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Topics: Change Management, Organizational Project Management
Too many Change or Variation Orders
Recently it is a realization within our organisation that our projects are encountering too many number of variation or change order which in most cases, are adding the cost & time to project original baselines.

What suggestion senior & experienced professional specially from construction sector here can give to avoid or reduce such change orders?
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Dear Asif
Interesting your question

Thanks for sharing

Of the two one:
- Scope may be better closed
- Development approach has to be changed
...
1 reply by Asif Gul
Dec 16, 2019 6:25 AM
Asif Gul
...
Thanks for reply Luis. Could you further clarify please about development approach? and how to change it?
As a PM tailoring your project you also set the levels of control for the measurements you make, e.g. time, cost, scope, quality. The more you want to control, the more deviations you will identify, the more formal CRs you will have that use resources. You have to balance cost with benefits. I had a rollout project where we spent a full day every week in a CCB, but it was useful.

In any case, you should track all changes, but you might want to delegate decisions to lower levels.

If the changes arise from volatility then you might consider moving to an agile lifecycle or reviewing the requirements to make them more stable and consistent (function points method is a good tool for thos).
...
1 reply by Asif Gul
Dec 16, 2019 6:32 AM
Asif Gul
...
Thanks Thomas, in our analysis we also came to conclusion that some changes are very beneficial and cost effective, so we have to bring about some balance. For shifting to agile approach i am not sure cause we have fixed type of lump sum, turnkey contracts in construction projects. I really have no idea if the agile approach is applicable to such construction projects. If so how this can be implemented in our case.
Dec 16, 2019 6:11 AM
Replying to Luis Branco
...
Dear Asif
Interesting your question

Thanks for sharing

Of the two one:
- Scope may be better closed
- Development approach has to be changed
Thanks for reply Luis. Could you further clarify please about development approach? and how to change it?
Dec 16, 2019 6:16 AM
Replying to Thomas Walenta
...
As a PM tailoring your project you also set the levels of control for the measurements you make, e.g. time, cost, scope, quality. The more you want to control, the more deviations you will identify, the more formal CRs you will have that use resources. You have to balance cost with benefits. I had a rollout project where we spent a full day every week in a CCB, but it was useful.

In any case, you should track all changes, but you might want to delegate decisions to lower levels.

If the changes arise from volatility then you might consider moving to an agile lifecycle or reviewing the requirements to make them more stable and consistent (function points method is a good tool for thos).
Thanks Thomas, in our analysis we also came to conclusion that some changes are very beneficial and cost effective, so we have to bring about some balance. For shifting to agile approach i am not sure cause we have fixed type of lump sum, turnkey contracts in construction projects. I really have no idea if the agile approach is applicable to such construction projects. If so how this can be implemented in our case.
Asif, agility is indeed applicable to construction, there is the topic of lean construction, applying shop floor management to construction, PDCA continuous improvement and even general principles like disciplined agile (DA).

One major and starting point is the contract though, which should support collaboration, a joint responsibility to be successful, like with a consortium, or agreeing to iteratively review scope and price. Lump sum is preferred by buyers since it seems to put the risk on the seller, but in most cases leads to project failures. It is the old world that cannot survive.

Another option is to go for BIM, and manage changes using BIM, more efficiently and documented.

Here is a quote from McKinsey 2017:
Rewire the contractual framework. There is a need to move away from the hostile contracting environment that characterizes many construction projects to a system focused on collaboration and problem solving. To achieve this, tendering processes
can be based on best value and past performance rather than cost alone, and public processes streamlined. Establishing a “single source of truth” on projects for monitoring progress early, potentially supported by collaborative technology, helps to minimize misalignments and enable joint corrective action. The data already exist to fundamentally improve the accuracy of cost and schedule estimates. Where players continue to
use traditional contracts, they should introduce incentives that significantly improve performance and alignment not at a trade or package level, but at the project-outcome level. To move toward best practices, appropriate alternative contracting models such as integrated project delivery (IPD) help build long-term collaborative relationships. Relational contracts will need to become more prevalent than transactional contracts. Sufficient investments in up-front planning incorporating all parties’ input have been shown to raise productivity substantially.
...
3 replies by Asif Gul, Luis Branco, and Thomas Walenta
Dec 16, 2019 8:02 AM
Luis Branco
...
Dear Thomas
Are public works contracts in Germany in line with the views expressed by McKinsey?
Dec 16, 2019 8:29 AM
Thomas Walenta
...
Germany is not better than other countries here, Luis.
What I have seen recently is a federal agency contracting frame agreements and any other federal agency can order from this frame. Mostly lump sum still, but the contractor has an incentive to behave collaborative and offer lower cost (it is called 3 partner system).

Also the use of consortia is common, when ALL contractors are responsible for the total, so there is an incentive to work out any problems among themselves.
Dec 16, 2019 11:41 PM
Asif Gul
...
Appreciate your valuable input but to radically change the whole contractual framework it requires top most level management decision and commitment. At present most of Project works in Public Sectors in our part of world are being carried-out in old traditional method.
Dec 16, 2019 7:11 AM
Replying to Thomas Walenta
...
Asif, agility is indeed applicable to construction, there is the topic of lean construction, applying shop floor management to construction, PDCA continuous improvement and even general principles like disciplined agile (DA).

