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www.aacei.o

ENGINEERING

March/April 20

THE JOURNAL OF AACE INTERNATIONAL -THE AUTHORITY FOR TOTAL COST MANAGEMENT

TM

COSTCOSTCOST

PRACTICES IN

CONSTRUCTION CHANGE

ORDER MANAGEMENT

PRACTICES IN

CONSTRUCTION CHANGE

ORDER MANAGEMENT

THE ROLE OF

CONSTRUCTION

COST AUDITING

WITHIN PROJECT

CONTROLS

THE ROLE OF

CONSTRUCTION

COST AUDITING

WITHIN PROJECT

CONTROLS

CAUSE AND EFFECT:HOW SCHEDULE ACCELERATION

AFFECTS PRODUCTIVITY

BRINGING HOME THE BACON

OVERHEAD CALCULATIONS

AND THE LAW

BRINGING HOME THE BACON

OVERHEAD CALCULATIONS

AND THE LAW

PROJECT CONTROLS

IMPACT ON ASUCCESSFUL PROJECT

INCREASING

PROJECT CONTROLSIMPACT ON A

SUCCESSFUL PROJECT

INCREASING

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See the forest and the trees.And the leaves. And any squirrelsoverbudget on acorns.

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3/48COST ENGINEERING MARCH/APRIL 2012

4 Increasing Projec Conrols Impac

on a Successul ProjecDavid A. Lucas

12 Pracices in ConsrucionChange Order ManagemenJoseph J. Egan, PE; Joseph E. Seder, CCE; and Dayna L. Anderson

19 Cause and Eec: How Schedule

Acceleraion Aecs ProduciviyMahew Chrisopher Baker, CCT

26 Bringing Home he Bacon Overhead Calculaions and he LawDr. Kahleen M.J. Harmon and Kahleen O. Barnes

34 The Role o Consrucion Cos AudiingWihin Projec ConrolsJake Orego, PE and Anonio Fraangelo, CCC

CONTENTS

TECHNICAL ARTICLES

COST ENGINEERING

THE AACE INTERNATIONAL ONLINE BUTTON - This editon

o he Cos Engineeringjournal has access o additonal ma-

erial on he AACE Inernatonal websie, www.aacei.org.

Anytme you see he symbol a cener, here is additonal

conen online associaed wih ha artcle or eaure. Direc

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COST ENGINEERING

2 COST ENGINEERING MARCH/APRIL 2012

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AACE Inernaional - The Auhoriy for Toal Cos ManagemenTM

OUR VISION - To be he recognized echnical auhoriy in cos and schedule managemen

or programs, projecs, producs, asses, and services.

OUR MISSION - The members o AACE enable organizaions around he world o achieve

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6/484 COST ENGINEERING MARCH/APRIL 2012

TECHNICAL ARTICLE

The expecaions or projec

managemen in irms around

he world are changing rapidly.

Wih signiican pressures on

irms o reduce expendiures, i is a

maer o survival or companies o be aseicien as possible in heir invesmen o

capial dollars and highly compeen in

he managemen o all ypes o projecs.

Projec conrols plays a signiican role in

how well irms are able o opimize

available resources and eecively

execue projecs.

Over he pas decade, signiican

advances have been made in he

scheduling, cos, and earned value

managemen inormaion sysems ha

mos projec conrols organizaions use

o produce he repors and merics used

every day in he managemen o projecs.

The quesion is who is using he

inormaion and is i acually conribuing

o he eicien use o capial dollars andsuccessul projecs?

In his aricle, readers will examine

he ways ha projec conrols should be

viewed by projec managemen

organizaions in order o maximize heir

impac. The auhor also discusses various

consideraions ha leaders o projec

conrols organizaions should incorporae

ino heir business processes, employee

developmen plans, and managemen

philosophy. The goal is o creae an

engaged, proacive, and value added

projec conrols organizaion ha is

viewed as inegral o all projec

managemen processes and a signiican

conribuor o he success o he projecs

i serves.

Wha Is Projec ConrolsProjec conrols is generally

ideniied in mos projec managemen

organizaions as he group o employeesresponsible or developing and producing

repors and analyses in he areas o cos,

schedule, earned value, and key

perormance indicaors. These groups

are also oen asked wih he

responsibiliy o manage he various

projec conrols sysems ha are used o

collec, analyze, and repor projec

managemen relaed daa, such as

scheduling and cos soware and

inegraed inormaion sysems.

While hese roles are broadly

acceped as he uncionalresponsibiliies o a projec conrols

organizaion, wihin mos projec

managemen rameworks projec

conrols is considered a projec

managemen process. The projec

conrols associaed processes encompass

many areas o projec managemen and

are he responsibiliy o a broad range o

projec eam members.

INCREASING

PROJECT CONTROLSIMPACT ON A SUCCESSFUL PROJECTDavid A. Lucas

Absrac: Projec conrols, in many organizaions, is viewed as he quaniaiveand analyical arm o projec managemen. Many advances in projec conrolsechnologies over he pas couple o decades have made producing perormancemerics, schedule analysis, and earned value reporing more auomaed and ei-cien. The quesion is who is using he inormaion and is i increasing he likeli-hood ha he projecs will be successul? Projec conrols organizaions shouldno be blinded by producing common repors or perormance merics, bu shouldplace a higher emphasis on ensuring ha he inormaion hey provide is useulo hose making decisions ha will ulimaely deermine he success o he proj-ec. This aricle examines how projec conrols organizaions can increase heirimpac on he success o heir projecs by evaluaing heir cusomers, ideniying

key projec decisions, and aligning he inormaion hey provide wih he successcrieria o he projec. This aricle was irs presened a he 2011 AACE Inerna-ional Annual Meeing as manuscrip CSC.606.

Key Words: Communicaion, projec conrols, projec managemen, and

sakeholders

7/28/2019 ce12-03


In he Projec Managemen

Insiues, A Guide o he Projec

Managemen Body of Knowledge

[PMBOK] 4th edition, ive projec

managemen process groups are

discussed: iniiaing, planning,

execuing, monioring and conrolling,

and closing. The monioring and

conrolling process group is deined as,he process o racking, reviewing, and

regulaing he progress o mee he

perormance objecives deined in he

projec managemen plan [6].

I is imporan o noe ha he

monior and conrol process group is no

a projec phase, bu is carried ou

hroughou he liecycle o he projec

and is very closely inegraed wih he

oher our projec managemen process

groups. The oupu o one o he projec

managemen processes generally

becomes he inpu o anoher process oris a deliverable o he overall projec [4].

The monior and conrol projec

managemen process includes many o

he uncions ypically characerized as

projec conrols relaed asks, such as:

Comparing acual projec

perormance agains he projec

managemen plan.

Accouning or newly ideniied risks

and analyzing, racking, and

monioring exising risks.

Providing inormaion o supporsaus reporing, progress

measuremen, and orecasing.

Providing orecass o updae

curren cos and curren schedule

inormaion. And,

Monioring implemenaion o

approved changes as hey occur [5].

In he Associaion or he

Advancemen o Cos Engineering

Inernaionals Toal Cos Managemen

Framework (TCM), here are ive

processes in he projec implemenaion

sep o he sraegic asse managemen

process: projec planning, projec

aciviy implemenaion, projec

perormance measuremen, and projec

perormance assessmen. All o hese

ive processes are deined in TCM as he

projec conrol process cycle [2].

Projec conrol is deined in TCM as,

a process or conrolling he invesmen

o resources in an asse. TCM uses a

PDCA conrol syle ha relecs he

ollowing seps o:

Plan esablish a plan.

Do make measuremens o

perormance.

Check compare he measuremens

agains he plan. And,

Ac ake correcive, miigaing, orimprovemen acion as needed [3].

Similar o he monior and conrol

process group in PMBOK, he projec

conrol process cycle is an ieraive

process ha is repeaed periodically

hrough he liecycle o he projec. The

projec conrol process cycle also

includes many asks generally

characerized as projec conrols

uncions some o which include:

Projec scope and execuionsraegy developmen.

Developmen o a work breakdown

srucure.

Inegraed plans or cos, schedule,

and resource managemen.

Esablish projec baselines or

perormance measuremen.

Perorm value analysis and

engineering. And,

Perormance assessmens o

evaluae deviaions rom plan [3].

