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Quantitative Impacts of Project Change

by
C.W. Ibbs
&
Walter E. Allen

A Report to
The Construction Industry Institute
The University of Texas at Austin

Under the Guidance of the


Project Change Management Research Team

from
University of California
Berkeley, California
May 1995
Reviewed by CII 23Jun04
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1995 Construction Industry Institute.


The University of Texas at Austin.
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Printed in the United States of America.

TABLE OF CONTENTS
List of Figures. . . . . . . . . . . . . . . . . . . . . . . . . .

iii

List of Tables . . . . . . . . . . . . . . . . . . . . . . . . . .

iv

Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 1

Introduction . . . . . . . . . . . . . . . . . . . . .

1.1
1.2
1.3
1.4
1.5
1.6

Introduction . . . . . . . .
Nature of Study. . . . . . .
Purpose and Objective of the
Research Methodology . . . .
Chapter Summaries. . . . . .
Composition of Task Force. .

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Chapter 2

Literature Review. . . . . . . . . . . . . . . . . . .

2.1
2.2
2.3
2.4
2.5

Introduction . . . . . . . . . . . . .
Project Change Analysis. . . . . . . .
Project Change Management and Control.
Claims and Legal Issues. . . . . . . .
Construction Labor Productivity. . . .

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Chapter 3

Data Collection And General Analysis . . . . . . . . .

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3.1
3.2
3.3
3.4

Introduction .
Data Gathering
Data Gathering
Project Data .

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Chapter 4

Research Hypotheses And Analyses . . . . . . . . . . .

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4.1
4.2
4.3
4.4
4.5
4.6
4.7

Introduction . . . . .
Hypothesis 1 . . . . .
Hypothesis 2 . . . . .
Hypothesis 3 . . . . .
Questionnaire Analysis
Statistical Analysis .
Research Findings. . .

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4.7.1
4.7.2
4.7.3
4.7.4

Hypothesis 1 Findings.
Hypothesis 2 Findings.
Hypothesis 3 Findings.
Qualitative Findings .

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Chapter 5

Project Change Management Analysis . . . . . . . . . .

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5.1
5.2
5.3
5.4
5.5
5.6

Introduction . . . . . . . . . . . . . .
Total Project Contingency Draw-Down. . .
Project Change Ratios. . . . . . . . . .
Relationships Between Project Change and
Family of Curves for Schedule Recovery .
Project Budget Recovery. . . . . . . . .

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Chapter 6

Summary of Quantitative Findings and Recommendations .

76

6.1
6.2
6.3
6.4

Introduction . . . . . . . . . . . . . . . . . .
Hypotheses Findings and Recommendations. . . . .
Change Measurement Findings and Recommendations.
Summary. . . . . . . . . . . . . . . . . . . . .

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Research Questionnaire . . . . .
Cited and Un-Cited Bibliography.
Summary Tables & Graphs. . . . .
Glossary . . . . . . . . . . . .

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APPENDIX
APPENDIX
APPENDIX
APPENDIX

A
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C
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Schedule Overlap
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LIST OF FIGURES
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Questionnaire Respondents . . . . . . . . . . . . . . . . . .
Total Installed Cost (TIC) Distribution For All Projects Submitted
Types Of Project Owners Participating In Research . . . . . .
Type Of Construction For Projects Submitted . . . . . . . . .
Types of Projects Analyzed. . . . . . . . . . . . . . . . . .
Breakdown For Design/Build Projects . . . . . . . . . . . . .
Breakdown For Design/Bid/Build Projects . . . . . . . . . . .
Project Schedule Length . . . . . . . . . . . . . . . . . . .
Analysis I Constr. Change vs. Constr. Productivity. . . . . .
Project "S" Curves & Total Project Contingency Draw-Down. . .
Engineering Change (Final Cost/Initial Cost). . . . . . . . .
Construction Change (Final Cost/Initial Cost) . . . . . . . .
Total Project Change (Final Cost/Initial Cost). . . . . . . .
Engr. Change vs. Schedule Overlap . . . . . . . . . . . . . .
Const. Change vs. Schedule Overlap. . . . . . . . . . . . . .
Probability of Engineering Schedule Recovery. . . . . . . . .
Probability of Construction Schedule Recovery . . . . . . . .
Probability of Total Project Schedule Recovery. . . . . . . .
Probability of Finishing Over-Budget (Total $). . . . . . . .

iii

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LIST OF TABLES
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Summary
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I st Hypothesis. . . . . . .
I st Hypothesis (Continued).
I st Hypothesis (Continued).
I st Hypothesis (Continued).
I st Hypothesis (Continued).
2nd Hypothesis . . . . . . .
2nd Hypothesis (Continued) .
3rd Hypothesis . . . . . . .
3rd Hypothesis (Continued) .
3rd Hypothesis (Continued) .
3rd Hypothesis (Continued) .

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QUANTITATIVE IMPACTS OF PROJECT CHANGE


EXECUTIVE SUMMARY
The goal of this research study was to quantify the impact that changes have
on engineering and construction project performance. Using previous CII
studies and reports as a starting point, we developed and tested a series of
hypotheses about those impacts. We were particularly concerned with
identifying reliable, quantitative relationships between the amount and
timing of change and the consequences of such change. This report presents
our findings.
Our first research hypothesis was that:
o

Changes which occur late in a project are implemented less efficiently


than changes that occur early.

> were not able to prove this hypothesis to a meaningful level of


statistical significance, though we did find and do report in this
summary linear relationships between the amount of change and its
timing.
The second hypothesis of our study was that:
o

The more change there is on a project, the more of a negative impact it


has on labor productivity.

> We were able to prove this relationship in a variety of ways to the 5%


and 10% levels of statistical significance.
The third hypothesis was that:
o

The hidden or unforeseeable costs of change increases with more project


change.

> We were to prove this relationship in a variety of ways to the 5% and


10% levels of statistical significance.
In each case, linear regression models are presented in this report to
allow the reader to make general comparisons between specific project
experience and that of the 104 projects analyzed in this study.

In addition, we were able to extend our analysis in other directions.


For instance, the amounts of change for these projects are reported for the
engineering phase, construction phase and total project duration. The rate
at which change accumulates over the duration of a typical project is
illustrated, as are quantitative results for contingency usage. The amount
of project change is compared to the degree of design-construction phasing or
overlap. Finally, families of curves are reported which represent the
probabilities of late completion or budget overrun, given late or early
conditions at the 25% and 75% complete project status.
Based on these findings we offer recommendations to project managers for
improving their management of change.
Naturally, each design and construction project has its own special
characteristics. The results reported in this document therefore cannot be
used blindly or arbitrarily. However, these results do represent a step
forward in understanding how change occurs and affects projects. Many more
questions remain to be studied and learned. This particular report provides
a benchmark for future studies, both in terms of quantitative relationships
that have already been scientifically confirmed and in terms of research
methodologies.

vi

CHAPTER 1
INTRODUCTION
1.1

Introduction

The research has defined change as any event which results in a


modification of the original scope, execution time or cost of work. Project
change is restricted to the detailed engineering and construction phases of
building projects. This definition provides a framework for the research.
Project change has a tremendous effect on the financial performance of a
construction project. Proper management of project change can determine
overall project success or failure. Improper project change management is
exhibited in the increased incidence of negative impacts exhibited by project
cost overruns, claims and legal disputes.
A whole industry has developed to fight change order claims and legal
disputes. It is estimated that between $13 and $26 billion dollars [Allen
93] is spent on new construction change orders annually across the nation.
Additional financial resources are expended to resolve changes that lead to
claims and legal disputes. The total project change costs in the United
States could reach $50 billion dollars annually.
Change occurs throughout all phases of a construction project. Detailed
design and construction are very critical phases for project change. The
costs of rework for engineering drawings or installed materials can be
substantial in the late phases of a construction project.
Once a project has reached the detailed design phase, a substantial
portion of the project's scope is complete. Completion of detailed design
also signals the ultimate commitment of owners and financial institutions to
project construction. The construction phase leads to the commitment of
facility usage or the production of revenue producing products.

Project change during the detailed design and construction phases leads
to major disruptions of planned schedules, work methods, productivity and
overall project performance.
Research that focuses on the quantitative impact that change has on the
detailed design and construction phase of projects is limited. This study
expands the body of knowledge concerned with project change during detailed
design and construction.
In the aspects of labor productivity and schedule
recovery, the study has developed graphs to measure or compare project
change.
1.2

Nature of Study

The Construction Industry Institute (CII) sponsored this research to


improve the industry's understanding of project change.
The goal of this
study is to quantify the nature and impact of change so that owners and
contractors can manage change better.
This research will serve as a catalyst for project change discussion
between owners and contractors. By improving the industry's understanding of
change there should be a reduction in legal disputes and other negative
aspects of project change implementation.
This will improve efficiency,
effectiveness and owner satisfaction in the construction industry.
The University of California, Berkeley team conducted this study between
June 1992 and February 1995. Meetings were held approximately every six
weeks to plan and review the research with the full Task Force and
incorporate their suggestions.

