The term Best Practices as defined by Oxford is: “commercial or professional procedures that are accepted or prescribed as being correct or most effective.” This term is often used as a buzzword. Unfortunately, buzzwords can be bent to conform to someone’s agenda or simply misunderstood even though used topically.
The most effective best practices grow out of deep experience
The most effective best practices grow out of deep experience. The process must be viewed in a macro sense, micro-vision is tunnel vision. Often, we are quick to attempt to improve a process or solve a challenge based on a limited view.
The industry of homebuilding is susceptible to this sort of myopic best practice generation. Here’s an example…
A production home builder serving the first-time buyer market was using vinyl windows with drywall returns on the interior jamb. The builder was seeing a large cost in warranty related to these windows (production guys are nodding along right now). The person responsible for spec writing was in purchasing, the person responsible for the warranty budget was in production, and so without an opportunity to view things from a macro perspective, the practice employed was one that reduced initial cost (without accounting for the effects on warranty or customer satisfaction).
Sound familiar? To make a long story short, the builder was able to use wood interior jamb extensions and casing thus reducing corner bead, large amounts of drywall joint compound, and unnecessary drywall installation labor. They were also able to remove an extra day in the schedule that had been necessary to re-coat the deep drywall compound so the corner bead wraps would properly cure without needing to add a day to the trim labor schedule. Finally, they reduced warranty call-backs for drywall cracking around windows, and increased the perceived market value of their homes.
Once the macro-view was considered, this became a new best practice for homebuilders serving this market profile. One builder making a change to a more comprehensive best practice caused others in the market to take another, broader, look at their own standards and found the same thing the builder in the story found – when looking at overall value and the customer experience, the wood extension jambs were a better solution, and a best practice.
Best practices in homebuilding business processes are more elusive
Often best practices in homebuilding business processes are more elusive, albeit far more valuable in returning profit to the bottom line. For example, in most industries it is common for purchasing to have a well-defined bill of materials for each project or product you are building. This becomes the defined cost on which the project is approved, begun, and hopefully, completed.
In homebuilding by contrast, we typically purchase things in fits and starts. We might buy our lumber in packages from a building materials provider who is doing our takeoff for us, we might trust our HVAC or EWP/Truss component supplier to provide us with a fair quote for each home, we might be paying our framer or trim labor contractor by the square foot – as if each square foot in a home’s construction is equal in cost… in a few cases we may be purchasing by the unit (the stick, the piece, the box, the part).
Is it any wonder we have trouble controlling costs when we don’t even know what precisely is going into our homes? Where’s our bill of material? Our budgets have more holes than Swiss cheese!
It is any wonder we have trouble controlling costs
One of the most highly profitable best practices that can be employed in homebuilding is procurement of all materials, labor and services for every unit being defined, itemized and Purchase Order-driven. Nothing is delivered, constructed, or serviced without a defined order. Each purchase order is a highly specific document outlining the specific piece and part quantity to be procured for each home and cost code necessary.
Here are a few of the numerous advantages:
- The builder defines the margin nearly to the penny before a home is ever sold.
- There is no margin erosion.
- Many of the trade contractors excel at their respective trade over administrative business tasks. With a defined order prior to any performance, they are agreeing to the defined amount without needing to perform an additional takeoff and quote for each unit.
- As work is completed, each order item is queued for payment in the next pay cycle eliminating all invoicing and questions.
- Purchase Orders provide a transparency for all stakeholders in the process.
The above is a simple example with large potential to solidify a builder’s complete operation. The Mainspring Group can help guide you to create and implement this and many other best practices. We have the real-world experiences you need.