Kaplan University MBA, Measurement & Decisionmaking

1. Business Structure &
Recommendation for Improvement
Catherine J. Tedrick
November 23, 2010
GB519-02: Measurement and Decision Making
Professor Crystal Gifford
Kaplan University

2. About MC Construction
 MC Construction Consultants, Inc.
develops, designs and builds custom
homes in Western Washington.
 The company’s primary market niche
is building high-quality, custom built
homes in exclusive communities for
high-end homebuyers.

3. Customer Service
 MC’s greatest strength is personally
taking each homeowner through
every phase of their project.
 They customize a design to fit their
customer’s lifestyle and budget while:
 Coordinating with their financial
institution to handle financing.
 Professionally managing the project.
 Offering a complete warranty and
priority service plan.

4. Balanced Scorecard Evaluation
 MC’s Balanced Scorecard reflects a
healthy company that is financially
sound and customer-driven.
 The following perspectives were
examined:
 Financial
 Customer
 Internal Business
 Learning and Growth

5. MC Perspectives
 Financial
Internal monthly and published
consolidated quarterly reports
are created.
 Customer
Customer satisfaction is a huge
factor since MC’s business is
largely driven by referral.

6. MC Perspectives (continued)
 Internal Business
The company developed an internal
business process for addressing
factors that have the greatest
impact on customer satisfaction.
 Learning and Growth
Employees hired for specific
positions are required to have
certain experience and education.

7. Critical Success Factors and
Company Performance
 Financial
 Working together with customers and
subcontractors is vital in creating a smooth
building process.
 They stand behind their work, offering a
complete warranty and priority service plan
on every project.
 Customer
 MC’s professional staff are experts in the
important areas of design, estimating and
customer service.
 Communication is vital during the
construction of a custom home.

8. Critical Success Factors and
Company Performance (continued)
 Internal Business
 MC has a successful process for tracking
account codes for each project.
 The Project Manager develops the
budget and all costs then enters all
budget codes into the system to be
monitored and updated by the
accountant as work progresses.
 Learning and Growth
 Being a relatively small, family owned
and operated business, little resources
have been put into learning and growth.

9. Projected Earnings
 MC offers complete homebuilder
services for projects priced between
$350,000 - $500,000.
 On average, the company has
10-12 projects going at once.
 The annual amount of work
completed by the company is nearly
$5 million.

10. Significant Costs
 A 12 percent gross profit margin is built
into the budget but fluctuates based on
how closely supplies and labor cost are
in line with the initial budget.
 For a typical home built by MC that sold
for $425,000, about $106,250 went for
construction labor.
 If, hypothetically, wage levels rose by a
third, that would add around $2,500 to
the cost of the typical house.

11. Nonfinancial Measures
 The following nonfinancial measures
evaluate the company’s level of
productivity and its relation to profitability:
 Quality
Production staff maintains a focus on
quality in design, selection of
suppliers/contractors, supervision of
work and warranty care.
 Environmental
MC has very good systems in place to
deliver products and services.

12. Nonfinancial Measures
 Productivity/Efficiency/Timeliness
 Critical to the construction industry, this
requires management of variables as
well as customer expectations
 Marketing Effectiveness
 Marketing strategies include reliance on
word of mouth fostered by maintaining
relations with prior customers through
extended warranty care and through the
typical mediums.

13. Significant Issues
 Though MC has an effective and efficient
budgeting, tracking and accounting
system, putting effort into growing
employees and improving internal business
processes must be addressed.
 The company needs to invest in knowledge
and job growth of key staff that are
promoted into management positions, but
have very little managerial experience.

14. Significant Issues
 MC discovered through the Balanced
Scorecard that their Internal Business
environment is directly tied to learning and
growth of managers and supervisors.
 There is a disconnect between doing the job and
understanding processes necessary to be
productive, efficient and cost effective.
 Managers must understand how the company
processes billings, works with clients, markets
the product, and achieves its mission.