1.3

Purpose and Objective of the Study

The goal of this research is to quantify the impact of project change


during the detailed design and construction phase. The research examines the
effects of project change on the macro and quantitative level, and sets a
foundation or benchmark for the industry.
The study's objectives are built around testing three research
hypothesis. The first hypothesis is:
Changes that occur late in a project are implemented less efficiently
than changes implemented early.
This hypothesis is based on the belief that the later change occurs in a
project, the less efficient and more costly is the total change cost. This
results in inefficient, ineffective and unsatisfactory project performance.
The second hypothesis is:
The more change there is on a project, the more of a negative impact
there is on labor productivity.
This hypothesis is based on the belief that when a larger amount of
change occurs on a project there is a compounding and negative effect on
total project efficiency.
This compounding effect may occur in all phases of a project, but this
study focused on the detailed design and construction phases of a project to
limit its breadth. This compounding effect of multiple project changes is
poorly understood, difficult to measure, and seldom reflected in the
estimated cost of individual project changes. It becomes apparent when work
cannot be completed on time and labor productivity does not measure up to the
anticipated level of efficiency. Project managers sometimes refer to the
compounding effect of multiple project changes as the "ripple" effect.

The third and final hypothesis was developed late in the study:
The Cumulative Change Effect (&) increases proportionately to the amount
of change on a project.
The research team defines the Cumulative Change Effect, as the amount of
change exhibited on a project arising from multiple changes being implemented
over the course of an entire project. Cumulative change effect (&) is
widely understood to exist in the industry but difficult to quantify.
1.4

Research Methodology

A questionnaire was developed to collect the quantitative data needed


for analysis. CII Task Force Members and University Researchers collaborated
on its development. A pilot version was tested with some task force
companies prior to a revision and mailing to the full CII membership.
The pilot test revealed that period productivity information was not
generally available in owner or contractor project files, especially for
completed projects. The questionnaire was revised to collect project change
data at quartile and end of project milestones. The pilot test was
invaluable in identifying this problem in our initial assumptions, prior to
sending a questionnaire to the CII membership.
Each CII member company was asked to select five or more projects that
they were involved as either owner, contractor or construction manager. The
project selection criteria were established as:

o
o
o

Projects should have a Total Installed Cost (TIC) over $10 million
Project should have been completed within the last five years
Projects could be either domestic or foreign so long as costs and
performance were not greatly influenced by currency exchange

The 14-page questionnaire (Appendix A) was sent to 90 CII member


companies. The research team requested that a variety of completed projects
be submitted. The data collection objective was to compile project
performance data that were accurate and well organized. Questionnaires were
returned from 35 different organizations, representing 104 projects that
involved over $8 billion in Total Installed Cost (TIC).
The quantitative data requested were retrieved from completed project
records by company representatives familiar with the information. Project
cost, productivity and schedule data were the primary focus of the
questionnaire and research. The questionnaire also provided a means for
collecting data on contracting strategy, business relationships and contract
administration.
The data analysis phase evaluated quantitative data to test the research
hypotheses. Additionally, several project control tools were adopted from
existing research to analyze project change control. These included
engineering and construction productivity trend lines, project costs and
schedule family of curves, contingency draw-down graphs and project "S"
curves for the projects analyzed.
A total of 79 statistical analyses were completed for the data analysis.
Each analysis has a corresponding graph that represents the research
findings. Of the 79 statistical analyses, 32 statistical analyses passed
acceptable standards of veracity. Summary tables of the statistical analyses
are included throughout this report and provide:
o
o
o
o
o
o

Analysis number
Variables to be tested and data source
Number of observations
Simple statistics (Mean, Standard Deviations)
Correlation analysis (Coefficient and Significance Level)
Regression analysis (Best-fit line)

All the graphs and charts developed from this research are provided at
the end of the report in Appendix C Summary Tables & Graphs.
1.5

Chapter Summaries

Chapter 2 discusses the literature search conducted to frame the Task


Force research.
This section also discusses project management research
that is related to the control and analysis of project change.
Chapters 3 describes the data collection and general analysis completed
by the Berkeley research team. The chapter also describes how the project
data are organized.
Chapter 4 discusses in detail the three major hypothesis of this
research. Testing the three hypothesis is the foundation for this research.
The concepts and theories investigated to develop the hypothesis are
contained in this chapter. This chapter also provides additional detail on
the statistical tests performed to prove or support the hypothesis.
Additional data analysis and graphical representation were completed to
enhance existing project control tools and are presented in Chapter 5. The
project control tools classified as the Family of Curves for Schedule
Recovery, Total Project Contingency Draw-Down, Project Change Ratios,
Probability of Finishing Over-Budget are explained in terms of development,
findings and usage.
Chapter 6 summarizes this study s findings and presents recommendations.

1.6

Composition of Task Force

The Task Force is represented by a wide range of construction industry


executives and project managers in private industry. There are 15 CII Task
Force members. Four members of the full CII Task Force and three members
from the University of California, Berkeley were members of the Research
Subcommittee.
Name
Michael Wheeler
James McM Backes*
James C. Belote
T.E. Thomason
Vincent Salerno
Leif R. Grotness*
Thomas Gore
Dwight A. Fiveash
Ronald L. Striebel
Bruce M. Cowan*
Donald E. Ellis*
Hollis R. Brown
David Ankrett
Michael Scott
C. William Ibbs*
Walter E. Allen*
Michael Wang*

Company/Organization
Anheuser-Busch Companies, Inc.
Bechtel Petroleum, Chemical & Industrial Co.
Bechtel Petroleum, Chemical & Industrial Co.
Bechtel Corporation
BGP Services/Belcan Engineering Group, Inc.
Exxon Chemical Company
Graycor, Inc.
Hoechst Celanese Corporation
John Brown E&C
MK Ferguson Company
Merck & Co., Inc.
Mobil Research & Development Corporation
Ontario Hydro
Tennessee Valley Authority
University of California - Berkeley
University of California - Berkeley
University of California - Berkeley

*Research Subcommittee

CHAPTER 2
LITERATURE REVIEW
2.1

Introduction

An extensive literature search was conducted to identify completed


research in the area of project change.
On-line literature databases at the
University of California, Berkeley, and Stanford University were searched to
identify books, periodicals and articles that defined project change.
There is an abundance of literature written on the subject of
construction change. Most of this material comes from the legal community.
There is also literature on project change in the area of information
systems, product development and manufacturing change. Organization,
technology and social structure change are interesting, but outside the scope
of this CII research.
A bibliography is provided in Appendix B. The bibliography is divided
into two sections. One section lists the cited references. The other
section lists the uncited references which provide additional resources in
the area of project change and related project management research.
Completed project change research is generally focused on the management
of change. The two largest areas of completed change management research are
under legal issues and control systems. Studies completed in the legal area
tend to discuss the 1) legal causes of change and 2) legal mechanisms for
resolution. Research on change control systems is focused on the managerial
and administrative procedures for processing change and applicable advances
in information technology.

The majority of this previously-completed research discusses the


qualitative effects of change. Most of the earlier research did not focus on
the quantitative effects of project change because of the difficulty in
obtaining accurate and consistent quantitative data. This research begins to
address some of the more difficult quantitative issues surrounding project
change.
2.2

Project Change Analysis

In the construction industry there is a substantial amount of research


that looks at the classification of change.
The classification of change
has been examined to determine the causes and types of change that appear on
projects [Diekmann 85], [Jacobs 78], [Clark 90].
A related article in the
Transactions of the American Association of Cost Engineers Construction
Productivity: Major Causes of Impact, suggested that the three major causes
of change orders are [Leonard 88]:
Design Errors & Omissions
Design Changes
Unforeseen Conditions

65%
30%
5%

The University of California, Berkeley completed an earlier research


project that published Construction Changes and Change Orders: Their
Magnitude and Impact [Hester 91]. This research focuses on identifying
change order impacts on labor productivity at the craft level.

It indicates that even a small number of changes, two or


significant negative impact on labor productivity. Also, the
discovered that fine motor skills, exhibited by electricians,
adversely impacted by change than gross motor skills utilized
equipment operators.

three, has a
research
are more
by heavy

The Hester research in fine and gross motor skill productivity impacts
is further supported by an article written in the Canadian Journal of Civil
Engineering Impact of Change Orders On Construction Productivity , [Moselhi
91]. This article also supported some of our findings in stating that few
contractors maintain adequate job-site records to allow evaluation of impact
costs for individual change orders. In addition, some contractors do not
realize that they have incurred impact costs until final profit and loss
statements indicate a sizable loss. Oklahoma State University completed a
research project that examined the Early Warning Signs of Project Change
[Zeitoun 92]. This research focused on identifying factors that are known
prior to the commencement of construction, for the purpose of providing early
warning signs of project cost and schedule growth. The research analyzed
fixed price and cost reimbursable projects separately.
The Oklahoma State University study identified seven early warning signs
which exhibited statistical correlation with end of project cost and schedule
growth:
o
o
o
o
o
o
o

Money left on the table


Number of bidders
Project Execution Format
Bid Solicitation
Owner Type
Driving Factor - Quality, Cost, Schedule
Work Distribution

10

One
cost and
specific
were not

of the key findings of this research was the identification of high


schedule growth in the last quartile of project construction. The
reasons for high project growth in the last quartile of construction
addressed in the research.

