Change Order Management has always been an important process when executing projects. The process is fairly well defined and clean when there a request for a proposal or estimate from the owner that ultimately results in an approved Change Order and authorization for work. However, in the real world this is not always the case. Work may need to start prior to formal approval of a Change Order for a variety of reasons. These include Field Directives, Verbal Approvals or authorization by a Project Manager to prevent schedule impact on unavoidable out of scope work. The extent to which these are covered contractually may somewhat be grey and there is always risk involved.

From a Project Execution Viewpoint

From a Project execution viewpoint, the important issue is a clear recognition of the fact that costs are being incurred that have not been budgeted or formally authorized. It therefore becomes the responsibility of the Project Manager to justify increased costs. Certainly, one way to accomplish this is to record such costs as a variance and then update the budget upon approval of a change order. While it seems reasonable, the sheer volume of this activity and the whip-saw fluctuations in project margin can cause a lot of heart ache and make it difficult to understand the exact financial status of the project. An acceptable business process is to record such activity as a Pending Change Order. However, management needs visibility of margin risk. The ERP system needs to support this critical business process and the reporting necessary to provide visibility of risk on Project Financial Status reports. Please call us for a deeper understanding of how Microsoft Dynamics 365 and SIS PCM can facilitate this process for your organization.