Mt. Ogden Homes started out five years ago building a few homes a year. During the last few years, they have experienced rapid growth and expect to build 50 to 60 homes next year. Although the number of homes built each year has steadily increased, the company’s profits have seen little growth. You have been hired by the owner of Mt. Ogden Homes to help the company improve its profitability. In an interview with the owner, you have found out the following:
● Initially the company was managed by the owner. As the company grew, the owner hired his brother to oversee the construction operations while the owner continued to oversee the project development, marketing, estimating, buyout, and day-to-day operations of the company.
● To accommodate homebuyers, customize options are often included in the homes. Because of time pressures, the owner prices the options by making a best guess at to the cost of the option and adds 20 percent for profit and overhead. The owner has no idea if the company is making or losing money on the custom options.
● Often the homes are sold and construction is started before pricing has been obtained from suppliers and subcontractors. The subcontractors are hired and materials are purchased by verbal agreements. By the time the invoices are received, the owner often cannot remember the agreed upon pricing and the owner is unsure if suppliers’ and subcontractors’ invoices are accurate.
● The subcontractor invoices often contain additional costs for changes. The owner is unclear as to if: (1) the changes were ordered by field personnel, (2) the changes are being billed at the agreed upon price, if there was an agreed upon price, and (3) the changes should be passed on to the buyers.
● The owner is unable to determine which projects are profitable and which are not. Using what you learned in Chapters 1 through 7, recommend changes to the company’s practices to address these issues.