Business

Change for the Better

Change management shapes how construction is overseen—especially when it comes to capital projects.
By Houman Payami
October 28, 2022
Topics
Business

Changes are a reality of construction work, especially for capital projects, which are complicated in every sense—from conception and financing to planning and execution. What matters is how you manage those changes while meeting your project objectives.

While the accepted principles of change management have been around for a long time, post-mortem studies of failed projects suggest that the same ones are frequently ignored. Hence, it is worthwhile to reevaluate change management concepts continually in the context of new project execution requirements. To this end, it’s helpful to revisit four essential change-management concepts within the context of their application to capital projects.

1. Baselining

Baselines are figurative measuring sticks against which to judge project outcomes. Just like a measuring stick must have universal acceptance of its unit of measurement, your project stakeholders all must agree on your baselines for them to be meaningful. Any change is considered a change when it causes a deviation from a baseline; therefore, the effectiveness of change management depends on how well your baselines are defined.

There are several baselines that you must establish for your project, most notably schedule, cost, scope, project execution plan and quality. All of these baselines are interrelated and demand close collaboration among all participants. A frequent challenge in construction is when owners with heftier bargaining power negotiate strict cost and schedule stipulations into contracts. When contractors accept these baselines without proper validation, project teams on all sides are likely to deal with inefficiencies resulting from processing changes and acrimonious disputes.

Agreeing on accurate baselines may be a hard sell for some parties, but making those decisions at the outset will ensure smooth project execution. Sometimes a deeper understanding of true cost and schedule estimates may result in the realization that a project is not economically feasible. However, if you decide to proceed, establishing suitable mitigation strategies for identified risks will ensure your project team enters the execution phase with open eyes.

2. Practical Contract Language

Due to their complexities, capital projects require multiparty involvement. Consequently, many change-induced fiascos originate with how contracts are structured between parties. Contractual terms and conditions agreed on between the owner and other parties define the “hows” of your project, serving as a safeguard against inefficiencies in processing changes and disputes. To accomplish this, owners and contractors must agree on the following items in a fair and explicit way:

How a change is directed to the contractor: The communication channels by which change direction is given to the contractor often fall in the gray area. The communication protocols spelled out in the contract should cover exactly how the owner authorizes the contractor to proceed with a change.

The notification requirements for various steps of the change-management process: For example, if the contractor encounters a condition that they perceive as a change, how soon and by what means shall they notify the owner?

Pricing and invoicing for changes: Parties can avoid lengthy negotiations during project execution when it’s clear from the beginning how they quantify changes and how the contractor is compensated for any additional work.

Dispute resolution: Because changes are the source of major claims, suitable dispute-resolution clauses can avoid escalation.

Productivity and cumulative impacts: These impacts are real but hard to quantify. Deciding upfront how to consider them when evaluating change orders will reduce future disagreements.

Urgent change directives: Sometimes the owner has immediate change requests that can’t wait for commercial agreement with the contractor. Anticipate such a situation with a mechanism in the contract that avoids work stoppages while ensuring fair compensation.

3. Alignment

After establishing proper change-management protocols, the next step is to create alignment among project participants on implementing them. This can be difficult due to the number and variety of parties involved, including their different organizational structures and business models.

Take design-review sessions between the owner and contractor. Many improvement ideas and modifications are discussed during these reviews, and if the parties aren’t aligned on how to recognize, evaluate and approve these changes, inefficiencies in managing their cost and schedule impact is a likely outcome. Frequent alignment sessions and educational campaigns can help project leadership establish a sustainable solution for managing changes.

4. Leveraging Technology

Advanced technologies are transforming the landscape for change management—including two recent developments that can improve the process immensely.

Digital workflow: Implementing digital workflows can make change management more efficient, timely and trackable by facilitating real-time interaction and offering access to up-to-date information among all interested parties. There are potential pitfalls, including that not every software solution may suit the project, and that a digital tool used by one party may not interact well with those of other parties. For those reasons, selecting the right tools for your project, investing in staff training and aligning all project entities on the digital workflow should be a priority during the startup phase.

Predictive analysis: Machine learning and data science have enormous potential for project execution, and are contributing increasingly to the field of predictive analysis for change management. For example, a laborious step in the change-management process is determining the impact of a change. With advanced data analytics tools, you can estimate this impact quickly and accurately based on historical data, including factors that are hard to measure with traditional techniques, such as cumulative impact.

Of course, the results of such predictive analysis are only as good as the quantity and quality of historical data. It takes time to grow a high-quality data repository, but building the infrastructure for predictive analysis will pay dividends in the long term. And to be realistic, doing this is a matter of survival. With the current trend of technology advancements in the competitive construction market, tomorrow’s project sponsors will favor teams equipped with functional data analytics tools.

Addressing changes is an intrinsic part of managing capital projects. Project execution teams should prepare for this by establishing accurate baselines, agreeing on practical and fair contractual requirements among parties, aligning project participants and applying the newest technologies. Ultimately, your project staff should understand that planning for the unplanned is part of what they’ve signed up for.

by Houman Payami

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