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 Management Workflow
For contractors to manage changes effectively, they must understand the entire change management workflow up through the project owner’s approval and payment process.
A Broader Definition of a Change on a Construction Project
The first step for contractors improving their management of changes on a project is simply earlier identification. This requires a better definition of what a change really is.
Changes - Problem or Fact?
If you perceive that changes are a problem in construction, then you are likely framing them as a point of blaming others. This framing will impact your ability to effectively manage changes.