Last month we laid out the big picture of how builders don’t understand their true costs. The tool presented here will get you started generating better numbers.
- The author’s On-Site vs Offsite Evaluator will help builders estimate accurate savings from the use of components.
- The spreadsheet includes columns for calculated and estimated numbers. The builder can get started with any data they have available, then refine the numbers over time.
- The spreadsheet also includes qualitative factors that, while hard to measure, positively impact cost.
In a recent article (see “Component Cost Savings Part 1: The Basics”, February 2025), I made the case that builders have taken a seriously limited view of the costs (and benefits) of on-site versus offsite construction methods, leading to highly inaccurate cost comparisons. The result has been a relatively limited adoption of offsite methods, even though many of those methods have a track record of more than 100 years.
I began thinking really hard about this during COVID. The kind of consulting work my company, TrueNorth Consulting, does with builders requires groups of people to work together in person, not online, for considerable amounts of time. Thus, for the first time in decades, I had time on my hands — or perhaps ‘on my brain’ is a better description.
I began ferreting out every important aspect I could regarding the measurement and impact of on-site versus offsite construction. The final list I generated came out of my then 30+ years of experience, as well as consultations with colleagues and online searches.
The list includes 26 elements that factor into the potential savings from switching to components. They’re included in the example On-Site vs Offsite Evaluator spreadsheet in this article.
I know what you are thinking: “That’s too many!” I felt the same way, but hard as I tried, I couldn’t pare the list. Review it and ask yourself this: if you want the most accurate possible information for decision-making, which factors can you say are not important? No one has yet convinced me to leave any out.
But here’s the good news. You don’t need cost data for every factor in order to calculate the true savings from offsite-built components. My model is a “buffet-style” approach that lets you start today with whatever data you do have, even if that data is partial and only estimated. Then you can grow the model’s accuracy as you collect more accurate numbers.
Let’s look at the example. The spreadsheet is for a company called Alpha Homes. The home in question is a two story, 2500 sq. ft. Ashley model. The spreadsheet includes all 26 elements, which are arranged in three columns, from left to right.
- Category 1: Actual Savings. These are elements for which you have hard data.
- Category 2: Estimated Savings. Hard data isn’t yet available for these, but you’re able to estimate their impact fairly accurately.
- Category 3: Favorability. These qualitative elements are hard to quantify, but you know they offer savings and are a net positive.
Note that some elements appear in more than one category.
How to Use the Spreadsheet
The use of this tool will help you begin estimating the savings you will realize when switching from site-framing to components. You can start using it even if you haven’t built with components: just fill in the fields using the best available data. Then add more accurate numbers as you get them (which you will have after building a few projects).
To see how this works, let’s look at Labor and Materials, both of which appear in Category 1 and Category 2.
The Category 1 number for Materials can be calculated from your supplier’s quote. In this case, the components will cost $2533 more than the standard lumber package you’ve been using.
You might be able to get numbers on labor savings from your current systems, or you could use data from another company that’s building similar products to yours and whom you trust, such as a member of your Builder 20 group. These will be your most quantitative factors. In this case we see a labor cost savings of $3248.
When we move to Category 2, we see a small cost increase for each of these two elements. These could be likely numbers for additional materials and labor for MEP work, which the builder estimated after talking with its sub trades. Once a few projects have been completed, the builder will have hard numbers and can move them to Category 1.
It’s important to be careful and to always check exactly how the data was gathered and calculated. When working with builder clients, we frequently find data that’s based on bad assumptions or that has been deliberately manipulated. Two tools for generating good numbers are the TrueNorth Saved Day and Cycle Time Calculators, which I will detail in a subsequent article.
If you have no data, real or estimated, for a specific line item, you can leave it blank for now. The model won’t crash, it just won’t be a complete picture yet.
Qualitative Factors
Now let’s look at Category 3, Favorability, in which you give each element a +/- rating from -5 to +5. As mentioned above, these are things that are hard to quantify.
For instance, you may not be able to calculate the cost savings from improved safety or a cleaner jobsite, but you know they are net positives. If you think that the use of components will justify giving them a higher score, that’s one more thing in components’ favor.
For example, this builder gives site cleanliness a +3 and weather impact a +2. They have no hard data, but their experience tells them that with less days working on-site and less material sitting around, the site will stay cleaner, and weather will be less of a factor. Both are definite positives and cannot be overlooked in the evaluation.
This builder’s Category 3 column also shows a slight negative impact on Trade Relationships and Zoning/Inspection. Over time, they hope that both of those will move to positives, but they know that adopting a different approach to building will require them to help trades and inspectors adapt.
This builder gave neither Quality nor Theft any impact, but from my experience, both will become positive over time. Theft might even evolve from Category 3, a simple favorability rating, to Category 2 showing good enough numbers to provide a reasonably accurate savings estimate.
Another interesting one is Safety & Risk. It’s nearly impossible to measure upfront, yet it is logical to assume fewer man hours and less sub assembly of pieces and parts on-site will reduce risk. If you start tracking workers comp costs for key trades, you’ll likely see the impact within a year. For now, however, a definite favorable assessment is appropriate.
Getting Good Data
The result here is very much a “living model” that allows you to evaluate cost savings based on the quantitative and qualitative factors that you find most appropriate in your current position in your local market. Even if you can only have four or five of the factors in each category to start, you are far, far ahead of the approach taken by most builders.
In my next article, I will take a detailed look at how to use the Saved Day and Trip Cost Calculators, and how they provide critical data for the template.
After that, I will also have a package of all three of the templates to send to you, with instructions on how to use them. Feel free to make your requests now by email to [email protected]. Please put “Templates” in the subject line and let me know who you are, who you are with and why you are interested in tools for measuring, thus more fully understanding the costs and benefits of offsite construction methods.
Perhaps you will become part of the revolution required to make real the productivity improvements so desperately needed in our industry.
Scott Sedam is Principal of TrueNorth Consulting, MiTek Service. Scott founded TrueNorth 26 years ago following nine years as an executive with a top national builder. The TrueNorth team has worked with more than 300 builders in five countries, and Scott is a well-known writer and speaker at conferences and company events. Please join Scott’s “LeanBuilding Group” on LinkedIn and learn more about TrueNorth services at www.truen.com.
Photos courtesy MiTek
