Change orders, commonly known as variations, are an unavoidable aspect of any construction project. This article aims to provide asset owners and investors with practical insights on effectively managing project variations. By understanding how to handle change orders, you can maintain financial integrity and ensure the quality of your construction project while navigating the complexities that these changes bring.
Understanding Variations (Also Known as Change Orders)
Variations, or change orders, refer to modifications made to the original construction contract. These adjustments can arise from various factors, including:
- Design Modifications: Changes initiated by the client or design team can lead to alterations in the project scope.
- Unexpected Site Conditions: Unforeseen circumstances such as extreme weather, poor soil quality or hidden utilities can necessitate changes in construction plans.
- Shifts in Client Requirements: Evolving client needs or preferences may require adjustments to the project’s original specifications.
Understanding the nature of these variations is essential for effective management. Acknowledging that variations are a normal part of the construction process helps set realistic expectations and prepares stakeholders for potential challenges.
Strategies for Managing Variations in Construction Projects
Managing variations is a critical skill that can significantly influence the successful completion of construction projects. If not handled correctly, variations can lead to increased costs, extended timelines, and strained relationships among stakeholders. Implementing effective strategies can mitigate negative impacts and uphold project integrity. Here are key strategies for managing variations efficiently:
Establish Clear Communication Channels from the Start
Open communication among all parties is vital for addressing potential variations proactively.
- Align Expectations: Ensure that all parties involved—contractors, architects, and owners—have a shared understanding of how changes will be managed throughout the project lifecycle.
- Formalise Processes: Develop structured communication protocols for submitting, reviewing, and approving change orders. This approach helps prevent delays and misunderstandings that can arise from informal communication.
- Encourage Early Discussions: Promote discussions about potential variations as soon as they are identified. Early engagement minimises surprises later in the project and fosters a collaborative atmosphere.
Include a Contingency Fund in the Initial Budget
Incorporating a contingency fund into your construction budget is a proactive strategy for managing unforeseen changes.
- Financial Cushioning: A well-planned contingency fund, typically ranging from 5% to 10% of the total budget, acts as a buffer against unexpected costs that may arise during construction.
- Use The Fund Mindfully: Just like a well-planned emergency fund, reserve the contingency fund exclusively for legitimate changes in scope rather than using it to cover poor planning or mistakes made earlier in the project.
- Regular Reviews: Continuously assess and adjust the contingency fund throughout the project to ensure it remains adequate for any emerging challenges.
Thoroughly Evaluate the Impact of Each Variation
Before approving any proposed variation, it is crucial to assess its implications on finances, timelines, and quality.
- Comprehensive Assessment: Conduct a thorough evaluation of the cost, schedule, and quality ramifications associated with each change order before proceeding with approval.
- Cost-Benefit Analysis: Weigh the benefits of implementing the variation against its potential impact on the overall budget. This analysis aids in making informed decisions that align with project goals. A Client-Side Project Manager is skilled at this.
- Engage Key Stakeholders: Involve your designated representative or project manager and financial team in discussions regarding variations to leverage collective insights and ensure well-rounded decision-making.
Implement a Formal Change Order Process
Establishing a structured process for handling change orders is essential for maintaining control over your project.
- Defined Approval Process: Ensure that every variation adheres to a formal procedure that includes comprehensive documentation and cost assessments. This structure helps maintain clarity throughout the project lifecycle.
- Stakeholder Sign-Off: Require all relevant parties to approve any changes related to scope, timeline, or budget. This practice promotes accountability among stakeholders and reduces potential disputes.
- Maintain Transparency: Keep detailed records of all approved variations to ensure clarity and traceability throughout the project’s progression.
Work closely with a Client-Side Project Manager
Engaging a Client-Side Project Manager, also known as an Owner’s Representative, may seem like a significant investment in the beginning, but the value it will bring to the table far surpasses the cost. Furthermore, they possess expertise in the construction industry, backed by appropriate licenses and extensive experience in managing variations effectively.
- Expert Guidance: An experienced Client-Side Project Manager provides strategic insights that help navigate change orders while keeping costs under control. Their expertise ensures informed decision-making at every stage of the process.
- Proactive Identification: A skilled Client-Side Project Manager can identify potential variations early on and manage negotiations with contractors to mitigate financial impacts before they escalate.
- Focus on Your Core Business: Outsourcing this key responsibility allows you to focus on your core business while maintaining control over the inevitable changes and variations to your project.
Why Work with a Client-Side Project Manager?
Managing variations effectively requires a multifaceted approach that includes clear communication, establishing a contingency fund, thorough evaluation of impacts and implementing formal processes that can all be made easier by outsourcing project management services and professionals.
By applying the strategies mentioned above and meticulously implementing them to your project, Project Owners and investors can navigate change orders smoothly, ensuring that their projects remain on track both financially and operationally.
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