One of the greatest concerns for Fletcher L. Groves III, vice president and senior consultant at SAI Consulting, is the under-consideration of project velocity in builders’ business processes. But to achieve success in 2017, they must change or lose.
“I think this industry has a preoccupation with the margins side of the business,” he says. “It’s constantly trying to figure out how it’s going to make more money on each house it builds without being too concerned about how many houses it can build with a finite amount of capacity.”
In the year ahead, Groves believes builders can increase their overall economic returns by considering margin and velocity together. By cutting down on cycle time, a builder can produce its usual home cycles more quickly and create greater returns from a finite investment. In the past, Groves has shown how a builder with an 18% gross margin and an 80-day cycle time would outperform a builder with a 24% gross margin and a 180-day cycle time by a ratio of 2-to-1.
To create a more efficient project management process, Groves recommends switching to a critical chain project scheduling algorithm from conventional critical path algorithms. Critical chain emphasizes available resources in the scheduling process and calculates time-buffers from each scheduled task, while a critical path algorithm simply determines an efficient order of task completion. Making this switch can reduce a builder’s cycle time and increase its productivity—and, in turn, its velocity.
“Technology management companies ... have to make a move on [critical chain], in my view,” says Groves. “And the ones that do are going to be ahead of the game."
