The Crimson Press Curriculum Center

First Page and the Assignment Questions:
In early December 2006, Harry Hepburn, president of the Southern California Division of Robinson Brothers Homes, was faced with a significant challenge. The markets his division served had slowed considerably. To sell its homes, the division often had to make significant price concessions. But construction costs were continuing to rise, so margins were getting squeezed. It was clear that the division was not going to achieve its 2006 sales and profit plan. But what was worse, corporate executives were recommending a significant downsizing of the division in 2007 to wait until the housing market rebounded. Harry resisted this idea. He thought he had assembled a great employee team. The division's performance had been outstanding during the good years in the early 2000s. He wanted to keep his team intact. But that required finding a continuing stream of good projects for them to work on.

One promising project on the horizon was called Platinum Pointe. It was a large project that promised to provide over $100 million in revenue and nearly $14 million in profits in the 2008-2011 time period. It would keep a lot of employees productively busy. Harry really wanted to do the project. However, the financial projections suggested that the project would not quite earn the returns that the corporation required for projects with this level of risk. He contemplated preparing projections that were a “little more optimistic” to ensure that the project would be approved.

THE COMPANY

Robinson Brothers Homes (RBH) was a medium-sized homebuilder. The company built single-family and higher-density homes, such as townhouses and condominiums. By 2006, RBH built almost 2,000 homes per year. Because it was much smaller than the largest homebuilders who had economies-of-scale advantages,1 RBH focused on building higher quality/higher price homes for first and second move-up buyers. In 2006, the average closing sales price for an RBH home was slightly more than $400,000.

RBH's stock had been traded publicly since 1995. The company had been highly profitable throughout the past decade, but finances were expected to be much tighter in 2007 because of the home-building slowdown that had started in early 2006. The stock price had declined almost 50% from the all-time peak in 2005.

RBH's organization was comprised of a headquarters staff located in Denver, Colorado, and 15 divisions located in most of the metropolitan areas of the Central, Mountain, and Southwest areas of the United States. The headquarters staff was small, comprised mainly of specialists in the areas of finance, accounting, legal, information systems, sales and marketing, and customer service, and their staffs.

Assignment

1. Evaluate Robinson Brothers Homes' land acquisition process. What suggestions do you have for improving it, if any?

2. If Harry Hepburn adds “a little optimism” to his projections, is he acting unethically?