Homebuilders urged to use scenario-based five-year business plans

Scott Cox, writing for HousingWire, argues that five-year business plans in homebuilding should be designed as thinking tools rather than rigid control documents. He suggests that these plans help businesses understand the consequences of their strategic choices, such as capitalization needs, staffing, subcontractor capacity, and market conditions.

Cox shares two practical tests for effective plans: keeping key outputs to a single page and maintaining a separate assumptions page to facilitate scenario changes. This approach allows businesses to adapt their plans based on evolving market scenarios rather than sticking to fixed budgets.

He recounts attending a business plan meeting for a multi-region homebuilder division where the return on assets for year five was poor. This prompted a deeper discussion about deal size, type, organizational structure, and capital requirements, highlighting the importance of focusing on long-term strategic issues rather than just next year’s goals.

Cox notes that while short-term results are somewhat fixed, the bigger strategic questions should guide planning discussions. However, he observes that when plans are due for consolidation and external review, they often receive only minor adjustments, potentially undermining their usefulness as scenario-testing tools.