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Identifying, Managing Risk Key to a Builder's Success
With the risks assumed by home builders growing and their projects becoming increasingly complex, gut instinct may no longer be enough to ensure success, according to experts at FMI Corporation.
A properly structured and consistently executed GO-NO-GO decision process, FMI advises, can add tremendously to the success of a firm’s strategy for determining which projects hold the most promise and the highest return for the risk assumed.
With corporate offices in Raleigh, N.C.; Tampa, Fla.; and Denver, FMI Corporation is the nation’s largest provider of management consulting and investment banking to the construction industry. It is also a member of the National Council of the Housing Industry — The Supplier 100 of NAHB.
The ability to choose projects that are aligned with both the core competencies of the business and the demand of the region has become one of the hallmarks of the profitable builder, according to consultants at FMI, and builders need to recognize that walking away from the wrong project can be just as important as pursuing the one that is right.
Risk identification and the subsequent management or mitigation of these risks has become a focal point for leading home builders around the world, says FMI, as investors and developers seek to minimize construction risk exposure via onerous contractual arrangements.
FMI says that builders can gain a clearer basis for their decisions by developing a GO-NO-GO framework around a comprehensive list of project risk attributes that is coupled with a cash-flow model and an efficient simulation.
As the residential construction industry continues to evolve significantly and swiftly, the GO-NO-GO process can help builders apply their expertise in identifying, pricing and managing risk, FMI says.
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