The researchers did accredit project cost and schedule growth to project
change.
For 71 of the fixed price projects, the average cumulative cost
growth was 11.5% and the median cumulative cost growth was 8.6% at the end of
the fourth quarter.
2.3

Project Change Management and Control

Change control research is focused on controlling the cost and schedule


impact of change and also, tracking the change during implementation.
Several articles in the Project Management Journal and American Society of
Costs Engineers Journal have been dedicated to the management of change.
Once again these articles tend to focus on the qualitative aspects of change
management.
An article in the Project Management Journal Project Management: Theory
Versus Application, claims that one of the major problems facing project
control is the lack of a methodology or process for project startup [Bitner
85]. Once the methodology is established and understood by project
participants it could be used to control project change and other aspects of
the project: project plan, organization structure, project control schedule,
control budget and implementation plan.
A related article published in the Project Management Journal A Systems
Approach to Project Evaluation, discusses the techniques of a systems
approach to project change evaluation [Anbari 85]. The article evaluates the
project as a complete system with inputs, process, outputs and feedback.
The subsystems evaluated are defined as: project scope, time, cost, quality,
human resources, and communications.

11

Another article published in the Project Management Journal Modeling


Construction Change Order Management, presents a simple circle and line
diagram that contrasts the American Institute of Architects model with
another model commonly found in the construction industry for processing
change orders [Krone 92]. The author does not recommend one change order
process over another, but does stress the importance of establishing some
procedural model, for change order processing, which should be agreed on in
the preconstruction phase.
An article that supports the system concept of change management was
written in the American Society of Cost Engineers Transactions Documentation
and Verification in the Change Order Process [Dellon 88]. The author
examines the process of evaluating and analyzing change orders for
implementation or rejection. The article provides a support system of
documentation and guidelines for evaluating project change orders.
2.4

Claims and Legal Issues

The greatest amount of resources and research have been directed towards
identifying the causes of construction claims [Mitchell 82], [Rubin 89],
[Simon 89]. Throughout the literature the terms change orders, disputes and
claims are loosely used interchangeability. Task Force 43 adopted a more
precise terminology.
Project change orders are defined as the mechanism to recognize,
evaluate, implement and (ideally) continuously improve change order
management from the lessons learned during project execution.
Change
orders are the first step in reducing the negative impact of project change.
The American Arbitration Association has developed a wealth of
information and research related to dispute resolution. One publication
which lays out the dispute process for the construction industry is The
Contract Dispute Resolution Continuum, Part V, ADR: A Practical Guide to
Resolving Construction Disputes, [Kellogg 91].

12

Disputes occur out of unresolved change orders and require no legal


actions. For example, a contractor may file a dispute to register
dissatisfaction with the lower price that an owner has approved for project
change implementation. The contractor may feel that the owner is not
considering the total impact of change implementation. By the contractor
filling a dispute, they are proceeding with change implementation, but under
protest or dispute. The dispute allows the project to continue.
Also, the
owner is allowed to reevaluate the change order during the dispute process.
Disputes may be resolved after reconsideration by both owner and
contractor on the project site. They may need to be resolved by upper
management who are sometimes removed from specific job-site issues.
The dispute process can be resolved with minimum costs and complexity through
Dispute Review Boards (DRB), Negotiation by Party Principals or Mediation.
The dispute process becomes more costly and complex with Mini-Trail,
Rent-a-Judge/Jury or Arbitration. If the owner and contractor organizations
can not resolve the dispute, the next step in the process is escalation to a
claim.
Claims are defined as disputes or problems that can not be resolved
without legal proceedings. Claims require a tremendous amount of resources
and attorney involvement. If at all possible claim situations should be
avoided. Claims create a lose-lose scenario for contractors and owners.
The American Society of Civil Engineers has published a booklet
entitled, Avoiding Contract Disputes, which provides a series of research
articles for avoiding and resolving disputes in the construction industry.
One research article that is particularly relevant to this CII research is
The American Association of Cost Engineers Claims Project. The article
stresses the importance of moving the industry away from cause and effect of
claims to costs principles [O Connor 85]. The article states the failure of
parties involved, as well as construction professionals, to develop cost
analysis techniques (e.g., cost principles) which relate damages to change
has had a detrimental effect. A large portion of the research directed
towards claims is focused on construction contract research which attempts to
show that various contract clauses have different performance results during
project execution. Research that has focused on the causes of claims suggest
that a well-written contract in invaluable in the prevention of claims
[Wilson 82].

13

A carefully prepared contract that clearly defines the rights and


responsibilities of each party will establish a foundation for minimizing
construction claims.
However, the contract terms and conditions must
be filtered down to on-site project managers and foreman that are involved in
daily operations. The types of record keeping, change order evaluation,
approval and implementation needed to process change orders and prevent
claims must be developed and utilized during project execution.
2.5

Construction Labor Productivity

One of the major issues facing the construction industry is decreased


project productivity experience as project complexity and interdependency
increase on large industrial projects [Paulson 75]. This research indicated
that traditional organizational structures function well on smaller projects,
but tend to breakdown when project size increases.
It has been argued that productivity problems are compounded on large
industrial projects by the many change orders or revisions and overtime that
are frequently characteristic of complex projects [Borcherding 76].
The
Borcherding article went on to state that when changes are expensive and
unexpected, or a demand arises to expedite or reschedule the completion of
certain phases of the work, productivity loss occurs; i.e., personnel must be
reassigned or new crews formed and new personnel added to existing crews.
When personnel are added, a period of familiarization must be considered,
creating a learning curve productivity loss.
Change order work diverts the
field supervisor s attention from the basic contract work and this usually is
not offset by adding supervisory personnel.

14

The Journal of Construction Engineering and Management has published a


number of articles on the research being conducted in the area of
construction labor productivity. One of the most recent articles is Action
Response Model and Loss of Productivity in Construction, which discusses a
graphical model that depicts how a variety of factors may interact to cause a
loss of productivity and how management action may mitigate, eliminate,
initiate or exacerbate labor productivity performance [Halligan 94].
Other related and significant articles published in the Journal of
Construction Engineering and Management are [Maloney 83], [Thomas 92]. The
Maloney article, Productivity Improvement: The Influence of Labor, presents
a frame work for analyzing the influence on labor productivity.
He suggest
that project managers should reduce the negative forces and strengthen the
positive forces to increase labor productivity.
"Effects of Scheduled Overtime on Labor Productivity," written by
Thomas, rigorously examines the effects of scheduled overtime on labor
productivity. This article is interesting and relevant because project
changes are often estimated and implement based on scheduled overtime.
Thomas states that although there may be positive short-term benefits to
working an overtime schedule, the long-term consequences are typically viewed
as detrimental.

15

CHAPTER 3
DATA COLLECTION AND GENERAL ANALYSIS
3.1

Introduction

All CII member companies were asked to participate in this study to


increase the sample size and collect project data from a wide range of both
owner and contractor organizations. The CII membership consists of
approximately 90 organizations that are involved in all phases of the
construction industry.
3.2

Data Gathering - Questionnaire

Many CII companies submitted responses to our questionnaire. In some


cases individual companies submitted as many as seven. The average number of
responses submitted was three for all participants. Additional information
concerning change control, cost growth, schedule slippage and general project
management issues was collected and proved beneficial to the overall study.
The questionnaire developed for this study was completed after extensive
input and review by the research subcommittee, and the full task force. A
pilot test was performed with selected CII member companies inside the task
force. The research sub-committee worked to develop a questionnaire that
specifically identifies the quantitative data needed to manage project change
and conduct rigorous data analysis.
The first pilot test attempted to collect monthly period productivity
and change data for detailed quantitative data analysis. The period data
would have allowed the research subcommittee more precise data to examine in
what period change occurred, its impact on period productivity, and the
amount of change to anticipate. The pilot test indicated that firms were
either not collecting or not preserving in easily-retrievable manner the
needed level of detail to analyze period productivity.

16

The Berkeley research team and subcommittee redesigned the questionnaire


format to request data that is commonly collected on projects: period costs
and schedule information, and end-of-project productivity data.
The format of each question was reviewed to determine the easiest and
most straightforward method to request the research data. The majority of
quantitative data needed is organized on three pages of the questionnaire. A
data table, Page 11 of Appendix A, is the central data collection tool for
the questionnaire. Page 5 of Appendix A is designed to collect Original and
Final Control Budget information. The remaining quantitative data collection
effort, Page 12 of Appendix A, is arranged to collect engineering and
construction productivity data. The questionnaire was designed to be
completed by senior cost engineers and project managers who are familiar
with a specific project. The data needed to complete the questionnaire
require someone with a good understanding of an organization's internal
control systems and who knows how to retrieve the data requested.
The questionnaire was completed and mailed to the entire CII membership
in July 1993. One month after the questionnaire was mailed, follow-up phone
calls were placed to determine their status within the CII companies. Most
questions were resolved quickly over the phone during the follow-up telephone
call. A copy of the questionnaire s final version is provided in Appendix A.
Task Force follow-up was helpful in tracking questionnaires and
directing them to project managers and cost engineers with the specific
project experience needed to complete the questionnaire. Task Force members
initiated follow-up within their own companies and worked with other industry
contacts to promote timely completion of the questionnaire. The follow-ups
also provide qualitative information on the ease or difficulty with
completing the questionnaire and identifying those companies that would not
participate in the study. Completed questionnaires were sent directly back
to the University and confidently controlled. Two letter codes were used to
identify the 104 different projects submitted.

