How to protect your profit from construction project changes
December 12, 2019
Every construction project includes some element of change, so the better equipped a contractor is at project change management, the better they’ll be at mitigating risks to cost and schedule. Many companies have become proactive through value engineering and other cost-control measures, but still fail to protect their profit margin when changes occur at the jobsite.
While errors and/or inefficiencies during the estimating process are a frequent threat, additions to scope – e.g., having to perform unplanned maintenance during a shutdown, discovering unexpected obstructions during an excavation, performing additional work outside the project scope and so forth — are another common challenge.
Fortunately, today’s advanced productivity tools can help a contractor manage these common challenges through the daily tracking and integration of changes into the overall budget. This can be accomplished in four steps:
- Viewing project details as data
- Seeing project changes as data transfers
- Integrating cost, budget, schedule and field data systems
- Data synchronization
Viewing project details as data
Estimating takes into account the nuts and bolts of building a project. Therefore, quantifying the estimate at a minute level is a vital first step in managing change.
By having the necessary data, a contractor can fully utilize today’s estimating tools in determining how changes – or even a single entry of data – will ultimately impact downstream systems. Data should therefore be documented consistently throughout project execution in an electronic format and be easily migratable to other systems.
There are tools available that can compare current and original estimates, as well as current and original budgets, through every stage of the project. This enables a contractor to easily view the impact of changes on cost and revenue, and devise solutions earlier in the process.
Seeing project changes as data transfers
Once all project information is viewed as data, it becomes easier to see changes as mere transfers of that data. This can happen at any stage of the process, from estimating to execution. By using productivity tools, managers in the field can easily observe how these “data transfers” impact schedule and cost via a budget gain-loss analysis. This represents a powerful tool for bringing a budget in line and proper proper project change management.
For it to be successful, however, there should be a well-defined process for managing and documenting changes, as well as for informing the client of the impact of those changes. It’s also imperative that field personnel be aware of the process in order to better manage additions to scope during project execution, such as the logical management of project codes; field personnel should have no more than half a dozen codes to manage for their specific work area.
With such project change management in place, the project team can immediately execute changes upon receiving authorization.
Integrating cost, budget, schedule and field data systems
The integration of these data components across the entire project spectrum is essential to protecting profits, as a single entry can feed multiple downstream systems and enable a contractor to instantly identify and understand the impact of the change on the critical path and budget.
In order for the process to be successful, however, every activity should be linked to an account code and all components should reference those codes. Productivity tools also work best when they’re backed up by a process for approving changes that is well communicated and supported by leadership.
Time and money savings from data synchronization
Integrated systems provide vital efficiencies that preserve profit margins through the integration of costs, budget, schedule and field data systems for long-term projects.
As activities are tracked, cost escalations can be automatically recalculated, payment terms renegotiated, and so forth. There are other efficiencies to be realized as well – for instance, one of InEight’s industrial clients replaced its paper-based time sheet system with iPads. Not only was the data captured in a more timely manner, it was also more accurate.
Through the implementation of new procedures and processes backed up by modern productivity tools, an organization can more efficiently and effectively capture, manage and report changes. In effect, they can “stop the profit leakage” on their jobsites and focus their attention on other ways to improve.
InEight provides a full portfolio of solutions, including project cost management tools that address your most pressing capital project management changes.