An investigation of management practices used in small-volume home building companies of the United States

The literature is replete with ratio-based accounting models that attempt to diagnose the past and current health of home building companies based on the analysis of financial statements. However, to date, no studies have been discovered that identify specific management practices as nonfinancial predictors of profitability in home building companies. This dissertation not only seeks to explain significant correlations between specific management practices and the profitability of small-volume home builders in the United States, it also represents the first major effort to benchmark management practices in those companies. Based on input from industry experts, a comprehensive list of management practices was narrowed to about 50 specific practices considered to be the most important for successful small-volume home builders. A questionnaire was then developed to measure the level of use of each management practice and to facilitate the statistical analysis of correlations between the practices employed and company profitability. The questionnaire was mailed to 1,112 randomly selected members of the National Association of Home Builders reportedly producing 11 to 25 homes per year. More than 475 companies responded to the survey. Four statistical tools—step-wise regression analysis, correlation coefficients, discriminant analysis, and chi-squared analysis—were used in this study. The conclusions from these tests indicate that only a few of the management practices tested correlated significantly to the profitability of small-volume home builders for the reporting period. The findings show that companies focusing a good portion of their sales on speculative construction and companies utilizing professional real estate brokers to help sell their products tended to be more profitable than companies not doing these things. Several other management practices described in this study showed promise for future research, but it was determined that they could not be considered statistically significant. Owners were also asked to list in priority order the five things that contributed most to the success of their respective companies. Owners reported that they felt factors such as quality construction, honesty, integrity, and good communications with owners and subcontractors were more important to the success of their businesses than many of the management practices targeted in the study.