Systems, Processes, and Procedures
An old joke in flight training goes like this: “What makes an airplane fly?” Of course, the answer is “money.” Few pilots would scoff at this truism and venture off on a discourse about aerodynamics, however applicable that discussion might be.
In the same way, successful homebuilders are painfully aware that systems, processes, and procedures serve as the oil that lubricates the homebuilding machine. Yet many builders fail to fully implement viable solutions to the controlled chaos that drives most of their projects. Why?
Candidly, for the majority of small to medium-sized builders, it’s simply software. The reasons are embedded in the belief that software developers with “hundreds of years of combined experience” in the industry have created “unique programs” specific to homebuilding that “provide construction and real estate firms with the most complete solution for managing the entire project or property lifecycle with confidence, precision, and efficiency.” Homebuilders buy into this because the computer program has been “developed by a builder for builder[s]” and more than four million users can’t be wrong. Can they?
Well, maybe.
By far, the majority of small to medium homebuilders that I work with tend to conflate “software systems” with “management systems.” There is a distinct difference, and it can make or break your company. Many are led to believe that all they have to do is simply implement a new software “solution,” and organization will follow. As advertised, the software “features built-in workflow throughout the entire building process, making it easier to finish jobs on schedule and with overall higher profitability.” What advertisers frequently fail to speak to is the necessary management systems required to drive the software leaving you the builder, simply “along for the ride.” Allow me to illustrate.
I’ll begin with one of the most profitable aspects of homebuilding; the Change Order. Margins on change orders are simply irresistible. When properly executed, builders can easily boost profits to seemingly unattainable levels. Yet, I have seen more than a few builders shy away from the lucrative change order. The common complaint is that “we lose our shirt every time we attempt a custom change.”
Computer software is fully capable of producing both a changer order (CO) and the purchase orders (POs) that follow. But there is obviously more to the process than simply executing a change order and printing a few POs. Simplified, the process looks like this:
1. Customer contacts Sales for pricing
2. Sales contacts Purchasing for cost and mark-up (customer pricing)
3. Purchasing contacts Construction to confirm feasibility
4. Construction informs purchasing of present stage of construction or other completion barriers
5. Purchasing calculates material, labor, and mark-up based on Construction’s report
6. Sales contacts Customer with pricing. (If accepted, legal file needs to be updated)
7. Customer signs off on changes and pays Sales (cost not in the mortgage, right?)
8. Payment is forwarded to Accounting with a copy of the Change Order for Job Costing
9. Sales informs Purchasing of Customer acceptance
10. Purchasing issues POs for change and sends information to Construction
11. Construction executes field changes which may include Building Department approval
As demonstrated in this simplistic model, there are a lot of moving parts, and quite a bit of information must flow between departments before field changes can take place. And while there is a lot of room for error, the process is not inherently torturous.
Most construction management software packages have the capability of creating the necessary paperwork to effect the change order. However, it is the established processes and procedures that drive the events that see the work through to completion. There are a series of events that must occur in a particular order with information that must flow back and forth between the correct departments in a timely manner. The importance of processes and procedures can not be overstated; they must be logical, sequential, universally understood, and in place prior to engaging the “software solution” that will document and track the change — and then report the profits. Interestingly, this is where the vast majority of homebuilders fail; they attempt to create their processes and procedures through the flow of the software. It never works well, if it works at all.
Successful companies establish and document their processes and procedures in their Operations Manual, which serves as the company “playbook.” Once processes are established, the software merely serves as a tool that documents the events that transpire. This is much easier to comprehend by first letting go of the myth of a “paperless office.” Not only is the paperless office unattainable, it is also undesirable. Think about having to review financial reports on a computer screen. Typically, the reports are printed and reviewed in hard copy with your own written notes in the margin. Similarly, having a tangible piece of paper sitting directly in front of you (or on your chair when you return from lunch) is a powerful reminder of pressing matters.
A typical Operations Manual is a tailor made to your company and demonstrates how you would like your company to operate. It considers the size of your team, type of construction, quality of labor force and other pertinent conditions. It should contain a textual description of how your company does things — workflow — along with the required forms necessary to complete the tasks. On the other hand, software systems simply document the events that are taking place in a logical and integrative manner.
Software systems should work for you, making tasks easier. Becoming a slave to the program by performing tasked demanded of the software to arrive at a particular point or report, is indicative of a dysfunctional system. I have witnessed more than a few “software solutions” that force end users to adhere to a linear process that is disruptive to the true workflow of the team, create unnecessary work, and offer no benefits at all, save the data collected for an unneeded report that no one prints or uses. When software becomes cumbersome, your team will simply find a workaround.
The majority of “integrative software solutions” on the market today leave the end user with just a few key modules. Accounting is, perhaps, the most important and comprehensively used module although there are more than a few “bells and whistles” left undiscovered. The second most important module is the Purchase Order System, albeit in some cases, functioning more like a word processor than a integrative tool. That is to say, I have worked with purchasing departments that keep their records in Excel, then input that information into “the system” so that they can simply print an “official-looking” purchase order for the field — and supply the data necessary for accounting to perform job costing, but of little analytic benefit to the Purchasing Department per se.