15. Decision Alternatives
 MC Construction has three options for
addressing the issue of inexperienced
and untrained supervisors:
1. Status Quo
2. Grooming
3. Manager Training

16. Decision 1: Status Quo
 The company can continue to handle
this situation by addressing each incident
separately as they arise.
 Advantage
o Though the estimated cost per year to the
company for site supervisors and managers
errors due to lack of training is $6,000, this
option could be more cost effective when
compared to the other two options.
 Disadvantage
o Poor leadership and costly mistakes continue
to happen.
o Preventable discipline issues; cost overruns
and incorrect paperwork; and employee
turnover continue to happen.

17. Decision 2: Grooming
 Develop program that gives all employees a
basic foundation for the goals and mission of
the business; what each department does;
and how each effects the other.
 Advantage
o More cohesive workforce that feels
connected to the company on all levels.
o Better prepared for job growth and larger
pool for management to promote from.
 Disadvantage
o Estimated total cost to the company would
be $15,945.60:
– $7,700 for all 22 employees to attend a two-day
training at $350 per employee.
– Time loss cost of $8,245.60 based on an average
salary of $187.40 per day.

18. Decision 2: Grooming (continued)
 Offer an additional advanced project
management and supervisory skills training for
employees showing leadership potential.
o The estimated total cost to the company for
this option would be $5,311.
– Estimated total cost of$2,500 for five employees to
attend an additional three day training at $500 per
employee.
– Time loss cost of $2,811 based on the same salary
average.

19. Decision 3: Manager Training
 Provide training to managers by one
of these methods:
1) Train all managers – new and longtime; or
2) Just train new managers as they promote in.
 Advantage
More professional, knowledgeable managerial
staff with a better understanding of their
important role in the organization.
 Disadvantage
The cost to provide management training is a
significant factor in the decision.
o Estimated cost for five-day management training
for all seven managers is $7,000.
o Estimated time loss cost based on an average
salary of $229.17 for five days is $8,020.95.

20. Payoff Table
State of Nature
Strong Weak
Decision Alternative
Owner Support, s1 Owner Support, s1
Do nothing – status quo, d1 6 16
Groom employees for advancement, d2 15 5
Train newly promoted managers, d3 8 3
Expected Value (Cost to Company)
With an initial subjective probability of .8 that support for the option will be strong
P(s1) and a corresponding probability of .2 that support will be weak P(s2), the payoff
values were used to compute the expected value (cost to company) of the three
decision alternatives:
EV(d1) = .8(6) + .2(15) = $7.8 EV(d2) = .8(15) + .2(5) = $13 EV(d3) = .8(8) +.2(3) = $7

21. Decision Tree

22. Recommendations
 Propose changes in two perspectives:
 Internal Business Process perspective
Cost of the project’s direct impact on the level of
operating efficiency and reduce unnecessary
administrative and labor costs.
 Learning and Growth perspective
Invest in knowledge and job growth of key staff
who are promoted into management
positions, but have very little managerial
experience.

23. Recommendations
 Train all new managers as they promote.
 Give new manager tools and knowledge to be
successful.
 Lower employee turnover.
 Offer career development training
for all employees interested in job growth
within the company.
 Have a holistic view of the company.
 Better prepared for positions that open
in the future.

24. Resources
Balanced Scorecard Institute. What is the Balanced Scorecard? Retrieved from
www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard
/tabid/55/Default.aspx
Kaplan, R., Norton, D. Value Based Management. Retrieved from
www.valuebasedmanagement.net/methods_balancedscorecard.html
Jackson, S., Sawyers, R., Sweeney, D., Anderson, David. Managerial Accounting
and Statistics. Chapter 2: Performance Evaluation Using the Balanced
Scorecard, pp44-46
MC Construction Consultants, Steve Yester, Chief Financial Officer; Leanne
Yester, Financial Controller, MC Construction
Consultants, Inc., www.mcconstruction.com