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PROS

 

PRODUCTION PLANNING METHODOLOGY FOR LARGE
HOMEBUILDING FIRMS

By

Andrew Wade Seidel

A THESIS

Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of

MASTER OF SCIENCE
Department of Agricultural Engineering

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ABSTRACT

PRODUCTION PLANNING METHODOLOGY FOR LARGE
HOMEBUILDING FIRMS

By

Andrew Wade Seidel

This report provides a production planning methodology for large
homebuilding ﬁrms. Production planning, a key component of the business
planning process, is the managerial function of planning and controlling the
conversion of organizational resources into goods and services. The production
planning methodology (PPM) illustrated by this report is designed for the speciﬁc
characteristics of the homebuilding industry. The methodology includes planning
processes and an information system modeling method for the following planning
systems; estimating, scheduling, cost and progress control, ﬁnancial and
accounting, subcontracting, and material acquisition. The literature review was
conducted to identify research related to construction management, production
planning, and structured analysis. Traditional production planning techniques
were also identiﬁed. Evaluation was conducted through the application of the
proposed methodology on an example production homebuilding firm.
Additionally, two production homebuilding ﬁrms were examined to further

evaluate the research ﬁndings.

LETOFFK

GﬁFTER‘
ll. ovei
l2. Res:
l3. NEEC
ii. THES

15. RESE

 

I5. METH
I
I7. EXPEI

I8. ORGA

CHAPTER 2
ZI INTRC

23 RESH:

TABLE OF CONTENTS

LIST OF FIGURES ........................................................................ IX
CHAPTER 1 INTRODUCTION

1.1. OVERVIEW .......................................................................... 1
1.2. RESIDENTIAL CONSTRUCTION INDUSTRY ............................. 5
1.3. NEED STATEMENT .............................................................. 7
1.4. THESIS FOCUS AREA - PRODUCTION PLANNING ................... 10
1.5. RESEARCH OBJECTIVE ....................................................... 12
1.6. METHODOLOGY .................................................................. 12
1.7. EXPECTED OUTPUT ............................................................ 16
1.8. ORGANIZATION OF REPORT ................................................ 16
CHAPTER 2 LITERATURE REVIEW

2.1. INTRODUCTION ................................................................... 18
2.2. RESIDENTIAL CONSTRUCTION MANAGEMENT ....................... 18
2.2.1. MANAGEMENT GROWTH ...................................................... 20
2.2.2. IDEAL CLASSIFICATION OF MANAGEMENT SYSTEMS ............. 22
2.2.3. SUMMARY, SECTION ONE .................................................... 23
2.3. PRODUCTION PLANNING .................................................... 23
2.3.1. STRATEGY SELECTION IN CONSTRUCTION .......................... 24
2.3.2. REVIEW OF PRODUCTION PLANNING METHODS ................... 26
2.3.3. MATERIAL REQUIREMENT PLANNING (MRP I) ........................ 26
2.3.4. MANUFACTURING RESOURCE PLANNING (MRP II) ................ 27

235.JUE
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2.3.5. JUST IN TIME (JIT) ............................................. ' .................. 28

2.3.6 JUST IN TIME FOR CONSTRUCTION ...................................... 28
2.3.7. TOTAL QUALITY CONTROL ................................................... 29
2.3.8. HIERARCHICAL PRODUCTION PLANNING (HPP) ..................... 30
2.3.9. TRADE PARTNERING ........................................................... 30
2.3.10. INTEGRATED MANUFACTURING PLANNING ......................... 31
2.3.11. SHIELDING — PRODUCTION PLANNING ............................... 34
2.3.12. SECTION TWO - SUMMARY ............................................... 35
2.4. SETION THREE —BUSINESS SYSTEMS ................................. 36
2.4.1 FUNCTIONAL AREAS ........................................................... 37
2.4.2. BUSINESS SYSTEMS ........................................................... 39
2.4.3. SYSTEM DEVELOPMENT ...................................................... 40
2.4.4. SUMMARY ......................................................................... 41
2.5. CHAPTER SUMMARY .......................................................... 41
CHAPTER 3 BUSINESS PLANNING — PRODUCTION PLANNING

3.1. MANAGERIAL ASPECTS OF RESIDENTIAL CONSTRUCTION... 44

3.2. MANAGERIAL PROFICIENCY ................................................ 45
3.3. MANAGEMENT SYSTEMS .................................................... 47
3.4. MANAGEMENT FUNCTIONS ................................................. 48
3.4.1. PLANNING .......................................................................... 50
3.4.2. ORGANIZING ...................................................................... 50
3.4.3. LEADING ........................................................................... 52
3.4.4. INNOVATING ..................................................................... 52

iv

3.4.5. CONTROLLING .................................................................. 52
3.4.6. COORDINATING ................................................................... 53
3.4.7. STAFFING .......................................................................... 54
3.5. BUSINESS PLANNINGIN RELATIONSHIP TO

MANAGERIAL PROFICIENCY ................................................ 54
3.6. BUSINESS PLANNING .......................................................... 57
3.6.1. WHAT IS A BUSINESS PLAN? ................................................ 58
3.6.2. DEFINITION OF THE BUSINESS ............................................. 60
3.6.3. MARKET PLAN .................................................................... 60
3.6.4. SERVICE PLAN ................................................................... 60
3.6.5. PRODUCTION PLAN ............................................................ 61
3.6.6. ORGANIZATIONAL PLAN ..................................................... 61
3.6.7. DEVELOPMENT SCHEDULE ................................................ 62
3.6.8. FINANCIAL PLAN ............................................................... 62
3.7. PRODUCTION PLANNING ................................................... 62
3.8. SUMMARY ......................................................................... 64
CHAPTER 4 STRUCTURED ANALYISIS TECHNIQUES FOR

PRODUCTION PLANNING

4.1. INTORDUCTION ................................................................. 65
4.2. ORGANIZATIONAL ABSTRACTION AND BUSINESS SYSTEM

MODELING ......................................................................... 67
4.2.1. REQUIREMENT ANALYSIS ................................................... 69
4.2.2. VIEW MODELING AND MODIFICATION ................................... 70
4.2.3. VIEW ANALYSIS AND INTEGRATION ...................................... 71

43 VAU
44. DAT'

45. RES

 

46. TAS'

47. SUN

 

 

CHAPTER:
5i INTR
52. OUT:
53. PRC

54. BUS;

4.3. VALUE CHAIN LEVEL OF ABSTRACTION ................................ 72
4.4. DATA-FLOW-DIAGRAMS (DFD’S) .......................................... 73
4.5. RESOURCE-EVENT—AGENT (REA) LEVEL OF ABSTRACTION... 74
4.6. TASK LEVEL OF ABSTRACTION ............................................. 75
4.7. SUMMARY .......................................................................... 76
CHAPTER 5 PRODUCTION PLANNING METHODOLOGY

5.1. INTRODUCTION .................................................................. 77
5.2. OUTLINE OF PRODUCTION PLANNINGMETHODOLLOGY ....... 78
5.3. PRODUCTION HOMEBUILDING FIRMS ................................... 80
5.4. BUSINESS PLANNING PROCESS .......................................... 80
5.5. PRODUCTION PLANNING ..................................................... 82
5.6. PRODUCTION PLANNING SUB PROCESSES .......................... 89
5.6.1. DIAGNOSTIC STAGE ............................................................ 93
5.6.2 CHARACTERIZATION STAGE ................................................ 95
5.6.2.1. PRODUCT ANALYSIS ......................................................... 97
5.6.2.2. CONSTRUCTION ANALYSIS ............................................... 102
5.6.2.3. PROCUREMENT ANALYSIS ................................................ 104
5.6.2.4. PRODUCTION CONCEPTUAL MODELING ............................ 107
5.6.3. CUSTOMIZATION STAGE ..................................................... 107
5.6.4. CONCEPT DESIGN STATGE .................................................. 107
5.6.4.1. Requirement Analysis ........................................................ 108
5.6.4.2. View modeling and modiﬁcation .............................................. 109
5.6.4.3. Develop Data Model ............................................................ 109

vi

5.6.4.4. View Analysis and Integration ................................................ 114

5.7. PRODUCTION PLAN DEVELOPMENT ................................... 114
5.8. SUMMARY ...................................................................... 115
CHAPTER 6 INDUSTRY EVALUATION
6.1. INTRODUCTION ................................................................. 117
6.2. DESCRIPTION OF BUILDER A ............................................... 117
6.3. DESCRIPTION OF BUILDER B ............................................... 118
6.4. INTERVIEW QUESTIONS ....................................................... 118
6.5. OBSERVATIONS AND INFERENCES DRAWN .......................... 120
6.5.1. IMPACT OF STRATEGIC PLANNING ....................................... 120
6.5.2. BUSINESS PLANNING ACTIVITIES

USED BY SUBJECT BUILDERS ............................................... 121
6.5.3. MUNICIPAL DEMANDS ..................................... I ..................... 121
6.5.4. CONSTRUCTION SPECIFIC PRODUCTION

PLANNING SYSTEM .............................................................. 122
6.5.5. PURCHASING/ PROCUREMENT PRODUCTION

CONTROL SYSTEMS ............................................................ 123
6.6. ANALYSIS OF PPM EVALUATION ........................................... 123
6.7. SUMMARY ........................................................................... 124
CHAPTER 7 SUMMARY AND CONCLUSIONS
7.1. INTRODUCTION ................................................................... 125
7.2. OBJECTIVES ....................................................................... 125
7.3. DEVELOP A PRODUCTION-PLANNING METHODOLGY ............. 126

VII

7.4.

7.5.

q
I .

7.7.

Q)

IDE
NEI

APF
ARE

COl

REFEREN:

APPENDIX

 

 

7.4. IDENTIFY THE INFORMATION SYSTEM REQUIREMENTS
NECESSARY FOR PROFICIENT PRODUCTION PLANNING ...... 127
7.5. APPLICABILITY AND ESSENTIALITY OF THE WORK ................. 127
7.6. AREAS OF FUTURE RESEARCH ............................................ 128
7.7. CONCLUSION ...................................................................... 129
REFERENCES .............................................................................. 130
APPENDIX A DETAILED CLASSIFICATION OF PLANNING

AND CONTROL SYSTEMS FOR HOMEBUILDING
FIRMS .......... ' ................................................... 132

viii

Figure 2.1.
Figure 2.2.
ﬁgure 2.3.
ﬁgure 3 1.
Figure 3.2.
Figure 3.3.

Figure 3.4.

Flgure 3.5.
Figure 5.1.
Fewe 5.2.

Figure 5.3.

Flwe 5.4,
ﬁgure 5.5_

Figure 5].

F"gll‘efxe.

Figure 2.1.
Figure 2.2.
Figure 2.3.
Figure 3.1.
Figure 3.2.
Figure 3.3.

Figure 3.4.

Figure 3.5.
Figure 5.1.
Figure 5.2.

Figure 5.3.

Figure 5.4.
Figure 5.5.

Figure 5.6.

Figure 5.7.

Figure 5.8.

LIST OF FIGURES

Management Growth Model .......................................... 19
Construction Company as a System ............................... 25
Sample Value Chain .................................................... 38
Management Growth Model .......................................... 46
Overview of A Management System ................................ 48
Hierarchy of Management Functions ................................. 49

Relationship Between Management Functions

and Management Systems ............................................ 56
Historical Business Planning Flowchart ....................... . ...... 59
Level Zero Production Planning Methodology DFD .............. 79
Level 1-7 Production Planning Methodology DFD ................ 84
Representation of the transition Route Mapping the Difference

Between Existing and Desired Systems ............................ 89
Level 4.1 — 4.4 Production Planning Methodology DFD ........ 92

Level 4.2.1. — 4.2.4. Production Planning Methodology DFD..96

Level 4.2.1.1. — 4.2.1.3. Production Planning
Methodology DFD ....................................................... 99

Level 4.4.1. -— 4.4.3. Production Planning Methodology DFD..108

Level 4.4.2.1. — 4.4.2.3. Production Planning
Methodology DFD ........................................................ 110

1.1. OI

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CHAPTER ONE

INTRODUCTION

1.1. Overview

Today’s homebuilding industry is highly competitive. In order to gain a
competitive advantage, homebuilding ﬁrms must select the right strategy based
on their market and available resources, and then direct their efforts toward the
selected strategy. This is the process of selecting and developing a strategic
plan. The strategic plan encompasses the core purpose of a company through
the integration of mission, product, and values. Substantial work has been
conducted related to strategy selection and implementation. Kotler, et.al, (1997)
and Treacy, et.al, (1995), categorized strategies differently. Kotler, et.a|, (1997)
categorized strategies by cost leadership, differentiation, and focus. Treacy,
et.al, (1995) categorized strategies by operational excellency, product
excellency, and customer intimacy. Kotler, et.al, (1997) argued that the
foundation for cost leadership or operational excellent business strategy is
efﬁcient production. The production concept holds that consumers will favor
those products that are widely available and low in cost. It is the author's opinion
that the majority of large homebuilding ﬁrms, as deﬁned later in this section, have
embraced the production concept as a component of their strategic plan. These

homebuilding ﬁrms are known as production homebuilding ﬁrms. Hence, it is

essentéa
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essential for production homebuilding ﬁrms to practice production planning within
their organization.

This study presents a methodology for production planning within large
homebuilding ﬁrms. The production planning methodology is intended to support
the growth and survival of large homebuilding ﬁrms, increase trade partnering,
and facilitate business system integration.

Homebuilding ﬁrms can be classiﬁed as large, medium, and small
according to their construction output. Large homebuilding ﬁrms, making up only
2% of the 107,495 residential general contractors, performed over 18% of the
total construction work in 1992. Large homebuilding ﬁrms, deﬁned by the 1992
Census of Construction Industries (US. Department of Commerce, 1992) have
20 or more employees. The 400 largest homebuilding ﬁrms, in 1997, captured
23.5% of the market (Professional Builder, 1998). Most large homebuilding ﬁrms
implement the production concept through product standardization. Product
standardization allows for greater production efﬁciency and volume buying power
(Kotler, et.al, 1997). For the purpose of this research, large homebuilding ﬁrms
that have implemented the production concept through product standardization
will be referred to as production homebuilders.

The longevity of successful production homebuilding business models are
in question. Increased resistance to new residential development will contribute
to product differentiation. Product differentiation is the evolution from standard
product lines (limited number of standard home plans) to diverse plan offerings.

The phenomenon of product differentiation is described below.

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The author conducted research related to the impact of housing
development on Michigan communities, (Seidel et.al, 1998). During the course
of this research, the author observed that in many Michigan communities there is
an increased resistance to new land development. Residential land development
is the process of converting one or more parcels of land into residential parcels,
which homes can be constructed upon. A home is a speciﬁc residential unit,
either single-family (one home per building) or multi-family (two or more homes
per building). The author observed that many large residential homebuilding
ﬁrms also engage in residential land development in their market area. It is the
author’s opinion that many large homebuilding ﬁrms have met the increased
resistance to new residential development by employing some or all of the land
development techniques listed below.

a Brown-ﬁeld or urban redevelopment — A development technique that converts
land located in an existing urban area to a new use. For example, converting
an existing warehouse facility to residential lofts, or construction of multi-
family units on urban in-ﬁll sites.

0 Planned unit development (PUD’s) - A development technique that converts
one or more parcels of land into a mixed use community that includes single-
family units, multi-family units, commercial uses, schools, and churches.

o Nee-traditional or new urbanism development — A development technique
that employs community speciﬁc design criteria, often solicited form existing

residents and local architectural precedents, to the new proposed

develo:
paIIEIT‘r
Ma"
result in in:
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homebuiid I
with standel
to meet m.
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development. This development technique often employs traditional land-use
patterns.

Many land development techniques, such as those described above,
result in increased product differentiation. For example, a large production
homebuilding ﬁrm that historically constructed a limited number of home types
with standardized options now must construct a wider range of product in order
to meet municipal demands. This phenomenon is driven by many factors such
as: increased municipal control or involvement in the land development process
and the success of past projects that employed the land development techniques
described above. Increased product differentiation has a dramatic impact on
production homebuilding ﬁrm’s business systems and the business planning
functions of managers.

A business is a system and managers perform managerial functions within
the system. Business planning is the foremost managerial function. Business
planning is made up of a sub-set of business planning processes, which include
production planning.

Production planning is the process in which managers plan the use of
organizational resources in order to meet the demand projected in the market
plan. How well managers perform managerial functions impacts the level of
managerial proﬁciency at which a business operates. Managerial proﬁciency is a
measurement of the proﬁciency of managerial functions and business systems.

Music (1985) deﬁned managerial proﬁciency as a measure of the

characteristics that are readily identiﬁable within any homebuilding ﬁrm. The

characteris
a:tude.an
hvelofnia
fixed level i
must incre
that it is mt

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large prod).
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characteristics are management systems, management technique, educational
attitude, and organizational structure. Music (1985) demonstrated that a given
level of managerial proﬁciency can support a range of construction output at a
ﬁxed level of effort. Homebuilding ﬁrms planning to increase construction output
must increase either managerial proﬁciency or effort. The underlying premise is
that it is mor3e efﬁcient to increase managerial proﬁciency then effort.

This study presents a methodological approach to production planning for
large production oriented homebuilding ﬁrms, taking into account the outlook for
increased product differentiation. The production planning process is
approached from management systems and information perspectives in order to
present a comprehensive production planning methodology. This methodology is

intended to increase the managerial proﬁciency of production homebuilding ﬁrms.

1.2. Residential Construction Industry

There are over one hundred thousand residential general contractors
constructing homes in the United States. Residential general contractors,
deﬁned by the Census of Construction Industries (US. Department of
Commerce, 1992), performed over 48 billion dollars worth of construction work in
1992. Of the total value of construction work performed by residential general
contractors (homebuilders), 81.4% was single-family detached home
construction and 6.6% was multi-family construction.

Large homebuilding ﬁrms can be classiﬁed as either large or giant. For

the purpose of this study, large and giant homebuilding ﬁrms are those ﬁrms that

homebu”
Depart?“E
homebulii
ﬁrms Dist:

they operé

 

ongﬁfEIIIO-r
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that

vane

vanf

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selection a I

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due to the :

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evolve to

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produced greater than 5 million and 10 million dollars of construction output in
1992, respectively. In 1983, there were 452 giant homebuilding ﬁrms, as of
1992, the total was reduced to 206, although the total market share of the giant
homebuilding ﬁrms remained the same (Census of Construction Industries, US.
Department of Commerce, 1992). It is the author's opinion that large and giant
homebuilding ﬁrms are typically production oriented. Production homebuilding
ﬁrms historically offer a limited selection of home plans for each market segment
they operate in. This assumption is based on Treacy’s description of production
orientation (Treacy, et.al, 1995):

“Achieving and sustaining operational excellence requires more

than cloning hyper-efﬁcient assets. Today, as in Henry Ford’s era,

variety kills efﬁciency. Operational/y excellent companies reject

van'ety, because it burdens the business with cost. They produce

no-fn'lls products for the middle of the market where demand is

huge and customers are more interested in cost than in choice. ”

Subsequently, production homebuilding ﬁrms are deﬁned as production-
oriented organizations that offer standard plans, options, and upgrades. Limited
selection allows for greater control of the production process, increased
construction efﬁciency, and volume buying power. It is the author’s opinion that
due to the outlook of increased product differentiation, described above in section
1.1, this business model must change. Production homebuilding ﬁrms must
evolve to a foundation based not only on product standardization but system

standardization as well. System standardization, fueled by information

IECDDCICj

efﬁcrency

1.3. Ne
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technology, will allow large production homebuilding firms to maintain production

efﬁciency in an environment of increased product differentiation.

1.3. Need Statement

The majority of production planning research has focused on
manufacturing environments. The variables related to production homebuilding
exclude conventional production planning methodologies from being applied to
this industry. For example, material resource planning (MRP) models and
software are designed for a controlled environment with minimal tolerance levels.
Construction is certainly not conducted in a controlled environment. Also,
tolerance levels are wide since no two homes are ever the same. Pheng, et.al,
(1997) compared the manufacturing sector with the construction industry:

“Unlike the manufacturing sector, the construction industry is a

more complex and fragmented industry. Construction activities are

generally complex due to the vast number of tradesmen, materials,

machineries, and construction methods used in any construction

project. The industry is also highly fragmented with different

transient builders and suppliers entwined in different procurement

and contractual arrangements.”

The levels of fragmentation and unpredictability within the
homebuilding industry are high. The fragmentation of the homebuilding
industry is attributed to three characteristics: (1) The large number of

residential construction ﬁrms (107,495 according to the 1992 Census of

 

 

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Michigan,

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Construction Industries, US. Department of Commerce, 1992), (2) the
large portion of sub-contracted labor (over 30% according to the 1992
Census of Construction Industries, US. Department of Commerce), and
(3) the impact of highly fragmented municipal control. For example, in
Michigan, interpretation and implementation of building codes varies from
one local government to another. Unpredictability in the homebuilding
industry is attributed to three primary factors; (1) changing government
controls at the federal, state, regional, and local levels, (2) unpredictable
weather, and (3) ﬂuctuation of material and labor costs. For example,
lumber, a volatile commodity, made up 94% and 89% of all material used
in single-family and multi-family low-rise construction, respectively
(Census of Construction Industries, US. Department of Commerce).
Fluctuation in lumber costs dramatically affects the total proportion of
material costs to the sales price of homes contracted prior to lumber price
ﬂuctuations. Also, a large commercial construction project may
commence in a given market area, therefore drying up the labor supply of
certain trades, subsequently increasing the cots of those trades. Hence, it
is difﬁcult to apply a production-planning methodology to the production
homebuilding industry developed without the specific characteristics of this
industry in mind.

