Restart Your New-Community Start-Up Process

The scene: late afternoon, a large conference room in a major western market. One wall is covered with a 40-foot-long roll of newsprint paper, about 4 feet high. Other spaces are adorned with peel-and-stick flip charts. Colored markers litter the room like spent shell casings. Small groups of people buzz about, making additions, corrections, and suggestions. Conversations are animated, sometimes questioning, at other times emphatic. There’s a lot of serious discussion and some vigorous debate that occasionally borders on argument. Some version of “That’s not what really happens!” is frequently heard. From a distance, it appears almost chaotic, but as you watch more closely, a clear process begins to emerge.

That morning, a facilitator had divided the group of 15 associates of a production builder (which requested its name not be used; participant names also have been changed) into three smaller teams with the goal of identifying up to 12 essential steps for transforming a piece of bare land into a new community with model homes open for sale. Each team had been directed to identify only those steps that could stand up to cold, harsh, no-tears reality—the current process as it is, not what the schedule claims or what it might be in a perfect world.

In this process, the team that provides the most detail—including as many sub-steps as required under each essential step—then puts their version of the process on the wall and talks the entire group through their thinking. When they finish, the two remaining groups challenge anything they see differently and suggest additions, deletions, and corrections. Adjustments are made, consensus is reached, and in a few hours’ time, the current process, as it is today defined by “objective current reality,” is nailed down.

RELATED

• Home Builders Ask: Where’s the Land?
• Home Builders Feel the Squeeze of Record-High Lot Prices
• Regulatory Costs Increased 44% in 10 Years

The reaction from the collective group is both predictable and priceless. After a half-day wrangling the start-up process, the cross-functional team is totally amazed at how many steps they’ve identified in the process and how many details they’ve documented. Most confess that this exercise gives them a full understanding of a new-community start-up process for the very first time. Many in the group who were originally skeptical about the need to spend the first half of the day defining the essential steps of the process and would have preferred to go straight to creating their new, improved process, now understand the point.

It’s an old law, but unleashing an improvement process of any kind without first reaching consensus on where you are today is a serious, sometimes fatal, error—and one that’s often neglected today.

Time to Reengineer the New-Community Start-Up Process

The official title of that exercise is “Community Start-up Re­engineering Workshop.” The facilitator, Steve, watches over his charges, answers questions, and keeps things moving as participants fill in more detail about each element.

Bill, a five-year project manager, turns to Steve and asks, “How much detail do we need on this point?” Steve replies, in classic facilitatorese, “Well, you tell me ... how much do you think you need?” Not quite satisfied, Bill asks essentially the same question a different way. Steve tries again, saying, “Imagine you’re trying to train a new employee and you want to eliminate potential errors. How much detail will she need?” Bill ponders that briefly. “OK, got it,” he says, and returns to writing on one of the charts. 

Steve reminds him, “Make sure you use the red marker for edits so we can keep track of what’s original and what was added.” Steve explains how these small details are critical to managing the huge pool of detail that’s emerging.

Jack, a VP of land development and ultimate owner of the process, actively participates in one of the small work groups, modifying the detail charts that correspond to major elements on the implementation timeline. When finished, he stands back and looks over their creation with pride. “This is amazing stuff!” he says, “And it will make a real difference in the coming year, not just in time and money but also in the quality of our work lives. We’re all sick of working 60- and 70-hour weeks.” 

To understand exactly what Jack expects, we have to back up and understand the root of the problem, one that Steve asserts plagues virtually every builder in North America. “I affectionately call it the Premature Start-Up Syndrome,” Steve says. “The condition is rampant, costs builders millions each year, and applies whether you are developing your own lots or buying finished ones.”

10 New-Community Start-Up Essentials

“Look at this,” Steve offers, handing out a Start-Up Quiz he uses to challenge builders on the strength of their start-up process. “I’ve never had anyone claim they truly do all of these things well—maybe three or four, but never more than half of these things. What I usually get is nervous laughter followed by groans.” 

The quiz asks each builder whether they open new communities for sale with these 10 specific characteristics:

1. All “for sale” lots ready for delivery with grades, pads, drainage plans complete
2. 100% complete information available for sales on lot availability, pricing, premiums, and lot/plan fit analysis
3. 100% complete options, selections, colors with full specifications and pricing (with absolute minimal changes)
4. 100% complete sales and promotional and collateral materials
5. Fully trained, experienced sales, construction, and warranty service personnel, as well as internal support staff
6. 100% complete, address-specific plans, fully detailed, for each model, with mechanicals, and “redlines” not required
7. 100% complete, signed contracts with current scopes of work for all suppliers and trade contractors
8. 100% complete “start packages” (with purchase orders or equivalent) for all suppliers and trades
9. Fully vetted, experienced trades who provide top-quality work and consistently meet schedule requirements
10. All requirements met to maintain a tight, predictable, build schedule and minimal construction variance (VPO)

According to Steve, it’s a rare builder that can answer “yes” to half of these questions, which results in one big negative for their business. “A negative bottom-line impact isn’t too difficult to figure out, but the hidden costs are huge,” he emphasizes. His workshops take clients through a formula that shows they typically lose five, and as many as 10, dollars for every dollar they think they save by jamming a project out early. “That’s enough to get their attention right there,” he says.

