Builders can make real progress in reducing
build cycle time by "building it the right way the first
time." Cycle time reduction is a natural by-product of fewer
mistakes to correct, less adjustments to make, and a streamlined
construction process.
To get employees and trade contractors
to understand the importance of cycle time, put it into dollars
and cents. Every builder can calculate what a day is worth by
looking at some key factors:
Cost of Money.
Whether it is interest on a construction loan or lost investment
opportunities, it takes money to build. And money costs money.
For example, the cost of money for a typical home = ($25,000
land cost) + ($110,000 hard costs/2) x (10% annual interest rate)
/365 = $22 per home per day.
Contractor Costs.
Streamlined production processes allow contractors to complete
jobs in less time and to produce more homes with the same crews.
While material costs may not change significantly, there are
substantial savings in contractor labor costs. Builders can share
in the benefits. In a typical example, labor savings from being
able to reduce a day from the schedule = ($30,000 contractor
labor per home/100-day build time) x 50% share of benefits =
$150 per home.
Management Costs.
As problems are prevented, staffs become more efficient. Streamlined
production processes reduce build time without additional management
attention. In a typical example, management savings for eliminating
a day from the schedule = ($225,000 annual production management,
superintendent, and administrative salary and benefits + $60,000
overhead) / (20 homes per year x 365) = $44 per home.
Sales Opportunities.
When the standard build schedule satisfies buyers
who need homes quickly, new sales opportunities exist. For example, if a
100-day schedule were reduced to 90 days, the average value of removing a
day from the production schedule =
(5% additional homes sales x $15,000 margin per home)/(100 day
current build time - 90 day target schedule) =
$75 per home.
The total savings in the example above
is $291 per home per day. Other builders calculate a day to be
worth between $50 and $500 using their own data and including
or excluding various factors.
What is a day worth to your company? Have
a company team use the form below to perform your own calculations.
Everyone will agree that removing a day from build time is very
worthwhile.