How Change Order Management Impacts Projects and Estimates

Effective change order management is crucial for construction success, as it directly impacts project timelines, budgets, and client relationships.

As every contractor knows, change orders are inevitable; It’s just part of the construction process.

Although some might see a change order request as a sign of a mistake, this is not always the case.

According to an AIA research analysis, on average, 1.7 change orders are filed over the duration of smaller projects, while larger projects average 11.8.

Even though mistakes in estimating and planning may lead to change orders, the more common culprits for COs are:

• Shipping delays on materials
• Severe weather delays
• Unforeseen site conditions
• Labor disputes

Change management will always represent an inconvenience to both contractor and client, but they don’t have to send your construction projects spiraling out of control: they can be managed.

Effective change order management can lead to strong stability in projects and accurate estimating. And estimating software can be the way to help you achieve this.

So don’t underestimate the power of change orders. Once you stop seeing them as just a disruption, they can be managed as a tool and leveraged to your benefit.

Here’s how.

Key Takeaways

• Contractors should have a full understanding of what change orders are and how they should be processed to effectively manage them. 
• To avoid disputes and project delays, contractors should implement a set standard for processing change orders, as well as communicate clearly with clients and maintain detailed recordkeeping.
• When contractors manage change orders effectively, they protect every aspect of their project, from having a paper trail for defense in disputes to learning from prior changes to aid future projects.
• Contractors can use change order management as a way to assist in estimating by keeping accurate historical records to see trends, analyze costs, and create more informed estimates.
• Construction estimating software can help contractors manage project change orders and enhance their estimates, with the use of high-tech tools, like automation and real-time data tracking.

The Ins and Outs of Change Order Management

First, let’s start by establishing the basics of change order management. Once you understand what change orders are, they will be easier to manage.

What are Change Orders?

Change orders are formal alterations to a construction contract due to client request, unforeseen circumstances or mistakes in project planning.

These changes directly impact the scope, schedule and cost of a project.

For example:

While excavating a site, a crew discovers unexpected bedrock, requiring them to purchase a larger hydraulic hammer to continue the project. Since it was not identified in the initial survey and estimate, a change order must be completed.

What is the Change Order Process?

The process begins with:

1. The contractor identifies the need for the change order.

• • As in the example given above, specialized equipment, additional labor and schedule adjustments would be needed.

2. Once the need is identified, the original contract must be reviewed.

• • This ensures all parties are aware of what must be altered to accommodate the change order.

3. Next, an official change order proposal must be submitted.

• • There are a variety of change order request documents, such as:
    • Construction Change Directive (CCD) – A written order by the owner to the contactor, for changes where the details are still in negotiation.

• • • Architect’s Supplemental Instructions (ASI) – A document issued by the architect to the contractor to clarify specific details.

• • • Request for Information (RFI) – A document issued to collect information from potential vendors to compare products, services and costs before a decision is made.

4. After reviewing the request, all parties involved must reach an agreement.

• • This includes the project owner/client and contractor and in some cases, subcontractors and vendors.

5. Once the change is approved, the contract must be updated.

• • After the language and prices are approved, work can resume.

6. Finally, you must document the change order.

• • All details and timelines for project changes should be logged, providing a paper trail to prevent any further disputes or miscommunications.

Although these steps may seem simple, they can often become complicated, depending on the reason for the project change and how effectively it is communicated.

Often, change orders in the construction industry can significantly alter a project scope and/or budget, causing confusion and a scramble to get the project back on track.

If contractors aren’t careful, disorganized variation orders can add to the mess, creating a web of contradictions.

This is why clear communication is key.

Best Practices for Change Order Management

The best way to manage changes in a project and prevent any confusion, mistakes or delays is by:

• Establishing a clear change order process

Create standards that you will consistently follow between all change orders, assigning roles and responsibilities to specific employees, so there is never any confusion about how they should be processed.

• Maintain detailed documentation

Keep thorough records, like a change order log. The more baseline control that you have, like using the same document format, the smoother they will become. So, if disputes do come up, you have the documentation to back yourself up.