In boh he AACE and PMIrameworks, projec conrols is a projec

managemen process ha is carried ou

rom he iniiaion o he projec hrough

projec close-ou and involves all

members o he projec eam. Projec

conrols processes lead he projec eam

o deine he projec objecives, develop

a plan o achieve hose objecives, use

he plan o esablish a baseline or

measuring progress, and hen provides

he ools or he projec eam o ideniy

any deviaions rom he plan.

The irs key concep ha mus be

recognized, in order or projec conrols

organizaions o have he maximum

impac on he successul compleion o

projecs, is ha projec conrols

processes are inegral o all o he

projec managemen processes.

While individual projec eam

members may be ocused solely on

engineering, consrucion, or operaions,

he projec conrol processes inegrae

all o hese uncions o ensure ha

overall projec objecives are

accomplished.

Organizaions ha recognize he

imporance o inegraed projec

conrols processes and incorporae hese

processes rom iniiaion hrough close-

ou are more likely o be successul in

achieving heir objecives.The second key concep in his

secion is o recognize ha all projec

eam members mus paricipae in he

projec conrols relaed processes o

obain he ull value added conribuion

o he projec eam. This means ha

projec managemen and projec

conrols organizaions mus spend ime

raining all projec eam members in

projec conrols conceps, repors, and

how o use he inormaion o help hem

be successul.

Projec conrols organizaions haisolae his ype o general raining o

only projec conrols personnel will no

be as eecive as hose organizaions

wih knowledgeable projec eam

members who know wha inormaion o

ask or, wha he inormaion means, and

how o ranslae he inormaion o

angible resuls.

Providing Relevan InformaionIn order or he merics and repors

produced o monior projec progress o

be relevan o he projec manager andhe projec eam, hey mus be aligned

wih he success crieria or he projec.

Alhough his concep seems simple and

obvious o mos, i is oen overlooked

by many projec conrols organizaions

ha produce he same sandard repors

on every projec.

There are many drivers o a projec

ha can change he success crieria or

he projec eam and he inormaion

ha is needed o make eecive

decisions. Projec conrols should be

engaged wih he projec eam and ully

undersand he success crieria or each

projec in order o deermine wha ypes

o inormaion he projec eam needs o

evaluae is progress oward achieving all

o is objecives.

I is commonly recognized ha mos

projecs are bound by scope, cos,

schedule, and qualiy. Bu here may

also be oher consideraions ha impac

he ypes o merics and repors ha a

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projec eam needs or eecive decision

making. Facors such as environmenal

or regulaory compliance, conracing

philosophy, public percepion, or overall

business impac may change he ype o

inormaion needed o manage risk or

repor progress.

In he insance o conracing

philosophy, he risk o an owner isdieren i i were o conrac a

consrucion labor conrac on a

reimbursable basis versus a ixed-price

basis. Under a reimbursable basis, he

owner may assume produciviy,

schedule, scope, and labor rae risks. In

his case, he projec eam would need

requen earned value reporing,

schedule analysis, cra raes, equipmen

raes, and overhead raes.

On a ixed price basis, he owner

would likely pass he produciviy, labor

rae, equipmen, and overhead risks ohe conracor. The projec eam would

be more ineresed in reporing

perormance inormaion on acors such

as schedule adherence and any change

orders o he base conrac value.

I a projec is being underaken o

address speciic environmenal or

regulaory requiremens, here may

criical milesones or speciic reporing

requiremens required in order o obain

unding, mee perormance

requiremens, or achieve compliance. In

hese insances, he projec eam may berequired o develop and provide projec

speciic repors ha include he

inormaion necessary o monior

progress agains he saed objecives.

A common obsacle ha some

organizaions experience when providing

projec speciic repors, based on he

success crieria or risk proile o a

projec, is he sandardized soware

sysems organizaions use o produce

various ypes o perormance saus

repors. While he soware sysems

may be exremely powerul, hey may

also be very resricive in manipulaing

daa or providing user-deined repors.

Soware sysems ha do no allow or

some lexibiliy in reporing can hinder

he overall impac ha projec conrols

can provide o a projec managemen

organizaion.

As projec managemen coninues

o evolve and maure in many

organizaions he imporance o aligning

merics wih success crieria will become

increasingly imporan or projec

conrols organizaions o add value o

he projec eams. As Gary R. Heerkens

poins ou in his book, The Business

Savvy Projec Manager, he landscape o

projec managemen is changing and as

i changes he expecaions or all hose

involved in managing projecs willchange as well [8].

The way ha we are now beginning

o assess rue projec perormance is

evolving beyond cos and schedule.

Projec conrols mus expand is role in

order o maximize is value o he projec

eam. As Harold Kerzner has saed, I

managemen doesn see how a projec

will deliver value, ha projec will be

cancelled even i is meeing ime and

budge consrains. Kerzner wen on o

poin ou ha his is a signiican shi in

he ocus o many projec managemenorganizaions and is going o require a

re-evaluaion as o how projec

managers evaluae how well heir

projec is perorming [9]. Projec

conrols organizaions mus coninuously

monior how projecs are being

evaluaed and provide relevan daa or

projec managemen organizaions o be

successul.

Key Projec Decisions and EvensCorporaions and projec eams are

required o make many criical businessdecisions on every projec ha hey

choose o under ake. Decisions range

rom projec selecion, echnology

selecion, make/buy decisions, schedule

decisions, unding decisions, and

alignmen wih corporae objecives. As

Heerkens noed, Projecs are criical

agens in nearly every companys ques

o achieve posiive business resuls [7].

Given he criical naure o he

decisions made around each projec, one

o he greaes value-added

conribuions ha a projec conrols

organizaion can make is ensuring ha

he projec eam has he righ

inormaion, a he righ ime, o make

he bes decision possible. In order or

his o happen, projec conrols mus be

engaged and undersand he ollowing:

Who are he decision makers;

Wha inormaion hey need o

make heir decisions;

When decisions needs o be made;

and,

wha are he poenial oucomes o

he decisions.

In many irms, he engagemen o

he projec managemen organizaion in

decision analysis, projec selecion, and

business case preparaion is rapidlyevolving and becoming a signiican role

o he projec eams. This early pre-

projec engagemen provides projec

managers a more sraegic role in he

organizaion.

Dr. Kerzner noed, based on his

research o projec managemen over

many years, The bigges change in he

las several years has been senior

managemen suppor o projec

managemen. Senior managemen no

longer views projec managemen as a

career pah. I is now viewed as asraegic compeence necessary or he

survival o he company [9].

As he expecaions o projec

managers evolve, projec conrols mus

evolve as well. This can be accomplished

by expanding is role rom he radiional

cos and schedule developmen and

analysis or deined projecs. This

expanded role would hen also include

he ollowing.

More parameric esimaing;

Decision ree analysis; Liecycle cos analysis;

Business case preparaion; and,

Risk modeling.

Organizaions ha build

compeencies in he above areas will

become highly valued in he decision

making process.

Once a projec has been iniiaed,

here coninues o be many decisions

and criical evens ha a projec eam

mus manage hroughou he planning,

execuion, and close-ou phases o he

projec.

The mos imporan conribuions

ha a projec conrols organizaion can

make, once a projec has been seleced

and approved, is o provide orward

looking analysis ha ideniies problems

early and o acively paricipae in he

developmen o sraegies o keep he

projec on rack.


7/28/2019 ce12-03


As Lynda Bourne saed in a recen

aricle on projec conrols and

communicaion, The only value ha a

projec conrol ool can oer is o

inluence uure acions and decisions

[1].

The key concep is ha in order o

maximize he impac ha projecconrols has on he projec or he irm,

projec conrols has o:

be engaged in he criical decisions

ha are made o selec he righ

projec;

esablish he righ success crieria;

develop a plan o achieve he

success crieria; and,

proacively paricipae in he

decisions ha need o made during

projec execuion o ensure a

successul oucome.

Undersanding Your SakeholdersAnoher concep ha is someimes

overlooked in he world o sandardized

reporing and uniorm projec conrols

processes is sakeholder engagemen

and communicaions planning or

projec conrols produced deliverables.

Many projec managers and projec

eams go hrough a sakeholder

ideniicaion and analysis process ha is

a par o he projec communicaions

planning process or he overall projec.