17

The first closing date


After discussions with Task
decision was made to extend
gave companies more time to
study's sample size.
3.3

for data collection was September 17, 1993.


Force members and CII member's comments, the
the closing date to December 31, 1993.
This
participate in the study and increased the

Data Gathering -- Interviews

After reviewing submitted questionnaires and beginning data analysis,


interviews were conducted with project mangers and cost engineers of three
CII member companies. The purposes of these interviews were to:
1)

resolve unanswered questions on the questionnaire

2)

clarify interpretations

3)

obtain an understanding of the assumptions respondents used when


completing the questionnaire

University researchers scheduled a full or half day with company


representatives at a particular company headquarters or project site.
Interviews were scheduled with several different project personnel that
worked on the particular project submitted and other personnel in the project
controls organization. The average time for interviews was approximately one
hour. The primary focus was the questionnaires and projects submitted for
the study. Company interviews provided the research team a true
understanding of submitted projects and specific project control systems used
by CII participants. This information was helpful in understanding completed
questionnaires and CII company project change control systems.

18

3.4

Project Data

The largest percentage of questionnaires were returned by Owner organizations


(42) and firms that specialize in Engineering/Procurement/Contractor
operations (31). Other questionnaires were submitted by Engineering/Design
firms (13), Construction Managers (10) and Contractors (3). It should be
clarified that these percentages represent the functional roles filled on the
specific project(s) submitted by participating organizations. See Figure 1.

The Total Installed Cost (TIC) for project submitted range from a low of
$3.2 million to a high of $1.2 billion. Most of the projects were in the 0
to $100 million range (80.8%) with the biggest percentage in the $50-100
million range (25%). The largest percentages of projects over the $100
million threshold had a project range between $150-400 million (13.4%). Only
a few projects broke the $400 million barrier (2%).
TIC was one of the research project criteria for selecting submitted
projects. We requested that submitted projects have a TIC over $10 million.
Ninety-two percent of the project submitted did meet or exceed the TIC
criteria. Eight projects had TIC less than $10 million and of these three
were less than $5 million. A complete distribution of projects submitted can
seen in Figure 2.

There are 12 projects in which companies reported filling more than one
role during the project. For example, an EPC contractor that also had
Construction Management responsibilities or an owner that completed the
engineering and design portion of the project in-house is sometimes reported
in two categories. In these cases each role was recorded separately.
Most of the questionnaires and data submitted for this research project came
from the private sector. All the EPC, Engineering/Design, Construction
Managers and Contractor organizations are in the private sector. Private
industry owners represent 87% of the total sample size. The remaining
questionnaires submitted by owner organizations represent 11% from government
agencies and 2% from organizations that were joint public/private
partnerships or some other joint responsibility for project success. See
Figure 3.

There was about a 60/40 split between projects that were New
Construction and Revamp (Renovation). The specific percentages were 57% for
New Construction and 43% for Revamp projects. Figure 4 further illustrates
the difference in project type.

The projects and data submitted came from a broad cross-section of the
industrial private sector. The four leading types of projects submitted for
this research came from the following industries:
o
o
o
o

Refinery
Manufacturing
Petroleum/Natural Gas
Pharmaceutical/Chemical

A complete analysis of types of projects submitted and analyzed for the


research is provided in Figure 5.
22

The two major forms of contracting strategy were Design/Build (34.6%)


and Design/Bid/Build (46.2%). The other 19.2% of projects used some other
form of contracting strategy or did not indicate the type of contracting
strategy used for project execution. Two pie charts, Figure 6 & 7, provide a
more detail representation of the project contracting strategy for
Design/Build and Design/Bid/Build in terms of cost reimbursement.
23

Lump Sum and Cost + (Fixed or %) Fee comprised 75% for Design/Build Projects
submitted. Similarly the majority of projects submitted under the Design/
Bid/Build (50%) contracting strategy came from the Lump Sum and Cost + (Fixed
or %) Fee. It seems that the major difference in the two analyses and
charts, is the difference in combinations and unknown projects that could not
be easily classified.
24

Engineering design and construction schedules averaged approximately 16


and 15 months respectfully for submitted projects. It is interesting to note
that engineering design schedules were one month longer than construction
schedules. Overall or total project schedules were approximately 23 months.
Most of these projects had overlap between engineering design and
construction. The construction phase of these projects generally started
around the 40% point of engineering design to be completed in 23 months.
Project schedule lengths for the different phases can be seen in Figure 8.
25

The graphs and charts presented in this section provided a general


overview of the data source for the research. Also, the section provided
broad industry data for project comparison. The following chapter provides a
more detailed and statistical analysis of the research.
26

CHAPTER 4
RESEARCH HYPOTHESES AND ANALYSES
4.1 Introduction
This research has three hypothesis. Hypotheses 1 and 2 were developed prior
to starting the research, and Hypothesis 3 was developed as a result of
conducting this research. They are:
1.

Changes that occur late in a project are implemented less efficiently


than changes that occur early in the project.

2.

The more change there is on a project, the more of a negative impact


there is on labor productivity.

3.

Hidden change increases with more project change.

Each hypothesis was statistically analyzed and evaluated with similar


research criteria. The statistical test performed to verify the hypotheses
included the student's t-test to measure significant differences between the
means of two samples; linear regression analysis to find the best fit linear
line; and confidence interval fitting to create a range of reliability.

27

4.2

Hypothesis 1

Hypothesis 1 is developed from CII owner and contractor experience. CII


Task Force representatives felt that late project change is one of the most
critical issues facing the construction industry.
Early in the discussion of research topics and the formation of
hypotheses to test, the concept of late change being detrimental to project
success was common to a majority of project manager s experience.
Intuitively, the thought of making changes to a building s foundation after
placing concrete is not cost effective or efficient. On the other hand,
beneficial changes that improve a project s operational or safety performance
through early identification and implementation can improve overall costs
performance. Another aspect of project change is the perspective or vantage
point from which you evaluate and assess project change. What is beneficial
to one party may be detrimental to another.
Clearly there is a balance between early, beneficial change and late,
detrimental change. The earlier project change is identified, evaluated and
communicated to those affected, the easier it is for the impacted parties to
plan and adjust for project change. Identification and implementation of
late project change places impacted parties in a reactionary situation that
generally has an adverse effect on labor productivity and project
performance.

28

The premise of Hypothesis 1 is that the ratio of a change's material


cost installed and charged to a the project relative to a change's Total
Installed Cost (TIC) will decrease over a project's duration. This change
ratio is an indication of the efficiency when implementing late change into a
project. In other words, if late changes are implemented less efficiently,
their ratio should be higher in the earlier stages of a project and lower in
the later stages. More labor would be necessary for a change implemented
late, all other factors being equal. The Change Ratio for Hypothesis 1 is
represented as:
Change Ratio = Permanent Material/Total Installed Cost
Data for the Change Ratio was taken from the Total Project Change Impact
Table on Page 11 of the questionnaire. Permanent Material is taken from Col.
8 and includes the cost of permanent materials and equipment installed into a
facility. Total Installed Cost (TIC) is the sum costs of columns 8 through
11 and includes: Permanent Material; Construction Labor Col. 9 (cost of all
construction labor and immediate supervisors); Engineering Labor Col. 10
(cost of all engineering labor and immediate supervisors); Other Costs Col.
11 (includes all owner costs, engineering personnel, construction indirect
personnel, subcontractors, and construction equipment and materials).
In addition to the columns needed to develop the Change Ratio, column 3
on Page 11 and questions 11 and 13 of the questionnaire were used to validate
Hypothesis 1. Column 3, Project Week Actual, contains physical milestones on
the project as they were actually achieved. This column serves as a project
calendar that starts with detailed engineering and ends with actual
construction completion. Question 11 or Q11 was the project s Original
Control Budget (OCB) which established the project s initial budget and was
comprised of:

29

engineering labor
construction labor
permanent materials
other expenses
Question 13 (or Q13) was the Final Control Budget (FCB) recorded at the end
of the project and consisted of the same four parts that made up OCB but at
project completion.
4.3

Hypothesis 2

The core concept for Hypothesis 2 is that greater amounts of change have
greater negative impacts on project performance. This hypothesis in effect
refers to the ripple effect of project change. Research published which
postulates the existence of such ripple effects includes [Oglesby 89],
[Thomas 90] [Halligan 94], [Hester 91] and [Zeitoum 92]. None of this
research, though, presents quantitative data from a large and broad number of
actual jobs.
To test this hypothesis, we measured productivity by using labor-hours
and defining productivity as:
Productivity Index = Earned Workhours

Expended Workhours
The Productivity Index (PI) is for those activities having measured
productivity. This is consistent with CII s definition of productivity [CII
2-3]. PI greater than 1.0 is favorable; less than 1.0, unfavorable.