But then he adds in the indirects and intangibles, such as substantial overhead impacts that accompany failure (or even marginal performance) under each of the questions above.

Then there are the really scary areas, he says, such as customer dissatisfaction and loss of credibility with developers, trades, investors, and community officials. “We can’t put a number on them, but the impact is huge.”

Steve describes the builder taking part in this workshop as being about average, with ample opportunity for improvement, yet with one significant difference: recognition of the problem and a commitment to confront it head-on. The company has been growing and doing a lot of hiring during the past year. New people with limited experience, working overtime in land development is a prescription for failure—unless you intervene. Jack was smart enough to not wait until they got into big trouble. Not many builders will take the time up front, but all builders pay the price on the back end.

Why do builders consistently overlook the start-up process? Generally, he says, because such issues are considered business as usual and there is intense pressure to get the lots ready. They think of land development or getting a new project to launch as a naturally messy business with a lot of uncertainty, he adds. 

Unleashing an improvement process with­out first reaching consensus on where you are today is a serious, sometimes fatal, error.

Second, the near-term costs for this process are typically buried in a big “cost per lot” figure. Looking back on a completed project, it’s rare for anyone to analyze how finished lot cost could have been reduced. By contrast, when construction hard cost for a house comes in $2,500 per unit above plan, builders often leave no stone unturned to discover why and prevent similar overruns in the future. But as for that extra $1 million they blew on dirt balancing and soil mitigation for 200 lots, running up finished lot cost by $5,000 per unit, they’ll declare, “Gee, land sure is getting expensive here!”

The third reason is that longer-term land costs, such as drainage problems, get buried in house cost. Rarely are they linked back to issues with community start-up.

Why You Need a Shared Understanding of the Community Start-Up Process

Steve is animated while explaining how the new-community start-up process can really (and only) work if applied by a committed, dedicated management team. With that, “Once we have the process thoroughly outlined and understood, backed by the source book, it saves time on each project,” he says, while reducing costs and limiting liability. “But you must start with a shared understanding of community start-up, and that’s something few builders have.”

To that end, Steve insists the start-up team include all people who understand the reality of the multiple elements and their interfaces, not just members from land development; that means people from construction, warranty, design, sales and marketing, and administrative functions. Key suppliers and trades, such as an excavation company and the head of a marketing firm, also sometimes participate.

An evolving industry trend is to get way out in front of the development game by melding marketing and land to help chose the right parcels for development.

Steve also empowers all participants to challenge anything they hear at his workshop and under real circumstances to ask questions, even sensitive ones, to get the land and start-up people “out of their box,” especially when moving to the streamlining and process-improvement phase that comes next. Finally, many of the big problems in the new-community start-up process involve multiple departments. If they aren’t involved, implementation is difficult, at best.

An evolving industry trend is to get way out in front of the development game by melding marketing and land to help chose the right parcels for development. The builder chooses only land that fits what the market demands. Now add input from construction, picking parcels that match what the builder knows how to do efficiently and profitably. Following these steps up front will avoid considerable pain down the road.

Following his workshop, Steve sends the teams away for a few weeks to further detail their assigned steps and to identify and propose specific opportunities for improving their new-community start-up process. Team members are excited, believing there’s light at the end of this tunnel at last.

Putting the Plan Into Action

A month later, the same group reconvenes and spends more than a day poring over their findings and the opportunities identified. It’s an incredible sight. Some groups identify as many as 500 to 1,000 sub-steps in starting a new community. Is it any wonder then that without a solid, shared understanding of the new-community start-up process things can go awry?

Based on their newfound, solid understanding, Steve leads them through the steps of identifying improvements and prioritizing opportunities for their new-community start-up process, then launches the action-planning phase.

Will this process actually change things? “The seeds are planted,” Steve says. “This was an interested, engaged group. There’s seven-figure money laying around and they see it. They really want to make this process better and they aren’t content to just make money. They want to do it right.”

But consultants can only do so much. The bottom line is the builder’s team has to follow through. They now have the knowledge and appear to have the leadership. The only question is, do they have the will? We’ll see.  

Epilogue: Two years later, the builder reports in excess of $5 million in savings due to improvements in its new-community start-up process.