Change Order Profit Improvement

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

D. Brown Management Profile Picture
D. Brown Management
March 12, 2019 2 minute read
change management financial management foreman training project management
Share

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....
Previous Next Go To Series
Related Insights Series
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....
Previous Next Go To Series
Related Insights Series
Change Orders and Average Cost Impact to the Project (Industry Survey)
Changes are a part of the construction process with many underlying causes. While we have all heard the average of 10% changes on construction projects, it is interesting to look at an industry study for validation.
Related Article
Changes - Impacts Beyond the Direct Costs
Contractors don't typically see the full negative impact of changes and, therefore, don’t put the right level of resources into their management.
Related Article
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.
Related Article