BLDG4006 Modern Construction Enterprises
Your Assessment 1 will consist of the following:
- One Mini-Case Study – 5 Questions
- One Annual Report Summary – 5 Questions
- Weeks 1 through 4 Content – 20 Questions
CRITICAL: Please read, review and note take both the case study and annual report summary before undertaking this Assessment. Once you open the test you will have 75 minutes to answer 30 questions.
1. One Mini Case Study – Dann Electrical Contractors
Michael Steele is a middle-aged chief executive of an electrical contracting firm. He is growing their business with the help of a majority stockholder, Persevere Capital Management. They recently purchased the firm and have brought in Michael to make the business an elite one in strategy and operations and as a result, increase its profit and organisational value. Michael is unusual in his background and credentials as a contracting executive. He holds a PhD in construction management and has been in the business since his teens. He loves the business, its people and its nature. He feels it is the best industry of all. It is obvious to him in many ways. For example, 1) craft skill is rewarded 2) competitors make basic mistakes leading to a greater competitive edge 3) High volume is not needed to be highly profitable 4) The business will never be exported overseas. There are several more.
As the new Managing Director of Dann, he has slowly understood the firm’s unique characteristics due mainly to the people, past and present, whose decisions and culture have become policy and procedure. He is now trying to unwind some of those policies and guidelines without causing too much disruption.
His area of focus is the accounting and financial management functions. There are several industry-standard methods and others unique to Dann that Michael wants to change. He has done much work in “best practices”. He believes that the first rule of best practices is that there are few in construction. Most people, including management consultants, use the term loosely and never have done data-driven research to correlate them. The term “best practices” sells seminars, consulting and books. There is a great incentive to use the phrase and none to make sure that they are.
Michael has researched best practices as part of his PhD dissertation and in their 5-year stint as a management consultant to construction contractors. As a result, he was able to gather much data through clients. Although the data and its statistical analysis will never be shared with anyone else, he has proven to himself what a beneficial technique is valid or, as he terms it, “good operating practice”.
The statistical analysis that Michael undertook correlated practices with a firm’s overhead/direct cost ratio compared to its peers. This proved to him that many methods were indeterminate and the rest were “predictors”. What was important to him is to know what added or did not add to a firm’s efficiency, i.e., how much overhead is needed to manage direct cost.
The direct cost to overhead ratio is a compelling metric. If a firm’s ratio was higher than its peers, it has been the best chance of making a higher-than-average profit. Additionally, he knew that comparing a net profit number would be misleading since many firms use tax-saving strategies to lower their tax bills. As a result, some numbers do not reflect the robustness of a firm’s system and operations, a.k.a. profitability.
There are three current issues in finance and accounting with Dann Electrical: 1) The use of an overwhelming number of cost codes. 2) The format and calculations on job cost report 3) The complicated process of paying supplier invoices 4) The number of separately printed reports.
The previous owner of the construction firm relied heavily on the company’s CFO for advice and counsel. Why not? The person is a CPA, originally from a large public accounting firm and has a sharp mind. Therefore, tighter and more invasive accounting processes were enacted over the years. Some were good and some were not in Michael’s view. However, their research and client work made it clear that financial and accounting practices have no significant impact on a critical metric: overhead to direct cost ratio – an efficiency metric. Michael believes what is important is that the accounting procedures are accurate and timely.
So, Michael believes that this will not be a quick and radical transformation. Too many people involved in a complex process. How should he frame his thinking and process?
2. One Annual Report – Simonds (Simonds Group Limited)
- Strategy: Diversification has been a key strategy. Our focus has always been on putting families into homes. -p3
Over the past 12 months, the Simonds Group have progressed our strategic plan to reshape the business. We redefined our core purpose, reset our strategy and ensured the right structures were in place to achieve these goals.
Our strategy.
The Simonds difference is our ability to influence two critical enablers that are our two core business units:
- Simonds Homes: Providing access to affordable homeownership; and
- Education: Our registered training organisation, Builders Academy Australia (BAA) assists people seeking qualifications to enter the building and construction workforce or advance their careers.
- Work Acquisition:
A Heritage of Leadership.
