In our past two blogs in our 2020 Digital Construction Playbook series, we’ve discussed construction documents and RFIs. Today, we highlight a topic that can bring even more frustration, delays, and overruns than the previous processes combined. Described by ConstructionDive as a “necessary evil,” today, we’ll take a look at how firms can create a winning digital strategy to mitigate and manage change orders.
New to our series? For the last few weeks, we have been rolling out a new deep dive on one of the seven key performance indicators (KPIs) crucial to project success. So, why are we focusing on these select seven topics? Last year, Autodesk and Dodge Data & Analytics surveyed hundreds of construction professionals to identify and analyze current processes for planning and executing projects. The study revealed these seven key activities companies are using to benchmark their overall performance. If you’re interested in learning where your company currently stands, don’t forget to take your free Construction Health Check – a 15-minute assessment essential to finding out where you stand before you start crafting your digital strategy.
Are you ready to learn how your company can create a winning digital strategy for change orders in 2020 and beyond? Let’s explore.
The Current State of Construction Change Orders
No one is a fan of change orders. First, they are expensive. By some estimates, they can increase the price of a project by up to 10%. Change orders also waste time, with an estimated average of 30% loss of productivity. As anxiety-inducing as these figures are, they, more importantly, signal why making any improvement to change orders can save significant time and money.
But first, let’s go over the results of the report when it comes to our third essential construction KPI: documenting change orders. The Dodge study identified that the collection and documentation of change orders, including turnaround time, root cause evaluation, and schedule impact, were crucial for project performance.
So, how are construction firms measuring up when it comes to documenting change orders? Take a look at these baseline statistics from the report:
Most construction professionals are capturing the basics when it comes to change orders. In fact, 72% of respondents report they are capturing the root cause of the change order. While this information is notably crucial to document, far fewer (47%) construction professionals are capturing critical benchmark data like the impact the change order had on the start, finish, and turnaround times of the project. Beyond that, trade professionals are 10% less likely to capture and collect data on change orders than general contractors. Furthermore, the Dodge study revealed that large companies (defined as greater than $100M) capture critical change order information at a frequency 10% less than small companies (defined as less than $100M in revenue).
Data Is Left on the Table
Since more than half of construction professionals are not capturing start, finish, and turnaround times of change orders, this means there’s a ton of valuable data not being digitally documented. For general contractors, analyzing data from change orders can help them assess the performance of their project team, including their trade contractors. Over time, with consistent and comprehensive data capture for change orders, they’ll have more insight on how to select the best specialty contractors for the job, reducing overall risk.
Nevertheless, many of the respondents are fully aware of the missed opportunities of not digitally and comprehensively documenting critical information in the change order process. In fact, 69% of general contractors who rarely (on less than 25% of their projects) collect change order information feel like if they were able to do so more frequently, it would help them gain a deeper understanding of the issues impacting their project delivery process.
Lack of Resources
If contractors know they will benefit from improving data collection in the change order process, why is there not more consistency and adoption across the board? The answer comes down to the fact that many companies are strapped for resources.
According to the Dodge survey, 40% of contractors indicated the top obstacle to collecting and recording more change order data was that it was too time-consuming.
Another 22% of contractors said they simply didn’t have an easy way to do it. In addition to dedicating more resources, contractors need to look towards optimizing processes and adopting tools to improve the efficiency of change orders across the board.
Essential Strategies to Improve Construction Change Orders
Across the construction industry, project risk is increasing – whether due to adversarial contract structures or project delivery methods that leave the General Contractor with the highest risk. Timelines are becoming tighter, stakeholders are adding more pressure, and both materials and labor costs are increasing. While it’s incredibly challenging to avoid change orders altogether, especially owner requested changes, a simple but robust data management system can help minimize the impact of change. Below, we’ll discuss how to create both a digital defensive approach from the project outset that can potentially help prevent changes from occurring by identifying risk earlier in the project, as well as an offensive strategy that focuses on how efficiency can help manage changes and improve documentation when they happen.
By identifying and removing some of the barriers mentioned in the report and industry findings, there are opportunities to improve and fine-tune current processes and create a winning digital strategy for managing and documenting change orders in 2020.
- Reduce Change Orders Overall
- Enhance the Change Order Process
If collaboration is not strong in the design and preconstruction phases of a project, it could easily translate to significant, and even potentially avoidable, change orders down the road. Teams that take a siloed and fragmented approach during the start of a project, risk missing errors in the bidding, estimating, and design collaboration phase which could be addressed upfront, before a shovel hits the ground.