It is the author’s opinion that the production concept, as currently
implemented by many large homebuilding firms, is based in its entirety on

product standardization. Considering the likeliness of increased product

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differentiation, over time, as described in Section 1.1, it is necessary to
revise existing production planning approaches, taking into account the
impact of product differentiation. Advancements in information technology
contribute new solutions for production homebuilding, given product
differentiation.

Information technology is rapidly advancing. The amount and
quality of information available to managers today dramatically exceeds
what was available before the information revolution. Large homebuilding
ﬁrms have implemented planning and control software solutions for
ﬁnancial, accounting, estimating, and scheduling functions. Based on the
author’s experience in the industry, the applications used for the planning
activities of managers are often “stand alone” applications. The tasks
associated with stand alone applications lack efficiency. 1

The production planning process utilizes information generated
from estimating, scheduling, cost and progress control, ﬁnance and
accounting, and sub-contracting and material acquisition (Dasso, 1988).
For example, the amount of work in progress is a direct result of the
number of units in production and the total cycle time necessary to
construct each unit. Cash ﬂow constraints must be communicated to
production before work in progress exceeds the available cash resources.
Limiting the number of job starts or decreasing cycle times can reduce
work in progress. Increasing crew size or crew productivity can reduce

cycle times.

. ”1;“ M . _ J
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A production planning methodology that takes into account the
characteristics of large production homebuilding ﬁrms is needed. Such a
methodology would contribute to the managerial proﬁciency of a
production homebuilding ﬁrm, in an environment of increased product
differentiation. A production planning methodology should include:

. Method designed to take into account the characteristics of the
production homebuilding industry.

. Method that accommodates product differentiation as opposed to a
method based on product standardization.

. Method to identify the information system requirements, taking into

account system integration.

1.4. Thesis Focus Area — Production Planning

This study will focus on production planning for large production
homebuilding ﬁrms. The production process for homebuilding ﬁrms
utilizes both internal and external resources such as management, cash,
sub-contractor labor, and material to build homes. The majority of large
homebuilding ﬁrms are production homebuilders and the production
process is their core competency. It is the construction process in which
they create the greatest value with the least input. The production
process for production homebuilding ﬁrms encompasses product

development, procurement, and construction activities.

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The three characteristics of core competencies defined by Kotler,
et.al, (1997), are; (1) they are a source of competitive advantage, (2) they
have potential to span a breadth of applications, and (3) it is difﬁcult for
competitors to imitate them. Therefore production planning is a vital
component to management of large production homebuilding ﬁrms.

Production planning involves the following systems: estimating,
scheduling, cost and progress control, ﬁnance and accounting, and sub-
contracting and material acquisition. Each system is complex in nature
and affects many other systems in a production homebuilding ﬁrm. During
interaction with several homebuilding ﬁrms, the author found that many of
these systems are developed independently and maintained by different
departments. When one considers the hundreds of components that
make up a new home multiplied by hundreds of units constructed
annually, then the magnitude of the various production planning systems
and subsequent production planning processes becomes evident.

Comprehensive production planning can lead to higher quality,
improved customer service, increased production efﬁciency, lower cycle
times, improved cash ﬂow, improved work force loyalty, increased job-site
safety, and efﬁcient site management. This study ﬁrst examines
production planning in terms of management systems and management
functions. Next, the role of information systems in production planning is
examined conceptually through the decomposition of management

systems.

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1.5. Research Objective

1.6.

The objectives of this research consist of the following:
To develop a production-planning methodology (PPM) for
homebuilding ﬁrms classiﬁed as large homebuilders. This
methodology should be applicable to the majority of homebuilding firms
producing greater than 10 million dollars of construction output
annually.
To include a modeling method that will allow managers to identify the
detailed information system requirements necessary for proﬁcient
production planning within their ﬁrm.
To evaluate the research ﬁndings of the proposed production planning
methodology. Evaluation will be conducted through the application of
the proposed methodology on an example production homebuilding
ﬁrm. Additionally, managers of two production homebuilding ﬁrms will

be interviewed to further evaluate the research ﬁndings.

Methodology

This study was conducted in four phases. A comprehensive

literature review was conducted in phase I. A production planning

methodology was modeled and the information system requirements were

developed in phase II. An industry analysis, designed to evaluate the

applicability and essentiality of the work, was conducted in phase III.

Finally, a report was developed in phase IV.

12

 

PHASE I

Phase I of the research encompassed the development of an
understanding of the focus area and a comprehensive literature review.
Any study directed toward a speciﬁc industry should begin with the intent
of developing an understanding of the focus industry. This was
accomplished through the author’s diverse work experience related to
production planning for large homebuilding firms.

Next, an understanding of business planning was developed before
production planning, a sub-set of the business planning process, was
investigated. Also managerial proﬁciency, as related to production
homebuilding, was examined. This understanding was partially developed
through previous academic work conducted by the author. The author, as
part of his work with the Housing Education and Research Center at
Michigan State University, developed a guide to business planning for
Michigan’s residential construction industry, which includes a detailed
analysis of managerial proﬁciency (Seidel, et.al, 1997).

The literature review was directed toward production planning and
the role of information systems in production planning. lt encompassed
the identiﬁcation and evaluation of information related to the following
categories; residential construction management, production planning,
and information system design and development. The author’s graduate

course work was directed toward residential construction management

13

 

 

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and information system design with an emphasis on conceptual database

modeling.

PHASE II

A production planning methodology and subsequent information
system modeling method was developed in phase II of the research. The
production planning methodology was derived through the literature
review and the researcher’s related experience. The information system
modeling method was developed through the literature review and the
author’s course work. The identiﬁcation of the information system
modeling method was accomplished through business system
decomposition. Business system decomposition is the process of
examining an organization’s processes at varying levels of abstraction.

All companies can be examined at different levels of abstraction.
The three levels of abstraction are the value chain level, resource-event-
agent level, and task level (McCarthy, et.al, 1997). The value chain level
of abstraction is utilized to model an organization at the highest and most
abstract level. This is accomplished by modeling the value—added series
of exchanges a ﬁrm engages in. A value-added series of exchange is a
representation of a give and take relationship at a highly abstract level.
For example, the process of utilizing employee service, materials, and
equipment to produce goods. The resource-event-agent level of

abstraction is the level of abstraction at which managers plan, monitor,

14

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and control (McCarthy, et.al, 1997). For example, closing a purchase
order, debiting a cash account, and issuing a check to a vendor are
representative of the resource-event-agent level of abstraction The lowest
and most organizational speciﬁc and detailed level of abstraction is the
task level. This level of abstraction is representative of the daily tasks
employees of a ﬁrm engage in to operate the business processes. For
example, physically attaching an invoice to the appropriate purchase
order. Information processing functions are also considered
representative of the task level of abstraction.

The production planning methodology provides models for two of
the three levels of abstraction within a typical large homebuilding ﬁrm, the
value-chain level and the resource-event-agent level. The information
system modeling method is directed toward the resource-event-agent
level of abstraction because this is the level of abstraction at which

managers plan, monitor, and control (McCarthy, et.al, 1997).

Phaseln

Evaluation was conducted through the application of the proposed
methodology on an example production homebuilding ﬁrm. Additionally,
two production homebuilding ﬁrms were analyzed in order to further
evaluate the production planning methodology and information system
modeling method developed in phase II. The qualitative evaluation was

conducted through the use of a standard format. The information

15

 

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systems, as related to production planning, utilized by both homebuilding

ﬁrms were evaluated.

1.7. Expected Output

A ﬁnal report was developed and presented in phase IV of the
research. The report is directed toward owners and managers of large
homebuilding ﬁrms, afﬁliated industries, and residential construction
management educators. The proposed production planning methodology
was presented in the form of a model. The production planning
methodology includes a modeling method to identify the information
system modeling requirements necessary for proﬁcient production
planning. Evaluation of the methodology is presented through illustrative
examples resulting from the application of the proposed methodology on
an example production homebuilding ﬁrm “Big Builder”. Additionally,
inferences drawn from the evaluation of two existing production

homebuilding ﬁrms are presented.

1.8. Organization of Report

This report is organized into seven chapters. Chapter One
presents the research focus area and objectives. Chapter Two provides a
literature review of previous work related to residential construction
management, production planning in construction, and business system

modeling techniques. Chapter Three discusses business planning.

16

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Chapter Four provides a discussion on structured analysis, including
modeling of the production homebuilding industry. A production planning
methodology including a method to identify subsequent role of information
systems is presented in Chapter Five. Additionally, Chapter Five includes
a running example illustrating the application of the proposed
methodology. The evaluation of two production homebuilding ﬁrms,
intended to further evaluate the research ﬁndings, are presented in
Chapter Six. The report is concluded with Chapter Seven, a summary of

the research ﬁndings.

17

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2.2

CHAPTER TWO

LITERATURE REVIEW

2.1. Introduction

The literature review was conducted with a focus on three distinct
categories, residential construction management, production planning, and
structured analysis. Residential construction management is discussed with an
emphasis on managerial proﬁciency. Various approaches to production planning
are presented. Modeling techniques associated with structured analysis are
presented in terms of varying levels of abstraction in section three. This chapter

is organized into the three categories described above.

2.2. Residential Construction Management

A limited amount of research has been conducted related to residential
construction management. Music (1985) and Dasso (1988), approached
residential construction management from managerial proﬁciency and
management functions perspectives. Willenbrock (1994), assimilated and
expanded Music’s (1985) and Dasso’s (1988) work in terms of management
guidelines for growth oriented homebuilding ﬁrms. Music ( 1985), developed
“Management Growth Model” (Figure 2.1) which illustrates the relationship
between managerial proﬁciency and effort in terms of construction output. In
doing so, he identiﬁed four management plateaus at which construction output

remains constant, at a given level of effort, without

18

 

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(Souce: Music, 1985)

changing the educational attitude, organizational structure, management
technique, and management systems of homebuilding ﬁrms.

Dasso (1988), expanded the growth model by deﬁning the speciﬁc
characteristics of homebuilding planning systems for each plateau of managerial
proﬁciency. The speciﬁc characteristics of managerial proﬁciency, identiﬁed by
Dasso (1988), are provided in detail in Appendix B. Willenbrock (1994),
presented the Management Growth Model in terms of internal management

system analysis, in order to plan for growth. The proposed production planning

19

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methodology is built upon the residential construction management foundation
established by these authors in terms of planning systems for production,
concentrating on large production oriented homebuilding ﬁrms (Levels lll & IV on

the Management Growth Model).

2.2.1. Management Growth

Music (1985), deﬁned residential construction management in terms of
business systems. This was accomplished by defining the performance of a
business system in terms of management systems and management functions.
Management systems were deﬁned as a sub-component of managerial
proﬁciency. Management functions were deﬁned as the activities mangers must
perform within the business system. Managerial proﬁciency, a measurable
characteristic of a homebuilding ﬁrm's business systems, is impacted by the level
at which management functions and systems are utilized within a homebuilding
ﬁrm.

Music demonstrated that there are four measurable characteristics of
managerial proﬁciency; management systems, management technique,
educational attitude, and organizational structure. Music (1985), deﬁned the
relationship between a homebuilding ﬁrm’s managerial proﬁciency and effort in
terms of construction output and potential for growth (construction output
represents the total annual retail dollar volume of construction work in place for a
particular year). This relationship is illustrated graphically with the Management

Growth Model (Figure 2.1.).

20

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The Management Growth Model identiﬁes four levels of construction
output that can be achieved by a homebuilding firm, depending on the level of
managerial proficiency and effort within the ﬁrm. The model demonstrates that
homebuilding ﬁrms reach a maximum level of construction output for the given
level of managerial proﬁciency. In order for a firm to achieve a higher level of
construction output the ﬁrm must go through a transition period. This transition
period occurs when a builder makes a conscious decision to increase
construction output by increasing managerial proficiency or effort. Music (1985),
deﬁned the characteristics of each component of managerial proﬁciency for
homebuilding ﬁrms at four levels of construction output (Levels l — lV, small,
medium, large, and giant).

The evolution of managerial proﬁciency within an organization is directly
related to the construction output of a firm. According to Music (1985), in order
for a home building company to reach a higher level of construction output, it
must either increase effort or managerial proﬁciency. A slight increase in
managerial proﬁciency produces a greater increase in construction output than a
similar increase in effort, Music (1988). The evolution of managerial proﬁciency
within a ﬁrm is the result of the cumulative effect of the evolution of educational
attitude, management technique, organizational structure, and management
systems. Large homebuilding ﬁrms operate at the highest level of construction
output but not necessarily high levels of managerial proﬁciency. Therefore, large
homebuilding ﬁrms who want to increase construction output without increasing

effort, or maintain the same level of construction output with less effort, must

21

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increase one or more of these management characteristics. This study is based
on the assumption that an increase in the proficiency of management systems,
through production planning, will increase a firm’s managerial proﬁciency,

subsequently contributing to a ﬁrm’s growth and production efficiency.

2.2.2. Ideal Classiﬁcation of Management Systems

Dasso (1988), expanded the management systems component of
managerial proficiency. First, the author clearly deﬁned management systems
required for homebuilding ﬁrms, at each of the four levels deﬁned by Music
(1985). Second, the author classiﬁed the various management systems for each
level of managerial proﬁciency deﬁned by the Management Growth Model. The
ten management systems utilized by Dasso (1988) were business planning,
ofﬁce management, estimating, scheduling, cost control, subcontracting, quality
control, customer service, safety, and accounting and ﬁnancial systems.

Dasso (1988), emphasized the management function of planning and
noted how it is critical to business success. Planning is very important to the
Management Growth Model because planning establishes the need for proper
management systems and helps to insure the efﬁcient and effective performance
of company activities, (Dasso, 1988). Dasso (1988), noted that “efﬁcient and
effective" performance of company activities could not be achieved without

integration of management systems.

22

 

 

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2.2.3 Summary

The author’s identiﬁed above each approach residential construction
management from the management system and function perspectives.
Managers perform managerial functions within the business system. Music
(1985), explained that the level of proﬁciency at which management systems are
implemented directly affect the construction output of a firm. Dasso (1988),
expanded Music’s (1985) argument by providing a detailed classiﬁcation of what
speciﬁc management systems are required for each level of managerial
proﬁciency. Although the authors described various management systems
required for maximized managerial proﬁciency, the speciﬁcs of system selection
and implementation were not presented. In order to develop a production
planning methodology it is necessary to ensure: (1) The methodology will yield a
production plan applicable to the production homebuilding industry and, (2) the
process undertaken to develop a production plan will yield information required

for maximized managerial proﬁciency.

2.3. Production Planning

In order to develop a comprehensive production planning methodology for
the homebuilding industry, it is necessary to examine and deﬁne the context from
which production planning will be approached. Ballard, et.al, (1997) deﬁned
production control in terms of construction with an emphasis on commitment
planning. Warszawski (1996), developed a methodological procedure for

strategic planning in construction companies. Methods were presented for

23

analysis of a company’s mission, business environment, and resources which
include construction, procurement, marketing, organizational infrastructure,
personnel, ﬁnance, and knowledge. Artiba, et .al, (1997), illustrated the history
and evolution of production planning systems. Following the evolution
discussion, a detailed methodology for developing an integrated production
planning system including information system conceptual modeling was
presented (Banjaree, 1993). Pheng, et.al, (1997), discussed just-in-time
philosophy in terms of production planning for construction including a
comparison of the manufacturing and construction environments. Kotler (1997),
described the production planning process and its interdependent relationship
with market analysis and planning. A combination of the above noted research is
used as the foundation for the production planning methodology presented in this

study.

2.3.1. Strategy Selection in Construction

Warszawski (1996), developed a formal methodology for strategic
planning in large commercial building companies based on strategy selection
literature and an industry survey of large construction companies. This
methodology of strategic planning is founded on management systems.
Warszawski (1996), deﬁned a construction company as a system located in an
environment with environmental parameters, organizational criteria, constraints,
and decision variables. Figure 2.2 illustrates a construction company as a

system.

24

 

 

 

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Objectives, N . Market
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Figure 2.2. Construction Company as a System
(Source: Warszawski, 1996)

Warszawski (1996), provided a number of parameters that must be examined
when developing each component of a strategic plan, including company
resources. Detailed parameters were presented for resource analysis organized
by construction, procurement, marketing, organizational infrastructure, personnel,
ﬁnances, and knowledge. This methodology further substantiates the use of the
systems approach to planning.

Production builders have selected a strategic plan, to be production
oriented. To be production oriented is to direct company resources toward
management systems that yield efﬁcient production. Efﬁcient production results
in “no-frills” products targeted toward the middle of the market where there is the

greatest demand. The parameters presented for resource analysis, by

25

Warszawski (1996), provide a framework for production builders to analyze their

business as a system, focusing directly on production capabilities.

2.3.2. Review of Production Planning Methods

There are seven planning and control methodologies prevalent in industry
today. These methodologies are: (1) material requirement planning (MRP), (2)
manufacturing resource planning (MRP ll), (3) just-in—time (JIT), (4) total quality
control (TQC), (5) hierarchical production planning, (6) trade partnering, and (7)
integrated manufacturing planning and control. The following sections provide a

review of these methodologies.

2.3.3. Material Requirement Planning (MRP I)

Material requirement planning (MRP l) is considered a “push based”
approach to production planing. This is a demand driven production planning
methodology able to accommodate market ﬂuctuations and production options.
The major shortcoming of this methodology is its lack of shop ﬂoor order and
control. The result is either over stocked or under stocked production stages
(Artiba, et.al, 1997). For example, a production homebuilder scheduling
production, based on the MRP l methodology, would control job starts at the
point of sale. With sales ﬂuctuating weekly, say from one to six, an uneven work-
ﬂow would result. Seven or eight units would be ready for the electrician at once,
and on the same week, no work would be ready for the drywall sub-contractor.

In order to schedule even-ﬂow production, project managers would be forced to

26

 

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delay activities in certain units therefore increasing cycle-times and work in

progress.

2.3.4. Manufacturing Resource Planning (MRP ll)

Manufacturing Resource Planning II was developed as a result of the
shortcomings of MRP l. (Artiba, et.al, 1997), identified four assumptions of MRP
I that are contradictory. First, the assumption that the market can be forecasted
contradicts the assumption that demand should be managed. Second, the
assumption that lead-time is know in advance contradicts the assumption that
lead-time is controlled by priorities. Third, the assumption that MRP l is a tool for
decision support contradicts the assumption that its plans will be executed.
Finally, the assumption that material management and master production
scheduling are organizational functions contradicts the assumption that MRP l is
neutral with respect to organizational structure.

Both Materials Requirement Planning (MRP l) and Manufacturing
Resource Planning (MRP II) are inventory driven production planning
methodologies. These methodologies are limited in scope, that is, the primary
objectives is to reduce inventory. Both methodologies were developed as a
result of foreign competition and high interest rates in the 1970’s (Pheng, et al.,
1997). The MRP systems were designed for the manufacturing environment and
are not applicable to construction in whole. For example, inventory is rarely a
factor on construction sites. The majority of material is supplied and installed

simultaneously by sub-contractors and billed together as a single unit.

27

 

 

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2.3.5. Just-In Time (JIT)

The just-in—time production planning methodology is a “pull based”
method of planning. Pull based systems are triggered by the stock level of a
ﬁnished product. When the stock level of a finished product drops below a pre-
deﬁned threshold, typically zero in construction, then the last workstation
receives authorization to produce another batch. JIT requires demand to be
stable, the product to be standard, and the workshop to be organized according
to material ﬂow. This methodology works well for products with a low value-

added labor portion and high material costs (Artiba, et.al, 1997).

2.3.6. Just-In-Time for Construction

Pheng, et.al, (1997), applied the just-in-time concept developed by the
Japanese automotive industry to the construction industry as a whole. Three
case study projects were utilized to develop an implementation method. The
projects included a school, public housing project, and a private condominium
project. The authors’ support of JIT is not, however, a result of low value-added
labor and high material costs, such as the adoption of JIT in the manufacturing
sector, but premised on reducing waste. The authors argue that by tracking time,
material, and process waste through traditional accounting procedures,
inefﬁciencies and bottlenecks will surface. Management can then make use of
this data to localize the bottlenecks and inefﬁciencies in order to suggest and

implement necessary solutions to reduce the time waste for a particular task.

28

The primary method employed by the researchers was to implement the
just-in-time management philosophy within the business system by accounting
for material, labor, and machinery waste. Therefore, by applying a quantitative
measure for JIT, construction processes can be performed at higher efﬁciency
levels (Pheng, et.al, 1997).

The authors identiﬁed three categories of time waste in construction.
Transportation waste is a result of an item being moved temporarily or
rearranged. Waste of motion is a result of poorly planned workspace, such as
inadequate tool locations. Inventory waste is a result of excessive material
handling. Four categories of process waste were identiﬁed: (1) over-production
waste, (2) construction method waste, (3) waste from product defects, and (4)

poor optimization in carrying out tasks.

2.3.7. Total Quality Control (TQC)

Total quality control (TQC) is also a production planning methodology.
TQC is designed to immediately force quality issues to the surface, bringing them
to management’s attention for immediate corrective action. Ballard, et.al, (1997),
best describe this system. Total quality planning, similar to just-in-time, is a pull
based production planning methodology. The TQC approach for commercial
building deﬁned by Ballard, et.al, (1997) utilizes shielding to produce maximum

production efﬁciency by eliminating uncertainty in a construction environment.

29

2.3.8. Hierarchical Production Planning (HPP)

Artiba, et.al, (1997), identiﬁed three levels of decision making related to
production planning; strategic, tactical, and operational. These levels of decision
making are known as hierarchical production planning (HPP). The problems of
production planning are addressed by solving production problems at each of the
three levels. First, production planning addresses problems related to the type of
products. Secondly, product types are broken down into families of products,
which are again decomposed into the planning problems related to the individual
items that make up a product. The primary weakness of HPP is that it is not a
stand-alone production planning methodology. It must be used in conjunction

with a decision support mechanism.

