Introduction to Change Orders
Construction change orders play a critical role in the success of construction projects. While change orders can be difficult to track and handle, a clear and efficient change order process can help you manage your construction projects more efficiently overall.
Without proper management, construction change orders can lead to budget overruns, timeline delays, and strained relationships with owners, subcontractors, and other stakeholders. Our blog will help you navigate the complexities of change orders and manage construction projects with greater efficiency.
What is a Change Order
A change order is a change management document that addresses any change in the project scope, detailing what needs to happen, how much it will cost and when it can be expected to be completed. Change orders often include adjustments to the original budget to accommodate additional materials and labor and may also include changes to the original completion schedule.
Change orders can also be used to clarify inaccurate drawings, to fix issues that arise if materials are late or subcontractors are unavailable, or if site conditions like weather keep the project from proceeding as expected.
Why do Change Orders Matter?
Construction change orders are more than just paperwork. They are the foundation of successful construction projects. These modifications to the original project plan can have a significant impact on project budgets, timelines, and the overall success of the project. Without proactive change order management, projects may face unexpected disruptions and difficulties. It’s important to put in place an easy to understand change order process as an integral part of construction project management.
Here are 5 Best Practices for Efficient Change Order Management:
- Add Change Order Detail to the Contract: Write a clearly defined process for submitting change orders (and receiving payment!) in the contract so that all parties understand and agree to the process.
- Track Change Orders: Keep a record of all change orders so that you have written backup in the event there is a dispute in the future.
- Include Direct and Indirect Costs: Ensure your change orders clearly lay out both direct costs, such as new materials, as well as indirect costs, like changes to the project delivery schedule.
- Sign Off: Always deliver change orders in writing and make sure that approvals are also received in writing.
- Establish a Communications Process: Simplify the change order process so that subcontractors and other associated members of the project can be notified as soon as there is an approval.
Cost Control and Schedule Maintenance
Construction change orders can be used strategically to keep budgets in check and to help prevent costly overruns. Additionally, change orders provide a process for addressing changes without substantially impacting project timelines.
Here are 5 ways construction change orders can help you manage your project budget better:
- Budget Transparency: Change orders document any modifications or additional work that comes up during a construction project and ensures that everyone involved is aware of these changes and their associated costs.
- Cost Control: Change orders are an opportunity to review and adjust the budget in response to project changes.
- Accurate Cost Allocation: Accurate documentation using change orders makes it possible to track job cost allocations that are related to project modifications.
- Manage Budget Variance: By carefully tracking change orders, project managers can regularly review the project’s actual expenses compared with the proposed budget.
- Preventing Unauthorized Spending: All change orders require approval, which helps prevent expenses that can negatively impact the budget.
Documentation and Communication
Clear and accurate documentation is at the heart of successful construction change order management. It’s critical to have transparent communication with all project stakeholders and keep everyone on the same page regarding changes and their impact on the project. Clear client communication also helps build and maintain trust.
Effective documentation and communication not only help in managing the project but also serve as invaluable resources for audits and dispute resolution if they become necessary. Change orders can facilitate transparent and clear communication with clients or project owners and provide details about how the changes will affect the finances of the project.
Technology, especially construction accounting software, can play an important role in supporting the efficient management of construction change orders. Construction accounting software like JOBPOWER provides you with tools to help you create, track, and manage change orders with ease, ensuring that nothing slips through the cracks.
Here are 5 ways that construction accounting software can help manage change orders effectively:
- Automated Documentation: Construction accounting software allows you to create, track, and store change order documents electronically in one central, searchable location.
- Integration with Budgets: Construction accounting software can seamlessly integrate any approved change orders with the project’s budget in real time.
- Tracking and Status Updates: Use accounting software to track the status of change orders including monitoring pending, approved, or rejected change orders.
- Comprehensive Reporting: The software can generate reports related to change orders, summarizing the financial impact, status, and history of each change.
- Audit Trail: Construction accounting software typically maintains a detailed audit trail of all change orders, including records about who initiated the change, when it was proposed, and all subsequent actions taken.
Managing construction projects effectively involves handling construction change orders, and construction companies that adhere to established processes will see improved project management as a result. Change orders are not obstacles to be avoided but opportunities to adapt, control costs, and maintain schedules. It’s time to make change orders work for you and your projects.
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