Projec conrols should be engaged and

suppor he overall eor and hen

conduc a more speciic analysis

deailing selec sakeholders and wha

inormaion ha hey need o eecivelycarry ou heir role on he projec.

As deined by PMI in PMBOK 4h

ediion, Ideniy sakeholders is he

process o ideniying all people or

organizaions impaced by he projec,

and documening relevan inormaion

regarding heir ineress, involvemen,

and impac on projec success.

Sakeholders may be individuals or

eniies ha are inernal or exernal o

he projec eam [7].

Once projec conrols has aided he

projec manager in he ideniicaion oall key sakeholders on he projec, i is

oen valuable o work wih he projec

managemen eam o group he

sakeholders in erms o ineress,

inormaion required, and requency o

he reporing updaes. This will be a key

inpu o he overall projec

communicaions plan as i relaes o

projec conrols deliverables. See igure

1 or a parial excerp o an overall

projec sakeholder/communicaions

marix.

As a resul o he overall projec

sakeholder ideniicaion process,

projec conrols will ideniy which key

sakeholders require signiican inerace

wih projec conrols in order o

eecively carry ou heir role on heprojec. Once hese individuals or

eniies are ideniied, projec conrols

should conduc deailed ace-o-ace

discussions o deermine he ypes o

inormaion ha is needed o assis hem

in conribuing o he success o he

projec. Projec conrols should also use

hese discussions o presen any

sandardized repors and o explain he

value o hese repors.

This sep o developing a

communicaion sraegy or all key

sakeholders is one o he mosimporan aspecs o projec conrols

planning. Bourne poined ou ha, The

challenge acing schedulers and oher

conrols sa is recognizing ha heir

primary role is communicaion no

conrols. Cerainly hey need o be able

o gaher and process inormaion

eecively bu his is wased eor

wihou equally eecive

communicaion [1].

Figure 1 Parial Projec Sakeholder and Communicaions Mix

7/28/2019 ce12-03

10/48

Communicaion o projec conrols

inormaion is essenial o he success o

he projec, so i is imporan ha

leaders o projec conrols organizaions

boh undersand and emphasize o

employees some o he key principles o

eecive communicaion. Consider he

ollowing key communicaion principles.

Spend ime in ace-o-ace

inerviews o beer undersand

your audience, heir rame o

reerence, heir experience, whas

imporan o hem, and how hey

are going o use he inormaion.

Build rus in he relaionship wih

he key sakeholders. I is veryimporan or projec conrols o be

considered an inegral par o he

eam ha is helping he projec

achieve success and no an audior

o he projec.

Be respecul o your audiences

ime and develop repors ha

provide daa in a manner ha your

audience can undersand quickly.

I he recipien o a repor has o

sruggle o undersand he repor,

he likelihood ha i will no be used

and ha i will no posiively impac

he projec increases.

Be engaged and coninuously

ollow-up wih sakeholders. Do no

blindly issue repors elecronically

wihou personal ineracion around

wha is imporan, wha condiions

may have changed, and any new

inormaion ha may be needed.

Be imely, consisen, and accurae

in all communicaions. Projec eam

members are relying on projec

conrols inormaion o make criical

decisions, engage in commercial or

legal discussions, and updae

projec sponsors. I is criical haprojec eam members have

conidence in he accuracy o he

inormaion hey are being

provided.

During he ace-o-ace inerviews

wih each key sakeholder, projec

conrols should gain a irm

undersanding as o wha is imporan o

each o hem. This is a crucial sep in

deermining wha inormaion projec

conrols can provide ha will assis hem

in heir individual role. Dieren roles on

he projec may have drasically dieren

needs in erms o he inormaion hey

require rom projec conrols.

One example projec shows how he

level o he inormaion provided o

cerain sakeholders, while based on he

same daa se, is dieren based on he

role o he sakeholder, (See igure 2).

The number o dieren repors,

ormas, and analysis, ha a projec

conrols organizaion may provide on

each projec is why i is so criical o

undersand he rue needs o he

sakeholders and provide inormaion

ha will be used. On many largecomplex projecs he number o

sakeholders and ypes o repors can

become overwhelming i no managed

hrough clear and concise up-ron

communicaion, ideniying where

sandardized repors can and canno be

used o saisy a need, and ensuring a

clear undersanding o he inen o each

repor ha is provided.

I is also imporan ha projec

conrols organizaions do no ge so


Figure 2 Parial Projec Conrols Reporing Marix by Sakeholder

7/28/2019 ce12-03


consumed wih processing periodic

saus repors ha publishing he

repors becomes he number one goal,

and no he analysis and value added

conribuion o he projec. This is

where here is grea value in esablishing

some sandardized repors and coding

srucures on projecs and hen raining

he workorce o undersand how o use

he repors as generaed.

A bes pracice or projec conrols

leaders is o closely rack he number

and ypes o repors ha projec

conrols is requesed o provide on all

projecs. I similar requess or

cusomized repors are ideniied on a

wide range o projecs, projec conrols

may consider modiying an exising

repor o include he inormaion or

develop a new repor ha becomes par

o he sandard suie o repors or each

projec.Anoher criical aspec o

communicaion or leaders o projec

conrols organizaions o consider is he

generaional gap, personaliy syles, and

he environmen in which much o he

projec conrols relaed communicaions

akes place. Undersanding ha hese

ypes o so aribues are no

srongly recognized in many echnical

organizaions, he realiy is ha hey do

exis and hey do have a signiican

impac as o wheher projec conrols

organizaions maximize heir overallconribuion o he success o he

projec.

One company wih several high

perorming young projec conrols

employees recognized ha some were

inimidaed in working wih experienced

consrucion managers, and

uncomorable challenging hem on

perormance relaed merics. They did

no have enough conidence in heir

echnical undersanding o consrucion

work and had seen how aggressive he

consrucion managers could be whenchallenged.

Alhough he projec conrols

employees were very well versed in

earned value, horoughly new o he

deails o he cos and schedule

perormance on he projec, and had

acually ideniied numerous legiimae

concerns ha needed o be addressed,

heir lack o conidence was no

allowing hem o maximize heir impac

on he projec. They would insead

produce heir repors, aend he

meeings, and keep heir issues o

hemselves.

In hese ypes o insances where

eam members do no eel comorable

raising legiimae issues or paricipaing

in a eam meeing, projec managers and

projec conrols leaders need o irs

recognize i and hen inervene as

quickly as possible.

Aer recognizing he siuaion

above, his company began holding

raining sessions or all o is projec

conrols personnel on recognizing

dieren personaliy syles, eecive

communicaion, and conlic resoluion.

Supervisors also sared making more

rouine sie visis wih younger

employees o observe and provide

guidance on eecive communicaion

skills. Undersanding and emphasizinghe imporance o communicaion o all

dieren ypes o sakeholders is now

viewed as a necessary skill or projec

conrols personnel.

Making an ImpacOnce a projec conrols organizaion

has:

suppored he projec eam in pre-

projec aciviies;

undersands he projec success

crieria; ideniied key projec conrols

relaed sakeholders; and,

developed a deailed

communicaion sraegy or projec

conrols deliverables,

i has now esablished he oundaion o

provide a value added conribuion o

he projec eam. The nex sep is o

develop he merics and repors ha

projec conrols will provide key

sakeholders o execue he projec.

When choosing he merics or a

projec, here are several consideraions

ha should be evaluaed. According o

projec managemen consulan, Max

Wideman, perormance merics should

be:

Focused meaning hey are

relevan and useul o he projec

eam and is sakeholders.

Reliable merics should always be

accurae and consisen.

Worhwhile he eor o produce

he merics should only be a racion

o he value hey provide.

Balanced in combinaion he

merics or a projec should cover all

o he imporan areas o he

projec. And,

Consrucive he merics should

no iniiae or invoke o-arge

behavior ha does no suppor he

projec objecives [10].

Anoher imporan acor o

consider in he developmen o merics

and repors is how he end user is going

o use each repor o impac he projec.

An example o his was on a recen large

capial consrucion projec where he

sie consrucion manager me every

week wih his consrucion coordinaorsand sub-conracors o review progress

and perormance. When projec

conrols conduced heir ace-o-ace

inerview wih he sie consrucion

manager, he saed he would like o be

able o discuss perormance sored boh

by sub-conracor and responsible

coordinaor o improve accounabiliy

and collaboraion.