2.3.9. Trade Partnering

Traditional production planning methodologies view trade-contractor labor
as a resource. Trade partnering addresses trade-contractors as partners, as well
as resources. Under this methodology, the proﬁtability of trade-partners is an
important component of the production plan. Trade partners become part of the
item level of production planning in the HPP model. For example, they
participate on product development teams with the builder and address item
speciﬁc production related issues. Suppose a large production homebuilding ﬁrm
is developing a new entry-level production line. If this organization utilizes trade
partnering, then it will invite key trades such as HVAC, plumbing, or rough

carpentry to evaluate the plans and make efﬁciency related suggestions.

30

2.3.10. Integrated Manufacturing Planning

Integrated manufacturing planning is a methodology for production
planning that places emphasis on the particular needs of an enterprise, ﬁrst on
market demands, secondly on product, and ﬁnally on the individual
characteristics of the production capabilities. This method is based on market
projections although it takes into account variable handling capabilities. Variable
handling capabilities are designed into the production system through resource
ﬂexibility. Banjeree (1997), proposed this methodology to accommodate the
dynamics of the modern business environment. This production planning
methodology is based on a fundamental principle. In order to yield a specific
domain architecture that exhibits appropriate interconnectivity, coordination, and

communication with other business practice functions and processes, to fulfill a

predetermined set of domain objectives.

a lnterdomain relationships exist between various elements, both within and
outside the system. Therefore it is necessary to consider a system in this
context of integrated system design.

0 Historically, organizations have attempted to become more dynamic in
operations through decentralized structures. Decentralized structures often
evolve into diverging and autonomous production departments or units.

. When attempting to optimize the functional efﬁciency of a particular unit one
may lose sight of the organizational strategies and goals. Therefore

coordination of organizational units is essential.

31

The process of designing a production planning system should be based on a
clear understanding of the interdependencies that exist among the functional

groups or domains within the enterprise.

Banjaree (1997), identiﬁed the following characteristics any production

planning methodology should exhibit:

Method to match proposed production planning system with the ever-
changing needs of a company’s market, manufacturing tasks, and
manufacturing process, architecture, and layout

Method to map the integration of the various domains

Process to select modeling tools and techniques to facilitate the
representation of both the existing system and desired system

Process to identify the difference between the existing and desired physical
systems

Process to construct a conceptual model of a desired system

Provision for expressing system requirements is a formal language, which
can be used as a means for selection of the appropriate decision support
tools for a particular system and its unique business needs.

Banjaree (1997), developed a process for production planning methodology

development that exhibits the above characteristics. This methodology is divided

into four stages; diagnostic stage, characterization stage, customization stage,

and concept design stage.

32

2.3.10.1 Diagnostic Stage

This is the process of business analysis or business speciﬁcation. It is
very similar to the deﬁnition of the business process performed in high level
strategic planning. This process includes the following:

. Review of the current and intended customer and market segments targeted
by the enterprise, their present and projected needs with regard to products
and services.

. Assessment of competition

. Review of manufacturing task statement in terms of volume, delivery
ﬂexibility, critical product cost and quality, and other manufacturing

dimensions, in terms of consistency with the adopted marketing strategy.

2.3.10.2. Characterization Stage

The characterization stage is intended to identify natural product
groupings based on similarities in market, product, or process characteristics.
Such product groupings form the basis for the production planning system
design. Banjaree (1997), suggested an analysis of each product grouping within
each of three levels of abstraction, long range, medium range and short range.
These levels of abstraction fall into the same classiﬁcation of the value chain,

resource-event-agent, and task level of abstraction described in section three.

33

2.3.10.3. Customization Stage

The customization stage provides a generic production planning model for
the business. The intent of the customization stage is to optimize the generic
model for each product type. A conceptual production planning system for each
product type will be developed in this stage, although the intent is one model for
the enterprise. Therefore it is necessary to develop an aggregate model of the

various conceptual production planning models developed for each product type.

2.3.10.4. Concept Design Stage

Now that a conceptual production planning model has been developed for
the enterprise it is necessary to employ tools that will facilitate implementation for
the various domains. Banjaree (1997), utilized the following modeling techniques
in order to develop an information system implementation design; IDEFO, DFD
(Data Flow Diagrams), and ERA (entity-relationship-attribute) diagrams are the

same as resource-event-agent modeling technique described in Chapter 3.

2.3.11. Shielding — Production Planning

Ballard, et al.,(1997), deﬁned production control for the commercial
building industry. The authors clearly illustrated the difference in production
control between the construction and manufacturing industries. They described
a component of production management known as “shielding” for construction
companies. The underlying premise of shielding is to improve the quality of

directives, or task assignments, therefore reducing work ﬂow uncertainty and

34

immediately improving productivity in work groups. As applied to construction,
shielding is the process of having a detailed scope of work for each phase of
construction, including, if necessary detailed tasks, sub-tasks, and sub-sub-
tasks. The process of shielding is adopted from "pull” methodologies of
production planning.

Pull methodologies, such as just-in-time and total quality planning, are
dependent on the level of ﬁnished goods. No inventory of ﬁnished goods is
maintained. Additionally, no inventory buffers exists between the various
production processes. If no buffer exists between processes than defects
immediately rise to the surface and must be addressed. For example, if a sub-
ﬂoor has been installed improperly construction will stop prior to the ﬁnish ﬂoor
being installed causing te affected unit’s production to remain idol until the sub-
ﬂoor is repaired. Pheng, et al., (1997), also applied the “pull” philosophy of

production planning to construction through application of just-in-time principles.

2.3.12. Summary

Pheng (1997) and Ballard (1997) both illustrated the importance of a “pull”
based production planning system. A "pull” based system is a production planing
system designed to yield ﬁnished goods, as ﬁnished goods are required (just-in-
time), with no inventory between production processes and no ﬁnished inventory.
Pheng (1997), emphasized the importance of shielding in construction. Shielding
is the process of preparing quality directives for a crew prior to that crew

commencing on a particular construction activity. In homebuilding ﬁrms, this

35

would entail the preparation of a detailed scope of work for each activity. Just-in-
time production homebuilding is the process of scheduling consecutive
construction activities with no lag time between predecessor and successor
activities, either for a speciﬁc unit or another unit within the same project. In
order to implement these production planning techniques, a production planning
methodology is required. The six properties that a production planning

methodology should exhibit were presented by Banjaree (1997).

2.4. Business Systems

The production planning process utilizes information generated from
estimating, scheduling, cost and progress control, ﬁnance and accounting, and
sub-contracting and material acquisition (Dasso, 1988). Through interaction with
the industry, the author observed that the applications used by large
homebuilding ﬁrms for these systems are often “stand alone”. McCarthy, et.al,
(1997), presented a structured methodology for the design of accounting
transaction systems in a shared data environment. This methodology utilizes
logical modeling techniques in order to develop conceptual views of an
organization at various levels of abstraction. Two modeling techniques are
utilized to represent two corresponding levels of abstraction within a typical
production homebuilding ﬁrm. The Porter Value Chain represents an
organization from the highest level of abstraction, the value chain level. The
Resource-Event-Agent level (R-E-A) of abstraction is the level of abstraction at

which managers must plan, monitor, and control. Data-Flow-Diagrams are

36

 

 

 

.0:;l7a
l.

tillbv

5.5911

2.4.1

Cllaan i

atstra

 

utilized to decompose the functional areas represented on the value chain into
business processes and sub-processes represented by R-E-A modeling. This
study will utilize the above noted modeling techniques in order to illustrate the

interdepartmental integration of production planning information.

2.4.1 Functional Areas

Gale, et al., (1996) described a business as a system from three distinct
levels of abstraction. The authors used Porter’s Value Chain (Porter, 1985) to
illustrate an organization at the highest level of abstraction. A sample value
chain is provided in Figure 2.3. The processes a ﬁrm engages in at this level of

abstraction are functional areas. Functional areas create value and have

37

Financing

 

 

Cash Cash

 

Employee

 

Service

Marketing -

 

Sub- Construction

 

contracting Process

  

Material

 

Purchasing

 

 

 

   

Fixed Assets

Developed

 

 

     
 

Land Production Process

 

 

Figure 2.3
Sample Value Chain Depicting the Value-
Added Processes of a Typical Production
Homebuilding Firm

38

 

interdependent relationships. For example, in production homebuilding a
functional area would be considered land acquisition. Land acquisition has an
interdependent relationship with its predecessor functional area, ﬁnancing, and
its successor functional area, development. Next, the authors illustrated how
functional areas can be further decomposed into business processes and sub-
processes, noting that processes are decomposed to the physical level or the
desired level for modeling. This is typically the level at which managers want to
plan, monitor, and control. This level of abstraction is the resource-event-agent
(R-E-A) level of abstraction. For example, the difference between the value
chain level of abstraction and the R-E-A level of abstraction is similar to the
difference between, (A) acquiring material to build homes and (B) acquiring
twenty 2x4”s for unit 129. Before a functional area modeled with a value chain
can be decomposed to the R-E-A level of abstraction, multiple processes, sub-
processes, and sub-sub-processes need to be modeled as well. Data-Flow-
Diagrams (DFD’s) are utilized to bridge this gap. The process of “bridging the
gap” will be referred to as organizational decomposition throughout the

remainder of this study.

2.4.2. Business Systems

Kendall, et al., (1996), presented Data Flow Diagrams (DFD’s) as a
modeling technique to illustrate business processes, sub-processes, and the
inter-relatedness of a system and it’s sub-systems. Structured analysis is the

process of decomposing organizational processes, beginning with functional

39

areas deﬁned with the value chain, into a level of abstraction at which managers
can plan, monitor, and control.*Structured analysis offers an orderly approach to
the problem of analyzing and deﬁning information systems, enabling users,
analysts, and designers to obtain a logical (non-physical) view of the system and
it’s interfaces (McCarthy, et.al, 1997).

The authors provided a sequential process for developing a DF D for
business system based on organizational decomposition. Both the logical and
physical methods were described. Logical DFD’s represent the conceptual view
of an enterprise’s information system. Physical DFD’s represent the
implementation view of an enterprise’s information system. This study utilizes
structured analysis techniques within the proposed production planning

methodology in order to fulﬁll Banjaree’s ( 1997) objectives.

2.4.3. System Development

McCarthy, et.al, (1997), presented a system development methodology
that combines both structured analysis and database design methodologies. The
authors described the implementation of these methodologies in a complimentary
fashion. The following steps to traditional system development were presented;
(1) requirement analysis, (2) information analysis and deﬁnitions, (3)
implementation design, and (4) physical design. The new combined system
development methodology presented by the authors includes the following
processes; (1) requirement analysis, (2) view modeling and modiﬁcation, (3) view

analysis and integration, (4) system speciﬁcation, (5) schema reﬁnement, (6)

4O

structured design, and (7) implementation. This study will utilize steps 1,2, and 3
of the revised system. Steps 4,5,6, and 7 depend on speciﬁc characteristics and
implementation compromises of a speciﬁc organization, therefore the output from
these processes could not be applied to an entire industry (production

homebuilding).

2.4.4. Summary

McCarthy, et.al, (1997) illustrated a method for information system
development that integrates logical approaches to structured analysis and
database design. This methodology serves as a foundation for the information
system modeling method presented by this research. A combination of Porter’s
Value Chain, DFD modeling, R-E-A modeling and Structured analysis are utilized
to develop a modeling method that identifies the information system
requirements necessary proﬁcient production planning for large homebuilding
ﬁrms. Also this methodology is utilized to deﬁne the shared data among the

various production planning management systems.

2.5. Chapter Summary

Residential construction management research has focused on
management systems and management functions. Music (1985), developed the
Management Growth Model which deﬁnes the level of managerial proﬁciency at
which a homebuilder must operate in order to reach a given level of construction

output. Managerial proﬁciency is deﬁned in terms of a homebuilding ﬁrm’s

41

management systems, management technique, organizational structure, and
educational attitude. Dasso (1988), expanded and deﬁned the specifics of
management systems for homebuilding ﬁrms at each level of construction output.
This research will be utilized to deﬁne the context in which management systems
will be approached from a homebuilding perspective.

The majority of production planning research has focused on
manufacturing environments, Ballard, et.al, (1997). Warszawski (1994),
developed a strategic planning methodology for large construction companies
including a structured methodology for analysis of construction procurement
processes. Ballard, et.al, (1997), focused directly on production planning for
commercial building companies within the context of "pull" based production
planning methodologies, to the construction industry through the development
and implementation of just-in-time philosophy. Banjaree (1997), developed a
methodology for integrated manufacturing planning system design. This
methodology includes system design methods for the physical system and the
information system in the context of a shared data environment. A combination
of this research is utilized to develop an integrated production planning
methodology.

McCarthy, et.al, (1997) illustrated a method for information system
development that integrates logical approaches to structured analysis and
database design. This methodology is utilized to develop and model the

information system requirements for proﬁcient production planning for large

42

homebuilding ﬁrms. Also this methodology is utilized to define the shared data
among the various production planning management systems.

A combination of the above literature is utilized in the development of a
production planning methodology for large production homebuilding ﬁrms. The
residential construction management research illustrates the context in which
production planning will be approached. The production planning literature is
utilized to deﬁne the unique characteristics of production planning for
construction. Finally, the structured analysis literature provides a conceptual
framework for the development of a conceptual model illustrating the role of
information systems in production planning for large production homebuilding

ﬁrms.

43

CHAPTER THREE
BUSINESS PLANNING - PRODUCTION PLANNING

3.1. Managerial Aspects of Residential Construction

Music (1985), performed an analysis of residential construction
management and developed the “Management Growth Model” as a result. The
model illustrates managerial proﬁciency in terms of construction output.
Managerial proﬁciency is the result of the cumulative effect of a homebuilding
ﬁrm’s educational attitude, organizational structure, management technique, and
management systems (Music, 1985).

The “Management Growth Model” identiﬁes the relationship between
managerial proﬁciency and effort in terms of construction output. Managerial
proﬁciency implies that there are different levels of management skills,
techniques, and awareness that are required to achieve various levels of
construction output (Music, 1985). Managerial proﬁciency is deﬁned as the set of
management characteristics, that when reﬁned and developed, enable a builder
to increase construction output. An increase in managerial proﬁciency will
increase construction output far greater than an equal increase in effort. Effort is
deﬁned as the amount of work required to increase construction output,
assuming no change in managerial proﬁciency. Construction output is deﬁned by

the following formula.

44

Construction Output =C1 f(Effort) + C2 f(ManageriaI Proﬁciency)

Figure 3.1 displays how the management systems, management
techniques, educational attitude, and organizational structure of a homebuilding
ﬁrm must go through a transition period and reach a higher level of managerial
proﬁciency in order for a ﬁrm to increase construction output. The level periods
represent the range of construction output the given level of managerial
proﬁciency (LV l - LV IV) can support. An increase in the level of managerial
proﬁciency of any of these four characteristics will increase the overall

managerial proﬁciency of the ﬁrm.

3.2. Managerial Proﬁciency

The concept of managerial proﬁciency for homebuilding ﬁrms, identiﬁed by
Music (1985), applies the systems approach to residential construction
management. Managerial proﬁciency is described in terms of a homebuilding
ﬁrm’s educational attitude, management technique, organizational structure, and
management systems (Music, 1985). Each element of managerial proﬁciency is
a vital component of a ﬁrm's growth and survival. A ﬁrm's educational attitude is
reﬂected by the individuals employed and is also evident in a ﬁrm’s ability to
expand into new challenging areas and to implement innovation. Management
technique is measured by the quality of information used in decisions, proportion

of time spent managing in relation to operational work, and the

45

Transition LV 4

 

Managerial Transition LV 3
Proﬁciency

 

 

 
   

Transition l
LV 2

  

 

I J I I J L
C00 C01 C02 C03 C04 C05 C06

Construction Output

Figure 3.1 Management Growth Model
(Souce: Music, 1985)

level of control within an organization. Organizational structure is deﬁned by the
distribution of responsibility, accountability, and authority therefore identifying the
level of department integration and employee specialization. Finally

management systems are a combination of constraints, people, and theory, that

interact to produce goods and services (Music, 1985).

46

3.3. Management Systems

A management system is the context in which a builder converts internal
and external inputs from the environment into a workable set of strategies, plans,
and controls. Inputs into the home building industry are; society requirements;
market constraints, demand, demographics, land and infrastructure availability,
and general market area; government controls; federal, state, regional, and local;
ﬁnancial parameters both for the builder and the consumer. Many of the inputs
into the residential construction process are fragmented and unpredictable.
Managers of home building ﬁrms must transform these inputs into their products
through management systems. Management systems, along with organizational
structure, educational attitude, and management technique contribute to the level
of managerial proﬁciency a home building ﬁrm operates at. Willenbrock (1994),
describes management systems in terms of a business system operating in an
environment with environmental constraints.

"A management system is a combination of internal and external

environmental constraints, management theory, and people that

interact to produce goods and service."

Residential construction management systems can be divided into three
categories; planning, control, and service (Dasso, 1988). Business planning and
ofﬁce management are planning systems. The control systems at use in home
building ﬁrms are estimating, cost control, scheduling, ﬁnancial, accounting, and

subcontracting. Quality control and customer service make up the service

47

systems. The detailed systems for each of the four levels of managerial
proﬁciency are provided in Appendix A.

Management systems are executed through management functions.
Managers of home building ﬁrms perform seven management functions, within
the management system, to produce goods and services. Figure 3.2 provides a

graphical overview of a management system.

 

 

l Ii

Management Functions l

111

I Goods and Services I

Inputs into the Residential Construction 1

 

 

 

 

 

 

Figure 3.2.
Overview of A Management System

3.4. Management Functions

The process of transforming inputs from the environment into products
and customer satisfaction, performed by managers within the management
system, can be categorized into management functions. The seven
management functions critical to the building industry are planning, organizing,

stafﬁng, leading (also known as directing), controlling, innovating, and

48

coordinating. Figure 3.3. illustrates the seven management functions. Koontz,
et.al, (1984) deﬁned ﬁve management functions. The author expanded the five
management functions utilized by Koontz (1984), and later Music (1985), who
applied them to residential construction management, into the seven functions
displayed in Figure 3.3. Planning is highlighted in the model because it is the
focus area of this research. The author added the management functions of
innovating and coordinating. Rapid developments in information technology over
the past decade have compelled managers to adapt to a dynamic and changing

business environment. Therefore managers must be innovative in order to reap

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Planning
1 v v + +
Innovating Organizing Leading Controlling Coordinating
V
Staffing
Figure 3.3.

The Hierarchy of Management Functions
(Modiﬁed from: Music 1985)

the beneﬁts of the information revolution. Coordinating was added to highlight
the importance of inter organizational coordination. Inter-organizational
coordination fulﬁlls management systems needs for integration. For example,
many production homebuilding ﬁrms operate multiple sites in which many units
are under construction simultaneously. Inter-organizational coordination

represents the managerial function of coordinating organizational resources

49

between the various construction sites (resource leveling). A detailed discussion

of management functions is provided in the following sections.

3.4.1. Planning

Planning is the foremost management function, that is, no other
management functions can be performed without first developing a plan. For
example, a manager can not staff for a given construction output without first
conducting a market analysis and developing a production plan to meet the
identiﬁed demand.

The management function of planning is the process of establishing the
goals and objectives of a ﬁrm and coordinating the entire organization, through a
series of actions, to those goals. The function of planning is conducted through a
series of plans; market plan, service plan, production plan, organizational plan,
development schedule, and ﬁnancial plan (Osgood, 1981).
Figure 3.3 illustrates planning as the foremost management function in any
organization. Planning cannot be delegated, it requires top management
attention, (Osgood, 1981). Plans are utilized at different levels of abstraction
within the organization, therefore each manager should maintain their plans, i.e.

production manager develops production plan.

3.4.2. Organizing
Organizing is the management function that groups activities, identiﬁed in

plans, and disseminates them through the organization. The organizing process

50

provides pe0ple with the means and methods for accomplishing organizational
activities and assigns the corresponding responsibility and accountability.
Assigning the responsibility of punch out items to the service manager is an
example of organizing. Planning will allow managers insight into the current and
projected capacity of their employees. Planning and organizing are directly
related. For example, if an increase in new housing starts is projected beyond
the current capacity of the ﬁeld staff than additional staff is required (Willenbrock,

1994).

3.4.3. Leading

The managerial function of leading has a strong relationship to planning
and control systems. The business plan clearly establishes a ﬁrm's goals and
objectives. Managers must motivate subordinates in such a way as to achieve
the objectives identiﬁed in the business plan. Additionally, managers must
consistently evaluate a ﬁrm’s progression toward established goals and
objectives and subsequently redirect and motivate subordinates. Two main
responsibilities of managers, as part of this function, are providing leadership and

resolving problems (Osgood, 1981). The criteria for the leadership role is:

1. Leadership is the means by which managers assist people in achieving their

own objectives while at the same time achieving those of the organization.

2. The enterprise is only one of many social systems within which people exist.

51

3. There is no such thing as an average person; therefore, managers must
understand the complexity of human nature and manage from a situation
perspective.

4. People must always be treated with dignity

5. Mangers must contend with each employee of the enterprise as a total person
that is also inﬂuenced by family, neighbors, churches, etc.

