Post 1 of 4 in a series looking at Revolutionizing VPOs.
“A problem well-stated is a problem half solved.” – Charles Kettering
“A problem well-stated is a problem half solved.”
When it comes to Variance Purchase Orders (VPOs), what’s the actual problem we’re trying to solve? To answer that, let’s start with the basics: what is a VPO? A Variance Purchase Order is an additional cost that arises during construction, typically driven by a request from a trade or supplier. It’s an extra expense that flows from the field—where the work happens—through the production side of your homebuilding operation. These costs pop up unexpectedly, and if not managed well, they can erode margins and frustrate everyone involved, from field managers to owners.
So, what’s the problem? Let’s break it down by looking at how VPOs are handled today and why that’s not working.
Here’s the typical scenario:
- A trade or supplier realizes they need something not covered in their original purchase order—maybe extra materials or an unplanned trip charge. They tell the Field Manager (FM).
- The FM, pressed for time and focused on keeping the schedule on track, says, “Go ahead, do the work, and get it done fast.”
- The trade completes the task and later informs the FM how much it costs—“Hey, pay me $300 for this.”
- The FM, juggling a dozen other priorities, doesn’t process it right away. Days or weeks pass.
- Eventually, the request lands with purchasing, who enters it into the system without much scrutiny—after all, it happened ages ago, so what’s the point of digging in now?
- Every quarter, the owner reviews the P&L, sees a big chunk of variance costs, and gets frustrated: “Why can’t we control these expenses?”
This cycle repeats, and it’s an expensive mess. So what are the underlying issues contributing to this problem? There are three:
- Work without a PO: Trades perform tasks without prior approval, setting costs at their discretion. No upfront cost control.
- Cost Entry Delayed: The lag between the work being done and the cost being recorded — sometimes weeks or months — removes any opportunity for accountability or negotiation of the incurred cost. It also leads to margin drift. You may think you’re going to make 28% on a house, only to find out later it’s 24% because of untracked variances that are all entered and processed late.
- No Reporting or Resolution: There’s no system to analyze why these variances happen or to stop them from recurring. Owners yell, teams scramble (briefly), but nothing changes long-term.
Our problem: a reactive, disjointed process that bleeds money and morale.
So that’s our problem: a reactive, disjointed process that bleeds money and morale. Over the next few posts, we’ll walk through how to solve it step-by-step. Stick with us, and here’s what you’ll gain:
- Leadership: Become a trailblazer in VPO management among homebuilders.
- Results: Slash VPO costs and realize steady reductions over time.
- Retention and Margins: Boost Field Manager and trade retention while protecting your bottom line.
Next up, we’ll dive into the first key to fixing this problem: Variance Reason Codes.