One major and starting point is the contract though, which should support collaboration, a joint responsibility to be successful, like with a consortium, or agreeing to iteratively review scope and price. Lump sum is preferred by buyers since it seems to put the risk on the seller, but in most cases leads to project failures. It is the old world that cannot survive.

Another option is to go for BIM, and manage changes using BIM, more efficiently and documented.

Here is a quote from McKinsey 2017:
Rewire the contractual framework. There is a need to move away from the hostile contracting environment that characterizes many construction projects to a system focused on collaboration and problem solving. To achieve this, tendering processes
can be based on best value and past performance rather than cost alone, and public processes streamlined. Establishing a “single source of truth” on projects for monitoring progress early, potentially supported by collaborative technology, helps to minimize misalignments and enable joint corrective action. The data already exist to fundamentally improve the accuracy of cost and schedule estimates. Where players continue to
use traditional contracts, they should introduce incentives that significantly improve performance and alignment not at a trade or package level, but at the project-outcome level. To move toward best practices, appropriate alternative contracting models such as integrated project delivery (IPD) help build long-term collaborative relationships. Relational contracts will need to become more prevalent than transactional contracts. Sufficient investments in up-front planning incorporating all parties’ input have been shown to raise productivity substantially.
Dear Thomas
Are public works contracts in Germany in line with the views expressed by McKinsey?
Asif -

Some tactics I've seen used in the past are:

1. Rolling wave planning (where feasible) to avoid re-work due to requirements changing the scope or approach to a late stage deliverable.

2. Establishing a budget to cover a certain volume of change requests, especially when both buyer & seller acknowledge that requirements may change.

3. Having a "gatekeeper" to approve/reject change requests before the team commits to spending effort on analyzing them. On projects which are running low on time or money, the effort of analyzing change requests itself can cause a project to get into trouble so having this initial triage helps.

Kiron
...
1 reply by Asif Gul
Dec 16, 2019 11:42 PM
Asif Gul
...
Thanks Kiron. Valuable input.
Dec 16, 2019 7:11 AM
Replying to Thomas Walenta
...
Asif, agility is indeed applicable to construction, there is the topic of lean construction, applying shop floor management to construction, PDCA continuous improvement and even general principles like disciplined agile (DA).

One major and starting point is the contract though, which should support collaboration, a joint responsibility to be successful, like with a consortium, or agreeing to iteratively review scope and price. Lump sum is preferred by buyers since it seems to put the risk on the seller, but in most cases leads to project failures. It is the old world that cannot survive.

Another option is to go for BIM, and manage changes using BIM, more efficiently and documented.

Here is a quote from McKinsey 2017:
Rewire the contractual framework. There is a need to move away from the hostile contracting environment that characterizes many construction projects to a system focused on collaboration and problem solving. To achieve this, tendering processes
can be based on best value and past performance rather than cost alone, and public processes streamlined. Establishing a “single source of truth” on projects for monitoring progress early, potentially supported by collaborative technology, helps to minimize misalignments and enable joint corrective action. The data already exist to fundamentally improve the accuracy of cost and schedule estimates. Where players continue to
use traditional contracts, they should introduce incentives that significantly improve performance and alignment not at a trade or package level, but at the project-outcome level. To move toward best practices, appropriate alternative contracting models such as integrated project delivery (IPD) help build long-term collaborative relationships. Relational contracts will need to become more prevalent than transactional contracts. Sufficient investments in up-front planning incorporating all parties’ input have been shown to raise productivity substantially.
Germany is not better than other countries here, Luis.
What I have seen recently is a federal agency contracting frame agreements and any other federal agency can order from this frame. Mostly lump sum still, but the contractor has an incentive to behave collaborative and offer lower cost (it is called 3 partner system).

Also the use of consortia is common, when ALL contractors are responsible for the total, so there is an incentive to work out any problems among themselves.
In addition to all the above, you better have a look at your planning phase. You may need to plan better.
Asif

As someone whose been in the construction industry for more than 15 years, I agree that change orders usually could drain the project.

Let’s first talk about what might be the root cause. I’ve seen this happen in the following scenarios:

1- The Design was completed without having clear vision of the scope and the desired outcome. In this case the client themselves weren’t sure what they want.

2- Lots of discrepancies in the design drawings and that could happen due to the complexity of design between Mechanical (HVaC and Plumbing), Electrical, Structural and Architectural. Those are discovered during construction only.

3- The design of the project was done without proper consultation and engagement with the customer and then after the fact, the customer starts changing things because they realize, this is not what they required for certain things.

4- The client keeps changing their mind about what they want.

The most common causes that I’ve encountered during my career are 1 and 2 and you can avoid such situations by:

1- In case there is no clear vision for the scope, try to do rolling wave planning (Agile Waterfall Hybrid Approach) and avoid going to fixed contracts. Instead, use CM at Risk contracts (In Canada it’s called CCDC 5B).

2- In case the design was complex, which for most projects these days it is due to complexity of the new systems, use a building information modelling program like Revit at the outset of the project. This 3D modelling will show most of the clashes between the different disciplines so designers can take that into consideration during design as opposed to being surprised by it during construction. This proved to reduce change orders by 80%.

Hope this helps.

RK
...
1 reply by Asif Gul
Dec 16, 2019 11:49 PM
Asif Gul
...
Thanks a lot Rami, interesting and very much relevant input. I will surely further review and present these suggestions to our management.
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