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The Impact of Scope Change On Your Projects
All projects have scope change, and if you’re not managing it properly, you can lose money, time, and leave your clients very unsatisfied.
After 36 years of practicing architecture, I can’t think of a single project that hasn’t had a change order. If you’re one of those people who has completed a project without any scope change, I would love to hear from you. But I think if you make that claim, you might want to know about John C. Dvorak.
If you’re unfamiliar, he’s a columnist and broadcaster in technology and computing who made a famous statement back in 2005 during episode 18 of the TWiT (This Week in Tech) radio show. He stated that his hosting provider is so good that he “gets no spam.”
You can imagine what happened after he made that statement. The jokes still echo across the internet. The fact is - all your projects have scope changes. It’s just that you’re probably not acknowledging it.
HOW SCOPE CHANGE AFFECTS YOUR PROJECTS
There are several ways that scope changes can impact your project - and your firm. Some of these are good and others are just hideous.
Let’s break this down and have some fun.
I think one of the big reasons firms refuse to document scope change is it forces the firm to return to the subject of their fees. Most firm owners negotiate their professional services fee with the skill and cunning used by the Dutch when they swapped the island of New Amsterdam (later called Manhattan) for a little inaccessible and forgotten island in Indonesia. You managed to get your client to agree to your contract and you're so afraid to go back to the negotiating table that you just let these changes slide.
I’ve long argued that principals in AE firms need to bone-up on their business skills. This is typically the weakest part of our education. Sure, you can provide design services like no one else. But can you stand toe-to-toe with your client and make the case for your fees or do you back down because it’s a competitive market and you feel pressure to win the job at any cost?
Maybe you’re one of those firms that builds in excess fees to manage the expected scope changes, so you don’t have to engage in an uncomfortable subject with your client. If you do this, how in the world do you know the scale of the future change? Maybe you’ll be lucky and it will fit nicely into your buffer.
But what if it doesn’t?
Why not just be extremely precise in your contracts as to what is included in your fees, and what actions or events would trigger an additional service charge. This, of course, would make your fees more in line with the actual work, make you more competitive, and be fair.
So, learn how to talk about money with your client. If they are smart business people, you will be able to explain the change and they will honor it. If you aren’t on a solid footing with the contract and how the fee was presented in the first place, you’re bound to lose your argument and worse yet, lose money.
We are all intimately familiar with the contractor-issued change order or bulletin in which they are obligated to not only discuss the costs for the change, but also the impact on the schedule (if any). As a professional service firm, you’re most likely not responsible for the construction, but the impact on your firm is very often in dollars and schedule. Even if the work required to accommodate the scope change doesn’t impact the critical path, it generally involves labor that would otherwise not have been required. Maybe it impacts the schedule on another job since the resource doing the work is now otherwise busy dealing with the changes.
It’s important that your firm understand the resources required and the amount of time needed to address the change. I can guarantee that both time and money are involved (aren’t they the same thing?).
There’s this sardonic, old saying that probably originated with the 13th century philosopher, Dante Alighieri. Today, we’ve morphed his sentiment into the phrase: “no good deed goes unpunished.”
Depending on the nature of the change, it could dramatically increase your firm’s risk. I have a very personal example of this.
Many years ago, my firm was doing a simple remodeling and addition to a single-family residence in a beautiful suburb north of Chicago. Extremely late in the project, amid construction – the client asked if they could add a fireplace to their dining room. Our immediate response was “yes.” After all, how much nicer would any dining room be with a lovely fireplace.
We immediately set about to design the fireplace which included a small bump out for the firebox and chimney. Since we were so eager to improve the home, this was just one more thing that we were thrilled to do. Since the work really only required a couple of hours of our work, we didn’t even bother charging the client. Easy-peasy.
The contractor issued the bulletin regarding the increased construction costs which included labor and materials. The overall schedule wasn’t impacted.
Let’s fast forward.
It turns out that the flue required moving the windows in the primary bedroom above the dining room. Not only were those windows already framed, but now that they were relocated to the left and right of the chimney – they also had to be slightly smaller to fit in the wall.
Guess what? Those windows were already approved in our shop drawings months ago. They were already enroute to the construction site. They were no longer usable.