Particularly when designs involve complex systems, bringing teams together takes an enormous effort. Nonetheless, bringing more people together at an earlier phase, with a strong focus on preconstruction, can firm up designs and identify constructability issues before the build phase of the project begins, helping to prevent errors and omissions. Team members to consider involving at an early phase can include suppliers, contractors and subcontractors, project board members, lead consultants, (owner representatives?) and even end-users of the project in sectors like education and healthcare.
Of course, project delivery methods (including integrated project delivery and design-build) can help set collaboration standards at the start – as teams are contractually encouraged to align more closely. Nonetheless, cloud-based software is essential to supporting digital collaboration in construction. Better yet, choose software platforms that are not only cloud-based but are also purpose-built tools to connect data across the entire construction lifecycle. By adopting tools that align with the concept of “connected construction,” project teams can insure themselves against the loss of critical data that can result in rework and change orders.
As many change orders result from low worker productivity and human errors and mistakes, it’s critical to hire the right team for the job to reduce them overall. Subcontractor prequalification plays a huge role in reducing project risk overall. While many firms hire subcontractors based on previous relationships or the lowest bid, it can expose a project to a great deal of risk down the road. But by utilizing prequalification software, contractors can quickly and effectively assess a subcontractor’s financial condition, safety record, and insurance coverage – all factors that will influence risk and potential change orders once construction begins.
Of course, utilizing building information modeling (BIM) in the design phase provides more accurate visualizations before building begins, thus reducing change orders overall. BIM integrated tools provide better data, which enables project managers to better predict how changes will affect the overall project. In addition to having complete designs and coordination upfront, utilizing advanced takeoff software can help ensure accurate estimations from the start, reducing change orders involving pricing.
Furthermore, when BIM models can be brought into the field once construction begins, teams can execute with even more precision reducing the chances of clashes and mistakes. While changes that occur during actual construction will be significantly more expensive than in the design phase, BIM can help provide a more accurate analysis of the total impact.
Change orders are addendums or amendments to the original scope of work, price, and contract. Without a contract, change orders simply do not exist. In the original contract, requirements for change orders are established, including the required time period of starting a change order, who the change order should go to, in addition to the documentation required.
Thus, establishing a foundation of standard processes and documentation starts upfront in the contract. With everyone (contractually) on-board, this will provide the fuel needed to set up the required digital processes.
Successful change management is often a decision making process. With more information and data available, project stakeholders are better able to minimize the cost and schedule impact when a change order occurs. Cloud-based document management adds visibility and accountability to a project. It also enables companies to easily capture more data while avoiding the manual tracking of change orders via Excel, email, and paper. When change orders are based in a cloud-based management system, documentation is available instantly to anyone who needs it and speeds up the spread of information to ensure maximum efficiency.
Like we mentioned above, the adoption of connected construction platforms also facilitates better communication across the board. This ensures that everyone is up to date on the latest developments, and the latest project information does not slip through the cracks. If a change occurs, all members of the team are alerted and can participate in the discussion, thus preventing miscommunications or missed information that can lead to even more project delays.
For forward-looking teams, when documentation is comprehensive and comes from a single source of truth, it improves their ability to manage future change and consequential costs. Companies that use multiple disjointed applications for managing their data run the risk of missing important information. But when all information is available through one organized source, project managers can see the total of data available and make informed decisions based on that information. For the data to be made available to project managers, everyone must use the same software to share their information. In our previous post, we provide some guidelines on selecting and trialing the right technology.
Effective change management is also a matter of practice. Construction companies that continually standardize practices that emphasize the consistent and frequent capture of critical project information can have the potential to systematically reduce the number and effect of change orders in every job. Having standards that all project members adhere to has proven to make the process both faster and easier. When workers know exactly what to do and have the right technology and templates to execute, documenting change orders becomes second nature. Companies that best handle change order management are companies that have ingrained digital standards and practices into every employee, at all staff levels.
Before all else, establish a template for all project change orders. This will ensure all project team members are documenting change orders from the start, with correct and relevant information such as root cause, turn around time, etc. Beyond that, the consistent documentation will allow teams to leverage this data in the future to assess performance and efficiency.
Automated Standard Workflows
As mentioned, a lack of resources is a primary barrier to documenting change orders. But once a standard change order process has been established in the contract, teams can utilize project management technology to automate change order workflow for more efficiency. With the right technology, teams can use their template to generate a standard format for change order distribution (including pricing, request, and approval processes). Change and cost management software can also help teams estimate the cost impact of a potential change order (PCO) as well as streamline the approval process with automated notifications.
Next Up: Schedules
We hope you found our second deep dive for our Digital Strategy Playbook series on change orders useful. Next up, we’ll dive into the next key performance indicator essential to construction success–schedules. We’re always open to feedback and suggestions on this and other blog posts. Have something to share? Add a comment below!