a ton is available online.
Try this for starters: Go to Construction Instruction, make a list of all of the topics listed there, and decide how to attack the topics. One a day? Three per week? Whatever works for you. Make assignments and schedule video conference calls to discuss each topic with your team. You can include your suppliers and trades as well. Do this and I guarantee things will go better this year and thereafter.
13. Challenge yourself to reduce paperwork
Some years back, a large Texas builder decided to challenge every piece of paper the company produced. They looked internally within and between departments, along with every document or form used with suppliers, trades, customers, municipalities, mortgage companies—everything to everyone. As a result, the company reduced the number of documents from more than 200 to around 60—a 70% reduction.
How much time do you suppose they saved in the following years? How much money? You’ve been threatening to do this for years, right? Make it a friendly departmental competition with a goal of 50% reduction. And when you achieve that, have a nice end-of-Friday afternoon party ... that is, when it’s OK to meet up again.
14. Prepare training plans and materials for all functions
Try this challenge: Go find your last 10 hires. Have them describe in detail exactly what training they received and who trained them. Don’t ask for them to evaluate their training just yet because many have never experienced good training and don’t know the difference. Listen carefully, then compare that to what you’d like folks who are responsible for $300K and $400K products to know and understand. I’ll bet you a nice lunch that 90% of you will not be happy with what you hear from your new hires. Will you be ready when the economy opens up and begins to bounce back and there’s talent to be had?
15. Totally focus on the trade base
Prior to COVID-19 there was almost nothing more important to ensure your health as a builder than the care, support, and maintenance of your trade base. That priority will be even more of a challenge coming out of the crisis as builders compete for scarce resources, and it is especially true if you operate in markets with many national builders. Why? Because the nationals will do everything humanly possible to still make their volume numbers for 2020—if not their profit projections—placing enormous pressure on the trade base. Now more than ever, you must understand and provide everything needed to be their “builder of choice.”
16. Update manuals and instructions
The need for these documents for field superintendents is obvious, but it also applies to service and warranty, purchasing, sales, the design center, admin, and other aspects of your business. Everyone intends to have such manuals to use for training and maintaining consistent operations, but I’d estimate fewer than 15% of builders have them in any meaningful form that's actually used.
Many times over the years, my team has been asked by builders to help them put such manuals together. What we always propose is a process driven by a well-respected, cross-divisional team to develop the manual based on their own local practices. That takes some time and work. What the builders wanted was no more than boilerplate, which has a practical value of less than zero. No one ever had the time to do it right.
Now you do.
17. Walk homes under warranty—and those out of warranty
Other than warranty staff, who walks homes six months to a year after closing?
See what’s working and what’s not. Hear it personally. Nearly 32 years ago, during my first month in home building, a construction VP named Steve Reeger and I walked a project that had closed out two years prior. Steve picked random doors, knocked, and asked if we could talk with the homeowners about their experience with the house. Some of the units were as many as three or four years old.
It was incredibly enlightening, and we learned a great deal. Most thought Steve was crazy for doing that; that he was just asking for trouble. But as Steve said, “We may not be talking to our customers, but our customers are talking to everyone they know.” Ponder that.
18. Build relationships
This is an imperative not just with your suppliers and trades as described above, and with customers and your staff (which should be obvious), but for everyone else you work with in your firm as well. So many small businesses are being pummeled right now, including architectural, engineering, and yes, consulting firms. Include marketing companies, printers, web designers, caterers, insurance companies, and your friendly local permitting and inspection authorities.
Create a specific plan to contact all of them and, even if you don’t have business for them right now, talk about your future plans to include them in any way you can. I've received several such calls in the past few weeks and it has made a world of difference for my mental attitude. Sure, projects have had to be postponed, but the plans are still there, and that means a lot.
19. Create (or update) the dashboard
I've written a lot over the years on metrics and sadly, as an industry, we don’t do well here. A clear, focused dashboard with both results and process measures, which everyone can understand, not only helps the entire operation run better but builds trust and communication as well.
Remember, results or “outcomes” measurements show us how we’ve done, in the past, which is good to know. But more important are the process measures that reveal how we're doing right now ... and to the degree they are predictive, all the better. Time to stop driving while looking in the rearview mirror.
20. Prepare a succession plan
This coronavirus experience has a lot of us thinking more about mortality ... prompting thoughts of retirement or selling out. Life happens. Accidents happen. Health problems arise. Do you have a clearly thought-out and documented succession plan for your business?
There are a lot of consultants out there that specialize in this. They know the right questions to ask. I recommend you find one and get your plan done and communicated to your family members and key internal staff. You haven’t had enough time or motivation before. Now you do.
Downtime to Tool Up
Simply put, there’s more than enough to keep your people working productively, even when they can’t work together. The results will pay off not just this year, but for years to come. As bad as things are right now, you’re confronted with an incredible opportunity. Will you seize it?
When the last downturn hit, Lou Baker, then president of Pulte’s Baltimore division and now CEO of Baker Development, in Maryland, told his team, “We’ll use the downtime to tool up.” His combined Maryland and Virginia divisions did quite well for Pulte during the housing crash, and his proactive philosophy was a big part of it. Sage advice, and it applies every bit as much today.