Change Order Profit Improvement

A 10% improvement in change order pricing for a $50M per year contractor will add $500K to their bottom line.

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The average construction project has about 10% changes, so improvements of just a few percentage points in pricing can make a huge difference to contractors. 

Change Management: Changes - How Much Profit Improvement?

This is not about simply marking up the change more, but rather, including the many costs that are typically missed or undervalued:

  • Accurate labor burden costs, including premium pay. 

  • Indirect labor costs, including safety equipment, consumables, small tools, etc.

  • Company owned equipment rates and operating costs.

  • Commodity materials that are often missed during pricing of changes. 

  • Field supervision and project management time.

  • The right labor production units based on the conditions of the change, including impacts to other work.

  • Productivity impacts for shift work, congested work areas, or overtime. 
     
  • Extended general conditions on the project if the change delays the schedule.

Beyond knowing how to include these costs into the change, it is important for the whole project team to master the art of effective negotiations to not only improve pricing, but also speed and customer satisfaction. 

How much could your change management processes be improved? How much is that worth? 


Change Orders
Change orders are a fact of life in construction. Improve profitability, cash flow and customer satisfaction by effectively managing changes. Build a foundation for success with 12 steps to improve pricing and 11 negotiating strategies for the whole project team....

Related Training
Change Orders
Change orders are a fact of life in construction. Improve profitability, cash flow and customer satisfaction by effectively managing changes. Build a foundation for success with 12 steps to improve pricing and 11 negotiating strategies for the whole project team....

Change Order Management Funnel
Managing changes effectively means that you need clear visibility across all projects. While the workflow will vary by project, the key milestones in your internal process will remain fixed.
Two Planning Dimensions
Some of the impacts you see on a project are not as clear as a design change, conflict, or obviously changed condition. Some impacts, such as poor project sequencing or congested work areas are hard to notice if you don’t have good tracking systems.
Changes and Cash Flow Improvement
Construction is a cash-intensive business and change orders are often one of the root causes of poor cash flow. A 30-day improvement to change management workflow can generate over $400K in additional cash flow for a $50M contractor.