You breathe a sigh of relief as you receive funding for that final pay request for the project you just finished.  It’s been a good run, and you feel confident that your company made some money on this project.  Now time to process lessons learned, by reviewing your budget versus actual costs to determine if any areas need attention for the next project.  And that’s when you get a sinking feeling, because there’s one area where you really busted the budget.  After further investigation, you realize that you forgot to submit for a change order, and any hopes of recovering those costs are probably gone because you just received the final payment.

Has this ever happened in your world?  How does your company handle Change Management for your projects?  Are you still using Excel or Email to track what has or has not been submitted for approval?  Certainly, there’s an element of risk associated with NOT capturing Potential Change Orders (PCOs), in that you risk losing out on revenue to cover costs of work performed without approval.  But even if the work is approved through email, if it’s not included in your pay applications, you can’t be paid for it.

Managing Potential Change Orders

Here are some things to think about when considering how to manage PCOs.

1. Communication: At the onset of your project, determine communication standards both upline and downline.  How soon should PCO’s be approved by the project owner after submission, and how often should communication be sent to affected vendors and subcontracts upon approval?

Ideally, the approval should be gained at the point your field personnel are provided instructions to proceed with the work.

Consider the following scenario – your project superintendent is approached by the owner’s rep to repair some ductwork damage.  After investigating, it was determined that the damage was done by another contractor who was instructed to correct their work.  Documenting the issue with photos, discussions and instructions, and getting some type of written approval on the spot provides the ability to track the issue from start to finish, eliminating communication failures later.

Establishing the communication standards at the onset sets expectations for everyone on the project, and eliminates frustration when approvals are slow in coming. If possible, arrange for automatic communications as reminders if the timeframe for an expected response has been missed. This communication could go to any number of personnel on the project that need the information for planning purposes.

2. Timing: Another standard to determine at project onset is when PCO’s should be submitted.  Should it be weekly or bi-weekly or monthly?  Whatever the cadence, be sure that everyone is aware, both upline and downline.  Set a specific day of the week (if weekly or bi-weekly) or month, so that everyone knows if they miss that day, the PCO will be included in the next round.  This is another means to manage expectations for everyone involved.

3. Clarity: Find a means to deliver the PCO requirements with clear and effective dialogue, and details if needed.  The Scope of Work and any associated breakdown should be descriptive enough to prevent confusion for those receiving the information.  Simply saying “Potential Change Order #75” and showing values for the expected Change Order is not enough to get prompt approval.  Again, this part of communications and setting expectations.  If you don’t provide enough information, then you can expect delays in approval.

4. Automate: Finally, consider automating how you manage PCO’s and their resulting Change Orders (COs).  Trying to manage an ongoing, ever changing list of PCO’s and CO’s in Excel or worse via email is not efficient and can be time-consuming trying to reconcile with actual costs and approvals submitted for payment.

Using the Construct365 Project Cost Management Module from SIS in conjunction with Microsoft Dynamics 365 can help you achieve some of the points covered above.   Along with integrated payroll, budgeting, purchasing, subcontract management, schedule of values billing, Asset Management, Inventory Management and much more, all included in Microsoft Dynamics 365 Finance and Operations (FO).  In the steps below, we’ll explore how PCO’s are recorded and how to update the associated Schedule of Values (SOV) to insure complete billing for all CO’s.

Recording Potential Change Orders

PCO’s are recorded in SIS Construct 365 Project Cost Management after establishing both a Budget and a Construction Contract SOV for the specific Project.

Create a new PCO, and link to the Project, inputting all necessary information for tracking purposes in the Details FastTab.  Note that the status is Pending.

Input the Scope of Work in the Scope of Work FastTab, then click on New Budget to begin entering the lines associated with this PCO.

A new window will open, scroll down to the Budget lines FastTab, and click new to begin entering Budget lines for the Change Order.  Input the affected Task Codes and Budget Categories, along with the unit values.  Continue adding Budget lines. Then click Save and close the window.

Click the refresh button in the upper corner, and the PCO record will be updated with the following highlighted fields.  The Budgeted PCO will be summarized.

Expand the Task summary FastTab for additional information of the PCO Budget by Taskcode.

Recording all PCO’s in a systematic fashion provides the ability to manage effectively, produce reports as needed, and process/update once the PCO is approved for a Change Order.  Note that at this point, PCOs will not impact the Project budget reports, since the status is still “Pending.”

By filtering on the Project ID, a list of all available PCO’s can be viewed.

Update PCOs and associated Schedule of Values

Once a PCO has been accepted as an official Change Order, there are a few steps involved to update the Project Budget and the Construction contract SOV.

First, scroll down to the Budget FastTab and click on the date of the Budget revision to open the Budget window.  At this point the Budget is in Draft status.  To update, send the Budget through the Workflow process by clicking Submit on the Project Budget Action Pane, under Workflow.

Once the PCO is committed, close the window and update the PCO status accordingly.

Expand the Details tab and update the Customer Change Order number and approved date fields.

To update the Construction contract SOV, navigate to Construction Contracts by clicking on the Project ID in the Overview tab.  This opens a new window.  Click on the Project Cost Management tab in the Action Pane, and under Contracts, click on Construction Contracts.

In the Overview FastTab, click on New and add a line that represents the Change Order, providing the details from the Change Order approved in the previous steps.

Scroll down to the Contract details FastTab, and input the Change order number.

Update any other FastTabs per your business practices and click Save.

Managing Project Change Orders

With the SIS Construct365 Project Cost Management application, tracking your outstanding and approved PCOs becomes manageable and certainly reduces the risk of missing potential revenue, if you track everything, no matter how small.

For More Information:

If you have any questions or would like to know how Project Cost Management can work for your company, please reach out to SIS and we will be happy to show you.   SIS Construct 365 Project Cost Management application is Certified for Microsoft Dynamics and listed on the Microsoft AppSource website.

About SIS: 

Founded in 1996, SIS (Strategic Industry Solutions) is a Microsoft Gold Certified Partner providing and implementing financial and operational software for Contracting and Professional Services focused companies.

We continue to develop and deliver ERP, CRM, and PM solutions for project and service-oriented companies today, with an emphasis on ease of use and flexibility while meeting Industry functional requirements. From planning and discovery to design and implementation, and then to training and support, we are committed to surpass our customers’ expectations at every step.

About Laurie Jimenez, PMP – Dynamics Sr. Solution Architect & Consultant

Laurie has 30 years of experience in the Construction and Utilities industry as an ERP Consultant, Solution Architect, and Project Manager.  She is on the Board of Directors for the National Association of Women in Construction (NAWIC) and is very well networked within the industry.  Laurie has experience working on ERP projects for large enterprise, multi-billion dollar organizations.   She is also an exceptional communicator and has been named Outstanding Toastmaster of the Year by Toastmasters International (Houston District 56).