To be sure, estimating, scheduling, and sales-lead modules are seldom used in integrative systems, although “stand alone” packages specific to each function are used quite broadly. There are very good reasons why this is so.
Sales lead generation software is quite vertical. That is to say that software companies that focus solely on lead generation do an excellent job of producing a great product. In the minds of many sales consultants, there really isn’t any good reason why the conversion of a lead to a sale can’t easily be input into the less robust “integrative system” while benefitting from the more powerful and often more versatile stand-alone lead generation program.
Estimating is a complex task. Blueline drawings, no matter how uniform details may seem, contain so many variables, that it simply doesn’t make sense to invest the time in setting up a system, only to find yourself modifying formulas to compensate for variations in elevation, foundation, or construction methods. Using the old fashioned pencil and paper method along with a “cheat sheet” for formulas not already memorized while appearing archaic, happens to be the most expedient approach to building Standard Bills of Material, even for production homebuilding.
Scheduling is also a complex task that is made even more complex when attempting to use “integrative software.” Most Construction Managers simply use a spiral notebook, transferring the information onto a “job board” in the construction trailer for all to access. This allows trades to anticipate their workload and schedule jobs according to your projections. Also, I never ask Construction Managers for more than an initial, check box, or date. They are most valuable in the field, not the office. And so minimizing the time required behind a computer, maximizes their time in the field overseeing the actual construction. Also, while they may be computer savvy at home, they are not well disposed to using a “tablet” or “phone app” in the field, no matter how much marketers try to convince you that it is the “easiest, fastest, most convenient” way to process subcontractor payments. After all, there is still a bit of important paperwork involved in lien waivers and releases that must be secured during the payment process precluding ePayments as a viable option for savvy builders. There is also no substitute for the “face time” that is necessary to build solid relationships with the trades.
That leaves Accounting and Purchasing as the primary users of “integrated software solutions.” Accounting software varies little from one program to the next and differences are generally limited to either report building capabilities, online banking features, or outside CPA access. Accountants are typically left with both the “feel” and “look” of the program as the determining factors in choosing software and focus on the flow and layout of the screens while feeling secure in knowing that they will have the ability to create and print those reports that are customary to accounting. That arrives us at Purchasing — of which there is much to be said. Consequently, I will dedicate the next article in the series entirely to Purchasing in concluding the importance of Systems, Processes, and Procedures.
An old joke in flight training goes like this: “What makes an airplane fly?” Of course, the answer is “money.” Few pilots would scoff at this truism and venture off on a discourse about aerodynamics, however applicable that discussion might be.
In the same way, successful homebuilders are painfully aware that systems, processes, and procedures serve as the oil that lubricates the homebuilding machine. Yet many builders fail to fully implement viable solutions to the controlled chaos that drives most of their projects. Why?
Candidly, for the majority of small to medium-sized builders, it’s simply software. The reasons are embedded in the belief that software developers with “hundreds of years of combined experience” in the industry have created “unique programs” specific to homebuilding that “provide construction and real estate firms with the most complete solution for managing the entire project or property lifecycle with confidence, precision, and efficiency.” Homebuilders buy into this because the computer program has been “developed by a builder for builder[s]” and more than four million users can’t be wrong. Can they?
Well, maybe.
By far, the majority of small to medium homebuilders that I work with tend to conflate “software systems” with “management systems.” There is a distinct difference, and it can make or break your company. Many are led to believe that all they have to do is simply implement a new software “solution,” and organization will follow. As advertised, the software “features built-in workflow throughout the entire building process, making it easier to finish jobs on schedule and with overall higher profitability.” What advertisers frequently fail to speak to is the necessary management systems required to drive the software leaving you the builder, simply “along for the ride.” Allow me to illustrate.
I’ll begin with one of the most profitable aspects of homebuilding; the Change Order. Margins on change orders are simply irresistible. When properly executed, builders can easily boost profits to seemingly unattainable levels. Yet, I have seen more than a few builders shy away from the lucrative change order. The common complaint is that “we lose our shirt every time we attempt a custom change.”
Computer software is fully capable of producing both a changer order (CO) and the purchase orders (POs) that follow. But there is obviously more to the process than simply executing a change order and printing a few POs. Simplified, the process looks like this:
1. Customer contacts Sales for pricing
2. Sales contacts Purchasing for cost and mark-up (customer pricing)
3. Purchasing contacts Construction to confirm feasibility
4. Construction informs purchasing of present stage of construction or other completion barriers
5. Purchasing calculates material, labor, and mark-up based on Construction’s report
6. Sales contacts Customer with pricing. (If accepted, legal file needs to be updated)
7. Customer signs off on changes and pays Sales (cost not in the mortgage, right?)
8. Payment is forwarded to Accounting with a copy of the Change Order for Job Costing
9. Sales informs Purchasing of Customer acceptance
10. Purchasing issues POs for change and sends information to Construction
11. Construction executes field changes which may include Building Department approval
As demonstrated in this simplistic model, there are a lot of moving parts, and quite a bit of information must flow between departments before field changes can take place. And while there is a lot of room for error, the process is not inherently torturous.