Projec conrols, using a resource

code ield in he cos and schedule

sysems, was able o provide CPI [Cos

Perormance Index], SPI [SchedulePerormance Index], and variance

analysis sored by sub-conracor and

responsible coordinaor o he sie

consrucion manager each week in

suppor o he meeings. The sie

consrucion manager used his

inormaion o assign personal

accounabiliy o boh he sub-

conracor and consrucion coordinaor

or he perormance o heir assigned

work. As a resul o hese changes in

reporing, he perormance on he

projec improved and an increasedcollaboraion beween he owner and

sub-conracor was recognized.

On anoher projec, an owner had

conraced a large insallaion conrac

on a irm ixed-price basis. Alhough he

owner did no have any cos risk on he

base scope o he conrac, projec

conrols, along wih consrucion, began

o ideniy he number o resources on

he projec were consisenly exceeding

7/28/2019 ce12-03


he resource loaded schedule wihou

signiican changes in schedule

duraions. Aer recognizing his rend,

projec conrols began o monior labor

cos perormance and projeced he

inancial condiion o he conrac. The

analysis prediced ha he conracor

was likely over-running is esimae. So,

he owner began o prepare more

aggressively or a reques or addiional

compensaion.

As a resul o projec conrols being

engaged in he projec, undersanding

he key evens aking place on he

projec, and proacively providing

analysis o projec managemen, he

owner was ully prepared when he

reques or addiional compensaion was

received as o he rue drivers o he

conracors coss. This allowed or a

quick and air resoluion o conracors

reques so ha he overall projecobjecives were me.

There are many more examples ha

could be wrien o how a srong projec

conrols organizaion has posiively

impaced a projec. The consisen

heme in all o hese examples is ha he

projec conrols personnel assigned o

he projecs were:

an inegral par o he projec eam;

were eecively communicaing

wih he oher eam members;

undersood wha was ranspiring onhe projec;

proacively ideniied wha

decisions needed o be made; and,

provided good and accurae

inormaion o suppor he decision

making process.

Conclusion

Projec managemen is an

evolving ield and he sraegic

imporance o srong projec

managemen processes is being realized

by irms now more han ever in he pas.

As global economic pressures coninue

o orce irms o make beer decisions

as o how hey selec and monior heir

capial invesmens, projec

managemen and projec conrols

organizaions mus coninue o evolve in

heir responsibiliies and provide he

basis or eecive decision making.

In order o increase he projec

managemen compeencies in a irm, i

is criical ha projec conrols be viewed

as he projec managemen process ha

inegraes he iniiaion, planning,

execuion, and close-ou processes.

Projec conrols organizaions will

coninue o exis o ensure

accounabiliy or he deliverables

associaed wih he projec conrols

process, bu all projec eam members

mus paricipae ully in projec conrols

processes in order o achieve he

maximum impac on he success o he

projec.

As projec conrols organizaions

look orward o he increasing

responsibiliies and new roles ha hey

may assume, hey mus keep in mind

some basic conceps o ensure hey are

maximizing heir impac on he

organizaion. These basic conceps

include:

Ensuring ha he inormaion

provided on every projec is

relevan o he success crieria o

ha speciic projec.

Undersanding he criical evens

and decisions being made on he

projec and providing proacive and

orward-looking analysis o suppor

eecive decision making.

Ideniying projec conrols key

sakeholders and communicaing in

a manner ha he sakeholders can

successully execue heir role onhe projec. And,

Seeking ou opporuniies hrough

engagemen wih projec eam

members and analysis o projec

perormance o proacively

conribue o he success o he

projec.

Projec conrols and projec

managemen organizaions ha increase

heir compeencies in all o hese areas

will be well posiioned o ensure ha he

righ projecs are buil, he projecs arewell planned, success crieria are well

deined, and he ools are in place or

eecive projec execuion.

REFERENCES1. Bourne, Lynda, DPM, PMP, Projec

Conrols & Communicaion, Voices

on Projec Managemen, Projec

Managemen Insiue, Inc., 2009,

reerenced rom:

hp://blogs.pmi.org/blog/voices_o

n_projec_managemen/2009/07/p

rojec-conrols-communicaion.hml

2. Toal Cos Managemen Framework

A Process for Applying he Skills

and Knowledge of Cos

Engineering, 1st Edition, Chapter 2

The Total Cost Management Process

Map, AACE Inernaional,

Morganown, WV, pages 19-20,

2006.

3. Toal Cos Managemen Framework

A Process for Applying he Skills

and Knowledge of Cos

Engineering, 1st Edition, Chapter 2

The Total Cost Management Process

Map, AACE Inernaional,

Morganown, WV, page 27, 2006.

4. A Guide o he Projec


(PMBOK Guide), 4th Edition,

Chapter 3 Project ManagementProcesses for a Project, Projec

Managemen Insiue, Inc., pages

40-41.




Chapter 3 Project Management

Processes for a Project, Projec

Managemen Insiue, Inc., pages

59-64.



(PMBOK Guide), 4th Edition,Chapter 3 Project Management


Managemen Insiue, Inc., page

61.




Chapter 10 Project Management


Managemen Insiue, Inc., page

246.

8. Heerkens, Gary R., The Business

Savvy Projec Manager, TheMcGraw-Hill Companies, page 10.

9. Miller, Cyndee, Harold Kerzner:

Projec Managers Mus Undersand

Business, Voices on Projec

Managemen, Projec Managemen

Insiue, Inc., 2009, reerenced

rom: hp://blogs.pmi.org/blog/

voices_on_projec_managemen/

2009/10/harold-kerzner-projec-

manager.hml

7/28/2019 ce12-03


10. Wideman, Max, Maxs Projec

Managemen Wisdom, Project

Metrics, Slide 5 o 10, reerenced

rom: hp://www.maxwideman

.com/isaacsons/iac1008/sld005.

hm.

ABOUT THE AUTHORDavid A. Lucas is wih

American Elecric

Power. He can be

conaced by sending

e-mail o:

[email protected].

Now: If schedules needed analysis,

Primavera would have included it.

See more at

http://ScheduleAnalyzer.com

What is the difference betweenreviewing your P6 schedule and

reviewing your P6 XER file?

Everything

% Interfaces Directly with Database

% Hundreds of Reports & Analyses

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7/28/2019 ce12-03


Changes during mos

consrucion projecs are

ineviable and can lead o cos

and schedule overruns.

Eecively managing hese changes can

signiicanly reduce he risk o claims ha

oen resul in cosly dispues andliigaion. This aricle examines he

various approaches o change

managemen currenly used in he

indusry and summarizes some o hese

pracices.

In addiion, a case sudy involving he

consrucion o a power plan is

discussed. Consrucion o he plan was

impaced by a orce majeure even ha

delayed he shipmen o he major

equipmen or more han six monhs.

Impacs o he projec were racked on a

conemporaneous basis in order o

eicienly quaniy cos and schedule

impacs or change order negoiaions

wih he owner and or insurance

recovery purposes. Some o he meansand mehods used on he projec o rack

he impacs including ou-o-sequence

work, winer condiions, sacking o

rades, and ohers, are addressed in his

aricle.

Defining ChangeOn many consrucion projecs o

varying size or ype, changes oen occur.

Changes on a consrucion projec occur

when he scope o work perormed

diers rom he scope o work oulined in

he conrac documens. Examples o

common changes encounered on

consrucion projecs include he

ollowing:

addiion or deleion o scope;

changes o he projec duraion;

revisions o maerial ype and

speciicaions; drawing and speciicaion errors and

omissions;

lae or deecive owner-urnished

maerial;

diering sie condiions;

equipmen procuremen and

manuacuring issues;

orce majeure; and

conracual non-compliance by he

owner.

Changes o a consrucion projec

can be deined in many ways, includingbeing generally caegorized ino hree

broad caegories:

direced changes;

consrucive changes; or

cardinal changes.