30

Three formulas were developed to test the relationships between project


change and productivity. Various questionnaire data were used in the three
formulas to test the hypothesis. The tests and data resulted in generating a
total of ten formulas.
The three formulas examined project change and productivity relationship
for detail engineering, construction and total project performance. The
formulas are represent by questions 24 through 29 (Q24-Q29) which contained
the following project information:
Q24 - labor-hours expended for engineering
Q25 - labor-hours expended for authorized changes
phase
Q26 - labor-hours earned/expended labor-hours for
Q27 - labor-hours expended for construction
Q28 - labor-hours expended for authorized changes
phase
Q29 - final project productivity for construction
earned/expended labor hours

during engineering
engineering
during construction
labor-hours

Questionnaire data was arranged in the following relational format:


Construction Change (Q28/Q27) vs. Construction Productivity (Q29)
Engineering Change (Q25/Q24) vs. Engineering Productivity (Q26)
Construction or Engineering Change vs. Total Productivity (TP)
A formula for Total Productivity (TP) was developed to examine the
impact and relationships of total project change during detail engineering
and construction separately and collectively:
Total Productivity = [(Q26*Q13's Eng. Labor) + (Q29*Q13's Constr. Labor)]

[Q13's Eng. Labor + Q13's Constr. Labor]

31

4.4

Hypothesis 3

Hypothesis 3 evaluates the hidden costs associated with change. Hidden


costs are defined as costs not readily apparent or missed when evaluating
project change implementation. A major problem with the execution of project
change is failure to consider all the costs associated with implementation.
Direct costs such as material, equipment and labor or established indirect
costs in the form of overhead are fairly easy to identify and account for in
project change estimates. The more difficult task is estimating or
predicting the hidden cost associated with change implementation; i.e.,
delays, lowered productivity, poor communications or rework.
The first research objective was to identify and quantify the hidden
cost of change. We quickly discovered that it was impossible to accurately
estimate all hidden costs associated with implementing change prior to change
implementation. Even after project change is implemented, it is difficult to
capture and account for the ripple effect as explained in Hypothesis 2.
Understanding the difficulty in achieving our initial research objective, we
elected to evaluate the trends and relationships between hidden costs and
different project phases. The research team still needed some mechanism for
representing the hidden cost of change. For the purpose of this research the
hidden costs or unknown quantity of change is labeled by the ampersand symbol
(&).
In developing Hypothesis 3, the research team postulated that there are
hidden costs associated with total project change. It should be emphasized
that hidden cost are additional costs to established standard direct and
indirect cost. Sometimes, as a loose definition, hidden costs are classified
as extended overhead which is a form of indirect costs.

32

For this research, hidden costs are characterized as having two


components, impact costs and consequential costs. Impact and consequential
costs differ in how they relate to total project costs. Impact costs are
project related and consequential costs are non--project related. The formal
definition of impact and consequential costs are:
1. Impact Costs are the indirect effects that changes have on project
budgets and schedules as a result of delays, lowered productivity and
material wastage. These costs are some time referred to as ripple
costs.
2. Consequential Costs follow as an effect of change because they are
non-project related but can be traced to project change after
implementation. Some examples of consequential costs are lost
supervision time for another project, resolving material supply problems
on reorder parts, and other problems outside the project.
Having identified the two components of hidden costs, the next task was
to develop a formula to test Hypothesis 3. The variables and quantities used
to develop the formula are:
(1)
(2)
(3)

final cost of the project


final control budget
documented costs of change

These variables listed above lead to the development of the formula to test
Hypothesis 3; which is:
(&) = Final Cost (Q0) - Final Control Budget (Q13) - Known Change Final Value
(Col.7)
The (Q0) represents question zero on the questionnaire which is the
total cost information requested in the overall project description on the
first page of the questionnaire. Similarly (Q13) represents question 13 on
the questionnaire which requested the project s final control budget.
(Col.7) denotes the seventh column on Page 11 of the questionnaire table,
which requested the project s Known Change Final Value.

33

The Berkeley research team postulated that both positive and negative
project change impact overall project productivity. The reasoning behind
this assertion is that project change which may add or subtract from a
project s initial scope or original budget will nevertheless have
repercussions. Examining a number of project changes over the course of
project execution, positive and negative change could cancel each
other out or result in a net change of zero. Both the absolute and net
values of & therefore were examined for Hypothesis 3 to determine the total
effect of project change.
Total Project Change, Construction Change and Engineering Change were
tested to validate Hypothesis 3. The specific analysis and relationship
graphed are:
12-1
12-2
12-3
12-4
12-5

Eng. Change (Q25/Q24) Versus &/FCB


Construction Change (Q28/Q27) Versus &/FCB
Total Change (Col. 7/Q0) Versus &/FCB Note: Final value of Col. 7
Total Change (Col.7/Q13) Versus &/FCB Note: Final value of Col. 7
Total Change (Col. 4) Versus &/FCB Note: Final Value of Col. 7

Two additional variations of the above listed formulas or analysis were


conducted in support of validating Hypothesis 3.
Q24 - labor-hours expended for engineering
Q25 - labor-hours expended for authorized changes
phase
Q26 - labor-hours earned/expended labor-hours for
Q27 - labor-hours expended for construction
Q28 - labor-hours expended for authorized changes
phase
Q29 - final project productivity for construction
earned/expended labor hours

34

during engineering
engineering
during construction
labor-hours

4.5

Questionnaire Analysis

A completed questionnaire was critical to hypothesis analysis. Only 20


or 19% of submitted projects had sufficient data to conduct the analysis for
Hypothesis 1. Many of the project questionnaires contained partial or
incomplete data on Page 11, which reduced the sample size. Two major reasons
for organizations not completing Page 11 were:
o
o

never had the data


the data were not retrievable

Numerous project representatives commented that: we don t keep information


in this format or if you would have asked for this at the start of the
project, we could have easily collected this type of information.
Data from Page 11 of the questionnaire in Appendix A are the single
factor in determining which projects are analyzed for Hypothesis 1. The data
sheet is arranged by rows in two sections, for detailed engineering and
construction. There are 13 columns on the Page 11 data sheet useful for
collecting project schedule, cost and change characteristic data. Details
that explain each column and instructions for completing Page 11 are also
included on Page 7-10 of the questionnaire.
From the 20 projects selected for analysis of Hypothesis 1, 118
engineering and 149 construction data points were extracted for each
analysis. Owner organizations submitted 13 of the 20 projects analyzed for
Hypothesis 1, and the remaining 7 projects are from contractor organizations.
There is an even split in contracting strategy between Design/Build and
Design/Bid/Build for the execution of projects analyzed.

35

The Berkeley research team designed the questionnaire to collect


Hypothesis 2 data in the last section of the questionnaire on Page 12 of
Appendix A. Questions 24-29 requested project information on project
labor-hours expended, labor hours expended for project change implementation
and productivity ratios. Questions 24-26 requested detailed engineering data
and questions 27-29 request construction data. An average of 34 projects
were evaluated for validating Hypothesis 2.
Hypothesis 3 project data were developed by evaluating all the projects
submitted. An average of 36 projects were utilized to validate Hypothesis 3.
4.6

Statistical Analysis

Statistical correlation and linear regression analyses were performed on


the data sets to test the three hypothesis. For Hypothesis 1, the
correlation analysis evaluated relationships between installed material or
labor costs and total project change costs required to implement project
change. When analyzing Hypothesis 2, the correlation between project change
and productivity was the major relationship evaluated. The primary tests for
Hypothesis 3 were to identify hidden costs associated with & and determine
the relationships to project change during engineering and construction,
separately and collectively.
Linear
develop the
statistical
determining

regression analysis was performed to identify data trends and


linear relationship that best fits the sample data. A
significance level test of 10% was used as the criterion for
whether a hypothesis is proven.

36

4.7

Research Findings

Summaries of the tests are presented in Tables 1 through 11. These


tables contain the relationships tested and graphed, number of observations
and statistical analysis results. Tests that passed the 10% statistical
significance level are highlighted. The summaries for each Hypothesis are
arranged in the following sequence:
o
o
o
4.7.1

Hypothesis 1
Hypothesis 2
Hypothesis 3

Tables 1-5
Tables 6-7
Tables 8-11

Hypothesis 1 Findings

A total of 22 different relationship are graphed and tested for


Hypothesis 1. There are five major relationships with sub-group
relationships that evaluate different combinations of the data from Page 11
of the Questionnaire.
The specific relationships tested for both detailed engineering and
construction with respect to absolute values (|x| where negative values
become positive and total change is the positive sum of all observations) and
non-absolute values are:
o
o
o
o

Permanent Materials vs. Total Change


Construction Labor vs. Total Change
Engineering Labor vs. Total Change
Permanent Materials vs. Percent Complete

The Research Committee was unable to statistically prove Hypothesis 1. The


complexity of projects and the numerous factors that influence the
implementation of project change complicates attempts to measure change
exclusively. Additionally, analyzing project change postmortem or after key
personnel have moved to other responsibilities and memories have faded makes
it difficult to collect accurate data.

37

Even though our attempt to isolate the quantitative aspects of project


change are not academically or statistically defensible for Hypothesis 1,
trends have been identified. The research has advanced the tools or graphs
for analyzing project change. These tools in the form of graphs with
confidence intervals can assist other researchers and project managers in
their own evaluation of project change. Hypothesis 1 graphs are presented in
Appendix C.
Strong relationships have been identified between permanent material
installed, construction labor and total project change. These relationships
identify critical areas for project managers to focus on during project
execution or change implementation.
The research has identified critical variables and quantitative criteria
for analyzing project change. The critical variables and quantitative
criteria are:
o
o
o
o

Permanent Material Installed


Construction Labor for Change Implementation
Engineering Labor for Change Implementation
Total Change Costs

These listed variables and criteria used to track and quantify change
for Hypothesis 1 will assist in change management. If additional research
focuses on these variables at the start of projects, sets the analysis
foundation, and carries the analysis through project execution and start-up,
then the benefits to the construction industry would be advantageous.