• Communicate effectively

Everyone should stay in the loop when it comes to project changes. Keep your project stakeholders informed and engaged, with open and clear communication, so no one is ever surprised.

• Take advantage of estimating software

Recordkeeping is key, but when it’s done manually, it can be almost as ineffective as not doing it at all. Human-error can lead to miscalculations, missing items, confusion and delays.

With estimating software designed to handle change orders, the change control process can be streamlined with automatic recordkeeping, real-time tracking and template generation.

This ultimately saves you valuable time and money and shields you from mistakes.

Change Orders Are a Necessity, But They Don’t Have to Be a Burden

Most contractors would tell you they hate having to submit change orders. And likewise, most clients would say they hate receiving one.

BUT they are vital pieces of documentation that form a reliable paper trail that protect owners and contractor alike.

Imagine if they didn’t exist!

Construction projects would be in chaos, running way over budget and schedule, with constant disputes. The owner-contractor relationship would quickly fall apart.

Even though variation orders tend to disrupt projects, when organized and processed well, they can work in your favor.

Supporting Project Management

Even a small change can trigger a domino effect that can branch out into any aspect of project management.

From crew scheduling and vendor purchases to estimating and budgeting, project changes can severely disrupt nearly every aspect of a project.

Effective change management can protect you from this fallout. When managed appropriately and streamlined with the aid of advanced estimating software, change orders prevent severe disruptions on current and future projects.

Imagine that a construction project is like your body and variation orders are like the white blood cells that help heal it. Inevitably, you will get sick. And while you might get a fever, the white blood cells will help eliminate the illness and build immunity for next time.

In the same way, change orders can be a headache, but when properly managed, they can serve as a risk management tool and help prevent the need for future changes.

Staying One Step Ahead on Estimates

Accurate change orders are crucial for accurate estimating, such as in budgeting.

They directly affect a project’s final budget, so having a good handle on them can help you in the long run.

If you have an effective change order management system, you can create and submit the changes alongside estimates for a quick turnaround, with no confusion or conflicting requests.

Additionally, having an accurate record of change orders can help contractors identify patterns that may aid in future estimates and contract management.

This data can be used for cost analysis and justification, enhancing your cost estimates, which could ultimately help you win more bids.

Using Technology for Change Order Management

Even when a strong system of documentation and communication is implemented for variation orders, you might find that manual methods of tracking are too impractical.

That’s where estimating software can help.

With a centralized system, change orders can be created, submitted, reviewed and approved with ease, all while being kept in one accessible location. And historical data can be stored and accessed with ease, boosting your estimates.

Invaluable tools like automation help speed up the process and reduce the need for manual efforts, like duplicate data entry, so the possibility of estimating mistakes is severely reduced.

Change order templates can be created, saved and modified as needed, allowing for consistency and speed. A change order template can include information like:

• Project title and address
• Contract number
• Owner details
• Change order number
• Change order date
• Change order description
• Reason for the change order

Integration with neighboring systems, such as accounting, can build a strong connection between administrative systems, further reducing errors and delays.

And contractors can use construction estimating software to track variation orders, costs and project schedules in real-time, empowering you to make the most informed and effective estimating and project management decisions.

Don’t Sweat it With The EDGE®: Change Order Management and Estimating Software

Although change orders can be painful, they are a critical element that keeps a construction project healthy. An effective change management process is essential to keep projects stable, but it can also offer great benefits to project management and estimating.

By accurately recording and communicating changes with project owners, contractors can mitigate risk, protect budgets and schedules and enhance future project planning.

By taking advantage of estimating software, you can boost your change order management into the stratosphere. If you think you are ready to take that leap, The EDGE is designed for just that, as an industry-leading construction estimating software.

With The EDGE, you can have access to features like:

• Custom in-depth reporting
• Comprehensive trade-specific databases
• All-in-one estimating and takeoff
• Mobile project management and estimating application

To learn more, contact a specialist today!