The dirtiest words in capital projects are “Change Management.” It is a touchy subject and is often the source of division between project owners and contractors. When mishandled, owners can view it as an opportunistic attempt by contractors to overcharge for services rendered, and contractors can inadvertently (usually) run up costs that were not explicitly approved. Besides safety, it is the quickest path to destroy a relationship between the parties.
Due to previous bad experiences with Change Management, both owners and contractors are often hesitant to broach the subject until it presents a challenge to resolve. Our experience is that, contrary to common belief, contractors rarely make excessive money on change orders and often need help even recovering costs.
In the spirit of “repeat business” and good relationships, contractors want the project to be successful for the owner and to meet project budgets and goals. Similarly, most owners want working relationships to be fair, but changes on a project inherently conflict with what their job is; to meet project objectives by controlling scope and budget.
A good process for Change Management in project execution is essential to meeting project objectives. A well-thought-out process will not just be used to capture extra costs when incurred but will be a valuable tool in controlling the project to meet project objectives.
The best ways to prevent changes from derailing a project are to:
- Mitigate changes through a detailed scope, schedule, and division of responsibilities before requesting quotes.
- Follow a rigorous Change Management Process that is understood by both parties before the project starts.
Mitigating Changes During Project Execution
Having a well-defined scope is the best way to prevent unintended change orders from being presented for a capital project. The scope should include the most complete information possible that communicates what the project entails and who is responsible for each portion.
At a minimum, for a multi-discipline project, the technical scope should include:
- A written summary of the project,
- A Delegation of Responsibility Matrix (DOR),
- Technical drawings
At the project execution stage (beginning at Detail Design), technical drawings should include at a minimum:
- Complete IFD P&IDs
- Equipment drawings
- Preliminary Equipment Location Plan
When planning a project, extensive work should have been undertaken in the “Pre-Execution” phase (such as front-end loading FEL, etc.,) stages to determine change risk elements to the project. Such common problem areas that should be focused on and addressed before the execution stage include:
- Stakeholder alignment on scope and project goals
- Constructability review
- Long lead equipment and material supply identification
- Agreement to a Change Management Process between Owner and Contractor
Change Management in Project Execution: A Process
Although change is unwanted, some amount of it is inevitable on projects of significant size. The development of a complete and deliberate Change Management Process will contain the following features:
- Discuss, agree upon, and document the change management process before the project starts, and reiterate it in the kickoff meeting to align the parties.
- As soon as any party identifies a “Potential Change”, communicate the potential change by documenting it on the Change log as a “Potential Change Notice” (PCN) with any supporting details, drawing redlines, pictures, etc. Include a cost estimate for the change.
- In some cases, if a quick decision is needed for a small change, a Rough Order of Magnitude (ROM - +/-50% accuracy) may be provided (contingent upon the agreement of the change management work process).
- Send the PCN to the decision maker for the project (typically a Project Manager). Urgency is required for the identification of potential changes. Changes that just show up as “costs” at the end of a project are not well received and can damage trust between owners and contractors.
- Do not proceed with any “change work” without written approval from the budget owner. This step seems obvious but is an issue that is very challenging when work is active in the field and decisions are made quickly to meet urgent deadlines. Any changes, along with budgeted costs, must be signed off in writing, or problems are sure to ensue after the urgency of the installation is over and costs exceed the expectations of the budget owner.
- Communicate to the team about the approval or denial of all PCNs. The team is usually aware of a potential change situation, and it must be clearly communicated whether a change should commence or not. Without this, team members may assume an incorrect position and incur costs that they should not if they move forward with something without approval. In addition, a system, log, or dashboard should be available to the team members to show the status of potential change items.
- Conduct a Change Management Project Analysis. This analysis is one of the most important components of Change Management in project execution and helps understand why changes occurred. It also sets the stage to collect and track data related to the cost of change for projects. A Lessons Learned framework should be implemented to gather the reasons for change, and corresponding systems and work process improvements to reduce the amount of change required on projects.