How Much of Your Margin Are You Losing to Changes?

By Mike Kenefsky

Your margins are under attack.

…and not from the Round 1 strike that you’re expecting. Many businesses deploy their margin protection effort in the early stages, remaining vigilant during bid negotiations. A potentially subtle, and possibly more lethal, margin-reducing raid comes after the contract has been won. Small but numerous ambushes on the project’s profit margin come later in the form of: changes.

Any Change Order, All Change Orders

Changes are historically 5-10% of the entire project’s value. If a solid change management program is not in place, a company could essentially lose all of its margin before even getting started. Design changes, field condition changes, client direction, work orders and/or other types are all ways a change can come through a project.

Without an efficient change management process in place, these changes lead to additional direct and indirect costs. If handled incorrectly, these changes morph into financial and personnel resources being wasted via project delays, missed milestones and budget overruns. Indirect costs will fester into diminishing employee morale, decreasing confidence in leadership and resistance to future change.

Managing Changes

What does one need to establish a successful change management program? The main goal of the process is designed to help a business plan for change instead of reacting to it. All efficient plans have core qualities that improve communication channels, increase transparency and clearly specify responsibilities.

Below are some essential steps for setting up an effective program:

• Explicitly identify what will be changed and improved
• Present a solid business case to stakeholders or sponsors
• Plan in detail for the change
• Assemble the necessary resources
• Communicate the plan to all involved parties
• Monitor and manage resistance and risks
• Celebrate successes with all involved parties
• Use data to review, revise and continuously improve

Conclusion

There isn’t an easy one-size-fits-all solution as every business and industry has its own unique set of circumstances. There are solutions, such as PM Vitals, that have the flexibility to help effectively manage the process regardless of company size.

More specifically, PM Vitals’ Change Manager can help keep your project on schedule and in control. To learn more how PM Vitals can help improve your change management program, or any other aspect of your business, contact us for a demo or request a free quote.