Guess who the client blamed for not anticipating this and finding a solution that wouldn’t waste their money?
But that doesn’t even begin to explain the real problem.
Guess who forgot to check the zoning and code analysis and recognize that the small 2-foot bump-out would conflict with the side-yard setback? Guess who inspected the property and realized it after the entire assembly was constructed; after all the masonry work was completed and the costly replacement windows (that the client asked us to pay for) were installed? Guess who had to cough up the money to pull it all out and find a new, code-compliant solution? Guess who still has two, brand-new, never-used windows sitting in a storage room?
THE SCOPE CHANGE SOLUTION
Now that I’ve touched on the money, schedule, and risk involved with scope change, I want to address the solution.
1. Have finely crafted contracts that are explicit with the scope of work and what will occur when this changes. Scope change can also be a reduction in the project. This can have implications regarding your fee and some of that fee may have already been spent by the time the change occurs. Having technology like BQE CORE provides the power of data, the KPIs you need to understand the actual effort required, the cost of that effort, and the appropriate contract amount to deliver the scope of work defined by your client.
2. Have the technology in your firm, like BQE CORE makes it simple for your firm to track the time and expenses associated with any scope changes. Ultimately, you can decide what to do with these costs (pass them on to the client), but at least having a system that makes it easy for you to identify the costs of scope creep to your project and firm is the power that your firm needs. Indeed, the platform even allows you to allocate the planned hours for these changes to employees and have them see what is expected of them while preventing them (if you decide), from putting more time into the work than budgeted.
3. Never jump to “yes” the moment your client requests something that appears to be a scope change. Instead, let them know if you like the idea and explain that you need to investigate the implications in order to understand the impact on the overall project, your fees, and the schedule. Use a platform like BQE CORE to easily document all the notes about your projects, your employees, and clients. With proper systems, you can easily find out where things went wrong and how to address these situations in the future.
Every project has at least one scope change. Sometimes it might be modest, and your firm may not want (or need) to return to the client for additional fees. However, documenting changes is essential for proper firm management. It may be necessary from a legal standpoint. It may be necessary for discussions about fees later in the project as repeated changes amount to a significant loss in profitability. It may be necessary in order to better understand repeat clients and their ability to take advantage of the firm.
Because you can never be certain what the reason will be, don’t let a single request for change go undocumented and untracked regarding time and expenses.
I’ll share one final story with you about how one of our BQE CORE customers deals with scope creep.
Their contracts explicitly state the hourly fees associated with changes. If, for example, they had an employee that performed work for $150/hour for basic services (as described in the original scope of work); they had a clause that would say when working on a change order, that employee bills out at $180/hour. That’s a 20% markup for the time an employee needs to spend on previously unplanned work. The firm had recognized that adding this bump to the hourly fees enabled them to make up for added risk and/or the impact related to the schedule.
In some cases, the employee ended up working overtime to enact the change and was able to be bonused because of this markup. Because BQE CORE allows firms to associate different billing rates for employees working on different phases or different tasks – the ability to do this is effortless. There is no manual effort expended in order to ensure that the client is being billed the proper amount for basic and additional services.
With this lesson in hand, I expect to see each of you reading this article today to change your internal processes.
Look at your proposal letters or contracts and make sure you address what occurs during a scope change and what defines a change in the scope of work. Sometimes it is as simple as deciding to go with some feature of a previously presented scheme after sign-off on a completed stage of work. Other times it’s a change in the construction budget or overall size of the project (in either direction). Don’t let it be ambiguous in your proposals.
Look at your internal processes and make sure you have the right technology, like BQE CORE, to make documenting and managing projects consistent, effortless, and intelligent.
For example, you might add a change order to a project and could automatically include a budget of 2 hours to perform a review of the zoning and code analysis. Not only will you get compensated for those 2 hours but you’ll reduce your risk.
If you’re truly savvy, you’ll be able to show your professional liability insurance carrier that you have instituted processes within your firm (BQE CORE), that help mitigate risk and should therefore benefit from a premium discount.
MANAGE SCOPE CHANGE TODAY WITH BQE CORE
Managing scope change doesn’t have to be difficult. In fact, with BQE CORE it can be easy. Book a demo today to see how BQE can help you save time and money while keeping your clients happy.