How to Double Operating Income Using the Last Planner® System

Learn how to double operating income using the Last Planner® System in this Q&A with Tom Richert of Rising Terrain hosted by Katherine Van Adzin, a construction technology expert.

Q&A with Tom Richert of Rising Terrain on the Last Planner® System

Katie Van Adzin: You’ve said that successful Lean construction practices, particularly including the Last Planner® System, can help a builder double their operating income within six to 18 months. How can they achieve such a big increase in such a relatively short timeframe?

Tom Richert: There is an important condition that comes with that assertion. Companies must be disciplined about their approach. It’s not something where they can just flip a switch. They have to skillfully develop their capabilities for using Lean practices. The first thing that is going to give them the opportunity to double their net operating income is profit velocity. If the same people managing the work can generate the same amount of profit in less time—increasing the speed at which you earn profit from a project—they are contributing to a significant increase in net operating income.

Consider the team that can finish a project in eight months that, before adopting Lean practices, they would do in 11 months. That team is available for three additional months that the company can apply to another project and generate additional income. Half or more of an increase in net operating income could easily come from just increasing profit velocity.

Many project teams have achieved this level of schedule savings. So, while this standard of savings is not groundbreaking, it requires discipline and focus to achieve this level of performance on every project. It cannot be something a company achieves on a project here or there because some project teams will not adopt Lean practices. You need the entire company to be delivering projects far faster.

Katie Van Adzin: Have you seen companies that you’ve worked with be able to do this?

Tom Richert: It’s challenging to authentically adopt Lean company-wide. Publicly acknowledged or not, many companies have left field teams to decide whether or not they want to adopt Lean. On a project basis, we’ve seen teams that have recorded as high as 30% savings in time. And that’s not unusual. There are plenty of other coaches that’ll tell you similar stories. To achieve that across the board, on all a company’s projects, you’re going to have to have senior leadership take a Lean approach more seriously than many have.

Katie Van Adzin: It sounds like consistency is key here.

Tom Richert: Consistency, focus, and a desire to stick with the continuous improvement mindset. Leaders need to cultivate that mindset throughout the entire organization. Where it’s happened, you’ll find project teams hungry to keep raising the bar on their own performance. You’ll have individuals on that team leading others to higher levels of performance. You can’t assume you’re going to have those people on all your projects. Leaders have to actively cultivate that mindset across all project teams, and internal support teams.

Katie Van Adzin: And when one team has done it, they’re likely able to mentor others within the company.

Tom Richert: That would be the ideal, and there are companies that attempt to do that. I’m concerned that it does not happen very often. Unfortunately what is common, from a senior level CEO or COO, is a hands-off approach. Some feel that if they provide teams with “here are these Lean tools,” they have done their job. But to achieve results that significantly increase a company’s profits requires much more focused attention from these senior leaders. It’s going to involve some time. The payoff is there, so it’s not a big ask for the good of the company. Arguably this focus needs to be one of their primary jobs as part of improving the health of the company.

Katie Van Adzin: Among companies that have attempted Lean improvement and Lean transformation, many of them use boards and sticky notes and other physical implementations of the Last Planner System. What drawbacks have you seen when companies take the physical approach?

Tom Richert: Well, on a project of any size, there are more real activities happening than you can place on a board. Physically, the space for those sticky notes just isn’t there. And I’ve seen project teams even try to make their own smaller sticky notes, but you could easily have 250 to 300 task commitments every week. The discipline of even writing that many sticky notes is challenging. And the look-ahead plan can also have hundreds of tasks. Teams are not going to be able to achieve the visibility into the work for the week and following weeks that would be necessary to see and manage task commitments.

Katie Van Adzin: And, similarly, many companies that try to implement Lean and Last Planner do it via Excel if they’re attempting it digitally. What problems do you see for project teams that are trying to do this in Excel?

Tom Richert: It just takes a lot of time. For a long time, that was really the best option, because Excel at least was a format that allowed Last Planners to input a thoughtful plan and send it in to the superintendent’s team. Then somebody on the team needs to compile all of it into a single spreadsheet. With a weekly work plan that has 250 tasks planned by 15 different Last Planners, that’s a lot for somebody to have to copy and paste all that information onto a single spreadsheet.

And then you must have uniformity, in terms of making sure everybody’s using the same template and they’re coding work locations the same way, so you can easily analyze the plan. For a long time, that was the really the best solution. You could at least create a plan that everybody could access, you can print the plan and post it. You had a portable reference document.

Katie Van Adzin: When companies are looking for a different digital solution or platform for project planning, what features or capabilities do you suggest they look for?

Tom Richert: That it’s very straightforward and easy to use for the foreman, that it really focuses on weekly planning and daily commitments as part of that weekly planning, and that the daily check-in is streamlined. If you think about a really healthy weekly work plan, there’s just a lot of data, so there has to be a simple way to put in that information, see it, and then make adjustments in the daily huddle when you need to.

About Tom Richert

Tom Richert is principal of Rising Terrain, a coaching practice that equips enterprise and project teams to magnify their impact through higher levels of performance. He is a team culture workshop provider for national conferences organized by the Lean Enterprise Institute, the Lean Construction Institute, and Lean Frontiers. Tom’s work with Lean principles began in 2000 when he led the implementation of them on two New England building projects, resulting in his designing and delivering company-wide Lean training workshops. The experiences and insights from his 2017 workshop with leading Lean practitioners and a group of artists are documented in his book, Lean Conversations: The Energy of the Creative Ethos in Your Life and Work, with a foreword by John Shook.

He is a regular contributor to the Lean Enterprise Institute Lean Post, the co-author of papers addressing Lean topics published by the American Association of Civil Engineers and the International Group for Lean Construction, and has lectured to graduate classes at the University of California Berkeley, Loyola University New Orleans, the University of Massachusetts Amherst, and the Wentworth Institute of Technology in Boston. He is a Lean Summit workshop facilitator, a member of the Lean Construction Institute (LCI), and has presented work at past LCI annual conferences.