Most construction management software packages have the capability of creating the necessary paperwork to effect the change order. However, it is the established processes and procedures that drive the events that see the work through to completion. There are a series of events that must occur in a particular order with information that must flow back and forth between the correct departments in a timely manner. The importance of processes and procedures can not be overstated; they must be logical, sequential, universally understood, and in place prior to engaging the “software solution” that will document and track the change — and then report the profits. Interestingly, this is where the vast majority of homebuilders fail; they attempt to create their processes and procedures through the flow of the software. It never works well, if it works at all.
Successful companies establish and document their processes and procedures in their Operations Manual, which serves as the company “playbook.” Once processes are established, the software merely serves as a tool that documents the events that transpire. This is much easier to comprehend by first letting go of the myth of a “paperless office.” Not only is the paperless office unattainable, it is also undesirable. Think about having to review financial reports on a computer screen. Typically, the reports are printed and reviewed in hard copy with your own written notes in the margin. Similarly, having a tangible piece of paper sitting directly in front of you (or on your chair when you return from lunch) is a powerful reminder of pressing matters.
A typical Operations Manual is a tailor made to your company and demonstrates how you would like your company to operate. It considers the size of your team, type of construction, quality of labor force and other pertinent conditions. It should contain a textual description of how your company does things — workflow — along with the required forms necessary to complete the tasks. On the other hand, software systems simply document the events that are taking place in a logical and integrative manner.
Software systems should work for you, making tasks easier. Becoming a slave to the program by performing tasked demanded of the software to arrive at a particular point or report, is indicative of a dysfunctional system. I have witnessed more than a few “software solutions” that force end users to adhere to a linear process that is disruptive to the true workflow of the team, create unnecessary work, and offer no benefits at all, save the data collected for an unneeded report that no one prints or uses. When software becomes cumbersome, your team will simply find a workaround.
The majority of “integrative software solutions” on the market today leave the end user with just a few key modules. Accounting is, perhaps, the most important and comprehensively used module although there are more than a few “bells and whistles” left undiscovered. The second most important module is the Purchase Order System, albeit in some cases, functioning more like a word processor than a integrative tool. That is to say, I have worked with purchasing departments that keep their records in Excel, then input that information into “the system” so that they can simply print an “official-looking” purchase order for the field — and supply the data necessary for accounting to perform job costing, but of little analytic benefit to the Purchasing Department per se.
To be sure, estimating, scheduling, and sales-lead modules are seldom used in integrative systems, although “stand alone” packages specific to each function are used quite broadly. There are very good reasons why this is so.
Sales lead generation software is quite vertical. That is to say that software companies that focus solely on lead generation do an excellent job of producing a great product. In the minds of many sales consultants, there really isn’t any good reason why the conversion of a lead to a sale can’t easily be input into the less robust “integrative system” while benefitting from the more powerful and often more versatile stand-alone lead generation program.
Estimating is a complex task. Blueline drawings, no matter how uniform details may seem, contain so many variables, that it simply doesn’t make sense to invest the time in setting up a system, only to find yourself modifying formulas to compensate for variations in elevation, foundation, or construction methods. Using the old fashioned pencil and paper method along with a “cheat sheet” for formulas not already memorized while appearing archaic, happens to be the most expedient approach to building Standard Bills of Material, even for production homebuilding.
Scheduling is also a complex task that is made even more complex when attempting to use “integrative software.” Most Construction Managers simply use a spiral notebook, transferring the information onto a “job board” in the construction trailer for all to access. This allows trades to anticipate their workload and schedule jobs according to your projections. Also, I never ask Construction Managers for more than an initial, check box, or date. They are most valuable in the field, not the office. And so minimizing the time required behind a computer, maximizes their time in the field overseeing the actual construction. Also, while they may be computer savvy at home, they are not well disposed to using a “tablet” or “phone app” in the field, no matter how much marketers try to convince you that it is the “easiest, fastest, most convenient” way to process subcontractor payments. After all, there is still a bit of important paperwork involved in lien waivers and releases that must be secured during the payment process precluding ePayments as a viable option for savvy builders. There is also no substitute for the “face time” that is necessary to build solid relationships with the trades.
That leaves Accounting and Purchasing as the primary users of “integrated software solutions.” Accounting software varies little from one program to the next and differences are generally limited to either report building capabilities, online banking features, or outside CPA access. Accountants are typically left with both the “feel” and “look” of the program as the determining factors in choosing software and focus on the flow and layout of the screens while feeling secure in knowing that they will have the ability to create and print those reports that are customary to accounting. That arrives us at Purchasing — of which there is much to be said. Consequently, I will dedicate the next article in the series entirely to Purchasing in concluding the importance of Systems, Processes, and Procedures.