Maximizing Value With the Triple Constraint

The triple constraint for a home builder is a relationship between the cost of a project or scope, the quality of the workmanship or materials, and the time to complete the project or scope.


The three are related that unless there is a change in an outside dimension, any change in one will affect one or both of the other. In order to maximize the value of the project, two major actions need to take place. First, the project stakeholders need to fully understand the priority of each face of the triple constraint. Second, an outside dimension must be added to test the current value. Without the second action, the best goal is status quo.

Understanding Priorities

Before a project begins, it is important to get beyond the feeling that all three of the constraints (time, money and quality) are important. Since each project is unique, drivers must be identified to determine which constraints are a higher priority than the others. For example, is the completion date immovable? Perhaps the buyer has a contract on their existing home with an existing closing date. On the other hand, the buyer may not be as critical of the deadline. It is important to note that this is an exercise in priority setting. Each constraint has a cost whether it is a priority or not. If time is not important to the buyer, it still is to the builder because of the interest carry on the work in progress and the opportunity cost of not beginning another project.

In regards to cost, is the budget fixed? In some cost plus contracts, quality is far more important than budget. In this case, the priority shifts away from cost and more toward quality.

Sometimes quality needs further definition. The builder may see quality as meeting all the spec’s and the scope of work. But are there unnecessary specifications that can be removed to reduce cost or time? Have spec’s crept into the project that the buyer is unaware of? These may establish room to reduce cost.
Once these and other probing questions are answered, there is a clearer picture as to the priority. Only then is the purchasing team prepared to set goals for maximum value accurately.



Testing Maximum Value

Armed with these priorities and a refined set of scopes and spec’s. the purchasing team must assess outside suppliers or vendors to ascertain that the builder has the best value and that transitioning from an existing vendor to a new one provides enough additional value to offset any switching costs. By following a systematic approach to bidding the work and evaluating the vendors, builders can expect far more reliable results. Reducing the risks of the new vendor inherently reduces the switching cost.




During the Phase Sourcing of the procurement process, the purchasing team focuses on three key areas, price, performance, and liquidity. By drilling into each of these areas, builders can be assured their new vendor is up to the challenge of their project.

Price is the dimension that most often receives the focus. But with a clear understanding of the triple constraint priorities for the project, the purchasing team can balance their efforts. Regardless of priority, the goal is to establish a bid that allows the vendor to make a profit and saves the builder money. Pricing is established according to a cost breakdown specifically set up for one scope of work. In this manner, all bids are received with the same parameters. By doing this work on the front end, precious time is saved after the bids are received getting to apples to apples.

Performance is perhaps the greatest overall factor in vendor selection. Custom home buyers don’t remember the additional cost or additional days of construction five years later. But inferior work is never forgotten. In addition, the vendor’s ability to master the builder’s unique requirements quickly is an important consideration in the decision process. To measure vendor performance, two different metrics are used. New vendors are required to submit references of work in progress and completed work. Clients are contacted and interviewed regarding specific key measures of performance. Vendors that have worked with NEMAsource in the past are benchmarked after each job they perform. This a running performance rating is maintained for each key measure. Finally, whenever possible, field visits and plant visits are arranged to assess the work itself and the vendors operations.
During the plant visit, NEMAsource meets with the vendor to measure their financial ability to accomplish the builders project. Considerations such as credit lines available, creditor references, number of crews, percent of capacity and work in progress are all considered.



By following this approach, builders can trust that when it comes time for them to make the decision to reduce cost by changing vendors, every effort has been made to reduce switching cost. The result is a projects with maximized value for all stakeholders. If you are interested in enhancing the value of your next project, contact NEMAsource today at 704-519-9841.

When is it Time to Pull the Trigger on Government Contracts

When it comes to construction entrepreneurs, and especially homebuilding entrepreneurs, there are two types "the quick, and the dead." Both interpretations of this quote are equally applicable. In the King James Acts 10:42 Jesus is depicted as the judge of the quick and the dead, that is those who are alive (quick) and those that aren't. In this case, the economy is the judge of the quick and the dead.

We will spend decades learning from the mistakes of those run bankrupt and the good fortune and wise direction of those prevailing in this economy. One of the common threads that will be found in those that survive is their flexibility, their ability to maneuver "quickly" which brings us to the second translation of the "quick and the dead." In swordsmanship as well as martial arts, the difference between emerging the victor and not emerging at all can be a difference in reaction time of milliseconds. Their success is also greatly attributed to the ability to follow a given set of standards while simultaneously being innovative enough that the opponent cannot predict their next move. If you watched Mariel Zagunis beat Sada Jacobson in the 2008 Olympic Sabre event, you could see how Zagundis invited Jacobson to attack by dropping her sword while simultaneously stutter stepping toward Jacobson. Jacobson held her sabre out in front while retreating as far as the warning track. Invariably, Zagunis scored a subtle touch in the side of Jacobson with such swiftness; it is hardly perceptible on slow motion replay. In order to remain among the quick, businesses must swiftly review their business plan (or write one) locating any weaknesses not shored up and exploring their strengths in the context of today's economy, not last years.

In other words, what may have sounded like a ripe market segment last year may well have dried up today. It may be time to look to use resources in normally unconsidered areas. Some contractors are leveraging their satisfied customers to secure renovation contracts. Others are pursuing other market strata altogether. One of the potentially overlooked possibilities may be government contracts. Of all the jobs a contractor has ever had to bid on, perhaps government contracts are the ones with the most detail going in. This can be good and bad. If your firm is used to bidding a homeowner's dream house at a nice round $xxx per square foot, the necessary details of bidding government contracts may appear intimidating. On the other hand, if you are capable of reporting your variance on any given job today, it may not seem like that much trouble. Here's a couple things to consider:

If you have never done work for the city, county, state, or federal government, you will need to get registered. Every entity has its own rules. But be prepared to answer a lot of questions about your finances, past projects, and diversity within your organization. Once you have registered, there is a (small) chance you may be contacted directly to bid on projects. More than likely though, you will need to find out where they post new opportunities and monitor the list yourself. Also, be prepared to buy bonds, not the good kind where you make money, but surety and bid bonds.

Next, the government loves small businesses (for most things). If you are a custom builder, you are most likely a small business. When you bid, there is a significant amount of small business recordkeeping involved. Remember to be diligent from the beginning of the process all the way through. The last thing you want is to lose a bid because govco asks for detail and you don't have it. Don't worry, they already have a form for everything. And in the spirit of efficiency and 21^st century technology, everything is hand written on photocopied forms.

The good news is low bid wins unless they get themselves disqualified. It is imperative to know and follow all due dates. For instance, if bidding on a project is due September 15^th and today is September 1^st, you may not even be able to bid the job because there was a mandatory pre-bid conference two weeks ago. The other good news is govco pays.

So if you are in the process of dusting off your business plan looking for answers, try googling small business and your municipality and make a few calls. It could be the start of a beautiful friendship.