Direced changes are changes

ypically issued by he owner or is

represenaive ha are oen wrien as

TECHNICAL ARTICLE

PRACTICES IN

CONSTRUCTION

CHANGE ORDERMANAGEMENTJoseph J. Egan, PE; Joseph E. Seder, CCE;

and Dayna L. Anderson

Absrac: Changes during mos consrucion projecs are ineviable and can leado cos and schedule overruns. Eecively managing hese changes can signii-canly reduce he risk o dispues and claims ha oen resul in cosly liigaion.This aricle examines he various approaches o change managemen currenlyused in he indusry and summarizes some o hese pracices. In addiion, a casesudy involving he consrucion o a power plan impaced by a orce majeureeven ha delayed he shipmen o he major equipmen or more han sixmonhs is discussed. Impacs o he projec were racked on a conemporaneousbasis in order o eicienly quaniy cos and schedule impacs or change ordernegoiaions wih he owner and or insurance recovery purposes. Some o hemeans and mehods used on he projec o rack he impacs, including ou-o-

sequence work, winer condiions, sacking o rades, and ohers, are addressedin his aricle. The auhors irs presened his manuscrip as CSC.607, a he 2011AACE Inernaional Annual Meeing in Anaheim, CA.

Key Words: Claims, change orders, consrucion, cos, risk, and schedules

7/28/2019 ce12-03


ormal change orders [2]. As such, he

owner recognizes direced changes as

changes o he conrac documens [10].

Examples o direced changes include

he addiion or deleion o scope and

revisions o maerial speciicaions.

In conras, consrucive changes are

ypically deined as acs by he owner or

is represenaive ha are no direced

changes bu which sill require he

conracor o perorm work dieren

rom ha required by he conrac

documens [5]. Examples o consrucive

changes include perormance

inererence by he owner, and unimely

responses by he owner o conracor

submials, among ohers.

Cardinal changes are ypically

changes which require he conracor o

perorm work ha was no

conemplaed by he paries when hey

enered ino he conrac and isundamenally dieren rom he scope

o work oulined in he conrac

documens [5]. For example, he

deleion o a large porion o a

conracors scope o work by he owner

could consiue a cardinal change.

Summary of Change Managemen

Approaches Being Used Wihin he

Consrucion Indusry

Eecively managing changes on a

projec can signiicanly reduce he risk

o cos and schedule overruns, whichoenimes resul in dispues and claims.

Implemenaion o change managemen

processes can aid in he eecive

managemen o change.

Currenly, here are no widely

acceped indusry sandards relaed o

change managemen processes;

however, numerous organizaions and

individuals have recommendaions on

change managemen processes. The

ollowing publicaions are jus a ew

examples:

Projec Change Managemen by he

Consrucion Indusry Insiue [4];

AACE Inernaionals Professional

Pracice Guide o Conracs and

Claims, which includes a number o

AACE Inernaional Transacion

papers wih iles such as, Project

Trends and Change Control, Change

Management for Todays Projects

A Process Approach, and Effective

Management of Project Change

Orders [11];

Change Managemen Bes Pracices

for he Engineering and

Consrucion Indusry by Oracle

[10]; and

Proving and Pricing Consrucion

Claims by Rober F. Cushman, Craig

M. Jacobsen, and P.J. Trimble [2].

AACE Inernaional does no have an

exising Recommended Pracice or

change managemen processes, perhaps

highlighing he diiculy o esablishing

a widely acceped change managemen

indusry sandard. One challenge is ha

here is no one speciic change

managemen process ha is mos

beneicial and appropriae or all ypes

o consrucion projecs. Each projec

has is own unique se o acs and

circumsances which may makesandardizaion diicul, examples o

which are discussed below.

The mehods and procedures used

or managing changes can vary based

upon he ype o consrucion conrac.

Deailed suppor o a change and is

impac o he projec may be more

beneicial on a lump sum or ixed price

conrac compared o a cos-plus

conrac.

Addiionally, he sandard conrac

documens used in he consrucion

indusry include various mehods ormanaging change. For example, he

sandard AIA documens and

ConsensusDOCS documens each

include language relaed o change,

including secions on change orders and

inerim direced changes. However, he

mehods and procedures or managing

change dier beween each [6, 8].

Variances in he size, lengh, and

complexiy o a projec can also be a

acor in how change is managed. For

example, a large, muli-year projec wih

muliple conracors, subconracors,archiecs, engineers, and oher

consulans may use a robus change

managemen process ha can

elecronically rack changes, noiy and

coordinae he change among he

paries, updae he projec schedule, and

rack he cos and schedule impacs

going orward hrough he compleion o

he projec.

A imes, large, complex projecs

may require muliple people ully

dedicaed o racking and managing

change. This deailed process may

require addiional resources and is less

likely o be ully employed on projecs o

smaller scale and scope.

As demonsraed by hese ew

examples, here may no be one speciic

change managemen mehodology ha

is appropriae or all consrucion

projecs. However, despie he

dierences ha exis beween he

scenarios menioned above, each o he

change managemen mehodologies

reviewed include cerain underlying

consisencies and commonaliies among

he alernaive approaches.

Summary of Pracices o Change

Managemen Processes

As explained above, here arenumerous approaches o change

managemen currenly being used

wihin he consrucion indusry. The

ollowing change managemen process

summarizes some o he pracices rom

hese various approaches and oulines

he seps ha can be aken o eecively

manage change on a consrucion

projec:

Address poenial changes in he

conrac documens.

Ideniy he poenial change. Creae a proposed change order and

documen he proposed change.

Review and evaluae he proposed

change order imely.

Execue he change order. And,

Documen he execued change.

Address Poenial Change in he

Conrac Documens

Eecive managemen o change

begins prior o he commencemen o

consrucion on a projec. The irs sep

in he change managemen process is oaddress change in he conrac

documens.

As menioned above, sandard AIA

documens and ConsensusDOCS

documens each include language

relaed o change and change

managemen. In addiion o his

sandard language, consider including in

he conrac well-deined processes o

deal wih change as explained below.

7/28/2019 ce12-03


Changes ClauseThe changes clause in a consrucion

conrac allows or changes o he scope

o work and allows he conracor an

equiable adjusmen o he conrac

price or schedule as a resul o a change

[2]. This clause deines he process

which boh paries should under ake

when a change is recognized.For example, he changes clause

ypically deines he imerame or which

he conracor should noiy he owner

o he change, he imerame or which

he conracor should provide a cos and

schedule esimae o he owner or he

changed work, and in some insances,

he imerame or which he owner

should review he conracors esimae

and respond o he conracor [2].

The changes clause also ypically

oulines he means and mehods o how

he conracor should calculae he coso he change and any associaed

schedule impacs. For example, he

changes clause migh direc he

conracor o calculae changes on a

lump sum basis, a ime and maerial

basis, or on a cos plus ee basis.

In addiion, he changes clause

someimes ideniies he paries who are

auhorized o make changes o he

conrac [2]. For example, he

ConsensusDOCS ouline a change

process whereby change orders can be

eiher direced by he owner orrequesed by he conracor [8]. The AIA

documens require ha he owner,

conracor, and archiec approve

changes o he conrac [6].

Dispue Resoluion ClauseIn addiion o he changes clause,

he conrac documens oen also

include a dispue resoluion clause which

deines he seps he paries should

underake i hey canno successully

negoiae a change.

For example, he 2007 AIA conrac

documens ouline a dispue resoluion

process ha begins wih an iniial

decision maker (he archiec on he

projec unless he paries appoin

anoher individual) who can reques

addiional inormaion, rejec he claim,

approve he claim, or sugges a

compromise [7].

Following he decision o he iniial

decision maker, he paries can mediae

he claim [7]. I mediaion is

unsuccessul, he conrac language

allows he paries o selec he binding

dispue procedure (e.g., arbiraion,

liigaion, or some oher mehod) [7].

Similarly, he ConsensusDOCS

conrac documens ouline a dispue

miigaion and resoluion process

whereby projec personnel irs aemp

o resolve he dispue [9]. I hese

negoiaions are unsuccessul,

discussions beween senior execuives

rom each pary ake place in a urher

aemp o resolve he dispue [9]. I

hese aemps also ail, he paries can

go beore a projec review board, a

projec neural, or aend mediaion [9].

I he claim remains unresolved, he

paries hen have he opion o eiher

liigae or arbirae he claim [9].

Clearly deined change

managemen processes, including whao do i he paries canno reach

agreemen on a change, are oen

included in he conrac documens in

order o preven dispues and claims and

aid in he overall success o a projec.

Idenify he Poenial ChangeThe second sep in he change

managemen process is o ideniy a

poenial change and correcly classiy

he ype o change according o he

conrac documens [10]. Early

ideniicaion o a poenial change helpshe paries o ensure ha he conrac

provisions relaed o he paricular ype

o change is ollowed and ha he

conrac requiremens have been

ulilled.

