Change management might possibly be the number one thing to make or break any construction project — the difference between profit and loss. In the world of SMB contractors, with tighter margins and limited resources, the ability to effectively process change orders is imperative to not only maintaining project profitability, but also delivering on-time schedules and achieving client satisfaction. This is what I like to refer to as the golden trifecta. By attaining all three, you can achieve the overall goal of winning repeat work and raving reviews to attract more business.
We’re going to dig into the importance of understanding the “why” behind effective change management and the value that streamlining and organizing this process can bring to transforming your business from surviving to thriving.
Understanding Change Management in Construction
In construction, change management encompasses the nuances of effectively processing cost, scope, and schedule changes as they arise on any construction project. The changes can come from anywhere: existing conditions in the field, design modifications, scope gaps, material selections, changes in construction methods, etc. The reality is, change is inevitable. The reactivity of responding to those changes quickly and efficiently is what allows projects to keep moving forward on time and on budget, and reduces the risk of tarnishing the ability to achieve company growth.
On the flip side, when we fail at properly organizing and managing these changes, our business is at risk of creating roadblocks in accomplishing our goals. Do any of the following scenarios sound familiar?
1. Your business is faced with increased costs – a result of not effectively communicating and coordinating changes to each affected party leading to rework and mistakes, quickly eating away at potential profits
2. Deadlines come and go after poorly tracking and executing on changes as they occur, leading to a deterioration in your schedule
3. Client trust disintegrates through delayed communication of changes and unexpected cost increases late in the game
4. Project deliverables decline in quality as work is pushed through quickly without proper planning and organization
The list goes on and on, but essentially it all boils down to one main theme: exposure to risk on your construction projects, ultimately creating risk to your company profits and your ability to grow and win more work.
💥 Want to build more profitable jobs? Learn from a pro in our guide: Foundations of Construction Management for SMBs
The Importance of Change Management for SMB Contractors
All contractors experience change management, just at different scales. While a smaller TI project may only result in a few thousand or hundred thousand dollars in change orders over the course of the job, larger general contractors may manage hundreds of millions in change orders on one single project. So why is it so important to focus on creating and following a meticulous process for managing these changes as an SMB contractor?
Simply put: smaller contractors do not have the cash flow or margins to support and front ongoing cost changes to a project.
As a smaller contractor you might be exposed to the following:
1. A more competitive market, resulting in competitive bid proposals and low profit margins across projects
2. High operational costs and per unit costs of equipment, material and labor, causing more expensive general conditions while larger general contractors can operate more lean using the benefit of economies of scale
3. Process inefficiencies due to lack of formalized systems or standard procedures, leading to cost overruns or project delays
4. Dependency on customer relationships for future work, reducing your negotiating power over disputed cost changes to “save face” with your clients and build trust
At the end of the day, as an SMB contractor, you are left with a very small cash cushion for upfront investments in resources, which is often required when unexpected changes arise. The smaller cash cushion can cause some major discomfort and struggle in covering those immediate costs.
Having an efficient change management process can greatly reduce your risk in deteriorating profits over the course of construction. By implementing careful documentation, streamlined communication, and stakeholder accountability, you can reduce the time it takes for pricing approvals, greatly decreasing the risk of unrecovered costs.
Let’s take a simple example from one of my past projects: we were building a data center in an existing building and our electrician didn’t include simple exit signs in their quote because the signage was indicated only on the egress plan, not the electrical plans. We asked the electrician to order the signage so as to not hold up our final inspection.
Long story short, the project ends and we get hit with a $3,500 change order from the electrician that had not been documented in the field. It was too late contractually to submit pricing for approval and we ended up paying for it out of pocket, a cost easily recoverable if we did a better job of recording and communicating those changes to the client in a timely manner.
Developing a Documented Change Management Process
When thinking about formalizing a change management process, you want to have three main objectives in mind: establishing clear goals, streamlining communication, and developing an SOP for documentation.
1. Establishing Clear Goals – We’ve touched on this throughout this article so far but identifying what your main objective is for standardization is the key first step to gaining team buy-in for implementing organizational change. These goals could look like: streamlining operations, reduction in project delays, risk mitigation, or enhanced client relationships.
