Managing change orders is important, starting day one of every project.
Imagine you have accounting records, and you know how much money you started with at the beginning of a project, and you know how much money you ended up with, but you have no way of knowing how you got from point A to point B.
Realistically, change orders are the progression and the path of your project. Having change orders in place instills process through the approval and creation of change orders. It also creates history and tracking that you can use for analysis and control of your project while it is in progress.
This is really an educated guess, but my gut says that integrators not managing the change order process properly, are losing between 5% to 10% of margin. Brad Dempsey, Solutions360 CEO
There are two types of change orders: Contract Change Orders (CCOs), and Internal Change Orders (ICOs).
- A Contract Change Order is also often referred to as a customer change order because it is customer-facing, and it’s something presented to the customer. It may be that it is not even a financial change. It could be an equipment change. It could be a scope change, but you do need some kind of documentation. And you need to understand if that change has any financial impact on the project.
- An Internal Change Order, on the other hand, is always priced at zero because if there is any kind of change in price, it really needs to be customer-facing. So internal change orders are used by, typically, engineering or the project manager to say, “We didn’t estimate enough labor. We missed a part.” Or maybe there’s a placeholder for a part. When you’re engineering a project, you might put in display of generic type. And then during the project, as you engineer it, as you do more work, you give it a specific part and model number.
Who should and shouldn’t be processing change orders?
What problems arise when the right people aren’t processing them?
Listen to the podcast for all this and much more!
The Navigator Podast: Best Practices for Managing Change Orders