Creae a Proposed Change Order

and Documen he Proposed

ChangeNex, a proposed change order

should be creaed. Each proposed

change order should be given a uniqueideniicaion number and a log should

be creaed in order o rack he

ollowing:

proposed change order number;

descripion o proposed change;

dae o submial;

dae o owner approval/rejecion;

and

oher relevan inormaion.

Documenaion supporing he

proposed change, including projec

correspondence, projec schedules, or

oher conemporaneous records oen

accompanies he proposed change order

when available.

The proposed change order should

clearly sae he reason or he proposed

change, as well as quaniy he cos or

schedule impacs o he proposed

change. For example, in he insance o

added work, he proposed change order

oen includes a price or all added work

including direc coss and indirec coss

(e.g., labor, maerial, equipmen,

conracual markups, and any ime-

relaed coss incurred because o

schedule delay as a resul o he change)

and any requesed schedule exension.

There are muliple mehods or

deermining he cos and/or schedule

impacs resuling rom a change o heprojec. Many imes he owner and

conracor agree on a mehod o price

he change prior o he perormance o

he work. Oher imes, he conracor

and owner may no agree on he

appropriae mehod or cos unil aer

he work is compleed. Generally

speaking, discreely racking he cos and

schedule impacs will lead o a greaer

likelihood o recovery [2].

In order o discreely capure he

coss associaed wih he proposed

change, a unique cos code is oencreaed. This allows he conracor o

more accuraely price and rack he coss

o he change order.

To help ensure ha he acual coss

associaed wih he change are capured

accuraely, ield personnel should be

noiied o he new cos code.

Aerwards, cos repors and ime shees

should be reviewed o veriy he new

cos code is being properly used.

In addiion, he projec schedule can

be updaed o relec and discreely rack

he change ordered work i he change

impacs he schedule. No only is

accurae cos and schedule daa

imporan when pricing he change

order, bu i is also imporan i he

change order is no approved and he

conracor needs o pursue a claim.

By discreely racking he cos and

schedule impacs, he acual hisorical

coss will have been colleced and

segregaed in a manner ha is preerred

7/28/2019 ce12-03


by he cours [2]. I all o he coss

associaed wih he change canno be

quaniied a he ime he proposed

change order is creaed, he conracor

can oen reserve is righs o submi

hese coss a a laer dae [1].

According o AIA Bes Pracices

The Proposed Change Order Process, a

consrucion change direcive is issued

raher han a proposed change order i

he conracor believes, a change is

necessary o mainain he projec

schedule [3].

Oen imes, because o he

criicaliy o ime, he cos o he change,

and any associaed ime exension

required as a resul o he change,

canno be deermined a he ime o

issuance. Insead, he conracor oen

requess ha he changed work be

priced on a ime and maerials basis. A

similar process o he one oulinedabove should be used o documen he

change.

Review and Evaluae he Proposed

Change Order TimelyNex, he proposed change order is

issued o he archiec, subconracors,

or oher relevan paries or heir review.

Suggesed changes o he proposed

change order should hen be reviewed

by he conracor and incorporaed ino

he proposed change order i necessary.

The revised proposed change orderis hen issued o he owner per he

processes oulined in he conrac

documens. The owner should perorm

a deailed review and evaluaion o he

change documens in order o assess he

impac o he change.

Many imes his evaluaion is

perormed in concer wih he

archiec/engineer or he projec. The

owner ypically evaluaes he

conracors enilemen o recover

addiional coss or ime by deermining

wheher or no a change has occurred

and i a remedy or he change exiss in

he conrac documens.

I he owner deermines ha he

conracor is eniled o recover coss

and/or ime associaed wih change, he

owner oen measures he eec o he

change by calculaing he addiional

coss and/or ime exension required as

a resul o he change. These calculaed

impacs can be compared o he impacs

quaniied in he proposed change order.

Execue he Change OrderOnce all paries have reviewed and

evaluaed he proposed change order,

negoiaions beween he paries

ypically ake place in an aemp o

execue he change.I he paries can agree o he erms

o he change, a change order is creaed.

The change order should be daed, be

assigned a unique number, and include a

deailed descripion o he change

including he revision o he conrac

price and/or duraion. Similar o he

proposed change order, he change

order should also include relevan

documenaion supporing he change.

This could include drawings,

correspondence, and oher

conemporaneous documenaion.Typically, he conracor and he owner

sign he change order as an

acknowledgmen by boh paries ha

he original conrac documens have

been modiied. TheAIA documents also

require he archiecs approval [6].

I he negoiaions beween he

paries are unsuccessul and an

agreemen canno be reached regarding

he cos and schedule impacs o he

change, he paries ypically reer o he

dispue resoluion clause oulined in he

conrac documens.

Documen he Execued ChangeAer he change order is execued,

he change should be properly

documened. A change order log should

be creaed ha racks he ollowing:

change order number;

corresponding proposed change

order number;

descripion o he change;

cos o he change;

modiied conrac amoun;

ime exension associaed wih he

change;

paries involved in approving he

change;

change order submial dae; and,

change order approval dae by each

pary.

Proper record keeping allows

change ordered work o be eecively

racked on an individual basis, as well as

on a cumulaive basis. I also generally

allows or more eecive projec

managemen. In addiion, he change

order log is a useul ool should claims

arise on a projec. I no only racks boh

agreed upon and dispued changes o

he conrac, bu i also documens

adherence o conracual obligaions

including, or example, he ime i akes

or he owner o respond o he change

order.

Case SudyThe ollowing case sudy provides an

example o a consrucion projec ha

was impaced by a orce majeure even

during he consrucion phase, which

resuled in numerous changes o he

projec. The change managemenprocess used on he projec and he

eors underaken o

conemporaneously monior and rack

he cos and schedule impacs are

explained below.

Case BackgroundThe projec involved he design and

consrucion o a gas ired combined

cycle elecric power plan. The owner

hired a irm o engineer, procure, and

consruc he power plan.

The projec was proceeding alongslighly ahead o schedule approximaely

one hird o he way hrough he

consrucion phase when a orce

majeure even occurred. Some o he

major equipmen was procured and

manuacured overseas.

The equipmen was in roue via a

cargo ship when he ship encounered a

yphoon. The equipmen broke loose on

board and was ossed abou in he

sorm. The equipmen was severely

damaged or compleely desroyed.

Much o he equipmen had o be rebuil

or repaired. As a resul, he equipmen

was delivered o he projec

approximaely six monhs lae.

A he ime o he yphoon, he

equipmen ha was in ransi was on he

criical pah or he compleion o he

projec. The conracor immediaely

noiied he owner, he manuacurer o

he equipmen, and he insurance

carriers o he problem.

7/28/2019 ce12-03

18/48

Two ypes o insurance were

involved. Firs, he equipmen was

insured via cargo insurance ha insured

he cargo while in ransi. Second, he

conracors builders risk insurance was

also pu on noice o he pending

impacs o cos and schedule. I was no

known which o hese paries would

ulimaely pay or he cos impacscaused by he yphoon, bu i was clear

ha he conracor was sill responsible

o inish he projec.

Impacs Caused by ChangeAs a resul o he anicipaed six

monh delay in receip o he criical

pah equipmen, he conracor

recognized ha he as-planned

sequence and iming o he insallaion

o he equipmen was no longer valid.

The conracor explored and analyzed

various opions on how o proceed,including delaying he projec in order o

mainain he as-planned consrucion

sequence.

However, he conrac wih he

owner conained a liquidaed damages

clause requiring he conracor o pay

damages o he owner i he power plan

was no brough on line in ime or he

high elecriciy demands o he summer

monhs. As a resul, he conracor

eleced o implemen numerous

miigaion eors o minimize he delay

o he compleion o he projec andaccelerae he consrucion aer he

delayed equipmen arrived. All o he

involved paries were inormed o he

opions considered and he chosen

approach.

The delay in equipmen arrival

caused numerous changes and impacs

o he projec including he ollowing:

Weaher ImpacsMuch o he

work was planned o be perormed

in he summer and all, bu because

o he delay, a majoriy o he work

was acually perormed in he

winer monhs. The projec was

locaed in he US midwes and all

work was oudoors. As a resul o

he cold weaher, he cra labor was

less eicien han hey would have

been had he work been perormed

as-planned during warmer monhs.

