Reference PointÔ, conducted periodically among Professional Builder’s Survey of Housing’s Giants, was designed to document current management processes in the homebuilding industry, and provide a broad set of benchmarks for quality management.

We are interested in whether quality management, which had burst upon the industry in the past half-dozen years, has established firm roots in homebuilding, and, more importantly, whether quality management practices are making a difference in the operational and financial performance of homebuilding companies.

The results of the survey speak for themselves, but the overall picture is one of ships sailing on a dark and confused sea.  There are certainly points of light among various management practices, but the results of the survey do not support the theories that the best performing companies are “doing all of the right things”, or that implementing quality management practices always improves performance.

In fact, the survey results give more reason for concern than encouragement.  The most troublesome of these measurements is builders’ estimates of the annual cost of waste, inefficiency, and poor quality.  The average response was less than five percent (4.7%) of gross revenue.  The real cost of waste, inefficiency , and poor quality in their companies is more likely quadruple that level.

That statistic tells us that homebuilders are not tracking these costs.  In fact, more than a quarter (26% ) of the survey respondents could not even estimate the amount of waste, inefficiency, and poor quality in their companies.  More important than the gap between perceived and real cost is the lack of understanding of where these costs are lurking in their companies.  If builders cannot find and measure the waste, inefficiency, and poor quality, they cannot eliminate it.

By any measure, the financial stakes are enormous:  We estimate that a 10% improvement in operating efficiency translates into a 30% increase in the average profit level of a Housing Giant.

Finally, the results from Reference PointÔ are a reminder that there is a certain chemistry to the effective management of process-centered enterprises.  The intricacy of process improvement goes far beyond the capabilities of traditional financial performance measures and traditional methods of motivating and compensating employees.

Is the trip worth the effort and cost?  The prospect of radically more efficient, more effective, and more profitable companies, with business conducted in an environment that is less aggravating, less stressful, and more rewarding, is worth whatever it costs to achieve it.