Builders are always looking to boost profits, adjusting the margins on options to squeeze out a few more dollars, or even making workers get the last out of every bucket of drywall mud. But the real profit killer is a sloppy schedule, where even one day’s slippage can wipe out the profits you obtained from adjustments made to dozens of features in the home building process.
Where do the losses in the schedule slippage originate? The list is long, including extra carrying costs of loans, money, insurance, the costs to carry unneeded things like portable toilets, Dumpsters, and mostly the carrying costs on labor.
It can all add up fast. If you are starting just 50 homes a year, a one week delay on each those starts – which is easy to incur – would mean carrying all your business costs on a home for a full year! And that’s to say nothing of the opportunities you miss when you don’t redeploy your assets (especially labor, supers, construction managers) onto other new starts. Here are three areas to consider to help cut back on lost time and money:
Schedule Integration. It is not exactly breaking news that the schedule is key to protecting profits, but what most builders don’t realize is the importance of integrating the schedule with estimating and purchasing. Frankly, you can have the most efficient schedule in the world, yet if materials are not coordinated with the work stages, your labor sits around. Reciprocally, if you misestimated materials or labor, that just reaps havoc on your schedule, and you’re not optimizing labor. In either case, schedule glitches just compound problems down the line, causing other glitches, taking your operations off-stride.
Estimating and Purchasing. Case study after case study by my company, BuilderMT, shows that integrating estimating to purchasing clearly reduces errors, improves staff productivity (and morale!), and allows for sharing of information between the estimating and bidding process. This integration has multiple positive effects throughout the organization, but the main one is that it allows you to have the time and patience to select the best vendor at the best prices, whether you are purchasing materials or labor. By the way: If you need any evidence that your estimating and purchasing are not in sync, count up how many variance purchase orders (VPOs) you are processing. That is a leading indicator of a mis-match of your systems. Even two per start is a lot.)
Scheduling and Purchase Orders. Assuming that you have a software system that can integrate estimating and purchasing, it follows that you are using a purchase order (PO) system to authorize the expenditure of funds. Now, with POs, you are really prepared to vault into the margins experienced by elite builders. The next step is to tie your purchase orders to schedule events.
Why? Well, the purchase order is a de facto contract between the builder and the trade/supplier. When you tie the purchase orders to the schedule events, and provide your field staff with mobile technology to “walk the job” and check off the completed scheduling activity, this will automatically “score” the schedule event as completed/approved work stage, and it will authorize the payment of the purchase order. With the right software, this process will generate an invoice into the accounting system to reconcile the payment from the right budget allocation, down to the building-lot-specific level.
Just that closed loop of activity (scheduled event > purchase order > field approval > invoice generation > accounting reconciliation) will save you 80% of the time it takes you to do this manually in paper-based processes. By automating this process through software and mobile technology – all of which can be purchased and installed for a dramatically quick return on investment – you no longer have to handle paper or chase down invoices. This in turn allows your vendors and trades to be paid faster, boosting their morale in the process. Moreover, your houses are more likely to be completed on time, because schedule variances are immediately evident and can be addressed before their compound problems in your operations.