Ou-of-Sequence WorkBecause o

he delay, he sequence o he work

had o be changed. Work ha could

be compleed while waiing or he

damaged equipmen o be

reshipped was perormed.

However, work was perormed in a

less eicien manner as a resul.

Sacking of TradesThe original

plan was o have only one rade

working in an area a a ime. Forexample, boilermakers would irs

inish heir work, hen he

pipeiers, hen he elecricians,

and so on unil he work was

compleed. However, as a resul o

he delay, numerous rades were

orced o work in he same area

simulaneously. This impaced labor

produciviy and caused ineicien

use o cranes and lis.

Addiional OverimeThe original

plan included limied use o

overime, bu he delay causedoverime o be used exensively

aer he lae equipmen arrived.

Exended Time Relaed Coss

Cerain coss such as equipmen

renal, projec personnel, and sie

oice coss were exended because

o he delay caused by he lae

shipmen o he damaged

equipmen.

Discussion of Change Managemen

Process Used o Track Impacs o he

ProjecThe conracor recognized early on

ha he changes o he projec because

o he lae arrival o equipmen were

going o be numerous. The conracor

also recognized he imporance o

eecively managing hese changes by

measuring and racking he cos and

schedule impacs associaed wih hese

changes. However, he exising projec

cos and schedule managemen sysem

was no se up o monior and rack he

myriad o increased coss.One o he auhors o his aricle

was reained o assis in seing up he

means and mehods o boh measure

and rack he cos and schedule impacs

o he projec as a resul o he lae

delivery o he criical equipmen. The

ollowing summarizes he eors

underaken o measure and rack he

cos and schedule impacs associaed

wih he changes.

For each o he subconracors, he

schedule prior o he even was

used o measure wha would have

been perormed and when i would

have been perormed bu or he

orce majeure even. Separae cos

codes were esablished speciically

or racking he cos impacs.

The acual iming and condiions owhen and how he work was

perormed was compared o he

baseline schedule and planned

condiions. For example, i cerain

work was planned o be perormed

in Sepember wih one crew, no

overime, and wih no oher cra in

he area, bu was acually

perormed in January wih wo

crews working overime in below

reezing condiions wih wo oher

cra in he area, hese dieren

working condiions were noed.Daily observaions were made or

each o he subconracors working

in he respecive week.

Nex, various recognized

consrucion indusry sudies ha

measure he impacs o weaher,

overime, sacking o rades and

ou-o-sequence work were used o

measure he labor impac o he

changed working condiions. The

labor impacs were calculaed each

week. Oher cos impacs were also

conemporaneously rackedincluding equipmen renal, ield

oice coss, incremenal projec

personnel coss, and ohers. In

cerain insances, change orders or

subconracors were prepared and

approved.

A he end o each monh, a

separae invoice summarizing all o

he cos impacs was prepared and

submied o he insurance carriers

or paymen. The invoices included

all supporing documenaion

including picures o he changed

working condiions and he basis or

each o he increased coss.

Lessons LearnedFor various reasons, he insurance

companies declined paymen o he

invoices or he increased coss.

Evenually, he conracor was orced o

liigae he maer wih he insurance

companies.


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19/48

The conracor was able o recover

all o is increased coss bu no unil

aer a successul rial. A rial, he

insurance companies ried o argue,

using hindsigh, ha he coss were

oversaed and inaccurae. However, he

jury concluded ha he coss, as racked

conemporaneously, were an accurae

measure o he impacs o he

conracor.

The key lesson learned was ha

when aced wih changes o a projec, do

no wai unil aer he projec is over o

ry and measure he impacs. Raher, se

up cos codes and means and mehods

o conemporaneously measure and

rack he cos and schedule impacs. The

ime and eor spen during he projec

o measure and rack hese impacs will

assis in recovering wha is owed under a

changed condiion.

Conclusion

Change during mos consrucion

projecs is ineviable and can

lead o cos and schedule

overruns. The change managemen

process ypically includes:

address poenial change in he

conrac documens;

ideniy he poenial change;

creae a proposed change order and

documen he proposed change;

review and evaluae he proposedchange order imely;

execue he change order; and,

documen he execued change.

These are some o he pracices

being used in he consrucion indusry

o eecively manage change.

As illusraed by he case example

above, conemporaneously measuring

and racking he cos and schedule

impacs associaed wih projec changes

will assis in he recovery o wha is

owed under a changed condiion.

Eecive managemen o changes can

signiicanly reduce he risk o claims

ha oen resul in cosly dispues and

liigaion.

REFERENCES1. Cox, R.K., Managing Change Orders

and Claims, Journal of Managemen

in Engineering, Volume

January/February, pages 24-29,1997.

2. Cushman, R.F., C.M. Jacobsen and

P.J. Trimble, Proving and Pricing

Consrucion Claims, 2nd Edition,

Chapter 8: Change in Scope Claims,

John Wiley & Sons, Inc., New York,

NY, 1996.

3. Har, D.H., The Proposed Change

Order Process, American Insiue o

Archiecs, 2008, rerieved on

January 10, 2011, rom:

hp://www.aia.org/aiaucmp/group

s/ek_public/documens/pd/aiap037629.pd

4. SP43-1-Project Change

Management, Projec Change

Managemen Research Team,

Consrucion Indusry Insiue,

Ausin, TX, 1994.

5. AACE Inernaional Recommended

Pracice No. 10S-90: Cos

Engineering Terminology, AACE

Inernaional, Morganown, WV,

revised 2010.

6. AIA Documen A201 General

Condiions of he Conrac forConsrucion, Article 7.2 Change

Orders, American Insiue o

Archiecs, Washingon, DC, 2007.

7. AIA Documen A201 General

Condiions of he Conrac for

Consrucion, Article 15.2 Initial

Decisions, American Insiue o

Archiecs, Washingon, DC, 2007.

8. ConsensusDOCS 200 Standard

Agreement and General Conditions

Between Owner and Contractor

(Where the Contract Price is a Lump

Sum), Article 8 Changes,

Consenaneous, LLC, 2007.

9. Consenaneous 200 Standard

Agreement and General Conditions

Between Owner and Contractor

(Where the Contract Price is a Lump

Sum), Article 12 Dispute

Mitigation and Resolution,

Consenaneous, LLC, 2007.

10. Change Managemen Bes Pracices

for he Engineering and

Consrucion Indusry, Oracle

Primavera, 2009, rerievedn

December 2010, rom:

hp://www.oracle.com/us/indusri

es/045720.pd

11. Zack, James G. (Edior), AACE

Inernaionals Professional Pracice

Guide o Conracs and Claims, 4th

Edition, Chapter 6, Management of

Change, AACE Inernaional,

Morganown, WV, 2008.

ABOUT THE AUTHORS

Joseph J. Egan, PE, is

wih Davis & Hosield

Consuling, LLC. He

can be conaced by

sending e-mail o:

[email protected]

Joseph E. Seder, CCE,

is wih Davis &

Hosield Consuling,LLC. He can be

conaced by sending

e-mail o:

[email protected]

Dayna L. Anderson, is

wih Davis & Hosield

Consuling, LLC. She

can be conaced by

sending

e-mail o:

[email protected]

COST ENGINEERING MARCH/APRIL 2012

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ypically dissolve ino he acual coss

relaed o he original scope. Since he

conracor has no been direced o

separae he hours on his imeshees or

invoices, i is impossible o discern hecos impac o he change. This could

have an ariicially negaive eec on

cos produciviy. The negaive eecs o

hese veiled changes are no usually

ully recognized unil i is oo lae o

recover rom he subsequen cos

overruns.

Mehods of Schedule AcceleraionWhen he projec alls behind he

planned schedule, managemen ypically

begins o invesigae ways o improve

produciviy. Acceleraing he remaining

schedule can give he conracors an

opporuniy o cach up o he original

progress curve.

Assuming ha he remaining

aciviy duraions are realisic, hey can

only be acceleraed using hree

mehods.

One mehod is o increase he

number o hours a conracor can

work per day and/or week.

The second mehod is o increasehe number o conracors on he

job. And,

The las mehod is o sraegically

remove non-criical asks rom he

remaining group o aciviies.

These mehods and heir poenial

beneis and/or risks will be discussed in

urher deail wihin his aricle.