49

4.7.2

Hypothesis 2 Findings

Hypothesis 2 was analyzed with the same statistical criteria as


Hypothesis 1. We were statistically more successful in the validation of
Hypothesis 2 than verifying the other two hypotheses.
Confidence interval bands are established for each relationship graphed
and analyzed. The confidence interval bands provide a range instead of a
single line or point for project managers to compare their own project data
with CII research project data.
A total of 16 tests were conducted to validate Hypothesis 2. Ten out of
16 relationships PASS the research criterion of 10% statistical significance.
Some relationships that passed during our first analysis were tested again
using other data from the questionnaire to check and verify our findings.
The specific relationships which passed are:
o
o
o
o
o
o
o

Construction Change vs. Construction Productivity


Engineering Change vs. Engineering Productivity
Construction Change vs. Total Productivity
Engineering Change vs. Total Productivity
Total Change vs. Total Productivity
Total Change vs. Construction Productivity
Total Change vs. Engineering Productivity

Five of the seven relationships that passed support earlier research


completed by the University of California, Berkeley Construction Changes and
Change Orders: Their Magnitude and Impact [Hester 91].

50

The other two relationships, Engineering Change vs. Total Productivity


and Construction Change vs. Total Productivity, exhibit the ripple effect on
projects. These two tests show the effects of early or upstream change in
the engineering or construction phase on total productivity.
When comparing engineering and construction research productivity
relationships, engineering change exhibits a stronger statistical
relationship to the negative impacts of construction project change. This
research finding may support the intuitive knowledge of engineering change
impacting downstream construction. For example, engineering change that is
not identified until construction begins will require additional engineering
labor hours, coordination of material and other project resources higher than
the rework costs associated with identifying and resolving project change
earlier in the project cycle. The late identification of project change will
tend to disrupt work flow, reduce productivity, increase project costs, and
thus have a negative impact on overall project performance.
Hypothesis 2's verification was able to demonstrate by statistical
analysis that project change adversely affects project productivity. The
strongest statistical correlation is most evident when engineering and
construction data are isolated and the two phases are evaluated independently
of each other. That is, engineering change is tested against engineering
productivity and construction change is tested against construction
productivity.
When isolating construction change, the research indicates that
construction change greater than 5% results in negative construction
productivity or productivity less than planned. The more construction
change, the more negative impact on construction productivity. When
construction change approaches 34%, construction productivity is
approximately 90% (Figure 9 Analysis 1 Construction Change vs. Construction
Productivity) of norm.

51

Another unique finding of this research concerns engineering change and


productivity. All of the engineering productivity relationships graphed and
tested exhibit engineering productivity less than 1.0 or 100%. In this
study it indicates that engineering productivity for the average job was 95%.
This indicates a 5% negative engineering productivity or productivity less
than planned, even when there was no change.
4.7.3

Hypothesis 3 Findings

The identification of & or hidden costs of change was achieved by


solving the formula presented in section 4.4 Hypothesis 3. The & value was
represented in a dollar amount of change costs.
We developed the ratio of &/FCB or hidden cost divided by the Final
Control Budget. With the ratio we were able to compare and evaluate one
project against another project.
In the effort to further analyze & and the ratio, ten relationships
were tested and graphed. Five of the relationship tests identified &/FCB for
non-absolute values and the other five test analyzed absolute values of
&/FCB.
Four of the five non-absolute relationship tests identified & as a
negative value. The one test that resulted in a positive &, failed the
statistical significant test. Three of the five test passed the statistical
significant test. The three relationships that passed the statistical
significant test evaluated total change in relationship to &. Graphing the
non-absolute relationships reveled that as & became a larger negative value,
the percentage of change became a larger value.

52

Re-testing the same relationships but taking the absolute value of & did
not change the test that failed or passed the statistical significant test.
The absolute value test did change the relationship between & and the amount
of project change. The absolute value relationships resulted in & becoming
larger and project change becoming larger. This shows a direct relationship
between & and project change.
We surmise that the difference between the non-absolute and absolute
values for & is caused by an undercounting or canceling out of change caused
by reductions and additions in project scope. Taking the absolute value of &
handles all change as an impact on total change. The non-absolute value of &
results in positive and negative change canceling each other out or reducing
the total change impact.
An analysis of mean absolute values for &/FCB and project change
provided additional information in identifying the hidden costs of project
change. The ratio of &/FCB for all tests is approximately 13%. The
evaluation of project change for the engineering and construction phase was
16% and 12%, respectively. Project change for all test ranged from a low of
9% to a high of 38%.
Both the low and high percentage of project change were identified when
evaluating total project change. The primary difference between the two
evaluations is how total change was calculated. Total Change ($) or Column 7
was used for one analysis and Change % Growth in Forecast Labor-Hours or
Column 4 from Page 11 was used for the other analysis.

54

We believe that the Total Change ($) value is the more accurate data
source. An analysis of the correlation coefficient for calculations that
PASS , indicates that the Total Change ($) coefficient is almost twice as
close to one (1) when compared to Change % Growth Labor-Hours. Also, another
analysis conducted to test the hypothesis used Column 7 for the calculation
of total change and resulted in identical mean values.
4.7.4

Qualitative Findings

The construction industry s methodology for collecting project change


data needs to be improved. Many of the 55 companies that did not submit
completed questionnaires told us in follow-up telephone interviews that they
did not collect the information requested, did not track data in the format
we requested, or could not easily retrieve basic project change data from
historical records.
It can be strongly argued that many project managers have no costs bases
to identify the indirect impact of a single change order. Consequently, when
there are multiple project changes, the tasks to identify the total impact is
very difficult. This suggests that the construction industry needs to
collect and archive project change data more diligently and possibility
standardize change management systems.

55

An industry standard for tracking project change will allow for


significant data analysis, evaluation and project control evaluation. If
standardized, project managers and researchers would be able to communicate
in a common language or framework to evaluate project change. Also, project
managers that establish similar data collection methodology at the outset of
a project will be able to analyze and predict the performance of their
current projects based on this completed research.

56

CHAPTER 5
PROJECT CHANGE MANAGEMENT ANALYSIS
5.1

Introduction

Other analyses were performed after the three hypotheses were tested
because of the wealth of information contained in the database. The first
analysis evaluated schedule completion against contingency draw-down. This
analysis was conducted to determine the mean rate of contingency draw-down
for a number of projects.
The second analysis developed project change ratios by examining initial
and final facility forecast costs. The ratio (final facility
forecast/initial facility forecast) was examined for 1) engineering, 2)
construction and 3) total project change. These ratios provided a mechanism
to evaluate project change during each of the three phases.
A third analysis was conducted that examined project change in relation
to the amount of schedule overlap. Schedule overlap is defined as the
construction percentage complete when engineering design finishes. Also,
other analyses were performed to evaluate the probability of a project having
on-time performance and going over budget.
All the analyses were conducted to identify trends and common
characteristics of CII-submitted projects. These analysis can be used to
make inferences about project performance and characteristics throughout the
construction industry.

57

5.2

Total Project Contingency Draw-Down

An analysis of 56 CII projects was conducted to evaluate actual schedule


completion against project contingency. The goal of this analysis was to
identify the rate of contingency draw-down and identify project contingency
characteristics to make industry comparisons.
Project "S" curves were developed and plotted separately for both
engineering design and construction. Total project schedule starts with
design at 0% and ends with construction at 100% complete. The mean of the
projects analyzed showed engineering was completed when the overall job was
75% complete. The construction phase mean of CII projects started at about
the 36% total project completion point. All projects naturally started with
100% contingency at the start of design. Over the course of the entire
project schedule, contingency draw-down occurred at a fairly constant
downward trend up to the 70%-75% project completion point. Then in the last
quartile of project schedule, the contingency budget exhibits a rapid
draw-down. The greatest contingency draw-down occurs between the 70% to 80%
point in total schedule completion. See Figure 10.
Rapid contingency draw-down in the last quartile of project completion
could be caused by a number of reasons:
o
o
o
o

Better information and detail is available about the project


Earlier change orders are being approved and implemented
Crowding on the site is causing problems and change orders
The owner's operational people begin adding to the scope as they
see the finished project take shape.

