Our conversation is with Margaret Whelan, Founder, and CEO of Whelan Advisory, a boutique investment…
The 4th quarter is a time most homebuilders should be coasting to a smooth finish. It’s a time to prepare a new budget, brainstorm new strategies, and learn from the highs and lows of the past twelve months.
Unfortunately, this period often finds homebuilders struggling to finish homes in an effort to save their bottom line. The delays and procrastination from prior months come crashing down into a hectic, fiery December.
It’s called the Q4 Fire Drill, and it is a frustrating place to be. It can be caused by:
- A reluctance to make tough management decisions. Management can lack a contingency plan for weak sales, potential promotions and new product offerings.
- Tactical versus strategic focus. It’s easy to get hung up on details: a slow framer, faster building start time. While these issues are critical, it’s imperative that management focuses more on preparatory, strategic decisions.
- Unclear sales policies, particularly around custom options. Significant volumes of custom options can add significant work time. Sales people satisfy customers with these, but it can come at surprisingly high cost to productivity, cycle time and profitability.
The solution, of course, lies in planning. Continuum AG believes that homebuilding management needs to tackle these obstacles before they begin. Decisions made in the first quarter of the year, particularly February and March, determine the outcomes in November and December. Having a strong plan that anticipates different conditions and provides a framework for quick and effective decision making in Q1 is critical.
“Contingency planning lets [builders] quickly identify what is playing out in the market and push the right buttons, while there’s still time to affect the business plan,” writes Clark Ellis, Founder and CEO of Continuum AG. “Most builders avoid this level of analysis because it has not traditionally been how they manage their businesses.”
Make no mistake, there will also be tough decisions later in the year. It’s natural to have unexpected setbacks, picky customers and other gremlins that crop up at the last minute. The key is to know which ones are within your control. Moving to this type of proactive structure requires:
- Timely, relevant and accurate information.
- Clear responsibility and authority.
- A well-defined timeframe with hard limits.
Careful decisions early in the year can prepare a homebuilder for obstacles that lead to a Q4 Fire Drill. After all, when you’re building homes, you need as little fire as possible.
If you want to learn more about the Q4 Fire Drill and how to prevent it, read this article by Continuum AG founder and CEO, Clark Ellis. Ellis is a consultant with international experience who assists homebuilders, real estate developers, building product manufacturers, and installing contractors.