Schedule CrashingMany projec managers reac o

schedule slippage by increasing he

number o days per week and/or hours

per day ha he conracor is approvedo work. This process is reerred o as

crashing he projec [1].

This name does no come rom he

repuaion o he process, bu raher he

reducion o he expeced schedule

duraion. As you can see rom he

example in igure 1, he 5d x 10hr

calendar seems o be more eicien han

he 5d x 8hr calendar a ace value.

Many schedule driven projecs

choose o increase he work calendar

because o mandaory inish daes. The

projec eam leaders voice heir

deerminaion o inish on schedule, no

maer wha he cos.

Advanages of Scheduled OverimeImplemening scheduled overime

can have limied advanages. The

overime hours can someimes arac

local workers o he projec ha would

poenially work elsewhere i he projec

were on a sraigh ime work calendar.

Workers compare he calendars, job

lenghs, raes, and per diems o all o helocal projecs in heir area o ineres and

decide which projec is he mos

lucraive.

Remoe area projecs are oen

more diicul o sa. This is especially

rue i he environmenal condiions are

exreme, such as he weaher in Siberia

or Iraq. Scheduled overime, compeiive

subsisence, higher wages, and oher

moneary beneis can provide an

incenive or workers o pack heir bags

and relocae o remoe projec areas.

During a plan urnaround, a lo o

asks need o be accomplished in a very

shor period o ime. When a aciliy isno making produc, i is losing revenue.

Faciliy managemen wans o inish as

soon as physically possible. Scheduled

overime wih muliple shis can provide

a soluion ha allows conracors o

complee he work scope wihin he

alloed ime consrains.

Produciviy SudiesOne common misconcepion

regarding he increase o a work

calendar is he assumpion ha

produciviy in he ield will no change.

Several indusry produciviy sudies

have been perormed over he las 40

years. They reveal ha adding overime

hours o he work calendar makes cra

produciviy suer in he long erm.

A 2005 AACE echnical paper, iled

Construction Productivity, by J.D.

Whieside, II, PE, analyzed he eecs o

several dieren work calendars on cra

produciviy [4]. The example, (shown in

igure 2)[4], displays a sharp decline in

cra produciviy on all o he workcalendars aer 60 hours per week.

Anoher relevan acor o consider

is he cumulaive eec o scheduled

overime o direc labor in consrucion.

A 1980 repor rom The Business

Roundable on Scheduled Overtime

Effect on Construction Projects displays

a igure showing he cumulaive eec o

scheduled overime on produciviy in

he ield over a 12 week period [3]. The


Figure 1 An Example of How Calendar Change Affecs he Remaining Schedule

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23/48

average produciviy o a 50 hour per

week calendar appears o peak a

approximaely (.93) during he hird

week, and hen drops over 22 percen

rom week our onward. The 60 hour per

week calendar appears o peak a

approximaely (.89) during he hird

week and hen drops over 27 percen

rom week our onward. There are

several poenial reasons or his.

Faigue

Longer hours resul in aiguedworkers. Conracors have o be a work

earlier in he morning and say laer in

he evening. Abseneeism, consequenly,

goes up over ime. Because he workers

are ired and hey are physically a he

jobsie or longer periods, hey are more

likely o have an acciden. Accidens

ypically sop work a he enire jobsie.

The aciliy managemen has o

neuralize hazards, end o he injured,

deermine why he acciden happened,

and how o preven he acciden rom

happening again beore work cancommence. Someimes he workers

have o aend addiional saey raining

courses beore reurning o work. These

incidens can be very cosly and

consume valuable ime.

Financial GoalsAnoher acor ha aecs he

produciviy curve is he inancial goals

o he conracor. I he conrac wih

he owner is on ime and maerial, or

cos plus, i is advanageous or he

conracors o increase heir resources

and ake longer o inish. Suddenly, he

crews wan o work on Saurdays, or

example.

Aside rom abseneeism and

ardiness, produciviy suers early in

he week because he conracors preer

o have more overime hours on heir

paychecks. Lack o adequae ield-level

managemen by owners can make he

siuaion even worse.Aer a long period on scheduled

overime, some workers decide o qui

he job near he holiday season because

hey have made heir personal income

quoa or he year. Whaever he reason

or produciviy loss, a clear paern

reveals ha more available work-hours

per week do no necessarily equae o an

acceleraed schedule compleion.

The Law of Diminishing ReurnsThere is a microeconomics concep

called he Law o Diminishing MarginalReurns. This rule saes ha, "we will

ge less and less exra oupu when we

add addiional doses o an inpu while

holding oher inpus ixed. In oher

words, he marginal produc o each uni

o inpu will decline as he amoun o

ha inpu increases, holding all oher

inpus consan"[2].

The marginal produc in his case is

cra produciviy, and ulimaely, cos

produciviy. The inpu is work-hours. I

appears ha he maximum values o

hese variables are muually exclusive o

each oher. The more overime hours

ha you expend per week, he less

producive work you have o show or

hose expended hours.

Cos Impac of Calendar ChangesThere are several hings or a projec

managemen eam o consider when

proposing an increase o he work

calendar during consrucion. The cos ohis increase is signiican and should be

analyzed in deail o deermine i i is

easible.

The hypoheical example in (able

1) displays a crew ha will complee an

80 duraion hour ask on a reimbursable

conrac. The billable sraigh ime and

overime raes are lised, as well as he

iemized labor coss or each work

calendar.

Overime, in his example, begins

aer 40 hours. This able displays cos

increase percenages as more overimehours are required. Finally, he esimaed

schedule compression is based on he

reducion o calendar days required o

complee he ask.

The imporan cavea o remember

is ha (able 1) does no ake work

produciviy ino consideraion. These

igures could only be achieved i he

esimae was accurae, produciviy was

perec, and here were no delays.

COST ENGINEERING MARCH/APRIL 2012

Figure 2 Produciviy Index vs. Hours per Week

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In he real world, esimaes are no

100 percen accurae, produciviy is

virually never perec, and delays are

going o happen. These risks deserve

careul consideraion when deciding o

make changes o he exising work

calendar.

Produciviy AppliedIn (able 2), he average produciviy

indices rom (igure 2) are acored ino

he 6d x 12h calendar, as well as he 7d x

12h calendar.

Produciviy measuremen, in his

case, is deined by he number o

budgeed unis compleed divided inohe acual amoun o unis expended o

complee hose budgeed unis. In oher

words, or every uni we acually expend

in consrucion, how much o ha uni

represens physical work accomplished?

I ha uni is dollars, hen a produciviy

measuremen o (.75) would mean ha

one labor dollar would have o be spen

o pay or 75-cens o physical progress.

The produciviy acor o (.87) is

applied o he cos and schedule on he

6d x 12h calendar. For he simpliciy o

his example, schedule and cos

perormance indices are equal. The iem

cos oals or his calendar are divided

by he (.87) produciviy acor. This

increases he direc labor cos rom

$22,080 o $25,379, or abou 16 percen.

The remaining schedule duraion is

divided by he (.87) produciviy acor.

Eigh calendar days divided by (.87)

equals 9.2 calendar days.The produciviy acor o (.75) is

applied o he cos and schedule on he

7d x 12h calendar. The iem cos oals

or his calendar are divided by he (.75)

produciviy acor. This increases he

direc labor cos rom $23,000 o

$30,667, or abou 34 percen. The

remaining schedule duraion is divided

by he (.75) produciviy acor. Seven

calendar days divided by (.75) equals

9.33 calendar days.

In summary, he 6d x 12h calendar

coss 38 percen more han he 4d x 10h

calendar, bu saves only 16 percen o

he schedule duraion. The 7d x 12h

calendar coss 67 percen more han he

4d x 10h calendar, bu saves only 15

percen o he remaining schedule

duraion.

I is imporan o remember ha

(able 2) calculaes a la produciviy

rae or an 80 hour ask. For consrucionaciviies during scheduled overime

wih duraions o several weeks, here

will be a gradual decline in cra

produciviy similar o wha is shown in

(igure 3). This urher increases coss

Table 1 Work Calendar Effec on Cos/Schedule Excluding Produciviy

Table 2 Work Calendar Effec on Cos/Schedule including Produciviy

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25/48

and inlaes he remaining schedule

duraion.

Fas TrackingI qualiied resources are readily

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