How to Improve Change Order Management and Reduce Cost Overruns
Managing change orders effectively is one of the biggest challenges in capital project management. Unexpected changes can cause delays, increase costs, and create conflicts between teams. Without a solid plan, change orders can spiral out of control, leading to budget overruns and missed deadlines. However, with the right approach, teams can keep projects on track while minimizing unnecessary expenses.
This guide will explore how to improve change order management and reduce cost overruns in capital projects.
A change order is a formal document that modifies the original scope of work in a construction or capital project. It can be due to design changes, unforeseen site conditions, regulatory updates, or client requests. While some changes are necessary, frequent or poorly managed change orders can increase costs and delay project completion.
Incomplete or inaccurate project plans – If the initial plans lack detail or contain errors, changes will likely be needed later.
Unforeseen site conditions – Hidden issues such as poor soil conditions, utility conflicts, or hazardous materials can require adjustments.
Regulatory and code updates – Changes in building codes or safety regulations may require modifications mid-project.
Material or labor shortages – Supply chain issues can lead to substitutions or schedule changes.
Client-driven changes – Owners may request modifications to the design, materials, or functionality after work has begun.
A well-planned project with detailed documentation helps reduce the number of change orders. This means ensuring that designs are complete, specifications are clear, and potential risks are identified before work begins. Regular collaboration with stakeholders, including designers, contractors, and clients, can help catch potential issues early.
Having a structured process for reviewing and approving change orders is essential. This process should include:
A formal request and documentation of the reason for the change
An impact assessment covering cost, timeline, and resources
A review and approval step by key stakeholders
Proper documentation and tracking of approved changes
By following this structured approach, project teams can prevent unnecessary delays and avoid costly miscommunications.
Change orders often involve multiple parties, including owners, contractors, architects, and engineers. Clear communication and collaboration can help prevent misunderstandings and speed up the approval process.
Regular project meetings and updates can ensure that all stakeholders stay informed. Using centralized documentation systems where all parties can access up-to-date information also helps reduce confusion and errors.
Many change order issues arise from poor record-keeping and slow approval processes. Digital tools and project management software can streamline the process by:
Automating approvals and notifications
Tracking costs and impact assessments in real-time
Maintaining a central repository for all change orders and project updates
With better tracking and real-time data, teams can make informed decisions faster, preventing unnecessary delays and cost increases.
Change orders often stem from risks that were not properly accounted for in the initial planning phase. Conducting regular risk assessments throughout the project can help identify potential issues before they turn into major cost overruns.
This includes evaluating:
Site conditions
Market trends affecting material and labor costs
Regulatory changes that may impact compliance
By anticipating risks early, project managers can make adjustments before they lead to significant disruptions.
Even with careful planning, unexpected changes can still occur. Setting aside a contingency budget—typically 5-10% of the total project cost—can help absorb the financial impact of necessary change orders. This prevents budget overruns from derailing the project and ensures that necessary modifications can be made without financial strain.
Project managers, contractors, and stakeholders should all understand how to handle change orders efficiently. Providing training on:
How to properly document and submit change requests
The importance of timely approvals
Cost assessment and negotiation techniques
Educated teams can prevent unnecessary changes, improve efficiency, and reduce costly errors.
Examining previous projects can reveal common change order issues and provide insights into better management strategies. Regularly reviewing past change order data can help teams:
Identify patterns and recurring issues
Improve estimation and planning for future projects
Refine processes to prevent avoidable changes
By continuously learning from past experiences, organizations can improve change order management over time and reduce unnecessary costs.
Managing change orders effectively is crucial for keeping capital projects on budget and on schedule. By improving planning, setting clear processes, using technology, and maintaining strong communication, project teams can minimize disruptions and reduce cost overruns.
While change is inevitable in large projects, the key to success lies in managing it efficiently. With the right strategies in place, organizations can complete projects smoothly, maintain budgets, and achieve better overall outcomes.