(Source: Osgood, 1981)

3.4.4. Innovating

Builders must constantly adapt to their environment, market demographics
and technology are two aspects that are always changing, and the impact of the
Internet will surely fuel even more change. Innovating is the ability to respond to,
create, or take advantage of change. Innovation can beevident at different
levels of abstraction. From a production process perspective, an example of
innovation is to merge traditional site-built construction practices with modular
factory built components. Traditional literature does not mention this function
but, in the author’s opinion, considering the fast pace of technology, it has

become an important management function.

3.4.5. Controlling
Controlling encompasses the functions of setting performance standards,
measuring performance, analyzing variances, and correcting deviations. The

managerial function of controlling is dependent on the business plan.

52

"The control system must, however, be designed with specifics of

the organization, the individuals using the system, the cost of

implementation, and the effectiveness of the system in mind. "

(Osgood, 1981 )
The process of developing and maintaining a schedule for each job is an
example of a control system. Decisions such as computerizing job schedules or
just ﬁlling out pre-printed forms should be based on the organization speciﬁcs,
the individuals using the system, the cost of computerization, and the

effectiveness.

3.4.6. Coordinating

Coordinating is the management function that links all other management
systems. One or more people may perform the activities associated with the
various management functions but they must be performed and directed toward
overall organizational objectives. It is the author’s belief that coordination is best
facilitated through inter-organizational integration. For example, suppose an
organizational objective is to increase the target market of a single-family product
line. Purchasing may pursue this objective by turning standard components into
options, such as a bay window option or a ﬁreplace option. The architectural
department may pursue this objective by eliminating stairs and incorporating
barrier free design in order to meet the needs of retirees. Facilitating inter-
organizational integration is the process of coordinating the activities of the

architectural and the purchasing departments.

53

3.4.7. Stafﬁng

Stafﬁng is directly related to organizational planning. Organizational
planning identiﬁes the skills necessary for different aspects of the organization.
Stafﬁng is the systems of matching the infinite variations in experience and
personality to the speciﬁcs of the job. Staffing also includes the functions of

recruiting, training, motivating, and reviewing, (Osgood, 1981).

3.5. Business Planning in Relationship to Managerial Proﬁciency

Music (1988), illustrated the relationship between managerial proﬁciency
and construction output, noting that greater construction output can be achieved
by increasing either managerial proﬁciency or effort (see section 3.2 for a
description of Managerial Proﬁciency). Managerial proﬁciency is deﬁned in terms
of a homebuilding ﬁrm’s organizational structure, management technique,
management systems, and educational attitude. Business planing can lead to
increased managerial proﬁciency through the planned exploitation and
integration of market opportunities, production capabilities, organizational
resources (people), and ﬁnancial resources. Planning activities, and
subsequently business planning can be directly linked to the management
systems characteristic of managerial proﬁciency. Music (1988), illustrated that by
increasing any of the four characteristics of managerial proﬁciency, the overall
managerial proﬁciency of a ﬁrm would be increased, therefore resulting in greater

construction output.

54

Figure 3.4 identiﬁes the relationship of managerial proficiency and the
management function of business planning. Management functions are the
processes managers perform within business systems that facilitate the process
of transforming inputs from the environment into products and customer
satisfaction (see Figure 3.2.). Management systems, a subset of managerial
proﬁciency, can be further decomposed into; service, ofﬁce management, and
business planning systems. The entity "business planning” is best described as
a combination of the business system of business planning and also the
management function of business planning. For example, managers utilize the
business plan to establish goals and objectives of a ﬁrm. Setting goals and
objectives is a management function. Managers also use the business plan as a
context to constantly evaluate the goals and objectives of a ﬁrm in a constantly
changing internal and external environment. Evaluation of the performance of a
ﬁrm with regard to goals and objectives is a system.

Managers perform management functions within the management
systems. The managerial function of planning is performed within a business’s
planning systems. Taken together, business systems and the management
functions performed within those systems represent Business Functions. Gale.
et.al, (1997), deﬁned business functions as a group of activities which taken
together support one aspect of furthering the mission of an enterprise.

Gale, et al. (1997) identiﬁed six characteristics of business functions. (1)
Business functions are mutually exclusive. (2) Business functions have different

skill, knowledge, and experience requirements. (3) Business functions do not

55

 

 
   
 

 

 

Management Technique —|

 

 

 

 

Educational Attitude I

Ofﬁce Management
I Control Systems I

 

 

 

 

 

 

 

 

V V V V 1
Innovating l I Organizing I | Leading I [ Controlling l Coordinating
v I I I

v

 

 

 

 

 

 

 

 

 

 

 

 

Figure 3.4.
Relationship between Management Functions and Management Systems
for Production Planning

56

change unless the business is re-engineered. (4) Business functions are named
with nouns or gerunds (ending in ing). (5) Two enterprises in the same line of
business will tend to have commonalty in their business functions.

It is the author’s opinion that the business function of business planning is
similar among large production homebuilding firms. The business function of
business planning can be further decomposed into market planning, service
planning, organizational planning, development schedule, and production
planning. Figure 3.4. graphically represents the relationship of Managerial
Proﬁciency and Management Functions to the Business Planning Business

Funcﬁon.

3.6. Business Planning

The business function of business planning is essential to the success of
an organization. The business plan is the document used by managers to
communicate the objectives of a ﬁrm internally to the various departments and
externally to partners and ﬁnancial institutions. Business plans bring an entire
team together, working toward common goals. Osgood (1981) explained the
importance of using a plan to coordinate the activities of an organization and
those involved with it.

"If the operational assumptions and details have been made

explicit, others who interact with the business organization. . .will

ﬁnd it easier to coordinate their activities with those of the

organization”. (Osgood, 1981 )

57

The business planning process allows homebuilding firms to be prepared
for anticipated problems and capitalize on future opportunities (Willenbrock,
1994). With proper business planning, homebuilding ﬁrms can be conﬁdent that
decisions made today by themselves, employees, and other team members will
lead to achieving established goals tomorrow. Business planning allows a
homebuilding ﬁrm to be prepared for the changing economic atmosphere and still

efﬁciently manage the barrage of daily tasks.

3.6.1. What is a Business Plan?

A business plan is the documented result of the business planning
process. It is a working document that evaluates and plans every aspect of a
company. The business plan presents the goals and objectives of the ﬁrm and
coordinates the entire organization, through a series of actions, to those goals.
Additionally, it provides a process to consistently evaluate each plan, in the
context of new ideas and a changing internal and external environment. It should
include a deﬁnition of the business, market plan, service plan, production plan,
organizational plan, development schedule, and financial plan (Osgood, 1981)

(As shown is Figure 3.5.).

58

The Business Planning Process

 

I
[

 

Business Plan

, The Planning '_
' ‘ A Process

 

 

 

 

 

Deﬁning the
Business

 

 

i

 

 

Market Analysis
and Planning

 

 

l

 

 

Service
Planning

 

 

I

 

 

Production
Planning

 

 

l

 

 

Organizational
Planning

 

 

I

 

 

Development
Scheduling

 

 

l

 

 

Financial
Planning

 

 

Figure 3.5.
Historical Business Planning Flow Chart
(Modiﬁed from: Osgood, 1981)

59

3.6.2. Deﬁnition of the Business

The deﬁnition is a detailed description of the company, products and
services, the industry, opportunities, and reasons for entering the market,
(Willenbrock, 1994). It should include the company mission, general information,
market information, company history, products and services including warranty
service, and ﬁnally advantages and disadvantages of the products and services

offered, (Osgood, 1981).

3.6.3. Market Plan (Research and Analysis)

The market plan has a substantial affect on the entire organization.
Without customers a company can not survive. The market plan includes how to
make customers aware of the construction services offered by a firm, what
message to convey to them, what speciﬁcs of the message to enforce, and how
to actually secure the sale, (Abrams, 1991). The target market(s) markets are

identiﬁed in the market plan.

3.6.4. Service Plan

Customer service is critical to the success of any residential building ﬁrm.
The service plan should include a plan to guide customers through the total
building experience from the ﬁrst contact with a sales representative through the
completion of the warranty period. Customer contact points are points in the
construction process where the customer is involved, such as plan review and

ﬁnal walk-through. The service plan should include a review of these points.

60

3.6.5. Production Plan

Dasso (1988), deﬁned production planning as an essential component of
the business planning process. The production plan allows for the consideration
of alternative strategies, which are consistent with sales and ﬁnancial forecasts,
as well as other areas of the organization. The production plan is the heart of any
residential construction company. The production plan is the vehicle that links
available internal and external resources to marketing projections and provides
an organizational wide implementation platform to meet the demand.

The production plan is the central process of the business planning
process. Market and service planning are inputs into the production planning
process. That is so resources can be directed to meet market and customer
demands. The production plan drives organizational stafﬁng and ﬁnancial
planning. The level of stafﬁng is a direct result of the production plan. Proper

ﬁnancial planning can not be conducted prior to production planning.

3.6.6. Organizational Plan

The organizational plan includes an organizational chart along with names
and responsibilities of each individual, especially the key personnel. Also,
individual experience and education should be evaluated against the skills

necessary for the position.

61

3.6.7. Development Schedule
The development schedule integrates the entire business planing process.
It should include a detailed schedule with milestones. The development
schedule establishes time requirements for each business plan component in
order to coordinate the business planning process, (Willenbrock, 1994). Goals
and objectives, along with an evaluation of threats, should be integrated with the

development schedule.

3.6.8. Financial plan

The ﬁnancial plan is the quantiﬁcation, evaluation, statement, and
summary of the various planning activities, including the development
schedule, (Osgood, 1981). Every business decision leads to an
associated cost, and taken together, these numbers form the ﬁnancial
plan. Financial plans typically include a balance sheet, income statement,

and cash ﬂow statement

3.7. Production Planning

Production planning involves organizing and managing the process of
converting raw materials into a pre-designed ﬁnished product. Production
planning is deﬁned as the function of management, which plans, directs, and
controls the material supply and processing activities of an enterprise.

Furthermore, planning is the process of deciding what to do in the future,

62

directing comprises the operation of issuing orders, and control can be described
as the constraining of events to follow plans. Production involves three levels of
decision making; strategic, tactical, and operational (Artiba, et.al, 1997).

Many production planning techniques have been developed to meet production
requirements in order to satisfy desired production attributes such as agility,
ﬂexibility, and continuous productivity enhancement, (Artiba, et al., 1997).
Methods such as Material Requirement Planning (MRP l), Manufacturing
Resources Planning (M RP ll), Just-ln- Time (JIT), Total Quality Management
(TQM), Hierarchical Production Planning, and Trade Partnering have been
utilized by all facets of industry (Pheng et al. 1997). Fields of study related to
production planning include operations management, materials handling, ﬁnished
goods and in-process inventory control, and maintenance management. The
evolution of production planning methods and the related ﬁelds of study have
evolved from quantitative models to a systems perspective, (Artiba, et al, 1997).
Artiba, et al, 1997, identiﬁed three production planning view points. Banerjee’s
(1997) approach to production planning is best described as the micro approach.
This schema is based on the assumption that the superintendents in the ﬁeld are
best qualiﬁed to address the day to day production issues. Although, boundaries
of behavior should be speciﬁed such as stipulating maximum cycle times per
product, minimal quality standards, and cost controls. The central approach to
production planning is based on the model of data flowing from the ﬁeld to the
planner and then decision ﬂowing from the planner back to the ﬁeld. This

schema is based on the assumption that fragmented decision making, such as

63

the micro approach, is not conducive to divisional or corporate production
planning. Another philosophy of production planning and control is a
combination of the previous two. With a decision support system based on a

predeﬁned hierarchical infrastructure.

3.8. Summary

Business planning is a critical management function. Its impact on
management systems, through the implementation and development of business
planning sub-systems, is critical to the achievement of organizational objectives.
Production planning, a sub-set of business planning, is the core process of
business planning. It is the vehicle that directs company resources in order to
fulﬁll the market demands, subsequently maintaining ﬁnancial objectives. As the
homebuilding industry evolves to meet the constraints imposed by the
environments in which these industry exists, homebuilding ﬁrms will produce a
wider range of products, business systems will become as important to
production efﬁciency as product standardization is currently. Production planning
is the vehicle to achieve efﬁcient production in an environment of increased

product differentiation.

64

CHAPTER FOUR

STRUCTURED ANALYSIS TECHNIQUES FOR PRODUCTION PLANNING

4.1. Introduction

This chapter utilizes structured analysis techniques developed for
database and information system design, to analyze and subsequently model
homebuilding ﬁrm’s business systems. Structured analysis is deﬁned as an
approach to the problem of analyzing and deﬁning information systems, therefore
enabling users, analysts, and designers to obtain a logical (non-physical) view of
the information system and it’s interfaces (McCarthy, et.al, 1997). As part of this
research, structured analysis techniques are adapted for the development of a
production planning methodology for homebuilding ﬁrms. Once analyzed, a
logical model representing the various processes, sub-processes, and sub-sub-
processes associated with production planing is developed. A logical model is a
view of an organization’s process inputs, outputs, and relationships.

Dasso (1988), identiﬁed four management systems used in homebuilding
ﬁrms; service systems, ofﬁce management systems, cost control systems, and
business planning systems. The structured analysis approach to production
planning, a sub-set of the business planning management system, provides
managers with a view of the driving forces, associated with these systems,

behind efﬁcient production.

65

The deﬁnition of structured analysis has three parts. Each part is
described in order to illustrate the intent of using structured analysis in this
manner. The three parts of the deﬁnition of structured analysis are; (1) it will be
used to analyze and deﬁne the various production planning business systems,
(2) it will be used to enable users, analysis, and designers to obtain a logical
(non-physical) view of production planning business systems, (3) also it will be
used to enable users, analysis, and designers to obtain a logical (non-physical)
view of the integration of business planning business systems. This is
accomplished by modeling a typical production homebuilding ﬁrm’s business as a
system, then decomposing that business system, with the use of structured
analysis techniques, to the level at which managers must plan, monitor, and
control.

This chapter presents structured analysis and the various tools and
modeling techniques associated with it. The various tools and techniques are
presented in terms of how they contribute to the production planning
methodology. The modeling techniques presented are accepted tools currently
used today by system developers and database designers applying structured
analysis techniques to information system development.

A logical view of a homebuilding ﬁrm’s production planning business
systems is a conceptual view or a perfect world scenario. A physical view of a
homebuilding ﬁrm’s production planning business systems represents an actual
view, after implementation compromises have been made. Implementation

compromises are a direct result of the capabilities or in-capabilities of business

66

system resources (people, equipment, ﬁnancial resources, and information
resources).

In order to develop a conceptual view of a homebuilding ﬁrm’s production
planning business systems and subsequently identify the logical view, the
structured analysis approach is utilized as a tool to achieve organizational
decomposition. Organizational decomposition is a method of developing views
of a homebuilding ﬁrm’s operations at different levels of abstraction. This
process is begun at the highest and most abstract view and is concluded when
the homebuilding ﬁrm’s business systems have been decomposed to the level at

which managers plan, monitor, and control.

4.2. Organizational Abstraction and Business System Modeling

Various aspects of business plans are evident at three levels of
abstraction. The three levels of abstraction utilized by this study are the value
chain level, R-E-A Level, and task level. For example, the company mission is a
representation of the highest level of abstraction, also known as the value chain
level, while procedures are utilized at the lowest level of abstraction, also know
as the task level. Business systems, at all levels of abstraction, form the basis
for all management functions.

One of the objectives of this study is to identify the detailed information
system requirements necessary for proﬁcient production planning with the help of
conceptual modeling. This is achieved by providing a methodology to

decompose a homebuilding ﬁrm’s business planning systems, and subsequently

67

production planning systems, down to the level at which managers plan, monitor,
and control. The methodology begins at the value chain level (the highest and
most abstract view) and utilizes structured analysis techniques to decompose the
production planning business systems down to the R-E-A level. It is
unnecessary to track data at the task level of abstraction. Tasks can vary
dramatically from organization to organization.

Each level of abstraction is described in detail in the following sections.
Also the modeling techniques utilized by this study, to model each level, are
described. The modeling techniques presented are value chain (Gale, et.al,
1997), R-E-A modeling (McCarthy, et.al, 1997), and data-ﬂow-diagrams (DFD’s).
Data-ﬂow-diagrams are utilized as a tool for organizational decomposition from
the value chain level to the R-E-A level of abstraction

McCarthy, et.al, (1997) presented a structured approach to information
system development. This methodology is designed for the conceptual
modeling, physical design, and implementation of an accounting information
system in a shared data environment. A portion of this methodology will be used
by this study to produce a conceptual model of a generic large production
homebuilding ﬁrm’s information system, as related to production planning.

The methodology developed by McCarthy, et.al, (1997) presented a series
of steps to organizational decomposition and business system modeling. This
study adopted three steps of McCarthy’s ( 1997) methodology for use in the
proposed production planning methodology. The three steps utilized are: (1)

requirement analysis, (2) view modeling and modiﬁcation, (3) view analysis and

68

integration. The remaining steps to the methodology, presented by McCarthy
(1997), are not utilized by the proposed production planning methodology
because the modeling techniques are company specific, therefore inferences
drawn from their application will not be relevant to the production homebuilding

industry as a whole.

4.2.1 . Requirement Analysis

Requirement analysis can be simply deﬁned as a procedure which
attempts to determine the present and future information needs of the user
community (McCarthy, et.al, 1997). The objective of the requirement analysis
stage is to identify and document user requirements, then communicate the user
requirements by way of feasibility documents to the next steps in the information
system development methodology. Feasibility documents include the following;
(1) description of the users (ex. Project managers, VP construction, sub-
contractors), (2) statement of the benefits associated with the system changes
ex. Improved cash ﬂow, shorter cycle times, less material theft), (3) precise
description of the objectives that the new system is to satisfy, including decision
support (ex. Cycle time reporting to senior management, work-in-progress

reports) (McCarthy, et.al, 1997)

69

4.2.2. View Modeling and Modiﬁcation

The purpose of the view modeling and modification process is to generate
a conceptual data model for the various value-added series of exchanges
identiﬁed during the value chain and DFD modeling stages. The conceptual data
model is represented with an R-E-A model. The R-E-A model represents the
value added series of exchanges at the level of detail in which managers plan,
monitor, and control. A value added exchange is represented by a give and take
relationship. For example, a homebuilding ﬁrm gives up cash for performance of
work speciﬁed on a purchase order.

Transform descriptions are also described during the view modeling and
modiﬁcation process. Transform descriptions illustrate data ﬂows and describe
each application’s processing and access requirements. A data dictionary is
produced. Constraints are identiﬁed as related to usage policies between
departments or users (McCarthy, et.al, 1997). Inputs into this process are the
current old information requirements, new information requirements, and user
inputs.

A conceptual data model is generated using R-E-A modeling. The
purpose of this modeling technique is to model the various processes identiﬁed
by the DF D and identify what data, necessary for proﬁcient production planning,
must be planned monitored, and controlled by the majority of large production
homebuilding ﬁrms.

Transform descriptions will be utilized to illustrate the data ﬂows between

the various departments of a typical large production homebuilding ﬁrm. They

70

will also be used to identify the various applications, such as estimating or
scheduling packages, but detail as related to specifics in processing
requirements will not be investigated since only a conceptual model is being
developed. For example, Dasso (1988) identiﬁed the scheduling management
systems necessary for large homebuilding firms to operate at maximum
managerial proﬁciency. One of the systems is the utilization of critical path
method (CPM) scheduling system. Transform descriptions, in conjunction with
the DFD’s illustrate the relationship between CPM schedule and the various

predecessor and successor systems, which are dependent upon it.

4.2.3. View Analysis and Integration

The views generated in the view modeling and Modiﬁcation stage are
integrated in the view analysis and integration stage. These views represent the
various views of a production planning system for production homebuilding ﬁrms.
A “global” view of a business system is a model that shows the integration of
each independent business system. In order to develop a global view of the
proposed system, the various local views must be integrated by following three
steps. First, synonyms and homonyms must be edited out. Next, other naming
inconsistencies must be eliminated. Finally the individual local views are merged
into a “global” view of the enterprise (McCarthy, et.al, 1997). The global view is
represented with and R-E-A model. The primary objective of this process, for the

purpose of this study, is to identify the minimal data requirements and integration

71

lwhlsé...

 

 

necessary for proﬁcient production planning before any implementation
compromises have been made.

Implementation compromises represent the difference between the ideal
system and the actual physical system implemented in an organization. The
less implementation compromise, the better. For example, the view analysis and
integration stage may identify that it is most efficient for the construction
scheduling system to be seamlessly linked with the accounting system, allowing
for automatic payment when work is completed. Data will be modeled and
subsequently structured for this integration to take place. This integration may
be eliminated as an implementation compromise because it currently takes too

long to up-load scheduling data from ﬁeld ofﬁces to the corporate mainframe.

4.3. Value Chain Level of Abstraction

The porter value chain (Porter, 1985) is a tool utilized to analyze the
activities a company engages in that create value. Using a value chain to model
a company’s business cycles allows managers to view the ﬁrm from its simplest
and most abstract form. Resource inputs and outputs for speciﬁc processes are
also evident with this model. The objectives of the value chain are two folds.
First, Porter (1985) developed this technique for analyzing the competitive
advantage, or the core competencies of an organization (Gale, et.al, 1997).
Secondly, system developers adopted this technique in order to identify value-
added series of exchanges. For example, evident in most business is the

ﬁnancing cycle. This is the process in which businesses acquire cash through

72

ﬁnancing. This is a “give and take” business cycle starting when a cash receipt
from a ﬁnancial institution is received by a firm, then subsequently completed
when the ﬁrm makes payment to the ﬁnancial institution. System developers can
also use this modeling technique to identify value added series of exchanges,

which will be further, decomposed with the help DFD’s.

