How the Theory of Constraints Can Uncover the Missing Link in Your Investment Strategy
Unless you have a working corporation with employees, outsourcers, systematized operations, rules and regulations, you probably do not run your commercial real estate investing as a true business. Sure you have strategies and ways you like to do things, but are you truly maximizing your resources that can lead to bigger, better, and even more commercial real estate deals? Would you implement a system for every aspect of your current operations if it eliminated excess resources, maximized productivity, identified problem areas or constraints, allowed for those constraints to be corrected, and allowed for ease of communication and control of all those involved with your operations? I think you would.
A problem with many investors is that they do not view their process as a business. They do not have a company name or multiple teams working below them. They do not have business rules, regulations, checks and balances, or protocol for the people they work with. However, the truth is, commercial real estate investing, no matter how small, is a business all itself. In order to optimize this fact, one should follow proven business strategy that allows great companies to flourish with very little constraint or pain.
A very important theory that is used not only in business, but in science, politics, sports, and even everyday life is the Theory of Constraints. This theory literally transcends all boundaries as it is a scientific principle that can be applied to any relationship between two or more subjects. You have all heard of the expression, “You are only as strong as your weakest link.” This is in reference to the Theory of Constraints.
What is basically introduced is the concept that you can look at a process or relationship as a chain. One link to another, that chain is reliant on the strength of the relationship. If it is a process, and each link is a task, then each task must be working optimally so it does not weaken the chain. If one link becomes tired, lazy or behind, then the chain is all together weaker and ineffective at producing the result.
At any one time there can only be one constraint. You must tackle that constraint, and then another may appear. However, at that time, there is only one constraint to attend to. In order for a process or system to be working 100%, each link must be strong. If not, you suffer from inefficiencies; suboptimal performance and a complete slow down of the process.
Do you find areas in your business of commercial real estate investing that you are not pleased with? Are there areas you feel you and the people you work with and rely on could improve? Could wasted time be eliminated? What areas could you improve that would increase overall profitability of your commercial real estate strategies?
Within these questions you will uncover the areas where a streamlined process can greatly improve performance and decrease crisis and other problems. If your current strategy and processes are running at 100%- then there is no need to read this article. However, if you feel there could be considerable improvement, or even a small improvement that could increase your results exponentially, please read on!
If you have a reoccurring problem, you can create a system around it to alleviate the problem and have a working process to follow. With systems in place for every area of your business, you can identify the constraints. Constraints are identified by a build-up of resources where the weakest link can be found. At a certain point if the streamlined process gets slow, and the results are trickling through or you are behind on due dates, go to the place where everything starts slowing down. This is your bottle neck. This is your constraint.
At this time, you need to focus every ounce of energy you have in eliminating the constraint. Look behind the noticeable constraint as well- where was the source? It may not be where you think it is. Dig deep and find what really caused the chain to break.
By identifying the constraint in your process, it can be quickly remedied. You do not have to guess where the problem is or jump from crisis to crisis because you know exactly where the hold-up is.
So you realize the benefit of being implementing systems and finding constraints. Let’s look at how to actually create and implement the processes that will run your business.
Implementing processes and systems are the best way to optimize total performance. How this is done is you write down every single task within a certain boundary. For example, write down every task in creating the information packet to submit to a lender to get approval for a loan on a project. Write down every task for this specific process and then number them in how they follow in sequence.
Are there certain people involved who make this process happen? You may realize how you can cut out duplicated efforts, combine tasks into a single person who performs them, and completely streamline the process. What you do now is create a process map or flow chart showing the entire process from first step to last in the proper sequence.
Identify who does what task and any time allotments or due dates if necessary. You know have a tangible, easy to learn, communicate and control process for submitting a proposal to a lender for a new project. Doing this alone will allow others to follow along with your process and have a clear understanding as to what is supposed to be done.
Do you have protégés or other eager minds willing to help you in order to gain a valuable education from an experienced investor? Now you don’t have to worry about being the only one who “knows” the business. With a clear system and process map, you can now teach those around you the same, working, proven systems. With a process map individual tasks and relationships can be easily changed as continuous improvement is a benefit of process maps.
Do you see how process maps allow for easy identification of the constraints within your system? It is very powerful once you start thinking systematically and stray from the very often used “task by task” mentality.
If you truly want to be a successful, profitable commercial real estate investor, and a continuing improved and profitable investor, treat the investing as a true business with process maps, metrics and controls. It may take a little work to really streamline the business and create the processes from the current tasks being performed.
However, I am sure you can agree of the power this would have on your overall performance and profitability. Eliminate excess resources and duplicate efforts. Maximize total control and effectiveness of each task within the process.
If you feel that you can benefit from this type of systemization, I urge you to start today. Take a look at the big picture of what you are building and learn to optimize at every chance you have. The results can be astounding with just a little awareness as to how you are truly operating and performing.
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