In capital projects, the cost of a project is determined by its scope as defined by the requirements and specifications developed by the owner. But scope can and often does change in the early stages, even well into execution, which can affect quantities. As quantities change, project costs do, too. Just how much is the question.
It’s that uncertainty that can have implications for planning and budgeting. Lack of visibility into the when, why and how of these changes impedes everyone’s ability to effectively address them so they don’t risk negatively affecting the project.
The first step in controlling quantity changes is to understand the factors that cause them. These range from internal to external factors and can include scope or design changes, material shortages or delays in delivery, labor shortages or delays in hiring, changes in labor productivity due to weather or other natural phenomena, and changes in material costs due to price fluctuations.
Controlling these triggers isn’t always possible but managing the resulting quantity changes is. Understanding this is important for capital project owners because it can impact overall cost and schedule performance. These are some best practices that can help you do this.
Start with centralizing all cost data in one digital location
Keeping all cost information in one cloud-based digital repository that everyone can access from anywhere is the first step in effective quantity change management. It gives you a single source of truth from which to track and manage costs — and associated risks — throughout the life cycle of your project. When a quantity change is made that affects unit pricing, having access to this current cost data reduces the risk that errors will occur when estimating associated costs, which helps protect your margins and preserve the budget.
Document and track quantity changes and their anticipated financial impact
Documentation helps keep quantity changes under control, but only if it’s done consistently and within the single digital location. It starts in the design and planning phases through quantity takeoffs as labor, materials and equipment resources are determined and workflows are plotted out. These quantities then help feed the list of necessary resources for procurement to secure.
For as complicated as capital projects are, changes are bound to occur that will require quantity adjustments once construction begins. As they are updated within this central repository, resulting variances between planned and actual costs can be calculated using the earned value management (EVM) method. You gain visibility into how they’re adding up and impacting your overall project budget.
What if you’re looking for more predictive modeling as part of your quantity change management? Running EVM using “what if” quantities — whether anticipated or hypothetical — can forecast their potential cost impact. This proactive measure gives a basis to decide whether to plan around the change and avoid any adverse effects or, if it’s not required or necessary, to not move forward with it.
Communicate quantity changes in real time
Another way to manage these changes? Share them with key stakeholders, including procurement, as they occur. The most efficient way to do this is through online dashboards. Having access to trending and real-time cost impact of quantity updates puts more control in the hands of owners and contractors. With that control comes better-informed decisions — whether determining where additional budget will come from or how to reduce costs elsewhere — that can help rein in runaway costs that can jeopardize the project.
If quantity variances exceed a predetermined threshold, usually expressed as a fixed percentage, a change order may be needed. Depending on the terms of risk ownership outlined in the contract, either the owner or contractor may assume increases in costs incurred by the approved change order.
Adopt software technology and/or intelligence-based practices
You have several options to help you understand and curb quantity changes and their financial impact.
- Use construction-specific software. While standard computer spreadsheet programs might help to record and track quantity updates to a degree, they’re not the most efficient. Using something industry-specific delivers the capabilities that make the above best practices possible — automatically calculating quantity changes and their resulting variances and processing change orders. Integrated platforms, in particular, go a lot further by connecting project data, including quantity-change-related, for better risk management, decision making and collaboration, and delivering the higher project certainty owners are looking for.
- Adopt advanced work packaging (AWP). This construction-based approach to project planning improves how capital projects are planned and executed by chunking work into much smaller increments along a timeline, with each work package outlining the exact labor, material, equipment and information resources it needs. This results in a more precise inventory list for procurement — with estimated quantities being closer to the actuals than without using AWP — which minimizes the likelihood of changes.
- Implement building information modeling (BIM). What if you could explore design options while corresponding material quantities immediately adjust so you could see the cost impact of each option? This is just one of the benefits of using BIM for quantity change management. This 3D modeling process is unique in that it stores all the data for each element within the model, including cost data. As changes are made to materials and their quantities, they’re automatically recalculated and inform a more accurate quantity takeoff.
Yes, changes are inevitable in construction. But by improving quantity change management, projects have a better chance of keeping costs in check and remaining on budget. Want to learn more? Schedule a consultation to learn how you can gain more insight into and control over how quantity changes impact your projects.
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