Soon after transitioning from cost-plus pricing to a fixed-price system, Art Stinson's Trace Ventures ran into trouble with slippage. Stinson says the Nashville, Tenn., company was mired in a cost-plus mentality that allowed for imprecise estimates, and unforeseen costs (if they weren't due to a Trace mistake) were being passed on to the homeowner.
To help reshape that way of thinking, Stinson has begun giving his entire staff greater involvement in setting budget and performance goals. For example, everyone on the production team now contributes to the estimate. “We want our in-house professionals to have an opportunity to say, ‘Hey, we don't think we can do that in this time frame,'” Stinson says.
He also requires that each employee account for his own labor budget. “Everybody who has a task, whether it's building a fence or building a cabinet, is responsible for knowing how much time is budgeted for that task.”
In addition, Stinson allows for more in-house financial transparency. The result is that Trace employees see how their individual performances affect the bottom line and, consequently, the success of the company. They are more motivated because their goals are clear — everyone knows exactly what is required to hit bonus goals.
Since Stinson began implementing the changes, slippage has been reduced to almost nothing, and Trace has become adept at hitting its target dates with precision. “I want this to be an employee-based company,” he says. “They have to be empowered to make or break it.”