4.4. Data-FIow-Diagrams(DFD’s)

DFD’s are a modeling technique utilized to illustrate business processes,
sub-processes, and their inter-relatedness. DF D’s are a structured analysis
modeling technique utilized primarily by system analysis in order to develop an
understanding of the inter-relatedness of the system and it’s sub-systems. The
primary purpose for utilizing DFD’s in this study is for organizational
decomposition from the value chain level of abstraction tothe R-E-A level of
abstraction. Utilizing organizational decomposition to model an organization, the
user ﬁrst models the organization from the highest level of abstraction (value
chain level). Next, each process represented on the value chain must be
decomposed into more detailed processes and sub-processes. DFD’s are an
accepted modeling tool for performing this operation (Pheng, et.al, 1997).

The following symbols are used in DF D modeling.

73

 

 

External Entities

 

 

 

Process Flow

 

,
F—ﬂ

Process

 

 

Internal Entities

 

4.5. Resource — Event — Agent (R-E-A) Level of Abstraction

The R-E-A level of abstraction is a further decomposed version of the
value chain, (McCarthy, et.al, 1997). This perspective allows managers or
system developers to examine the sub-processes associated with each of the
processes identiﬁed in the value chain. These sub-processes are often
described as “give and take” exchanges. Details such as speciﬁcs in material
acquisition, scope of work of sub-contractors, and departmental activities
become evident. This level of abstraction encompasses organization policies
and is the level at which managers must plan, monitor, and control.

R-E-A modeling is a relational database modeling technique. It has

become dominant in modern database design (Rob, et.al, 1997). R-E-A models

74

illustrate company resources, events, and agents at a given level of abstraction.
DFD’s illustrate company processes various levels of abstraction, by illustrating
processes, sub-processes, and sub-sub-processes. R—E-A modeling technique
is primarily utilized to; (1) translate different views of data among managers,
users, and programmers to ﬁt in a common framework, (2) deﬁne data
processing and constraint requirements, (3) help implement a database. R—E-A

models include entities, relationships, and attributes.

 

 

Entity

 

 

Relationship

_0 Attribute

4.6. Task Level of Abstraction

The task level is a further decomposed version of the REA level of
abstraction. Re-engineering is directed toward tasks and rarely affects higher
levels of abstraction. Tasks are the daily operational activities of employees
such as processing invoices or scheduling sub-contractors. Organizational
procedures and rules are evident at this level. When developing a production

plan, it is necessary to view the production process from both the REA level and

75

the task level of abstraction. This allows managers to first identify what
information must be planned, monitored, and controlled. Next, by modeling the
task level, managers are able to identify which speciﬁc task employees must
perform daily in order to maintain the desired level of control. Tasks can vary
dramatically between organizations therefore the modeling conducted by this
study will not be decomposed to the task level although it is a necessary
component to production planning.

Tasks can be modeled with ﬁsh bone diagrams or system flow charts.
Both modeling techniques represent tasks sequentially through a process.
System ﬂow charts are much more widely accepted and include greater detail,
such as storage devices. Modeling tasks is an ideal methodology for not only
identifying tasks but also ﬁnding the appropriate department or personnel to

assign responsibility of that task to.

4.7. Summary

This chapter introduced the modeling methodologies and techniques that
are used in chapter ﬁve of this study. This included a detailed discussion on the
various tools associated with structured analysis. Business system modeling
was discussed for the value chain level of abstraction followed by a discussion of
the DFD modeling technique. The R-E-A modeling methodology was discussed
for the R-E-A level of abstraction. The task level of abstraction was also

presented.

76

CHAPTER FIVE

PRODUCTION PLANNING METHODOLOGY

5.1. Introduction

Managers of homebuilding ﬁrms must perform many managerial functions
within their business system. Planning is the foremost management function.
The business function of business planning is critical to any business and is 1'
certainly essential to large homebuilding ﬁrms. Proper business planning can It .
improve some or all of the characteristics of managerial proﬁciency. The
business planning process forces managers to examine and document all
aspects of their organization. The function of business planning is not simply the
process of developing a business plan document. It charges managers with the
responsibility of developing and maintaining planning systems for all aspects of
their organization, including but not limited to deﬁning their business, market
analysis and planning, service planning, production planning, organizational
planning, development schedule, and ﬁnancial planning. This chapter presents a
methodology for production planning (PPM) which allows managers to examine
their existing production planning system in terms of their organizations strategic
plan, market demand, customer service requirements, and product
characteristics. Then, it provides a platform for managers to model the

appropriate production planning system.

77

More speciﬁcally, this methodology is focused on a combination of
production planning processes identiﬁed by Banjaree (1997), as explained in
Chapter 2, and expanded with structured analysis techniques, as presented in
Chapter 4. It includes a diagnostic stage, characterization stage, customization
stage, and concept design stage. Furthermore, the concept design stage is
expanded to include requirement analysis, view modeling and modiﬁcation, and
view analysis and integration. View modeling and modiﬁcation is conducted
through the structured analysis modeling techniques; value chain modeling,

DFD’s modeling, and R—E-A modeling.

5.2. Outline of Production Planning Methodology (PPM)
An outline of the PPM is provided below. Each step is presented in the
form of DFD’s throughout the chapter, beginning with ﬁgure 5.1 the business

planning process. An example, Big Builder, is utilized to illustrate each step.

I. Diagnostic Stage (4.1)
II. Characterization Stage (4.2)
A. Product Analysis (4.2.1)
1. Study Current Product Characteristics (4.2.1.1)
2. Develop Desired Product Characteristics (4.2.1.2)
3. Develop Physical Product Plan (4.2.1.3)
B. Construction Analysis (4.2.2)

C. Procurement Analysis (4.2.3)

78

IV.

D. Production Conceptual Modeling (4.2.4)

Customization Stage (4.3)

Concept Design Stage (4.4)

A. Requirement Analysis (4.4.1)

B. View Modeling and Modiﬁcation (4.4.2)

1.. Develop Value Chain (4.4.2.1)

2. Develop DFD’s (4.4.2.2)

3. Develop Data Model (4.4.2.3)

C. View Analysis and Integration (4.4.3)

Objectives
Constraints
Parameters
Decision
Variables

 

(

O

\

 

 

ﬂ

 

L

Business
Planning
Process

Figure 5.1.

Business
Plan &
Systems

 

 

J

Level 0 PPM Data Flow Diagram

79

Business Planning Process

*4..§A“ I

5.3. Production Homebuilding Firms

Production homebuilding ﬁrms are production oriented companies. That
is, they have embraced the production concept in order to produce products that
are widely available and low in cost (Kotler, et.al, 1997). Production
homebuilding firms strive to operate operationally excellent organizations.
Operational excellency is achieved by rejecting variety and production “no-frills”
products targeted toward the middle of the market where demand is huge and
customers are more interested in cost than in choice (Treacy, et.al, 1995).
Although, in response to resistance to urban sprawl, increased municipal control,
and municipal involvement in the land development process, production
homebuilding ﬁrms are offering a wider variety of products. This PPM is directed
toward these homebuilding ﬁrms and their strategic plan, production building,

taking into account the likeliness of increased product differentiation.

5.4. Business Planning Process

Figure 5.1 illustrates the business planning process at its highest and
most abstract form. Level 0 of the PPM data ﬂow diagram. A business is a
system and a company’s business plan is a representation of that system. A
business is a function of objectives of the owners, internal and external
parameters, and decision variables, which result in the business system.
Managers of production homebuilding ﬁrms control this system by performing a
series of management functions. First managers must perform an analysis of

their market(s) and plan for the speciﬁc target markets identiﬁed. Managers must

80

 

recognize the demands of their clients and accommodate the needs identiﬁed
from the moment clients ﬁrst step foot into a model home through the completion
of the warranty period. Managers must decide what they are going to build and
how they are going to direct the company’s resources to build it. They must build
a team and constantly lead that team in such a way as to produce enthusiastic
results. And all this has to occur in a complex ever-changing fragmented
environment with unpredictable weather, ever-changing municipal requirements,
and a cyclical economy. Then they must report the success of this system

through ﬁnancial statements.

Big Builder Example Level Zero PPM:

Big Builder is a large production homebuilding ﬁrm operating in three
markets in the southwestern U. S., Houston TX, Dallas TX, and Phoenix AZ. In
1998, Big Builder closed 2800 units and expects a 15% increase in 1999. Big
Builder is organized into divisions, there is one division for each market area all
of which construct approximately the same number of units annually. Each
division operates autonomous/y, that is, each homebuilding division is lead by a
division president who is charged with operating all facets of the business unit.
The market factors driving production in each market area vary dramatically. In
the case of Houston TX, Big Builder builds in many small to medium sized
developments (20 — 200 units) and offers a wide range of products, from multi-
family condominiums to large single-family detached homes. The Phoenix AZ

division builds in only a handful of ver large planned unit developments (1200 —

81

10,000 units each) and offers a limited selection of single-family products. The
Dallas TX market is unique as well. Big Builder offers a limited number of house
plans in thee distinct market levels, entry level, move-up, and retirement
Although each division offers different categories of products depending on their
market area, they operate under the same mission. Big Builder’s mission is “to
provide the greatest value in every market area in which it operates while
maintaining the highest degree of customer satisfaction, employee satisfaction,
and business partner success”. The operating models of each division are
consistent as well. Each division strives to maintain a minimum of a three-month
sales backlog. Inventory is kept at the lowest levels possible. Resource leveling
is conducted at the division level, but sometimes segregated by product group

(multi-family, single-family).

The above example illustrates Big Builder at the highest and most abstract
form, or level 0 of the PPM. The strategic plan (production homebuilding) is
evident at this level of abstraction. Also, some of the operational characteristics

of Big Builder are evident at this level of abstraction.

5.5. Production Planning

Figure 5.1 illustrates the business planning process. The business
planning process can be further decomposed into a number of sub-processes;
deﬁnition of the business, market analysis and planning, service planning,

production planning, organizational planning, development schedule, and

82

ﬁnancial planning. Figure 5.2 illustrates levels 1-7 of the PPM. As shown in
Figure 5.2, production planning is the core business planning process.

Production planning is the core function of the business planning process,
which means that in order to develop a production plan, the business must ﬁrst
be deﬁned, market analysis and planning conducted, and a service plan
developed. This also means that the organizational plan, development schedule,
or ﬁnancial plan can not be developed until a production plan has been
produced. Brief descriptions of these processes are provided in Chapter 3. It is
beyond the scope of this study to examine these processes in more detail,
except when related to inputs and outputs of the production planning process.
Figure 5.2 illustrates the business planning sub-processes.

As illustrated in ﬁgure 5.2, production planning is the core of the business
planning processes. The production process for homebuilding ﬁrms is the value-
added process of utilizing both internal and external resources such as
management, cash, sub-contractor labor, and material to build homes. As noted
earlier, the majority of large homebuilding ﬁrms are production oriented, therefore
the production process is their core competency. It is the process in which these
builders create the greatest value with the least input.

Production planning must be preformed with the needs of the market in
mind. The market plan targets speciﬁc markets and identiﬁes products, and the
characteristics of those products, that will be brought to market. The production
plan is the vehicle to deliver the identiﬁed products within the parameters deﬁned

by the market plan such as design and cost.

83

I
I

“u-

Ip‘:

 

Objectives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  
  

 

 

 

 

 

 

 

 

 

 

 

 

Decision r 1 N W 5 \
Variables
Deﬁnition Or - -
ganization-
. ofthe aIPIanning
Business
V J , A
Productlo Organizational
Strategic PIa Plan Plan
1
Market K 2 \ f 6 \
Constraints &
Parameters
___§ Market .. Development
Analysis Market Schedule
and Plan
Planning
L J .. K /
Production
Market Ian
Plan
( 3 \ \
Service Plan 7 Business
I Service , Plan and
Planning Financial Business
' Planning Systems
k v

 

Figure 5.2
Levels 1-7
PPM Data Flow Diagram
Business Planning Sub-processes

Many large production homebuilding ﬁrms seek out development sites and
markets for their standard “star” product lines. This pattern of production has
been repeated time and time again by successful “Giant” builders. The

underlying consistent factor of efﬁcient production recognized by these builders is
84

product standardization. One is certain to ﬁnd a seasoned professional at any
successful production homebuilding ﬁrm who will hail the success of their star
“super-value-engineered” model.

In many markets there is an increasing resistance to new development.
Many homebuilding ﬁrms, including large production oriented ﬁrms, have found
themselves deviating from standard product lines in order to develop product
based on speciﬁc community requirements for a speciﬁc development. The two
direction arrows between steps 2 and 4 (ﬁgure 5.2) illustrate this phenomenon.
The result is, not necessarily increased product complexity, but increased
product differentiation. When increased product differentiation is interjected into
a homebuilding ﬁrm’s production systems, inefﬁciency results. This study argues
that the level of detail at which managers must plan, monitor, and control
production is contingent on the characteristics of the products brought to market.
If a homebuilding ﬁrm continues to construct a standard product line, the
production processes can be controlled at a detailed level. If a homebuilding ﬁrm
must develop new product to meet speciﬁc requirements then inefﬁciencies
result. The PPM employs a process to address this phenomenon by employing
structured analysis techniques to the production planning methodology within the
concept design stage. The intent is to identify the level of detail at which
managers must plan, monitor, and control.

The PPM exhibits the characteristics, identiﬁed by Banjaree (1997),
necessary for a production planning methodology. Banjaree’s (1997) ﬁrst

objective, system to match the production plan with the company’s market plan,

85

is integrated into this methodology. As displayed in ﬁgure 5.2, the business
planning process, the market plan (step 2) is a direct input into the production
planning process (step 4). The bi-directional arrows between steps 2 and 4
represent the exchange between marketing and production necessary to
determine the characteristics of products that the homebuilding ﬁrm can deliver
while maintaining parameters established by market demands. Additionally, a
given level of production can not be planned for without ﬁrst establishing a
market for each product group. This methodology expands Banjaree’s (1997)
requirements by suggesting that a system exist to match the long-term strategy
and customer service plan with the production plan as well.

The long-term strategic plans of organizations must be considered. Figure
5.2, illustrates the relationship between the deﬁnition of the business process
(step 1) and the production planning process (step 2). The long-term strategic
plan is developed during the deﬁnition of the business process and is input into
the production planning process.

The service plan is also illustrated as a direct input into the production
planning process. Some homebuilding ﬁrms may select to develop a service
plan simultaneously with the production plan. The author argues that these
homebuilding ﬁrms are not differentiating between warranty and customer
service. Customer service is the process of meeting the expectations of a
customer at every contact point from when the customer ﬁrst steps foot into a
model home to the conclusion of the warranty period. Warranty is the process of

repairing and maintaining a product after conveyance to a customer, for a

86

designated period of time. Customer service must be addressed with regard to
all business processes and not narrowly focused on one process such as
warranty.

Banjaree (1997), also suggests that production planning methodologies
include “ a means for the realization of an integration path between interacting
domains”. A path mapping domain integration is a characteristic of the PPM.
This is accomplished through the structured analysis technique view analysis and
integration. This process will be described later in this chapter.

Banjaree (1997), also noted that a PPM should include a transition route
mapping the difference between the existing and desired physical systems and
also have a process to identify the difference between these systems. Figure
5.3, illustrates Banjaree’s (1997) intent for this requirement. Both of these
requirements are fulﬁlled by this methodology through the inclusion of the
structured analysis technique, view modeling and modiﬁcation. This process will
also be discussed in detail later in this chapter. Figure 5.3 displays how both the
desired physical production planning system and the existing physical production
planning system drive the new physical production planning system. The intent
of this process is premised on the assumption that you can’t always throw out the
old system and start entirely new. Existing systems often must be integrated with
new systems.

Banjaree (1997) also argues that a PPM should include a process to
construct a conceptual model of the desired system. This PPM utilizes Porter’s

value chain and R-E-A modeling as tools to model the desired system, taking into

87

consideration the properties of the existing physical system and the desired
physical system. Once again, the structured analysis techniques, as applied in
this PPM, meet Banjaree’s requirements

Finally, Banjaree (1997) noted that the PPM should include a provision for
expressing the system requirements in a universal language providing means for
selection of decision support tools. This author argues that the R-E-A modeling
technique utilized to model the new system is a universal language which
represents the new system at a level of detail consistent with what managers

require for planning, monitoring, and controlling functions.

 

Desired Physical System

 

 

 

Existing Physical New Physical System
System

 

 

 

Figure 5.3
Representation of Transition Route Mapping the Difference Between the
Existing and Desired Systems, Modiﬁed from Banjaree 1997

88

5.6. Production Planning Sub-processes

The PPM can be divided into four sub-processes, (4.1) diagnostic stage,
(4.2) characterization stage, (4.3) customization stage, and (4.4) concept design
stage.
Inputs into the Production Planning Process

The ﬁrst step in the development of a PPM is to gather the production
planning inputs. Figure 5.2, illustrates the three primary inputs into a production
planning system, strategic plan, market plan, and customer service plan. The
ﬁrst and foremost input is that of the strategic plan. The strategic plan represents
the very essence of an organization. The strategic plan identiﬁes the products
the organization will take to market and the philosophy of how organizational
resources will be directed to deliver the products to the consumer. The market
plan identiﬁes the characteristics of product, which will be taken to the market,
and the projected demand the production plan must meet. The service plan
documents the level of warranty that service managers must plan production
resources to accommodate.

The outline below identiﬁes the various critical components of each plan,
strategic plan, market plan, and service plan, as identiﬁed by Dasso (1988), for

large production oriented homebuilding ﬁrms.

89

Inputs into the Production Planning Process

Strategic Plan

. Company Goals and Objectives are Deﬁned

(Big Builder will provide the greatest value for housing in any market in which it
operates)

. Long-term Objectives

(Increase market share by 15% of housing starts in the each market over the
next 5 years)

. Short —term Objective

(Close 1100 units in each division in the next ﬁscal year (15% increase))

. Financial Objectives

(Increase ROI to 12%)

. Non-ﬁnancial objectives

(Lower the per square foot sales price by $5.00 across all product lines)

. Primary Objective

(Build better homes at a lower square foot price)

. Critical Objectives

(Reduce hard costs)

. Speciﬁc Objectives

(Reduce hard costs to 50% of sales price)

Market Plan

. Target Marketing (Product Groups)
90

(Market plans may be written for a speciﬁc product group or for a speciﬁc site)
. Target Pricing

(3 bedroom 1400 sf, 1-1/2 bath ranch for $89,900)

Service Plan
0 Quality Objectives
(Reduce 6 month and 1 year warranty items to less than 5 per unit and reduce

outstanding warranty items to <03 per units in warranty)

Figure 5.4 illustrates the production planning sub-processes, diagnostic stage,

characterization stage, customization stage, and concept design stage.

91

Strategic Plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Market Plan / \ Current and intended target
Service Plan 4.1 . markets with regard to
User Inputs > products and services.
Diagnostic
Stage
V J
W 4.2. V
Characterization Stage
Strategic Plan
User Inputs
»
Natural Product Groups
User Inputs K V \
4.3.
Customization
Stage
Generic production k /
planning system for
product groups.
User Inputs
r 4.4. N
>
Concept G P d ,
Design Iobal ro uction Plan
Stage p
k /
Figure 5.4
Levels 4.1-4.4

PPM Data Flow Diagram — Production Planning
Sub-processes

92

5.6.1. Diagnostic Stage

The ﬁrst step in the development of a production plan is the diagnostic
stage (step 4.1). This is the process in which managers asses the current and
intended customer and market segments targeted by the enterprise. Next,
projected needs with regard to products and services are analyzed. Also, a
detailed assessment of the competition is conducted. Following an assessment
of the competition, manufacturing objectives are identiﬁed in terms of volume,
delivery, critical product cost and quality, and other market or service related
objectives.

The strategic plan, market plan, service plan, and user inputs, makeup the
inputs into the diagnostic stage. The purpose of the diagnostic stage is to deﬁne
the desired physical production planning system. This is the process of business
analysis or business speciﬁcation. This process includes the following:

. Review of the current and intended customer and market segments targeted
by the enterprise, their present and projected needs with regard to products
and services

. Assessment of competition

. Review of manufacturing task statement in terms of volume, delivery,
ﬂexibility, critical product cost, quality, and other manufacturing dimensions in
terms of consistency with the adopted strategic plan, market plan, and service

plan.

93

For Example

Big Builder’s Phoenix division offers ﬁve products in large developments
ranging from 1400 — 2200 sf. Big Builder speciﬁcally targets entry level or ﬁrst
time single-family homebuyers. Big builder has determined that their buyers
require 2 car garages, 3 to 4 bedrooms, “green construction”, energy efﬁcient
design, and access to community amenities (club-house, tennis courts,
swimming pools, etc.)

Big Builder assesses competition both regionally and within a given
development. Keep in mind, Big Builder’s Phoenix division only builds homes in
very large planned unit developments, up to 12000 units.

A generalized example Big Builder’s manufacturing task statement is provided

below.

. Production system must be able to deliver up to 1200 units.

0 Sub-contracted labor will be used for all phases of construction.

. Current product line must be updated to accommodate “green” and “energy
efﬁcient design” while simultaneously lowering construction costs.

. Hard costs must be lowered by 5%A to 50% of sales price.

. Outstanding warranty items must be reduced to .03 items per units in

warranty.

94

5.6.2. Characterization Stage

The second step in the development of a production plan is the
characterization stage (step 4.2). This stage is intended to identify natural
product groupings based on similarities in market, product, construction
processes, or geographic distribution. Each product group’s production plan can
then be aggregated for the ﬁrm. The characteristics of each natural product
group form the basis of the production plan. Style, price point, geographic
distribution, density, or some other characteristic.