58

5.3

Project Change Ratios

Data from 64 projects was used to develop the project change ratios.
Three charts were prepared for the analysis. One for each phase:
engineering, construction and total project performance.
Column 5 -- Facility Cost Forecast on Page 11 was used exclusively for
the analysis. This column represents the overall project facility cost
forecast. The forecast includes all costs related to the EPC process, i.e.,
engineering, construction, contract administration and management expenses.
From column 5, the initial and final values were analyzed. The initial
value indicates beginning facility costs and final column value that
represents end of project. The change ratio (Final Value/Initial Value)
was developed to compare the amount of change on a total project or within a
project phase.
If the final and initial values were identical, it was assumed there was
no recorded change on the project. If the final value was bigger than the
initial value, we postulated that project change was represented by
the percentage that the ratio was greater than one (1). For example, a
project that had an initial facility cost forecast of $61,900,000 and a final
facility cost forecast of $66,000,000 would be represented in the change
ratio as $66,000,000/$61,900,000 = 1.06. Consequently, this project had 6%
change.
An analysis of engineering change revealed that most of the projects had
less than 4% project growth. Over the entire change ratio range, 70% of the
projects reduced engineering scope by 5% or had project growth of 11% (the
second, third and fourth bars in Figure 11). The range or amount of change
recorded for the engineering phase is somewhat significant. However, it is
significant when acknowledging the downstream or compounding impact that
engineering change has on construction and total project performance. The
entire change ratio chart for engineering is presented in Figure 11.

60

A second analysis of construction change ratios showed common


similarities with engineering change ratios along the median points of
project change. The largest number of projects exhibited less than 4%
project growth; see Figure 12.
It is noteworthy that 37% of projects had reduction in scope during the
project construction phase. Project change caused by reduction in project
scope is common when a primary goal is to bring a project in under or
on budget. In reducing project scope, the short-term objective is to save
money and bring the project in on budget. Most project managers can attest
that the objective is common and commendable. However, the ramifications and
consequential costs can be excessive on staff, contractors, and suppliers.
Project change has similar hidden costs whether the change is an addition or
reduction in scope. The full range of construction change ratios is
presented in Figure 12.
61

The total project change ratios were fairly distributed throughout the
full range of project change. Comparing the total change ratios with
engineering and construction ratios reveals three interesting points
(Figure 13).
The first significant point is the lower percentage of projects that
exhibited no change or less than 4% project growth. This percentage steadily
declined from a high of 39% in engineering to 34% in construction
and a low of 23% for total project change. (The fact that total change is
less than engineering and construction changes is due to a canceling out
effect between the two phases.) Four of the projects in the database showed
no change in engineering, construction or total project and may be suspects
for inaccurate data. On the other hand the projects could have been managed
by exceptional project managers. Whatever the case, it can be shown through
change ratios that the probability of project change is very high.
62

Two other points further amplify the high probability of project change
and the significant impact that change has on project performance:
1)
Thirty-seven percent of the projects exhibited reduction in cost,
and 29% exhibited growth in cost beyond 5%. Twenty percent of change on a
project is a considerable amount of project change. In terms of project
cost, 20% of $40 million (CII mean project cost) is $8 million dollars.
2) The outlying or extreme range of project change areas accounts for
project growth that is greater than 10% and scope reductions greater than 5%.
These two areas account for 50% of the project change ratios.Once again this
change ratio shows a tremendous variability in the amount of project change.

63

5.4

Relationships Between Project Change and Schedule Overlap

Two analyses were conducted that examined the relationship between


project change and schedule overlap. One analysis evaluated engineering
change and the other construction change. The analysis of engineering change
examined 16 projects and the construction change analysis examined 11
projects from the database. The projects were selected based on available
data quality.
The project data were plotted and a linear, best fit line for the data
was constructed. The linear regression line for engineering and construction
have upward sloping lines. This indicates that as a project has greater
schedule overlap, there is more change.
64

This analysis helps us formulate a hypothesis for further research. The


hypothesis is that projects which have less schedule overlap have less
project change. An analysis of design/bid/build projects with no overlap and
design/build or fast-track projects with various degrees of overlap could
test this hypothesis. The hypothesis is built on the assumption that
design/bid/build execution strategy is better than design/build in terms of
accounting for project change.
The charts, plotted data and linear regression equations for both
analyses are presented in Figures 14 and 15 on the following pages. Figure
14, Engineering Change vs. Schedule Overlap, represents the best fit line for
the data points. The equation of the line y = b + mx is represented as
Engineering Change = 0.074 + 0.109 (Schedule Overlap). This equation could
be used at the start of a project to predict the amount of engineering change
that a project will exhibit based on the amount of schedule overlap between
engineering and construction. To determine the amount of engineering change
on a project, a project manager can insert the actual percentage of schedule
overlap and solve the equation.
Figure 15, Construction Change vs. Schedule Overlap, is very similar to
Figure 14, which evaluates Engineering Change. The process to develop the two
charts is identical. The equation of the line for Figure 15 is Construction
Change = -0.018 + 0.392 (Schedule Overlap). This equation can be used to
determine the amount of construction change a project will exhibit based on
design and construction schedule overlap.

65

5.5

Family of Curves for Schedule Recovery

A total of 43 projects in the database were used to develop the Family


of Curves for Schedule Recovery. The curves were first constructed to serve
as a prediction tool that would provide the probability of a project
being early, on-time or late given some current status. The probabilities
were evaluated for engineering, construction and total project status.
Several iterations were performed to determine by how much a project might or
might not be late. Initially, the critical points were established on a
range of data points:
o
o
o
o

Early (1% to 6%)


Exactly On-time
Somewhat Late (-1% to -4%)
Late (-5% to -20%)

The research team's academic and professional experience determined the


most critical data point, trend and interest for the construction industry is
project on-time performance. It was further postulated that other critical
points or information for the construction industry are early and late
project performance indicators. To provide these early and late performance
indicators, analyses of the 25% and 75% quartiles were performed.
In examining the status of projects at the 25% and 75% completion point,
we wanted to determine the probability of projects completing on-time or
nearly on-time. The points or range examined for a project being on schedule
is based on the following increment:
o
o
o
o
o

Ahead of Schedule
On Schedule
Behind 0 to -3%
Behind -3 to -6%
Behind Greater Than -6%

68

Charts containing schedule recovery curves were developed for


engineering, construction and total project performance. Some anomalies or
stray data points are present in the curves. One example of this is
presented in Figure 16, Probability of Engineering Schedule Recovery. For
the 25% complete curve, the data indicate that there is a higher probability
of finishing on time when the project is -3 to -6% behind schedule (50%) than
if the project is 0 to -3% behind schedule (33%). Despite these anomalies,
the curves do represent a common characteristic which is further discussed in
the evaluation and comparison of the three schedule recovery curves.
Using the on-time question as a reference point provides a goal to
evaluate project performance. The other reference point established for this
analysis is at what point in the project is the probability of on-time
performance assessed. We specified the 25% and 75% project complete points as
referenced assessment points and designated these points as "recovery
assessment".
There is a high probability that the further behind one is at recovery
assessment , the greater the probability there is that the project will not
recover to have an on-time performance. In Figure 16, for example, on the 75%
complete curve there is a greater probability of being on time if only 3%
behind (60%) instead of greater than 6% behind (17%).
69

Most project managers proceed with the understanding that the further
along in a project, the more detail, information and understanding of the
project s outcome are available. If this assumption is true, it is
interesting what the analyses of engineering schedule recovery suggest. If
the project is on-time at the 75% milestone, there is only a 50/50 chance
that the project will be on-time. This observation suggests that the last
quartile of engineering is difficult to control.
Moving on to the analysis of construction schedule recovery, some
similar characteristics are present that were noticed in the engineering
schedule recovery chart. The schedule performance characteristic of being
further behind schedule makes it less likely that a project will recover is
more prominent in the construction phase of a project. The Probability of
Construction Schedule Recovery is presented in Figure 17. After a project is
more than 3% behind schedule, there is a definite downward probability of the
project recovering to be on time.
70

The overall probability of construction schedule recovery does not


exceed 50% at any time during the phase. Comparing the separate
probabilities developed for engineering and construction schedule recovery
indicates that construction recovery may be less probable than engineering
schedule recovery. It may be that a project s construction phase is further
along toward completion than in the engineering phase, thus making it
harder to recover from being behind schedule. Further analysis in this area
is needed to definitively state that this assumption is valid.
71

The final analysis of schedule recovery curves examined total project


performance. This analysis evaluated engineering and construction together
to develop the Probability of Total Project Schedule Recovery Figure 18.

The most apparent characteristic of total project schedule recovery is


the general downward trend, that is exhibited for both the 25% and 75%
project complete linear lines. This characteristic is also exhibited in
the other two schedule recovery charts. It should be apparent from the
analyses for schedule recovery, that projects have a much higher probability
of being late than early. Project managers and project team members should
be very conscious of the fact that on time schedule performance is not
probabilistically normal.
72

5.6

Project Budget Recovery

An analysis of 19 CII project was conducted to identify the probability


of a project finishing over budget. The projects were selected on the basis
of cost and budget data from the questionnaire. Two pieces of data from the
questionnaire were used for the analysis. The Original Control Budget
(Question 11) and the Final Value of Facility Forecast (Column 5) were the
significant data for the analysis.
The analysis structure used for schedule recovery provided the framework
for our budget analysis. Project milestones of 25%, 50% and 75% of project
budget status were evaluated against project status at the 100% complete
point.
If a project was + or - 5% of budget projections, it was considered on
budget. Project budgets that were below or above the 5% reference were
considered under budget or over budget, respectively. The chart prepared for
the Probability of Finishing Over-Budget is presented in Figure 5.9. These
points indicate that from the data analyzed there is a zero probability that
the project remained under or on budget until the end of project or 100%
complete.
73

Two points are readily apparent when reviewing the chart. The most
obvious point is the high probability of projects being over budget. This is
further emphasized by the probabilities being higher than 90% for all three
of the project milestones, i.e., 25%, 50% and 75% complete.
The other significant point to discuss is the upward trend for the
probabilities moving from left to right on the chart. Starting with the 25%
complete project status, there is a 33% chance that the project will be over
budget even if it is currently under budget. This probability increases to
70% if the project is on budget at the 25% and is 100% if over budget at the
25% complete milestone.
74

This point is fairly simple to assume when recognizing the most common
ways to recover from being over budget: reduce project scope or gain
efficiency with labor productivity. A reduction in project scope is normally
considered a change, and we have previously discussed the ramifications of
project change implementation.
Gains in labor productivity are difficult to achieve. It was shown
earlier in the validation of Hypothesis 2 that engineering productivity in
routinely less than planned. Cited research and industry experience strongly
implies that labor productivity is the most difficult and volatile aspect of
project performance to control.