Diversification has been a key strategy. Our focus has always been on putting families into homes. In the last 12 months, we have expanded what this means. We launched Start Point, we added to the Simonds Homes range and we started affordable housing projects with governments in South Australia and Victoria. In FY20, we recorded 2,395 housing starts and anticipate growth into FY21. Due to our continuous focus on innovation and diversification, more people than ever will live in a Simonds home.
From the more than 50,000 Australians that live in their dream Simonds home; the 6,000+ contractors that build these homes every year; the suppliers that have supported us for decades; our shareholders that have invested their funds believing in our brand; and the 800+ staff that call the Simonds Group home, the Simonds family goes far beyond those carrying the family name.
In FY20, this growing Group also includes the expanding number of tradies educated through our building and construction courses, and for the first?time government and affordable housing residents that are experiencing the design and build of a Simonds home.
Agile Response.
Pleasingly, the alignment of the executive team, and agile response to these challenges, have enabled the Group to finish the year in a positive position as we have continued to deliver a number of firsts:
- Winning our first contracts to build government housing in South Australia and Victoria.
- After becoming the first volume?home builder to be fully certified in Quality, Safety and Environment, achieving accreditation under AS 4801 Safety, ISO 9001 Quality and ISO 14001 Environment in 2019, we have maintained that status.
- BAA launched a number of new training products that supported learners with business-to-business arrangements and also began delivery to international students.
- The decision to partner with children’s cancer charity My Room, and as the first home partner for the rebadged “Home for a Cure” annual initiative.
- Prior to the pandemic, BAA launched live online and self?paced learning and so were amongst the few able to ensure no disruption to learning programs.
Core Purpose.
Our core purpose continues to focus on maximising the strength of the Simonds brand to become a leader in Australian home building and be recognised for the high?quality craftmanship and the good?value homes we build.
We do this by working in partnership with key land developers, leveraging our supply chain to meet the market in terms of product mix and innovation in the key growth corridors of major Australian cities across the east coast and southern Australia.
- Project Operations:
What does Simonds Group Limited do?
Simonds Group Limited is a locally owned public company, deriving revenue from the design and construction of houses, land development, and the provision of registered training courses. The company employs approximately 780 people, operates in Victoria, Queensland, New South Wales and South Australia, and is administered from its head office in Melbourne. Simonds Group is listed on the ASX under the code SIO
Simonds Group Limited – Products & Brands.
Simonds Group Limited operates in the areas of design and construction of residential dwellings, the development of residential land, and the provision of registered training courses. The company operates through two business divisions:
- Simonds Homes: This division is engaged in the construction of residential and display homes, land development and sales. Simonds Homes offers a range of different home models, as well as house & land packages.
- Builders Academy Australia: This division operates as a nationally accredited Registered Training Organisation that provides building and construction courses in Victoria.
- Financial and Taxes:
The financial results for the year, which are laid out in detail in this report, show that EBITDA was $31.5 million (FY19: $23.2 million) and NPAT from continuing operations was $7.1 million, down $4.6m on FY19 due to the impact of the lower sites starts and the investment made in developing and marketing new business channels.
- Human Resources:
We also have a commitment to investment in people and maintaining the highest standards of safety. The Simonds team have shown exemplary commitment and has worked way and beyond normal expectations during trying and difficult times.
- Delivering the best education.
Young people coming into the residential building industry are able to come through BAA to upskill and become better tradespeople.
- Safety first.
We have continued to strengthen our safety, environmental and quality management systems. The primary objective of our safety program is to recognise safety as a core value across all areas of the business, and it results in positive safety culture and a healthy, engaged workforce. Our safety management systems remain highly visible across the Group and we continue to strive for improvements in safe work practices.
Safety.
Simonds continues to improve its safety performance. ISO 9001, ISO 14001 and AS4801 certification in the areas of Quality, Environment and Safety were all retained. Simonds remains the first and only national residential volume builder to hold all three standards. Simonds has maintained a strong commitment to its safety values along with the health and well-being of its employees and contractors.
Construction—People.
Efficient construction is driven by two key drivers – the people that enable the construction, and the structure that enables them to operate efficiently. In the 2020 financial year, we have focused on getting the right people into the right positions. We provide on-the-job training for all new starters to ensure they succeed in their roles. This is exemplified by the many staff that have been with us for over a decade. This continual attention to professional development is a benchmark that we strive for.