The speciﬁc characteristics of any given production homebuilding ﬁrm’s
product groups can vary dramatically. For example, two production
homebuilding ﬁrms, building the same products, have both planned 2000
closings for 1999. Builder A operates primarily in the metropolitan Chicago area
while Builder B is located in seven states. Builder A manages operations form
one large ofﬁce while Builder B operates 7 independent divisions. The author
argues that the production planning and control systems of each builder will differ
substantially due to the geographic distribution of production.

The characterization stage can be further decomposed into four sub-
processes, product analysis, construction analysis, procurement analysis, and
production conceptual modeling. Figure 5.5 illustrates the characterization stage

sub-processes.

95

Strategic Plan

 

 

 

 

 

Market Plan
Service Plan 4-2-1- 1
User In uts
p P Product
Analysis
\ /

 

Strategic Plan
User Inputs

 

User Inputs K

Product Plan

 

W

4.2.2.

\

 

 

k

Construction
Analysis

 

1

4.2.3. \

 

J

Construction Plan

 

 

 

Procurement Plan

 

User Inputs f
4.2.4. W

 

Procurement

k

Analysis

 

 

 

 

>

 

/

Production E-R Diagram

} Production Value Chain
Production
Conceptual
Modeling
\ J
Figure 5.5

Levels 4.2.1. - 4.2.4. PPM Data Flow Diagram —
Characterization Stage Sub-processes

96

5.6.2.1. Product Analysis

The market plan and the service plan drive the product analysis stage
(step 4.2.1). Banjaree (1997), argues that the needs of the market must be
evaluated with regard to the company’s products. Certainly large production
homebuilding ﬁrms evaluate their market with regard to standard product lines.
Although, the author argues that there is an increasing amount of control being
placed on land use in most states. Large homebuilding ﬁrms are ﬁnding that
communities will not accept standard product lines. Movements such as
traditional neighborhood development fuel this change. Product, either standard
or developed for a speciﬁc project, needs to be grouped into natural product
groupings. Although, product groupings must be re-evaluated regularly to
accommodate for new evolving product lines. Natural product groupings form
the basis for PPM system design (Banjaree, 1997).

For example:

Big Builder’s market study identiﬁed a demand for approximately 2500
housing units in Big Builder’s target market. Thirty percent of the demand is for
town houses and seventy percent is for single family units. Since Big Builder’s
home building operations take place in three markets it is necessary to
differentiate product, ﬁrst by location and secondly by product type. Big Builder
offers different product type in each market. Products may be grouped by single-
family, town-house, multi-family in one market area and production and semi-

custom in a second market area.

97

Different product groupings can have very different characteristics. For example,
there is a very different relationship in the sequence of activities for a multi-family
product and a single family home, especially related to total days under
construction for a particular unit.

Big Builder schedules an entire row of town houses (units A-F) as one
building. Once the rough frame has been constructed and the roof installed, Big
Builder then differentiates between each individual unit, completing the remaining
phases of construction is sequence from one unit to another. For example, the
plumbers would install the underground plumbing for all six units as one activity
but complete rough and ﬁnish plumbing individually, one unit at a time.

In the above example, the total cycle time from the start of construction
through closing can vary by weeks between unit A and unit F. The total cycle
time for the single family units should be approximately the same. Since cycle
times drive cash ﬂows, it is very important to identify these types of product
characteristics.

The product analysis process can be divided into three sub-processes.
First the current product and system characteristics must be examined (Level
4.2.1.1). Next the desired product characteristics must be identiﬁed (Level
4.2.1.2). Following the identiﬁcation of existing and desired product
characteristics for each product group the written product plan is developed.

Figure 5.6 illustrates the product analysis sub-processes.

98

 

r \ Product Groups

4.2.1.1. Current Product Speciﬁcations
User Inputs Current Hard Costs
Analysis of Study Current Current Quality Level

Current System P"°d"?t .
Characteristics

 

 

 

 

 

 

  

x J

(

Market Plan

 

4.2.1.2.

 

New Speciﬁcations

Projected Production
Volume

Product Cost Parameters .

 

Service Plan Characteristics

 

Required Quality Standards
User “Wish List” K

    
 

 

( 4.2.1.3. \

 

Develop

 

 

 

 

 

User Inputs Physical . Costs
> Product
Plan ,
‘ Physical Product Plan &
k 1 Systems
Figure 5.6

Develop Desired

Product

 

J

Desired Product Groups
Desired Product
Specifications Target Hard

Target Quality Standards

Level 4.2.1.1 — 4.2.1.3 PPM Data Flow Diagram —

Product Analysis Sub-processes

99

The written product plan should include:

Product Plan Components

. Deﬁnition of each product group

. Product strengths and weaknesses for each group

. Product speciﬁcations for each product grouping

. Direct construction cost plan for each product group consistent with the target
markets identiﬁed in the market plan.

0 Indirect cost plan for each product group

Product System Components

Product speciﬁcation manual

Quality plan for each product group including in-house inspection schedule

Inspection forms (Frame inspection, pre walk-through inspection, etc.)

Product action request form — for product changes

Study Current Product and System Characteristics

Current product and system characteristics should be assembled with
regard to existing product groupings. This is accomplished by assembling
existing product documentation and conducting a survey of purchasing and
construction personnel. Items such as existing plans, speciﬁcations, and product
budgets should be assembled. Also system items should be identiﬁed including

any forms used.

100

Study Desired Product 8. System Characteristics.
The identiﬁcation of desired product and system characteristics fulﬁlls two
objectives of the PPM. The ﬁrst is a system to match the production plan with
the company’s market plan. This is accomplished by integrating market and
service requirements with the desired new product speciﬁcations, such as higher
energy efﬁciency or more open spaces. The second objective, fulﬁlled through a
use survey, allows managers to identify desired product speciﬁcation and system
characteristics. For example, the customer service manager may request an
improved sub-ﬂoor to eliminate tile warranty problems or the production manager I.
may request some of the components of a particular product group be

constructed in a factory, such as wall or deck panels.

Develop Physical Product Plan

The development of the physical product plan is the process of integrating
the existing product and system characteristics with the desired product and
system characteristics. First and foremost quality and cost targets should be
detailed for each product grouping. Next, existing and desired product
speciﬁcations should be evaluated with regard to the target cost and quality
standards. Based on the identiﬁed product speciﬁcations for each product group,
managers must decide what systems will be utilized to deliver these products to
the market. Compromises will be made at this stage with the intention of
assembling the ideal mix of product and systems in order to deliver homes within

cost, quality, and efﬁciency targets.

101

 

Volume projected in the market plan plays a vital role at this stage. For example,
it may be most cost effective to stick build the rough frame of each unit, although,
when the volume requirements are considered in order to meet the projected
demand, extra costs may be necessary to panelize the rough frame in order to

achieve maximum product consistency under high volume.

5.6.2.2. Construction Analysis

Now that the product speciﬁcations and system characteristics have been
identiﬁed in the product analysis stage, it is necessary to determine just how
these units are going to be constructed. This is accomplished by dividing the
construction analysis process into three sub-processes. First the current
construction and system characteristics must be examined (Level 4.1.1.1). Next,
the desired construction characteristics must be identiﬁed (Level 4.1.1.2).
Following the identiﬁcation of existing and desired construction characteristics
the construction plan and systems are developed.

Warszawski (1997), identiﬁed parameters from which a construction
company can analyze its construction process. Although these parameters were
originally intended for use with strategic planning, it is the author’s Opinion that
they are ideal for production system analysis. The parameters are as follows:

. What main projects does the company undertake?
. What are the preferred construction methods? Do these methods enable a

company to compete successfully with others in terms of cost, productivity,

102

 

speed of construction, ﬂexibility, and quality? In what type of projects are
they particularly advantageous?

. Does the company employ its own labor —— foreman and workers? What is
their value in terms of age, experience, productivity, quality of work, and
loyalty. It is possible and advisable to replace them by subcontracted
services?

. Does the company employ subcontractors? Is the company associated with

1‘1

them on a permanent basis, or are they selected anew for each project? To

”—4—“
"A0. A

‘p‘- _

what extent is the company involved in directing and planning of the sub-
contractor’s work?

. What is the quality of the company’s output? Is it better or worse than that of
its competitors?

0 Does the company employ a quality control system in construction that allows
it to speciﬁcally deﬁne the required quality of each work item and control the
attainment of that quality?

. What other advantages or limitations compared with its competitors can be

identiﬁed as far as construction capability is concerned.

Constructionﬂan Components

. Key management personnel

. Production organizational chart — job descriptions

. Monthly construction projections for each product group

. Number of units to be constructed for each development

103

. Pace of construction starts (by product group)

. Identiﬁcation of construction phases for each community

Construction System Components

. Description / samples of production control reports
. System to allow for accurate cash ﬂow projections
. System to allow for resource leveling

0 Standard construction schedules for each product grouping

. Activity time requirements

0 Milestones

. Target dates

0 CPM

. Bar chart based on the CPM printed out and used for the ﬁeld operations

. Critical path activities identiﬁed

. Total ﬂoat and free ﬂoat provided for non-critical activities

5.6.2.3. Procurement Analysis
Once the new product and construction characteristics have been
identiﬁed, the procurement processes are examined. The procurement analysis

is conducted in three steps. First the sub-contractor / trade-partner base should

be identiﬁed for each product group. Next the supplier base should be identiﬁed.

Finally, the builder’s own forces are examined. The builder’s own forces are

those construction trades that are operated as a division of the builder. For
104

example, Big Builder has a rough carpentry division that builds the rough frame
for units constructed in the Dallas TX market.

Warszawski (1997), also identiﬁed parameters from which a construction
company can analyze its procurement processes. Although these parameters
were originally intended for use with strategic planning, it is the author’s opinion
that they are ideal for construction system analysis. The parameters relevant to
this phase of production analysis are as follows:

. What inputs does the company purchase, and what inputs (if any) does it
produce?

. What is the quality and reliability of the material suppliers?

. Does the company own or rent its construction equipment? Were the two

options examined? How are the suppliers selected?

Procurement Plan Components

. Labor issues

0 Subcontracting issues

. Subcontract status for each product group

. Subcontractor scope of work agreements for each product group

. Takeoff’s for each product group at the appropriate level of detail. (Standard
product lines should have detailed unit takeoffs, total square of siding, etc,
Custom product groups should have more generalized takeoffs such as total

siding bid)

105

I vxarnnnﬂlA-n-n-
‘ \|

 

Procurement System Components

. Change order policy

. Payment policy

. Callback policy

0 Quotation / bid form

. Forms manual

. Employee training program

. Subcontract estimates are evaluated against a subcontract budget which is
prepared from historical cost records

. Invoicing policies

. Invoice approval
. Invoice payment
. Invoice ﬁling

0 Purchase order log

. Material delivery

. Receiving ticket

. Schedule of loans and draws
. Contract control form

. Safety program

106

ﬁF’r‘f‘fﬁ— "":
O

5.6.2.4. Production Conceptual Modeling
The production conceptual modeling stage is the initial modeling step of
the PPM. The ﬁrst step in modeling the production process is to assemble

descriptions of the product data, construction data, and procurement data.

5.6.3. Customization Stage

The customization stage provides a generic production planning model for
the business. The intent of the customization stage is to optimize the generic
model for each product group. A conceptual production planning system for
each product group will be developed in this stage, although the intent is one
model for the enterprise. Therefore it is necessary to develop an aggregate
model of the various conceptual production planning models deveIOped for each

product type.

5.6.4. Concept Design Stage

Now that a conceptual production planning model has been developed for
the enterprise it is necessary to employ tools that will facilitate implementation for
the various domains. This is accomplished by applying structured analysis
techniques. The concept design stage can be broken down into three sub-
processes, requirement analysis, view modeling and modiﬁcation, and view
analysis and integration. Figure 5.7 illustrates the concept design stage sub-

DTOCGSSGS.

107

5.6.4.1. Requirement Analysis

The purpose of the requirement analysis stage is three fold; (1) to develop
a description of the users of the business system, (2) to develop a statement of
the beneﬁts associated with the system changes, (3) to develop a precise

description of the objectives that the new system is to satisfy (McCarthy, et.al,

 

 

 

 

 
    
 

 

 

 

 

 

 

 

 

 

 

1997).
I; n
I
\ Feasibility Documents 3
( 4.4.1. Description of Users u
Benefits of System Changes '”
Requirement New System Objectives
Analysis
———>
User Inputs / 4 4 2 \
Current Old Information ' ' '
Requrrements View Modeling and
New Information Modiﬁcation
Requirements ———-—>
( 4.4.3. \
‘ View
Analysis
____.> and
Integration 5
K 1 Global Production Plan

 

 

Figure 5.7.
Levels 4.4.1. - 4.4.3.
PPM Data Flow Diagram

108

 

5.6.4.2 View Modeling and Modiﬁcation

The purpose of the view modeling and modiﬁcation stage is to decompose
the processes associated with production planning for a speciﬁc product group
into a level at which managers must plan, monitor, and control that product
group. This is accomplished with organizational decomposition. A value chain is

utilized to model the product group in it’s highest and most abstract form. DFD’s

1

are utilized to decompose the value chain processes into sub-processes and

—Aa————z——.u
. .- A. a s

sub-sub-processes. R-E-A modeling is used to generate a conceptual data
model for the various value-added series of exchanges identiﬁed during the value
chain and DFD modeling stages (McCarthy, et.al, 1997). The view modeling

and modiﬁcation sub-processes are illustrated in ﬁgure 5.8.

5.6.4.3. Develop Data Model

Value Chain Level of Abstraction

Porter’s value chain is utilized to analyze the production activities of a
homebuilding ﬁrm engages in that create value. This allows managers to view
production processes from the most simple and abstract form. The intent of this

process is two folds, ﬁrst it will be used as a technique to analyze the competitive

109

advantage of the ﬁrm. Next the value chain will be used to identify the value
added series of exchanges that occur in the production processes and what
information pertaining to each process must be tracked for estimating, cost &
progress control, scheduling, ﬁnancial & accounting, and sub contracting &
material acquisition.

The ﬁrst step is to identify what production processes a firm engages in. A
typical production homebuilding ﬁrm engages in the processes modeled in Figure
5.9. Other processes, more organizational speciﬁc, must be modeled at this

stage as well. The author argues that all production homebuilding ﬁrms engage

 

 

r 4.4.2.1 . \
User Inputs

Analysis of Develop
Current System Value Chain
-————>

Product Group Value Chain

 

 

L J

 
    

 

Old Information
Requirements
New Information
Requirements
User “Wish List”

( 44.2.2. \

Develop DFD’s

 

I 4.4.2.; I Product Group DFD

 

User Inputs Develop
Data

———‘> Model

 

 

 

P
l ) Product Group Data
Model
Figure 5.8.

Level 4.4.2.1 — 4.4.2.3
PPM Data Flow Diagram

110

.m.___
- _ .

7:

in the following production related value added series of exchanges.

Employee service acquisition and consumption
Sub—contracting

Material acquisition and consumption

Fixed asses acquisition and consumption

Land acquisition and consumption

Each process can be further decomposed into a number of sub-processes which

managers must plan, monitor, and control. The planning and controlling

functions of each of the above processes may be conducted at any point during a

speciﬁc unit’s life cycle. Consider materials as an example.

Historic material pricing is utilized at the Estimating Stage

Purchase orders used for Cost Control contain material pricing
Delivery dates for a particular material are used for Progress Control
Material lead times are inputs into the production Schedule

Payments to suppliers and delivery dates are inputs into Financial and
Accounting systems

Material speciﬁcations are inputs into the Material Acquisition process

Data Flow Diagrams — Decomposition R-E-A

Data ﬂow diagrams are a modeling technique utilized to decompose the

value chain level of abstraction down to the R-E-A level of abstraction. DFD’s

are a modeling technique used to model processes, sub-processes, and sub-

sub-processes including process inputs, outputs, and their interconnectivity.

111

Resource-Event-Agent Level of Abstraction

Entity relationship modeling is a modeling technique used to model series
of exchanges at a level at which managers must plan, monitor, and control. The
modeling technique, as described by (Geerts, et.al, 1997) represents a further
decomposed version of the value chain. The intent of this section is to identify
standard entities and relationships typical of the majority of production

homebuilding ﬁrms.

L“. A‘.A M A

Entity relationship modeling is used to illustrate the relationships between g,
common entities associated with each of the typical production processes.
Entities represent occurrences or existences that are tracked in a database as a
table, such as customer, bank account, or ﬁnancial transaction. Each entity has
a relationship with one or more entities, for example every unit constructed has a
relationship with vendors. Each entity also has one or more attributes. Attributes
represent columns in a table, such as customer name, customer number, etc.

An entity can have one or more occurrences to exist. These occurrences
represent rows in a table, such as customer number one, customer number two,
etc. There are different types of entity relationships, one-to-one, one-to-many,
and many-to-many.

It is impossible to develop a generic data model for all production builders,
although certain entities and relationships are standard. No cardinalities,

relationship types, or attributes are standard and therefore are not included in the

112

model. Figure 5.10 illustrates the standard entities and relationships typical of
most production builders.

McCarthy, et.al, (1997), presented a structured approach to the design of
accounting transaction systems. This approach integrated both structured
analysis and database design techniques to form a new methodology. The
product analysis stage of the PPM is closely related to the requirement analysis
processes described by the authors. Requirement analysis is deﬁned as a

a..-
procedure which attempts to determine the present and future information needs

iez‘uzt- Ll _ .

of the user community. The scope of which includes all levels of decision making
— strategic planning, management control, and operational control — and its
output consists of data and processes speciﬁcations that are used in subsequent
stages of database design, McCarthy et.al, (1997). The PPM proposed by this
study has taken this process one step further, arguing that the characteristics of
product groups drive the information needs.

For the purpose of production planning processes, the PPM presents the
use of R-E-A modeling to fulﬁll the information analysis and deﬁnition process
deﬁned by McCarthy, et.al, (1997). This process fulﬁlls Banjaree’s objectives 4 &
5 by providing (4) process to construct a conceptual model of the desired system
planning system and (5) provision for expressing the system requirements in a
universal language providing means for selection of decision support tools. The
R-E-A framework clearly identiﬁes the information requirements.

The system development process presented by McCarthy, et.al, (1997),

includes the physical system design. The physical system design is beyond the

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scope of this research but is an essential component. The R-E-A framework
developed in the conceptual modeling process identiﬁes the information
requirements. Requirements may or may not be fulﬁlled in the physical design of
the system due to implementation compromises that must be made.
Implementation compromises are typically a result of the capabilities of existing

system and technology (McCarthy, et.al, 1997).

-.-.. 1

5.6.4.4. View Analysis and Integration

11:“: .

In the view modeling and modiﬁcation stage a data model was generated
for the production planning and controlling processes associated with each
product group. The purpose of the view analysis and integration process is to
assimilate each of the production planning systems for each product group into a
complete system for the company. In order to develop a global view, each local

view must be integrated following the steps outlined in section 4.2.3.

5.7. Production Plan Development

The production plan is a document that identiﬁes the speciﬁc goals and
objectives for each product group related to the characteristics of the products,
construction practices, and the sub-contractor and supplier base. The production
plan must be continually reﬁned and updated taking into account the dynamic
market characteristics evident in any market. The production plan fulﬁlls
purposes beyond the establishment of objectives, it is intended to identify what

information must be controlled as well.

114

Production plan development is the process of implementing each
process, sub-process, and sub-sub-process associated with step 4. This is best
accomplished through the sue of a cross-functional project team with expertise
related to estimating, scheduling, cost & progress control, sub-contracting, and
ﬁnancing. Additionally, consultants may be required to perform the data

modeling and/or information system implementation.

5.8. Summary

tree-”tr a

The PPM integrates database design and structured analysis techniques
with the production planning process. This is accomplished through a series of
processes, sub-processes and sub-sub processes, each described in detail in
this section. Examples are provided throughout the chapter to further illustrate
processes. Additionally, a series of check lists are provided for different aspects
of the PPM.

Typically the system development process is driven by user requirements.
This methodology presents the production planning process, including the role of
information systems, in a method driven by both user requirements and the
characteristics of product groups. The emphasis on product groups further
substantiates and reinforces the applicability of the PPM in an environment of
increased product differentiation.

A PPM that takes into account the likeliness of increased product
differentiation provides managers with a system to match their production

planning business system with the characteristics of their products. The ability to

115

identify the appropriate level of detail necessary for proﬁcient planning and
control of production, based on product characteristics, allows managers to have

the highest quality of information required for decision support.

116

CHAPTER SIX

INDUSTRY ELEVATION

6.1 . Introduction

Two production homebuilding ﬁrms were examined with regard to the
production planning systems in use. The production planning systems and
production planning related information systems, utilized by both builders, were
examined through interviews and the researchers experience working with the
existing systems currently used by each builder. The intent of this evaluation
was to identify the information systems, as related to production planning, utilized

by both homebuilding ﬁrms, in the context of the PPM.

6.2 Description of Builder A

Builder A is a medium to' large production builder dominant in one
metropolitan statistical area. Builder A constructed approximately 600 units in
1998, a combination of single family and multi-family homes. Builder A’s
products can be categorized into four distinct groups, standard town house
product line, standard site built single-family product line (homes constructed
entirely on site), custom multi-family product line, and site ready single-family
product line (homes constructed in a factory). In 1988 Builder A was operating
three site built single-family developments, two site ready single-family
developments, three town house projects, and two custom multi-family projects.
Builder A utilized the same production planning systems for each product group

although the characteristics of each product group vary dramatically.

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6.3 Description of Builder B

Builder B is a medium sized production / semi-custom builder dominant in
a speciﬁc market area, a city, and township. Builder B constructed approximately
100 town house and single-family homes in 1998. Builder B has a standard
single-family product line but often accommodates customers' requests for slight
customizations. Builder B also designs community speciﬁc multi-family and town

house projects.