2. Streamlining Communication – Identify your key stakeholders and who will be involved at every stage: recognition, documentation, approvals, and execution of the change over the course of its lifecycle. From here, implement a clear chain of communication with details on how, when, and what information about changes will be communicated to each stakeholder.
3. SOP for Documentation – Develop your internal mechanisms for recording and tracking change orders. These can include logs, templates, forms, or tasks. The key aspect to focus on is accountability. Think about how you could implement an organizational structure that easily identifies who is responsible for processing each stage of a change order.
👉🏼 Download an editable change order process that you can print and post up to reference.
In documenting your process, it’s important to first consider the impact of the change to properly identify who and what will be affected and quickly gather the associated costs. For example, adding something as simple as a window in a bedroom can impact many trades. At first glance: your window contractor, drywallers, and painters will be involved in the installation. Additionally, you might need waterproofers for the exterior, plumbers/ electricians to relocate existing in-wall utilities, or a siding contractor to fix the facade. The list can go on and on and the more parties impacted, the more complicated the coordination is for receiving potential cost impacts.
Once you’re able to identify all potential impacts, you can utilize a change order tracking log to record the information and outline key deadlines and responsible parties to keep the entire team accountable. Try to make it very clear how the information will be communicated from party to party, i.e through emails, links, or software.
After effective tracking and documentation, you will then manage the process of approvals for cost changes. In seeking approval, you might want to consider setting clear guidelines for stakeholders on turnaround time, or even set up recurring change management meetings to expedite approvals and provide additional clarity.
Best Practices in Change Management for Construction
While effective change management can feel like a daunting task to flawlessly execute, it can be straightforward with the help of a few tips, tricks, and best practices.
1. Be clear and concise. – Use simple language when communicating changes that include all relevant information and no extraneous or irrelevant context. Also, be sure stakeholders are aware of the reason behind the change and any potential schedule extensions up front to ease negotiations and disputes later on
2. Standardize communication channels. – Have one place where all change orders are communicated: email, meetings, or a dedicated landing page are all great examples
3. Hold regular change management reviews. – Accountability for all stakeholders is key to preventing changes from slipping through the cracks, so in reviewing outstanding items in recurring meetings, you can mitigate the risk of losing track of these changes
4. Stay flexible. – Unpredictability is the name of the game with change management. Not everything goes to plan. Be prepared to modify execution with changing circumstances and thoroughly think through all possible scenarios and outcomes. It also helps to build in time buffers like schedule extensions into your change process and contracts to account for unforeseen delays. This can also prevent you from unjustified schedule overruns at the end of the project by providing backup to support the delay.
Implementing technology is alternatively a fast-tracked proven method to streamlining the organization of change management. There are many project management software programs on the market that are solely responsible for not only generating standard workflows and practices, but also account for communicating between project stakeholders, simplifying the approval process, and managing team accountability.
Training and Culture
Team buy-in and poor implementation can be a killer for any company looking to implement change. This is why rollout of proper training and fostering the right environment for improvement is key to finding success with organizational growth. Training can help employees understand the reason behind the changes, resulting in greater team buy-in and acceptance. Additionally, by training your teams effectively, you allow for a faster transition in adoption of the new process, which reduces the chances of a lag in productivity.
As a company looking to foster innovation and constant improvement, you must support the change by building a culture that embraces new processes, not blockades them. One easy way of collecting buy-in is consistently keeping an open line of communication for feedback with employees to allow for contribution to the changes taking place. When your employees feel as though they have skin in the game, they are much more likely to adapt and embrace the new procedures, leading to a smooth transition.
Final Thoughts
Achieving effective change management by developing a standard process is key to maintaining profitability as an SMB contractor. Successfully doing so will allow you to build without compromising on quality, timelines, or client satisfaction. This allows for safeguarding company profitability by protecting already tight margins and reducing the amount of risk exposure to project delays and cost overruns. With the right approach to change management and focusing on investing time and resources into streamlining this process, you’re able to turn the inevitable risks of changes in construction into opportunities for growth, success, and profitability.
Further Reading: Foundations of Construction Management for SMBs