Construction—Structure.
In terms of structure, we have now completed the alignment of the team structure for both Construction and Maintenance where they now align with Sales and Operations. This has allowed us to consolidate teams across all regions and realise teamwork synergies to improve delivery, quality and customer service. The right people, empowered in the right way, deliver benefits to the entire organisation but importantly ensures our customers receive the best products and service every time.
Staff training and development – Builders Academy Australia.
During COVID?19, staff were also offered training opportunities and over 150 Simonds staff have signed on for leadership training for 12 months providing them with a Diploma of Leadership and Management. This training and skill development will continue to aid in the improvement of technical quality and leadership ability of the Simonds team and support the Group’s growth over its next stage of business operations.
- Sustainability:
Sustainability.
By working continuously with our suppliers, we are able to ensure our building materials are sustainably sourced, with our key material suppliers obtaining the relevant accreditations for their respective industries.
All timber sourced is AFS or FSC accredited and materials such as steel and concrete contain significant recycled content. Recycling is also a key focus at Simonds with many recyclable products being separated from general waste. Examples of this are brick, roof tiles and plasterboard.
Quality always counts and we value our suppliers’ initiatives with respect to sustainability, safety, materials sourcing and people management within their businesses.
The decision to partner with children’s cancer charity My Room, and as first home partner for the rebadged “Home for a Cure” annual initiative.
- Supply Chains:
Suppliers.
Many of the suppliers to Simonds have been our partners for decades. These supply relationships range from small local businesses to large multinationals. Our procurement process has delivered on cost reductions throughout FY20 through improved supplier arrangements and a willingness to work together on more efficient processes that deliver mutual benefit.
We have sought to improve processes through streamlining products and services, with an increased focus on standardisation of our practices nationally. Because of this, we are seeing improvements in construction outcomes that ensure consistency and margin stability.
- Digitalisation:
Digital transformation.
The COVID?19 pandemic has fast?tracked the digital transformation of our business. Simonds Group pivoted from an operational perspective with more than 800 staff working from home. This period has opened our eyes to other ways to sell beyond the traditional display house and sales consultant. We pushed the transformation of our sales approach, as we identified online and virtual avenues for homes to be sold. Online engagement with buyers looking to build their homes, and with people seeking qualifications to enter the building and construction workforce has shown the potential for the future of our Company.
Builders Academy Australia.
Simonds is uniquely placed as the only National volume builder with its own Registered Training Organisation (RTO) that offers qualifications to the broader building sector.
Before the COVID?19 physical distancing requirements came into effect, BAA had already introduced varied online delivery options including a live and interactive Virtual Classroom model, as well as a self?paced online delivery model. These introductions supported growth across different student cohorts and geographical locations. As COVID-19-related restrictions came into place, BAA was able to scale the offerings of these online models, resulting in minimal disruption to learners and continuity of training delivery.
- Experienced 300% growth in apprenticeships and doubled EBITDA year on year.
- More students graduated during this year as compared to previous years including an increasing number from NSW and Qld (approximately 20% of total students).
- Research and Development:
Design.
Simonds Homes has innovated and responded to the changing needs of the market. We have grown significantly by increasing the design portfolio to deliver more options to prospective homeowners. This includes 48 new designs for Simonds Homes in two ranges – Simonds Home Range (25) and Simonds Metro Range (23); 9 designs to launch the Precinct Terrace Range of a medium-density product suitable for city fringes. The Simonds Homes range also had a Specification restructure to be in line with market needs.
The ranges now offered by the Simonds Group include Simonds Homes, Metro, Start Point, Precinct, SimVesta, Masterpiece, Limited Edition and Xpress. This year also saw us progressively release Start Point and Xpress ranges in NSW, Qld, and SA in addition to Victoria, so more people can access Simonds’ design quality.
Partnering with governments in South Australia and Victoria has led to us delivering spaces that encourage positive and healthy living that the Simonds brand is known for, applied to DHHS housing and the NDIS. We are now on the Preferred Builder Panel for future DHHS work.
Over the past 3 years, we have continued to lead, innovate, diversify and respond to the market. Across each range, high design standards and liveability make each product desirable to prospective owners.
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