6.4 Interview Questions

Senior management of both builders were interviewed with regards to their
production planning activities, production control systems, and the role of
information systems in production planning. In addition to interviews, the author
has worked in various roles, with both homebuilding ﬁrms, associated with
production planning including information system design, development, and
implementation. Speciﬁcally, the author coordinated the implementation of a
purchase order accounting system for builder B and a revised production
scheduling system for Builder A.

Both interviews were conducted in a qualitative and informal format. That
is, the subjects were encouraged to diverge from their topic, give speciﬁc
examples, tell war stories, etc. This format was essential in order for the
investigator to identify potential areas or circumstances not previously

considered. The following interview questions were used as a guide but not

118

necessarily directly adhered to. In addition to the interviews the author made

numerous observations of each company‘s production planning systems.

Interview Questionnaire

1.

10.

11.

12.

13.

Deﬁne the strategic plan of your organization including the mission and
core values.

What impact does the strategic plan have on the daily performance of your
business systems?

Deﬁne the business planning functions performed in your organization, 1
year planning, 5 year planning?

Do you perform market analysis and planning with regard to your standard
products?

In what ways have municipal requirements driven your market planning
and subsequently your product development and production processes?

What land use trends do you foresee will impact your production
processes? .

Deﬁne production planning.

What construction-speciﬁc production control systems are currently in
place in your company?

What purchasing / procurement production control systems are currently
in place in your company?

What product speciﬁc production control systems are currently in place in
your company?

Deﬁne the project life cycle for a particular unit from the initial sales
agreement through the completion of the warranty period.

At what point(s) during the project lifecycle is your information system
utilized (i.e. sales, ﬁnancing, construction, warranty, etc)?

In what ways does your production system and information system vary
with each product group?

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14. What level of integration exists among the IS functions of each
department?
6.5 Observations and Inferences Drawn

The concept of production planning was not addressed speciﬁcally by
either Builder A or Builder B. However, speciﬁc production planning related
"parts and pieces" were utilized by both homebuilders, either informally or
formally. Both homebuilders responded positively to the concept of formally
implementing a product group speciﬁc production planning system within their
organization.

The characteristics of product groups can easily be identiﬁed at the
highest level of abstraction, the company mission. The strategic plan of an
organization encompasses the very essence of a strategic plan. If a builder
embraces the production concept through product standardization then a
decision related to increased product differentiation must be evaluated with

regard to existing management systems designed for standardized product.

6.5.1 Impact of Strategic Planning

The diversity of products resulting from the strategic plans of Builders A &
B places high demands on the production systems of each builder. Builder A has
a formal strategic plan and does not deviate from the objectives set forth. Builder
A has four distinct product groups, and each product group is speciﬁcally
targeted to be “low cost for the particular market area”. Builder A targets low cost

housing in all markets in which it operates, typically ﬁrst time homebuyers, empty

120

nesters, and single parents. The product types required to meet market demands
vary dramatically from municipality to municipality; therefore, Builder A has
responded with four speciﬁc product groups designed to meet the needs of each
speciﬁc target market.

Builder B has a more loosely structure mission / strategic plan. Builder B’s
plan is more focused on reputation and customer service and is designed to
meet the needs of the general market whether ﬁrst time home buyers, move up

buyers, or high end customs.

6.5.2 Business Planning Activities Used by Subject Builders

Builder A and B addressed the concept of business planning formally but
only speciﬁcally in terms of strategic planning, market planning, organizational
planning, and ﬁnancial performance. Neither builder planned business
performance as a whole. For example, both builders projected the number of
units to be started and closed monthly for one year detailed by each product.
Builder A projected in more detail by identifying speciﬁc development objectives.
The actual number and type of units constructed by both builders varied

dramatically from the one-year plans set forth.

6.5.3 Municipal Demands
Builder A is a large production builder and evaluates markets with regard
to the company strategic plan and products. Recently Builder A has had to make

multiple custom changes to it’s standard product line to meet the speciﬁc

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demands of a local market, taking it as far as developing entirely new product for
a speciﬁc development. Land must be acquired and development approved
before revenue can be generated. Therefore Builder A has to accommodate the
requirements of municipalities in order to guarantee a supply of developable and
buildable land for the future.

Builder B continues to offer slightly customized standard products but has
encountered increased resistance in the local city and township in which it has
enjoyed consistent absorption rates for years. Therefore Builder B has begun to
reach out to other markets with its products dramatically increasing the

geographical distribution of production activities.

6.5.4 Construction-Speciﬁc Production Planning System

The control of construction systems with both subject builders lies with the
project managers. Builder A has implemented an extensive detailed production
scheduling system across some sites, although this system has slightly evolved
at each site, similar to DanNin’s evolutionary theory of species, and therefore is
used for different purposes by each project manager. No other formal
construction control systems are in place. Builder B allows project managers to
develop and control their own production systems mostly by hand. Neither
Builder A nor Builder B differentiates between product groups when
implementing any form of construction control. Neither builder had considered

product characteristics as the driving force behind construction control.

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6.5.5 Purchasing l Procurement Production Control Systems

The evolution of the purchasing control systems for each builder was
reﬂective of new information technology available and growth. Builder B tracked
costs on a unit basis therefore generating specific itemized purchase orders.
The semi-custom nature of Builder B’s products resulted in multiple variances
that had to be balanced on an itemized basis. The characteristics of Builder B’s
semi-custom products prevent Builder B from achieving efficiencies with this cost
control system. Also, the information system implemented by Builder B was
speciﬁcally designed to track costs in this fashion. In this case, the speciﬁcs of
the software package chosen drove the level of detail at which managers plan,
monitor, and control. It is the author’s opinion that Builder A’s procurement and
cost control system is a fairly good match given the diversity of products
constructed by the builder. Although certain essential information was lacking,
such as a system to utilize historic cost information, detailed unit costing for

production products, and standardization.

6.6 Analysis of PPM Evaluation

Both homebuilders recognize the need for comprehensive production
planning. In fact, both homebuilders have dealt with the impact of increased
product differentiation on their production systems. The availability of a
production planning methodology that illustrates the sequential processes
required for proﬁcient production system development would have been

invaluable to each builder’s management team.

123

For example, Builder B embraced a task speciﬁc software package that
provided estimating, scheduling, cost control, and accounting functions. Builder
B then re-engineered the company from bottom up, starting with the capabilities
of the software package. This led to a system that did not ﬁt the builder’s
strategic plan, semi-custom / production building. Hence, after two years of

commitment, the software is now only used for accounting functions.

6.7 Summary

The level of detail at which managers plan, monitor, and control for Builder
A and Builder B are inversely proportional to the level of detail required for the
characteristics of the majority of products produced by each builder. For
example, Builder B maintains unit pricing line items on a purchase order for
siding (number of square, Inft of corners, etc.). Builder B maintains a standard
budget for each product but allows customizations. Therefore the estimator must
revise each line item on the standard budget to reﬂect customizations before a
purchase order is generated. If slight variances occur they must be accounted
for on a line by line basis as well. Builder A creates a new budget for each
product on a community by community basis. Different cost structures are
maintained for the same product between communities. Although this is a
standard product, no detailed unit costing is utilized. Speciﬁcally, the quantity of
rough lumber material varies from community to community for the same house.
Detailed unit costing would allow Builder A to account for the difference in rough

lumber material quantities between communities.

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CHAPTER SEVEN

SUMMARY AND CONCLUSIONS

7.1 Introduction

This chapter restates the objectives of this research and discusses each
objective in terms of how the objective was fulﬁlled. Following the objective
discussion, future areas of research are presented. Conclusions are provided in

the last section.

7.2 Objectives

This research had three primary objectives:

. Develop a production-planning methodology (PPM) for large homebuilding
ﬁrms. This methodology should be applicable to the majority of residential
construction companies producing greater than 5 million dollars of
construction output annually.

. Identify the detailed information system requirements necessary for proﬁcient
production planning.

. Evaluate the research ﬁndings of the proposed production planning
methodology. Evaluation will be conducted through the application of the
proposed methodology on an example production homebuilding ﬁrm.
Additionally, two production homebuilding ﬁrms will be examined to further

evaluate the research ﬁndings.

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7.3 Develop a Production-Planning Methodology

The development of a comprehensive production-planning methodology
(PPM) for large homebuilding ﬁrms was certainly the most complex objective
established, This objective was primarily accomplished through the integration of
a methodology for production plan development, as suggested by Banjaree
(1997) and structured analysis techniques as deﬁned by McCarthy e.al, (1997).
By integrating the above noted work the author was able to fulﬁll the following
objectives, identiﬁed by Banjaree (1997), necessary for any comprehensive

production plan.

. A system to match the production plan with the company’s market plan.

. A path mapping domain integration.

. A transition route mapping the difference between the existing and desired
systems.

. A process to identify the difference between the existing and desired physical
systems.

0 A process to construct a conceptual model of the desired system.

. A provision for expressing system requirements in a universal language

providing means for selection of decision support tools.

The challenge of this methodology was to ﬁnd a way to convey the various
processes, sub-processes, and sub-sub-processes that must be performed in
order to develop a production plan for large homebuilding ﬁrms. A series of

126

Data-Flow Diagrams (DFD), provided in Chapter 5, was developed to illustrate
the various steps, the inputs and outputs of each step, and their interconnectivity.
In addition to the DFD’s, a summary outline of the methodology was provided in

Chapter 5.

7.4 Identify the Information System Requirements Necessary for
Proﬁcient Production Planning

Early in the research, the author discovered that the information system
requirements necessary for proﬁcient production planning are organizational
speciﬁc. That is, like snowﬂakes, no two production planning information
systems are alike. In response to this realization, the author provided sub-
processes and sub—sub-processes associated with production planning that
would identify the level of detail at which managers must plan, monitor, and
control. This was accomplished through the integration of structured analysis
techniques with the proposed methodology. However, data alone does not
illustrate the information system requirements. To answer this question, the
author utilized Dasso’s (1988) detailed classiﬁcation of managerial proﬁciency

(Appendix B) to identify what information is required.

7.5 Applicability and Essentiality of the Industry Evaluation
An industry analysis was conducted to further evaluate the work. It was
found that, due to the complexity of the subject matter and the vast differences

between the two homebuilding ﬁrms examined, a structured approach to

127

achieving this objective was impossible. Therefore, the author relied, to some
degree, on his comprehensive work experience in areas directly related to
production planning as either an employee or consultant with each subject
builder. Additionally, the comprehensive foundation of the work developed in

Chapters 2, 3, 4, and 5 contribute to the validity of the methodology.

7.6 Areas of Future Research

Very little research has been conducted related to business planning in
residential construction. The author feels that there is a substantial need for
research related to the most critical components of business planning for large
homebuilding ﬁrms, such as scheduling and cost control systems. Additionally,
this methodology did not emphasize one particular type of production planning
such as just-in-time, or material resource planning. Application and analysis of
various production planning types should be conducted to identify what

characteristics are critical for production homebuilding.

7.7 Conclusion

In conclusion, this methodology provides a detailed sequential process for
production planning system development for large homebuilding ﬁrms. The
author feels that a seed for future production planning research, for the
production homebuilding industry, has been provided with the production
planning methodology. This was accomplished largely in part by the inclusion of

standard procedures and modeling techniques. Such a methodology, if

128

implemented, will support the growth and survival of large homebuilding ﬁrms,

lead to increased trade partnering, and facilitate business system integration.

129

REFERENCES

Artiba, A. and Elmaghraby, SE, The Planning and Scheduligg of Production

Systems, p. 54-88, Banerjee, S.K., Methodology for Integrated Manufacturing
Planning and Control System Desigjg Structured Approach, Chapman & Hall,
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Ballard, G. and Howell, G., Shielding Production: Essential Step in Production
Control, Journal of Construction Engineering and Management, American
Society of Civil Engineers, Jan / Feb, 1998.

Cushing, B. E. and Romney, M. B., Accountigg Information Systems, 6th Edition,
Addison-Wesley Publishing Company, New York, NY, 1997.

Cesus of Construction Industries, US. Department of Commerce, 1992

Dasso, H. A., Management Systems for Small Residential Constrgction
Companies, The Pennsylvania State University, University Park, PA, 1988.

Denna, E. L., Cherrington, O. J., Andros, D. P. and Hollander, A. 8., Event-
Drivenjgsiness Solutions, Irwin Professional Publishing, New York, NY, 1993.

Gale, T. and Eldred, J., Gettigg Results with the Object-Oriented Enterprise
Model, Future Strategies, Mercer Island, WA, Sigs Books, New York, NY, 1997.

Kotler, P., Marketing Management. Analvsis. Planning, Implementation, and
Control, 9th Edition, Prentice Hall, Upper Saddle River, NJ, 1997.

McCarthy, W. E., Rockwell, S. R., and Armitage H., A Structured Methodology
for the Design of Accounting Transaction Systems in a Shared Data
Environment, Michigan State University, Department of Accounting, 1997.

Music, W. A., Managerial Aspects of Residential Construction, Construction
Management Research Series, Report No. 3, The Pennsylvania State University,
University Park, PA, 1985.

Osgood, W. R., Basics of Successful Business Management, American
Management Association, New York, NY, 1981.

Pheng, L. and Meng, C., Managing Proggction in Construction, Ashgate
Publishing Limited, Aldershot, England, 1997.

130

Rob, P. and Coronel, C., Database Systems, Design, Implementationgand
Management, 3rd Edition, Course Technology, Cambridge, MA, 1997.

Seidel, A. and Syal M., The Fiscal and Economic Impact of Housing
Development on Michigan Communities, Housing Education and Research
Center, Michigan State University, 1998.

Seidel, A. and Syal M., Business Planning for Builders and Remodelers, Housing
Education and Research Center, Michigan State University, 1997.

Treacy, Mand Wiersema, F ., The Discipline of Market Leaders, Addison-Wesley
Publishing Company, New York, NY, 1995.

Professional Builder, 31St Annual Report of Housing Giants, Cahners Publishing
Co, April 1988

Ward, J. and Grifﬁths, P., Strategic Planning for Information Systems, 2nd Edition,
John Wiley 8. Sons, New York, NY, 1996.

Warszawski, A., Strategic PlannirLg in Construction Companies, Journal of
Construction Engineering and Management, American Society of Civil Engineers,
June 1996.

Willenbrock, J. H., Management Guidelines for Growth Oriented Homebuilding

Firms, H.R.C. Research Series, Housing Research Center, The Pennsylvania
State University, University Park, PA 1985.

131

APPENDIX A

DETAILED CLASSIFICATION OF PLANNING AND CONTROL SYSTEMS FOR
HOME BUILDING FIRMS

(Source: Dasso, 1988)

132

Part 1 Detailed Deﬁnition of the Managerial Proﬁciency Levels for
Business Planning

Level I: Business Planning

1. No deﬁnition of the business is provided

2. Market Planning
2.1. No market analysis
2.2. No inventory of company strengths and weaknesses
2.3. Goals and objectives are not deﬁned

3. F ive-year plans and long-term planning are not performed
4. One—year plans are not developed

Level II: Business Planning

1. No written deﬁnition of the business is provided

2. Market Planning
2.1. Market analysis
2.1.1. Field inspections
2.1.2. Real estate brokers
2.1.3. No formal analysis of the competition
2.2. Company strengths and weaknesses are not inventoried
2.3. Company goals and objectives are deﬁned, but not in writing
2.4. Strategies to achieve objectives are not outlined.

3. Five-year plans are not developed and long-term planning is not
performed
4. One-year plans

4.1. Sales plan
4.2. Production plan
4.2.1. Lot improvement cost plan
4.2.2. Direct construction cost plan
4.2.3. Indirect cost plan
4.2.4. Cost estimate plan
4.3. Cost of sales plan
4.4. Gross proﬁt plan
4.5. Administrative plans
4.5.1. Operating expense plan
4.6. Proﬁt plan
4.7. Cash ﬂow statement

5. One-year plans are revised annually
Level III: Business Planning
1. Written deﬁnition of the business exists

2. Market planning
2.1. Market analysis
2.1.1. Analysis of the competition
2.1.1.1. Building permits
2.1.1.2. Courthouse records

133

2.1.1.3. Field inspections
2.1.1.4. Comparable development form is used

2.1.2. Analysis of economic trends
2.1.3. Analysis of market conditions
2.1.3.1. Building costs
2.1.3.2. Financing
2.1.3.3. Vacancies
2.1.4. Analysis of demand factors
2.1.4.1. Employment
2.1.4.2. Income
2.1.4.3. Population
2.1.5. Analysis of supply factors
2.1.5.1. Construction activity
2.1.5.2. Housing inventory
2.1.6. Market plan
2.1.6.1. Target marketing
2.1.6.2. Pricing

2.1.6.3. Advertising

2.2. Inventory of strengths and weaknesses

2.2.1. The builder ﬁrm

2.2.2. The builder

2.2.3. The builder's staff

2.2.4. Subcontractors
2.3. Company goals and objectives are deﬁned

2.3.1. Long-term objectives

2.3.2. Short-term objectives
2.4. Strategies are developed to achieve organizational objectives
Long-term planning
3.1. Production planning
3.2. Organizational planning
3.3. Development schedule
3.4. Financial planning
Five-year plan
Company is not proﬁcient in the development of the ﬁve-year plan. All
forms of planning within the organization are not well integrated.
Production, organizational, and ﬁnancial plans do not interrelate well with
one another. The ﬁve-year plans revised and updated once a year.
One-year plan
5.1. Sales plan
5.2. Production plan

5.2.1. Lot improvement cost plan

5.2.2. Direct construction cost plan

5.2.3. Indirect cost plan

5.2.4. Cost estimate summary
5.3. Cost of sales plan
5.4. Gross proﬁt plan

134

5.5. Administrative plan
5.5.1. Operating expense plan
5.5.1.1. Finance expense plan
5.5.1.2. Marketing expense plan
5.5.1.3. G&A plan
5.6. Proﬁt plan
5.7. Cash flow statement

6. One-year plans are revised and updated quarterly
Level IV: Business Planning
1. Written deﬁnition of the business exists

2. Market planning
2.1. Market analysis
2.1.1. Analysis of the competition

2.1.1.1. Comparable development form is used
2.1.1.2. Unit mix comparable development form is used
2.1.1.3. Price adjustment form is used

2.1.2. Analysis of economic trends
2.1.3. Analysis of market conditions

2.1.3.1. Building costs
2.1.3.2. Financing
2.1.3.3. Mortgage default
2.1 .3.4. Development trends
2.1.3.5. Vacancies
2.1.4. Analysis of demand factors
2.1.4.1. Employment
2.1.4.2. Income
2.1.4.3. Population
2.1.4.4. Households
2.1.4.5. Market absorption
2.1.5. Analysis of supply factors
2.1.5.1. Construction activity
2.1.5.2. Housing inventory
2.1.6. Market plan
2.1.6.1. Target marketing
2.1.6.2. Pricing

2.1.6.3. Advertising
2.2. Inventory of strengths and weaknesses
2.2.1. The builder ﬁrm
2.2.2. The builder
2.2.3. The builder's staff
2.2.4. Subcontractors
2.3. Company goals and objectives are deﬁned
2.3.1. Long-term objectives
2.3.2. Short-term objectives
2.3.3. Financial objectives

135

2.4.

4.1.
4.2.
4.3.
4.4.

