Variances eat your profits! They are a major reason for low profitability and can represent more unplanned costs than your net profit. When you plan a certain profit margin and you experience variances from the plan, where do you think the money comes from to cover the costs? Your profits!

Variances are exceptions to goals, objectives, plans, procedures, standard of performance, budgets, etc. Variances occur in the financial, scheduling, construction, sales, closing, customer service, procedural and quality areas, all of which affect your bottom line. You need to establish quantifiable measurement and reporting systems to isolate the variances so they can be analyzed and corrective actions can be taken to eliminate them.

This article will focus on construction cost variances, which are a major cause of profit erosion. A construction cost variance is an unplanned cost with no counter balancing revenue, such as, extra material, extra labor, rework, damaged material, theft, estimating error, and sales concessions. Change orders should not be considered a variance since they have counter balancing revenues. If included as a variance, it is hard to get the management team to really dig into the efforts to eradicate variances.

When preparing for the buyout or bidding of a project, there are several crucial tasks that must be performed. Plan review, refining the scopes of work, creating the material specifications, bid pricing documents, deciding what will be offered as standard options, setting up your purchase order database, establishing instructions to bidders and assembling the preferred trade partners list for bid.

In this fourth volume of "The Art of the Purchase," I address the importance of assembling your preferred trade partners list for bidding and awarding of contracts.

Your trade partners are the heart and soul of your company. They have the ability to make or break a project. They also are a direct reflection of your company. So when you are putting together your preferred trade partners list, there are several aspects that need to be looked at and other departments need to be involved besides purchasing.

Find the Right Partners

First, we want to look at finding qualified trade partners. This is not a one-time exercise but an ongoing endeavor and is everyone's responsibility, not just purchasing. It is recommended that you solicit three bids for each activity. If you do not currently have three trades in your system, there are several ways to find them. Networking is a great way to find these trades and by accessing the following should lead to success. 

When it comes to energy efficiency, builders today are definitely operating under different parameters than just a few years ago. While code standards in the past years have steadily driven energy efficiency, today's hyper focus and rapid regulation changes make for a completely different ballgame. Now, in addition to potentially overlapping codes and the Energy Star program (www.energystar.gov), we have the new Regional Energy Efficiency standards and HERS ratings (www.resnet.us/hers-index). While there are different schools of thought about which provides the best marketing advantage, no builder can ignore these programs - they're here to stay, in one form or another.

While first cost remains an important factor in what builders include in their new home designs, many have decided to differentiate themselves by offering energy efficiency as a comparative feature, similar to architectural elements. This isn't just because energy efficiency is government mandated, but because consumers are more aware of home energy efficiency, and in fact, it has become an element in their decision-making process.

Regardless of which program a builder chooses to focus on, Goodman is committed to providing them the ability to satisfy their HVAC system requirements at almost any efficiency level, and at a competitive cost point. Should builders need to go to a more efficient equipment to increase the efficiencies and related HERS ratings, or would like to offer additional up sell opportunities with indoor air quality components, Goodman's breadth and options in product offerings make it economically reasonable to do so. It's an advantage Goodman offers that should be in the consideration set of every builder.

Builders in residential construction can deliver more reliable, efficient and affordable home heating and cooling with Trane's newest innovation: TruComfort™ variable speed systems.

These state-of-the-art systems, featured earlier this year in the 2015 IBS New American Home, maintain a consistent inside temperature by making minor, continuous adjustments in run speed, rather than cycling completely on and off. Featuring a ComfortLink™ II Communicating Control Board with refrigerant-cooled inverter, Trane TruComfort systems provide continuous comfort within a half degree of the set temperature.

"Much like a car on cruise control, variable speed systems intuitively adjust to changing conditions-in this case, heating and cooling needs-so homeowners can enjoy consistent home comfort, says Matt Barga, portfolio leader, air Conditioners, furnaces & coils, residential solutions, Trane. "And because the system works only as hard as it needs to, it often works at lower, more efficient speeds."

Heat pump lowers speed to reduce cold spots

Variable speed heat pumps are able to slow fan speeds down as outdoor temperatures drop to reduce cold spots and use of supplemental heat. The XV20i Heat Pump is one of the industry's most efficient systems. With Trane TruComfort, the 20-SEER heat pump automatically adjusts itself while maintaining constant temperature.  

Your hard-earned reputation and your homebuyers rely on you to build with the best products to preserve the beauty and livability of the homes you build. Choose the superior performance of the TYPARŪ Weather Protection System, which includes TYPAR HouseWrap, flashings and construction tape, to help ensure that leakage in the building envelope will not end up as a callback.

TYPAR products provide the right balance of indoor comfort and energy efficiency while controlling the damaging impact of moisture intrusion. These products perform superbly with claddings such as brick, engineered wood, fiber cement, ventilated systems, vinyl, cedar shakes, stucco/EIFS and aluminum, steel and composites.

"From the roofline to the foundation, the TYPAR Weather Protection System is engineered to be a champion performer year in and year out. For builders, conversion to TYPAR products is easy," says Bijan Mansouri, technical manager for PGI Specialty Materials, which manufactures TYPAR products in the United States.