AI Is No Shortcut. Make Sure You Have These 5 Essentials First
The home building industry is at the intersection of the Information Age and the Imagination Age, a transition that brings a paradigm shift in how builders perceive and use data to gain a competitive edge.
Recent research by Home Innovation Research Labs for Pro Builder indicates that the majority of publicly held and national home builders are pouring resources into artificial intelligence (AI) to streamline their operations, improve customer relations, and analyze data.
Smaller-volume, regional, and even local home builders also have an opportunity to leverage AI to reduce waste and help level the playing field with the publics, but only if they first establish strong operational foundations.
In short, AI is an accelerator, not a shortcut, to achieving operational efficiencies.
To Succeed With AI, You Need to Do These 5 Things First
Before home builders can harness the full power of artificial intelligence and automation, they need to:
1. Manage the Soft Cycle
The soft cycle is the time between contract signing and release to production, and it directly affects cash flow and customer satisfaction. Delays at this stage cause ripple effects throughout the entire home building process.
To manage the soft cycle properly, builders must:
- Establish a structured workflow for sales, design, drafting permits, and purchasing, with each activity having an owner, duration, predecessor, and successor.
- Implement real-time tracking systems to ensure homes progress through the soft cycle without stalling or delaying the process.
- Align pre-construction processes with production schedules to create a seamless transition into construction.
- Leverage easy yet robust communications technology to both inform the team when a build schedule has the potential to slip and to make adjustments before the delay occurs.
Builders also should continuously analyze historical soft cycle performance to refine their processes, identify recurring bottlenecks, and leverage automation tools that can streamline approvals, reduce permitting delays, and accelerate contract-to-construction transitions.
The more predictability in the soft cycle, the faster homes can move into production and the stronger the builder’s overall operational efficiency becomes.
2. Reduce Production Cycle Time
Once construction begins, every day counts … and costs money. Optimizing production timelines without compromising quality requires these foundational elements, some of which are ripe for an AI element:
- Predictive scheduling: AI-driven systems can anticipate weather delays, material shortages, and trade availability, enabling dynamic scheduling adjustments.
- Collaboration and standardization: A unified production team creates the schedule template as a team. By using a standardized template, the organization can see bottlenecks in the future and better align capacity with the demand.
- Strategic buffering: Rather than applying the same time buffers to every home, leverage the schedule to have built-in buffers that allow for agility in managing through the myriad unknowns of each home’s phases. Examples include a four-day production schedule that allows for a 20% (for example, Fridays) buffer period. Alternatively, the production schedule may have several buffer periods injected ahead of key milestones, which allows for ebbs and flows without compromising key dates in the schedule.
- Continuous improvement cycles: Teams should conduct retrospectives on completed projects, identifying inefficiencies and refining future schedules.
In addition, home builders should ensure they are using data to fine-tune cycle time efficiently. Analyzing trade performance, delivery schedules, and jobsite workflow ensures that time-consuming inefficiencies—such as material shortages, scheduling conflicts, and waiting for inspections—are reduced.
AI can model various production strategies, allowing builders to optimize schedules that both minimize delays and maximize trade efficiency.
3. Use Data-Driven Decision-Making
Data collection is just the first step; what really matters is how quickly and effectively builders can transform raw data into strategic decisions.
To become more agile and make better-informed decisions quickly to spur action, consider:
- Automating data capture: Reduce the burden of manual entry by integrating real-time data feeds from multiple platforms.
- Focusing on high-impact metrics: Identify key performance metrics (KPIs) that drive business success, such as variance trends, margin fluctuations, and cycle-time performance.
- Integrating real-time dashboards: Dynamic visualization tools enable leaders to track project status, financial performance, and operational efficiency at a glance.
Home builders should be powered by an enterprise resource planning (ERP) system with a structure that orients data toward fast, decisive action.
Delays in accessing the right data create inefficiencies that AI alone can’t fix. A disciplined approach to structuring and analyzing data ensures builders gain insights that can be turned into tangible actions, which allows builders to stay ahead of market shifts and operational challenges.
4. Engage in Proactive Business Planning
A clear financial road map is essential for sustained success. Home builders should focus on:
- Sales and production forecasting: Establish detailed projections for home closings per community, as well as expected revenue and pricing trends.
- Margin optimization: Ensure profitability by managing costs effectively and adjusting pricing strategies in response to market conditions.
- Expense control: Identify variable vs. fixed costs and understand their impact on profitability so budgeting models can be adapted dynamically.
- Scenario planning: To protect profitability, create contingency plans that account for changes in material costs, labor availability, and interest rates.
Builders must shift from a passive approach—waiting to see what happens—to actively “managing by exception.” That is, clearly defining a business plan, establishing expected outcomes, and continuously monitoring key indicators to detect deviations early.
When variances occur, builders must quickly analyze the root cause, implement corrective actions, and refine their approach.
No business plan executes itself. Success requires constant monitoring and course correction to ensure outcomes align with the plan. Builders that embrace this mindset will find themselves steering their businesses with intention rather than reacting to circumstances.
A solid financial strategy requires continuous monitoring and adaptation. Home builders that proactively manage financial forecasting will be more resilient amidst economic fluctuations and better positioned to scale operations efficiently.
5. Optimize Variance Purchase Orders (VPOs)
Variances are a reality in home building, but a poorly managed VPO process can be a significant drain on profits. Consider:
- Classifying variances effectively: Assign a consistent set of reason codes (the “why”) to VPOs to identify patterns, assign ownership, and pinpoint recurring and preventable issues.
- Implementing daily VPO reviews: Reviewing variances daily rather than weekly or monthly allows teams to address root causes before they escalate.
- Adopting a solve-and-resolve mentality: Correcting immediate variances is only part of the solution; teams must also analyze root causes to prevent future occurrences.
By treating variance control as a strategic function rather than an administrative task, home builders can reduce cost overruns, improve profit margins, and create a more stable cost structure.
Build the Foundation Before AI Can Add Value
The promise of AI in home building is vast, but the real winners will be the companies that establish strong operational foundations first.
AI is not a magic fix, it simply amplifies what is already in place. Builders that refine their soft cycle, optimize production, structure their data, plan proactively, and manage costs strategically will be best positioned to harness AI as a true competitive advantage.
Private regional home builders no longer must view the large publics as insurmountable competitors. By investing in fundamental operational improvements and embracing technology intelligently, they can compete smarter, build faster, and scale sustainably in an AI-driven future.
About the Author
Matt Collins
Matt Collins is the managing member of The Mainspring Group, a specialty firm focused on helping private regional home builders identify and take the right steps on their own journey toward agility and operational excellence.