2.3.4. Non-ﬁnancial objectives
2.3.5. Primary objectives
2.3.6. Critical objectives
2.3.7. Speciﬁc objectives
Company objectives are evaluated in terms of company resources,
money, time, skill, and personnel
2.5. Strategies are developed to achieve objectives
2.5.1. Strategy outline
2.5.2. Weighing of strategies according to merits
2.5.3. Strategy evaluation
2.5.3.1. Company resources
2.5.3.2. External forces
Long-term planning
3.1. Production planning
3.1.1. Labor issues
3.1.2. Subcontracting
3.1.3. Equipment purchase decisions
3.2. Organizational planning
3.2.1. Organizational chart
3.2.2. Key management personnel
3.2.3. Board of Directors
3.3. Development schedule
3.3.1. Activity time requirements
3.3.2. Milestones
3.3.3. Target dates
3.4. Financial planning
3.4.1. Company cash ﬂow requirements
3.4.2. Sources of funds
3.4.3. Break-even analysis
3.4.4. Proﬁt-and-loss forecasts
F ive-year plan
The company, at this stage, understands the implications of long-term
planning. Successful long-term or ﬁve-year plans are developed, based
on the proper interrelationships with all other organizational plans.
Production plan
Organizational plan
Time plan
Financial plan
The ﬁve-year plan is revised and updated annually
One-year plan
6.1. Sales plan
6.2. Production plan
6.2.1. Lot improvement cost plan
6.2.2. Direct construction cost plan
6.2.3. Indirect cost plan
6.2.4. Cost estimate summary

136

6.3. Cost of sales plan
6.4. Gross proﬁt plan
6.5. Administrative plan
6.5.1. Operating expense plan
6.5.1.1. Finance expense plan
6.5.1.2. Marketing expense plan
6.5.1.3. G&A plan
6.6. Proﬁt plan
6.7. Cash ﬂow statement
7. One-year plans are revised and updated monthly

Part 2 Detailed Deﬁnition of the Managerial Proﬁciency Levels for Office
Management

Level I: Ofﬁce Management
. No organizational chart
No job descriptions
No procedures manual
Informal operating policies
4.1. Invoice approval
4.2. Payroll
4.3. Bank reconciliation
4.4. Sales contract
5. No personnel policies
6. Informal purchasing policies
6.1. No purchase order system
7. Ofﬁce stafﬁng
7.1. No employee training
7.2. No ofﬁce supervision
8. Record keeping
8.1. No design of forms
8.2. Poor ﬁling techniques
8.3. No record retention list
. All systems are executed manually

995’“

(O

Level II: Ofﬁce Management
1. Ofﬁce organization
1.1. No formal organizational chart
1.2. Job descriptions are not well deﬁned
2. No procedures manual
3. No formal operating policies
3.1. Informal invoice approval
3.2. Informal payroll processing
3.3. Informal bank reconciliation
3.4. No formal sale contracts

137

No formal personnel policies
No formal purchasing policies
5.1. Purchase order system
5.2. Informal subcontracts
6. Ofﬁce stafﬁng
6.1. Poor ofﬁce training, because of procedures manual has not be
developed
6.2. Informal ofﬁce supervision
7. Record keeping
7.1. Form design has been accomplished
7.2. Filing system
7.2.1. Job unit ﬁle
7.2.2. Subject ﬁles
7.3. No record retention list
8. Ofﬁce automation
8.1. Word processor
8.2. All other systems are manual

9‘.“

Level III: Ofﬁce Management
1. Ofﬁce organization
1.1. An organizational chart exists
1.2. The chart outlines general responsibility and authority
1.3. Job descriptions exist
2. Formal development of a procedures manual
2.1. Company history
2.2. Company goals and objectives
2.3. Company strategies
2.4. Company policies
2.4.1. Operating policies
2.4.1.1. Invoice processing
2.4.1.1 .1. Invoice approval
2.4.1.1.2. Invoice payment
2.4.1.1.3. Invoice ﬁling
2.4.1.2. Payroll Processing
2.4.1.2.1. Time cards
2.4.1.2.2. Payroll checks
2.4.1.2.3. Withholding
2.4.1.3. Bank account reconciliation
2.4.1.3.1. Deposit and check review
2.4.1.4. Sales Contracts
2.4.1.4.1. Sales closing procedures
2.4.1.4.2. Contract control form
2.4.1.5. Customer Service
2.4.1.5.1. Callback policy
2.4.1.5.2. Inspections
2.4.1.6. Receipts

138

2.4.1.6.1. Cash receipt journal
2.4.1.6.2. Loan draws
2.4.1.6.3. Sales contracts
2.4.1.6.4. Options, upgrades
2.4.1.6.5. Change orders
2.4.2. Personnel policies
2.4.2.1. No separate personnel policy manual
2.4.2.2. Formal personnel policy
2.4.2.2.1. Overtime
2.4.2.2.2. Benefits
2.4.3. Purchasing policies
2.4.3.1. No separate purchasing manual
2.4.3.2. Purchase order system
2.4.3.2.1. Purchase order log
2.4.3.3. Subcontracts
2.4.3.3.1. Subcontract status sheet
2.4.3.3.2. Change order policy
2.4.3.3.3. Payment policy
3. Record Keeping
3.1. A forms manual does not exist
3.2. Form control
3.3. Form checklist
3.4. Filing
3.4.1. Subject ﬁles
3.4.2. Subject list
3.4.3. Job unit ﬁle
3.4.4. Record retention list
4. Ofﬁce stafﬁng
4.1. Interview of applicants
4.2. Employee training
4.3. Formal ofﬁce supervision
5. Ofﬁce automation
5.1. Word processor
5.2. Payroll
5.3. Data recording

Level IV: Ofﬁce Management
1. Ofﬁce organization
1.1. An organizational chart exists
1.2. The chart outlines general and speciﬁc responsibility as well as authority
1.3. Job descriptions exists
2. Formal development of a procedures manual
2.1. Company history
2.2. Company philosophy
2.3. Company goals and objectives
2.4. Company strategies

139

2.5. Company policies

2.5.1.

2.5.2.

2.5.3.

Operating policies
2.5.1.1. Separate operating policy manual
2.5.1.2. Invoice processing
2.5.1.2.1. Invoice approval
2.5.1.2.2. Invoice payment
2.5.1.2.3. Invoice filing
2.5.1.3. Payroll processing
2.5.1.3.1. Time cards
2.5.1.3.2. Payroll checks
2.5.1.3.3. Withholding
2.5.1.4. Receipts
2.5.1.4.1. Cash receipt journal
2.5.1.4.2. Loan draws
2.5.1.4.3. Option, upgrades
2.5.1.4.4. Change orders
2.5.1.4.5. Sale contracts
2.5.1.4.6. Closing balances
2.5.1.5. Bank reconciliation
2.5.1.5.1. Deposit and check review
2.5.1.6. Sale contract
2.5.1.6.1. Sales closing procedures
2.5.1.6.2. Contract control form
2.5.1.6.3. Sales contract manual
2.5.1.7. Customer service
2.5.1.7.1. Callback policy
2.5.1.7.2. Inspections
Personnel policies
2.5.2.1. Separate personnel policy manual
2.5.2.1 .1. Overtime
2.5.2.1.2. Safety
2.5.2.1.3. Benefits
2.5.2.1.4. Special services
Purchasing policies
2.5.3.1. Separate purchasing policy manual
2.5.3.2. Purchase order system
2.5.3.2.1. Purchase order log
2.5.3.2.2. Delivery of material
2.5.3.2.3. Receiving ticket
2.5.3.3. Subcontracts
2.5.3.3.1. Subcontract status sheet
2.5.3.3.2. Change order policy
2.5.3.3.3. Payment policy
2.5.3.3.4. Callback policy
2.5.3.3.5. Quotation/bid form
2.5.3.3.6. Subcontract agreement

140

3. Record keeping
3.1. A forms manual exists
3.1.1. Form control
3.1.2. Form design checklist
3.2. Filing
3.2.1. Subject ﬁles
3.2.2. Subject heading list
3.2.3. Job unit ﬁle
3.2.4. Extra copy ﬁle
3.2.5. Record retention checklist
4. Ofﬁce stafﬁng
4.1. Interview of applicants
4.2. Employee training
4.3. Ofﬁce supervision
4.4. Employee relations
5. Ofﬁce automation
5.1. All company systems are automated, including: payroll, data collection,
recording, word processing, estimating, accounting, cost control, and
purchasing.

Part 3 Detailed Deﬁnition of the Managerial Proﬁciency Levels for
Estimating

Level I: Estimating

1. Unit costs estimates, square foot, linear ft., etc.

2. Historical unit cost records.

3. Material pricing based on vendor quotations.

4. Equipment costs are considered as overhead

5. Subcontractor

Level II: Estimating

1. Estimates are prepared from historical records, based on work item
productivity data.

2. Quantity take-off is not checked

3. Material pricing is based on vendor quotations, under a purchase order
system.

Labor costs are determined from productivity data.
Equipment costs are allocated.

Subcontractor’s estimates are not properly evaluated.
Job and company overhead are allocated on a °/o basis.
Finance costs are not included in the estimates.

@519???

141

Level III: Estimating

1.
2.
3.
4.

5.

6.
7.
8

Estimates are prepared from historical records which are based on a work
item deﬁnition.

Quantity take-offs are checked against possible error or omissions.
Material prices are determined from vendor quotations, purchase order
system is used.

Labor costs are determined from historical work item records, based on
productivity.

Subcontract estimates are evaluated against a subcontract budget which
is prepared from historical cost records.

Job overhead costs are itemized per project.

Finance costs aer included in the estimates.

Company overhead is allocated on a percentage basis.

Level IV: Estimating

1.
2.
3
4.

5.

6.
7.

8.

Estimates are prepared from historical records which are based on the
construction activity deﬁnition.

Quantity take-offs are checked.

Material prices are determined from vendor quotations and prices are
locked in by a purchase order system

Labor costs and equipment costs are determined from historical data
which is modiﬁed to reﬂect the particular characteristics of the project.
Subcontract estimates are evaluated against a subcontract budget which
is prepared from historical cost records.

Job overhead costs are itemized per project.

Finance costs are included in the estimate

Company overhead costs are allocated on a percentage basis, which is

periodically revised.

Part 4 Detailed Deﬁnition of the Managerial Proﬁciency Levels for
Scheduﬂng
Level I: Scheduling

.‘IQF’IP‘P’NT‘

List of activities or operations

Dates for completion of these activities are indicated.

No updating is possible with this type of system.

Actual progress is not shown on the schedule.

Critical activities are not identiﬁed.

Interrelationships and dependencies among activities are not provided.
The effect of changes in one activity on all other activities cannot be
determined.

142

8. Schedule is not integrated with the chart of accounts.

9. Procurement of material is not integrated with the schedule.

Level II: Scheduling

1. Bar Chart Schedule

2. Manual system

3. Progress on activities is assumed to be linear with time, there is no
physical percentage of completion indicated on the bar chart.

4. Critical activities are not apparent from the schedule.

5. Interrelationships and dependencies among activities are not provided.
6 The effect of changes in one activity on all other activities cannot be
readily determined; therefore, it is limited as a control device.

7. Provides a good visual representation of the construction activities.

8 It is easy to understand and therefore, it is commonly accepted by field
personnel.

9. Activities many be integrated with the chart of accounts.

Level III: Scheduling

1. CPM / Critical Path Method schedule

2. A bar chart is developed from CPM, for ﬁeld operations

3. Critical activities are indicated.

4. Floats on non-critical activities are provided.

5. Procurement of material is integrated with the schedule.

6. Early and late schedules are evaluated based on time vs. cost
relationships.

7. Resource leveling of manpower, material, equipment, and money is
possible.

8. Manual updating can be cumbersome.

9. Project monitoring and progress reporting can be effectively done.

10. The effects of changes in one activity on all other activities can be

determined.

Level IV: Scheduling

1.
2.

eeew

9°.“

CPM schedule

A bar chart based on the CPM schedule is printed out and used for the
ﬁeld operations.

Critical activities are indicated.

Procurement of material is integrated in the schedule.

Floats on non-critical activities are indicated.

Early and late schedules are evaluated based on time vs. cost
relationships.

Activities are coded based on the chart of accounts.

Integration of cost (budget) and time (schedule) is achieved by distributing
costs over the activities.

System allows for accurate cash ﬂow projections.

The effect of one activity on all other activities can be determined.

143

11.

12.

Resource leveling of manpower, material equipment, and money is
possible.

Project can be easily monitored and provides for adequate progress
reporting.

Part 5 Detailed Deﬁnition of the Managerial Proﬁciency Levels for Cost
Control

Level I: Cost Control

1.

No cost control system

Level II: Cost Control

AFPFPNP’P‘PP’N.‘

0.

Manual cost control system based on productivity

Work item deﬁnition

Daily time card

Labor cost report, weekly

Purchase order system

Material status report, weekly

Job progress form, monthly

Job control sheet, monthly

Work item ﬁle form, to update historical data.

Cost control is not integrated with overall accounting system.

Level III: Cost Control

1.
2.
3.

Conventional cost control system

Work item deﬁnition

Labor costs

3.1. Time card

3.2. Man-hour distribution report

3.3. Man-hour unit cost report

3.4. Man-hour status report

3.5. Progress report

3.6. Productivity report

Equipment costs

4.1. Production costs
4.1.1. Daily equipment time card
4.1.2. Equipment summary sheet
4.1.3. Equipment time distribution sheet
4.1.4. Equipment unit cost
4.1.5. Equipment use schedule

4.2. Usage costs
4.2.1. Equipment ownership card
4.2.2. Equipment cost report
4.2.3. Equipment depreciation report
4.2.4. Equipment rental record

144

8.

Material costs
5.1. Purchasing
5.1.1. Bill of materials
5.1.2. Purchase order
5.1.3. Purchase order log
5.2. Using materials
5.2.1. Invoice approval form
5.2.2. Material status report
Subcontract costs
6.1. Progress payment report
Management reports
7.1. Project cost report
7.2. Project summary cost report
7.3. Overhead distribution report
7.4. Project cash ﬂow
Management reports are performed monthly

Level IV: Cost Control

1.
2.
3.

Network - based cost control, integration of cost and schedule.
Construction activity deﬁnition
Labor costs
3.1. Time card
3.2. Manhour distribution report
3.3. Manhour unit cost report
3.4. Manhour status report
3.5. Progress report
3.6. Productivity report
Equipment Costs
4.1. Production costs
4.1.1. Daily equipment time card
4.1.2. Equipment summary sheet
4.1.3. Equipment time distribution sheet
4.1.4. Equipment unit cost
4.1.5. Equipment use schedule
4.2. Usage costs
4.2.1. Equipment ownership card
4.2.2. Equipment cost report
4.2.3. Equipment depreciation report
4.2.4. Equipment rental record
Material costs
5.1. Purchasing
5.1.1. Bill of materials
5.1.2. Purchase order
5.1.3. Purchase order log
5.2. Using material
5.2.1. Invoice approval form

145

5.2.2. Material status report

6. Subcontract costs
6.1. Progress payment report
7. Management reports

7.1. Project cost report

7.2. Project summary cost report
7.3. Overhead distribution report
7.4. Project cash ﬂow

7.5. Activity bar chart

7.6. Schedule status report

7.7. Cost curve

7.8. Production curve

7.9. Cash requirements curve
7.10 Cash income curve

Part 6 Detailed Deﬁnition of the Managerial Proﬁciency Levels for Financial
and Accounting Systems

Level I: Financial and Accounting

1. This system is designed to fulﬁll the requirements given by the Internal
Revenue Service (IRS) for the purpose of taxation.

2. The system uses the cash basis for accounting: that is, income
recognized after actual payments are received.

3. Manual accounting system. Transactions are manually journalized into a

general journal and posted in the general ledger. At the end of the
accounting period a trial balance is prepared.
4. Financial statements:
4.1. Balance sheet
4.2. Income statement
4.3. Statement of changes in ﬁnancial position.

5. Annual accounting cycle.

Level II: Financial and Accounting

1. This system uses the accrual basis for accounting; that is , transactions
are recognized at the time an obligation for payment is incurred.

2. The system is project or job oriented, costs and revenues are broked
down on a project-by-project basis.

3. Job cost system: One Write System

3.1. Uses pegboard
3.2. Record of invoices and work in progress
3.2.1. Accounts payable
3.2.2. Work in progress
3.2.3. Vendor accounts payable subledger
3.2.4. Job cost subledger
4. Manual system: Transactions are manual journalized and posted.
5. Financial statements:

146

6.

5.1. Balance sheet

5.2. Income statement

5.3. Cash ﬂow statement

5.4. Statement of changes in ﬁnancial position
Annual accounting cycle.

Level III: Financial and Accounting

1.
2.
3.

4.

ms»

8.

This system uses the accrual basis for accounting.
The system is project or job oriented.
Subsidiary Iedgers are used to break down into detailed accounts the
accounts found in the general ledger or chart of accounts.
The job cost system is not kept in balance with the general ledger system,.
It is in effect a single entry system. The job cost system receives
information from payroll and accounts payable.
Computerized accounting system.
Financial statements
6.1. Balance sheet
6.2. Income statement
6.3. Cash ﬂow statement
6.4. Projected cash ﬂow, on a monthly basis
6.5. Statement of changes in ﬁnancial position
Financial Analysis
7.1. Ratio analysis
7.1.1. Liquidity
7.1.2. Leverage
7.1.3. Proﬁtability
Monthly accounting cycle.

Level IV: Financial and Accounting

1.
2.
3.

4.
5.
6

This system uses the accrual basis for accounting.
The system is projected or job oriented.
Subsidiary Iedgers are used to break down general ledger accounts or the
chart of accounts.
The job cost system is linked and kept in balance with the general ledger.
Computerized accounting system
Financial Statements
6.1. Balance sheet
6.2. Income statement
6.3. Statement of changes in ﬁnancial position
6.4. Cash ﬂow statement
6.5. Projected cash ﬂow, on a monthly basis
Financial and proﬁtability analysis:
7.1. Ratio analysis
7.1.1. Liquidity
7.1.2. Leverage
7.2. Proﬁtability analysis

147

7.2.1. Company proﬁtability evaluation
7.2.2. Project proﬁtability evaluation

Part 7 Detailed Deﬁnition of the Managerial Proﬁciency Levels for
Subcontracting

Level I: Subcontracting

1 .

Location of subcontractors
1 .1 . Local HBA
1.2. Suppliers

2. Selection of subcontractors
2.1. Selection is based solely on price
3. No formal invitation to bid
4. Negotiation with subcontractors
4.1. Price negotiation
4.2. No builder estimates are available as reference to be used in the pr0per
evaluation of subcontractor’s estimates
5. Communication with subcontractors
5.1. Oral communication
5.2. No subcontract agreement
5.3. Company policies and procedures are not furnished to
subcontractors.
6. Controlling subcontractors
6.1. Poor supervision
6.1.1. No quality checks
6.1.2. Inspection is left to local inspectors
6.1.3. No formal change order procedures
6.2. Coordination
6.2.1. No meetings
6.2.2. No formal scheduling of subcontractors
6.2.2.1. Phone calls
6.2.2.2. No follow up calls
Level II: Subcontracting
1. Location of subcontractors
1.1. Local HBA
1.2. Suppliers
1.3. Inspectors
2. Selection of subcontractors
2.1. Fair prices
2.2. Material waste consciousness
2.3. Cost consciousness
3. No formal invitation to bid
4. Negotiation with subcontractors

148

4.1.
4.2.

Price negotiation
Subcontractor’s estimates are evaluated based on builder’s own

estimate based upon internal historical records.
Communication with subcontractors

5.1.
5.2.
5.3.

No written subcontract agreement

Plans and speciﬁcations are provided

Company policies and procedures are verbally provided
5.3.1. Compliance with schedule

5.3.2. Payment policy

5.3.3. Acceptance of work

Controlling subcontractors

6.1.

6.2.

Level III:
Location of subcontractors

1.

2.8.

Supervision

6.1.1. Quality checks are performed

6.1.2. Acceptance of work

6.1.3. No formal change order system

Coordination

6.2.1. Informal scheduling of subcontractors
6.2.1.1. Phone call
6.2.1.2. No follow up calls

Subconﬂacﬁng

Local HBA

Suppliers

Banks, S&L

Credit bureau
Inspectors
Subcontractors list form

election of subcontractors

Financial stability

Quality of workmanship

Cost consciousness

Ability to maintain schedule
Dependability

Material waste consciousness
Adequate insurance

Fair prices

Formal invitation to bid

3.1.
3.2.

Subcontract packaging
Instructions to subcontractor’s sheet form

Negotiating with subcontractors

4.1.
4.2.
4.3.
4.4.

Fair cost estimates

Evaluation of subcontractor’s estimates
Price negotiations

Builder performance record

Communication with subcontractors

149

5.1. Written subcontract agreement
5.2. Plans and speciﬁcations
5.3. Company policies and procedures
5.3.1. Acceptance of material on the job
5.3.2. Compliance with schedule
5.3.3. Acceptance of work
5.3.4. Payment policy
5.3.4.1. Application of payment form
5.3.5. Liability and insurance
5.3.6. Lien protection /Afﬁdavit of release of liens
5.4. Change order system
5.4.1. Field order form
5.4.2. Change order form
5.4.3. Change order authorization
5.5. Penalties
5.6. General conditions
Controlling Subcontractors
6.1. Supervision
6.1.1. Quality checks
6.1.2. Inspection of work
6.1.3. Acceptance fwork
6.2. Coordination
6.2.1. Scheduling of subcontractors
6.2.1.1. Written notiﬁcation
6.2.1.2. Follow up calls
6.2.2. Construction weekly meetings

Level IV: Subcontracting

1.

Location of subcontractors
1.1. Local HBA
1.2. Suppliers
1.3. Banks, S&L
1.4. Credit bureau

1.5. Subcontractor list form

Selection of subcontractors

2.1. Financial stability

2.2. Quality of workmanship

2.3. Cost consciousness

2.4. Ability to maintain schedule

2.5. Dependability

2.6. Cooperation

2.7. Adequate work force

2.8. Prompt service on repair work

2.9. Ability to conduct business in a professional manner
2.10. Material waste consciousness

2.11. Adequate insurance coverage

150

2.12. Fair prices
2.13. Subcontractor’s evaluation form
2.14. Subcontractor’s statement of qualifications
Formal invitation to bid
3.1. Subcontract packaging
3.1.1. Scope of the work
3.1.2. Material take-off
3.1.3. Site inspections
3.1.4. Bid proposal
3.2. Status of bid documents form
3.3. Instruction to subcontractors sheet form
Negotiating with subcontractors
4.1. Fair cost estimates
4.2. Evaluation of subcontractor’s estimates
4.3. Price negotiation
4.4. Builder performance record
4.5. Value engineering
Communication with subcontractors
5.1. Written subcontract agreement
5.2. Plans and speciﬁcations
5.3. Company policy and procedures
5.3.1. Acceptance of material on the job
5.3.2. Compliance with schedule
5.3.3. Callback warranty provision
5.3.3.1. Callback form
5.3.4. Acceptable and unacceptable construction methods
5.3.5. Use of equipment, material, and temporary facilities.
5.3.6. Payment policies
5.3.6.1. Application of payment form
5.3.7. Liability and insurance coverage
5.3.8. Lien protection requirement / Afﬁdavit of liens
5.3.9. Safety and accident procedure
5.4. Change order system
5.4.1. Field order form
5.4.2. Change order form
5.4.3. Change order authorization
5.5. Penalties
5.6. General conditions
Controlling subcontractors
6.1. Supervision
6.1.1. Quality checks
6.1.2. Inspection of work
6.1.3. Acceptance of work
6.2. Coordination
6.2.1. Scheduling of subcontractors
6.2.1.1. Written notiﬁcations

151

6.2.1.2. Follow up calls
6.2.2. Construction meetings

6.2.2.1. Pre-construction meeting
6.2.2.2. Progress meetings

(Source: Dasso, 1988)

152