Page 71 - IEC Insights Sept-Oct21

What is the problem with
X TECHNICAL RISK: The probability of a
physical failure of the built environment
change orders? to function accordingly to the customer
What is driving these unexpected results? or structural requirements
Why are COs obviously detrimental • Labor skill for technical work,
to project performance rather than material availability, material/
beneficial? The underlying cause and component quality
answer to this question lies in the type – What and who are the sources of
and additional risk a change order carries information?
that gets added to the project. The
true cost of COs goes beyond the pure – Do we have the most recent and
cost of a change order, such as cost for up-to-date set of drawings and
material, labor, and additional overhead. specs available?
It includes the additional operational risk – When are you allowed to work on
and associated cost for the project, which a change order?
are often overlooked – not intentionally
but they often get missed because they X INTEGRATION RISK: The probability
are either invisible or unknown to project of failure at the interface of resources
managers, estimators, and executives. required to complete the project,
Even an additional markup does not including workforce power, material,
compensate for the full cost and impact of money, and information.
COs for the large majority of projects. • Schedule, trade stacking/coordination,
shift work/premium time, availability
Timing of COs is also import. Most COs of tools, equipment, and information,
typically occur in the middle of the lead/order time, jobsite logistics
job, which makes it more likely that – What and who are the sources
some of the related risks do not get of information?
captured before the CO takes place.
Unidentified risk can’t be managed, – Handoff Process
which consequently has adverse effects – Was the base bid correct?
on labor productivity and ultimately – Is information missing? Prebid,
cause deviations from expected project Request For Information’s, Value
profitability, based on MCA’s Research Engineering, alternates
(2019). Studies show that the reasons why – What’s changing?
COs erode project profits can be grouped
into three main reason categories: – In the field – are there schedule
1. Disruption of the original project changes per phase?
schedule and flow of work – Is it tracked on the
2. Delay in recognition or reporting Change Log?
of changes X BUSINESS RISK: The probability of a
3. Use of CO profits to cover labor overage difference between the expected and
or productivity losses on the original actual financial outcome of a project
scope of work
• Local requirement and regulations,
Underlying and related to each of these payment terms, penalties, customer
three categories are three different types relationships, cost escalation
of risk that every construction project – What and who are the sources
shares. The composition of Technical Risk, of information?
Business Risk, and Integration Risk will – Does the General Foreman need to
vary across projects as well as change know the business scope?
orders depending on the scope and
activities involved to complete the project – Bid-day negotiations/
or requested change. These risks need adjustments made that are
to be identified, evaluated, and actively very often not communicated
managed for each project change. to the field
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