75

CHAPTER 6
SUMMARY OF QUANTITATIVE FINDINGS AND RECOMMENDATIONS
6.1

Introduction

This research confirms that project change has a sizable impact on project
productivity, schedule and costs. The validated hypothesis, quantitative
methods of change measurement and budget analyses provide the specific
size or quantities of project change.
There is a wealth of quantitative data and information associated with
this research. The quantitative details are presented in the previous
chapters. This last chapter is a summary of those quantitative findings and
makes recommendations to reduce the negative impact of project change. The
findings and recommendations are based on the analyses of 104 CII projects.
The findings apply only to the current research and the recommendations
are to advance the industry s management of project change.
6.2

Hypotheses Findings and Recommendations

Validation of two out of three hypotheses is the most significant


finding of this research. These hypotheses are:

76

Hypothesis 1:

Changes that occur late in a project are implemented less


efficiently than changes that occur early in the project.

The research team concludes that this hypothesis is valid but can not be
statistically proven at this time. Additional research to further analyze
the impact of late project change on project efficiencies is needed.
Improved methods of change measurement should be developed and
implemented to quantify the scope and full impact of project change.
Hypothesis 2:

The more change there is on a project, the more of a negative


impact there is on labor productivity.

The research validated this hypothesis statistically by showing that


greater amounts of change have greater negative impacts on labor
productivity. Validating the hypothesis statistically supports earlier
research completed concerning the ripple effects of project change.
It is recommended that construction professionals develop, test, implement
and enforce change management procedures to better manage the amount and
timing of project change.
Hypothesis 3:

Hidden change increases with more project change.

The research identified hidden change and statistically proved the


direct relationship between hidden change and project change. This finding
further supports the findings and recommendations presented for Hypothesis
2.

77

Construction professionals must improve the identification and


measurements techniques for project change to better measure hidden change
impacts.
6.3

Change Measurement Findings and Recommendations

Five methods for measuring project change are presented as a second


industry contribution. The methods are a starting point for construction
professionals as well as additional research to measure project change.
Total Project Contingency Draw Down
The rate of contingency draw-down was measured and graphed against
schedule completion rates. This analysis developed a chart that can be used
by construction professionals to compare one project or a group of project
against the research findings.
The most significant findings are that:
o

contingency draw-down occurred at a fairly constant downward trend up to


the 70%-75% project completion point

rapid draw-down occurred in the last quartile of project completion


typically occurs

Rapid contingency draw-down can be curtailed by:


o

implementing project change earlier in the project cycle

providing better project information and detail to the design or


construction team

developing, implementing and enforcing change management procedures

involving users and owners that are experienced in construction issues


early in the project

78

Project Change Ratios


Change Ratios were developed as a measurement tool for analyzing project
change. Engineering project change ratios revealed:
o

70% of projects reduced engineering scope (as measured by design-hours)


by less than 5% or had project cost growth less than 11%

39% of projects had less than 4% cost growth Construction change ratios
revealed:

37% of projects had a reduction in scope (as measured by labor-hours)


during the construction phase as in the engineering phase most projects
had less than 4% project cost growth

Total project change ratios revealed:


o

38% of projects exhibited reduction in scope and 29% of that change was
in the 5% to 20% range

50% of the projects exhibited extreme change of project cost growth


greater than 10% and scope reductions greater than 5%

Project Change and Schedule Overlap


This analysis found a relationship between the amount of project change
and schedule overlap. The linear regression lines for the analysis showed a
direct correlation indicating that as a project s schedule overlap increased,
so does the amount of change.
The linear line equations developed from the research are:
o

Engineering Change = 0.074 + 0.109 (Schedule Overlap)

Construction Change = -0.018+ 0.392 (Schedule Overlap)

79

Additional research should be conducted to determine whether design/


bid/build and design/build execution strategies affect these findings.
Family Of Curves For Schedule Recovery
Charts are included for engineering, construction and total project
status at the 25% and 75% completion points provide the probabilities of
projects finishing on-time. The charts reveal that there is a high
probability that projects that fall behind schedule at an early stage are
unlikely to recover. Specifically, this research found that projects at 25%
and 75% complete milestones have the following characteristics:
o

projects have a higher probability of being late than early

the last quartile of projects are difficult to control

if a project is behind greater than 3% there is a low probability that


the project will recover to finish on schedule

the later a project is at the 25% or 75% complete, the less chance it
can be recovered

in the construction phase of a project there is less than a 50% chance


that the project will finish on time whether the project is ahead or
behind schedule

If on time performance is a critical factor to project success, it is


recommend that project managers attempt to keep projects ahead of schedule.
Also, if projects are behind schedule, project managers should acknowledge
early in the project cycle that the probability of completing on time is less
than 50%.

80

Project Budget Recovery


One chart was developed that shows the probability of a project going
over budget. The significant finding is that:
o

For all projects studied there is over a 90% probability that a project
will run over budget

It seems that current cost control systems are not being employed
effectively or are not achieving the objective of keeping projects within
budget. If budget control is critical to the construction industry,
additional resources will have to be directed towards project control.
6.4

Summary

This CII research project has focused on the quantitative impact of


project change. Three variables that are impacted by project change are
costs, schedule and labor productivity. It is hoped that this research has
identified methods for measuring and ultimately limiting the amount and
negative impact of project change.
The research has made two significant contributions to the construction
industry. The first contribution is the statistical validation of two
hypotheses. The second contribution is the quantitative methods developed
and tested to measure project change. Additional research is needed to
advance the industry s understanding of project change impact. Further
research should focus on reducing the negative impact of change and improving
the project change process. The industry needs a standardized change
management model to uniformly measure, track and process project change.

81

APPENDIX A
RESEARCH QUESTIONNAIRE

COLLEGE OF ENGINEERING
THE UNIVERSITY OF TEXAS AT AUSTIN

Construction Industry Institute


3208 Red River Street, Suite 300, Austin, Texas 78705-2650
(512) 471-4319
Fax: (512) 499-8101
MEMORANDUM
TO:

CII Board of Advisors

FROM:

Richard L. Tucker

DATE:

August 12, 1993

RE:

Task Force 43, Project Change Management Questionnaire

Attached is a questionnaire which we are asking you to complete per the


enclosed instructions. Task Force 43, Project Change Management, has worked
hard to develop this document and has tested it on two occasions with those
companies represented on the task force. While we all recognize the time
demanded by questionnaires and surveys, the ability to access companies
represented by our membership to obtain real project data adds much validity
to our research projects.
This task force was established in January 1992, and funding for their
research project was approved in April 1993. Publication of their results is
currently scheduled for the second quarter of 1995. Your participation helps
ensure that these publications are of value to our members.

83

CONSTRUCTION INDUSTRY INSTITUTE


TASK FORCE 43
QUESTIONNAIRE ON
THE IMPACT OF PROJECT CHANGE
CII Task Force 43 was established to study more effective ways to manage
project change. As part of our research, we are sending this questionnaire
to all CII members for the purpose of collecting information about the
quantitative characteristics and effects of project changes. Extensive
research has previously been completed that identifies the qualitative impact
of change. But that prior research has not focused on the quantitative
impact of project change because of the difficulty in obtaining accurate and
consistent quantitative data. Our research is examining the impact of
project change on the macro level and in a quantitative manner. The data
collected will be analyzed to develop change impact graphs and multipliers
for use by project managers in the engineering and construction industry.
We also hope to glean additional information that will improve change
management procedures and improve the working relationships between owners
and contractors. This will help our task force prepare a general publication
on Best Practices of Change Management. The confidentiality of your answers
will be preserved in accordance with CII Level 2 confidentiality guidelines.
Your answers to this completed questionnaire will be returned directly to the
researchers who will remove any company and project identification from the
survey forms. We suggest that a project manger or senior cost engineer from
your company complete this questionnaire. It covers a wide range of issues
related to cost, schedule, change orders, and project management. A glossary
of key terms is provided at the end of this questionnaire as Attachment 1.
INSTRUCTIONS
Please select 5 or more projects with which you were involved as either
owner, contractor or construction manager. We are requesting several
projects from each CII member to increase our project sample size and
strengthen our findings. If you are not able to supply 5 projects, please
provide as many as you can.

84

The projects that your organization provides for this research project
should represent a variety of completed projects. We are specifically
looking for project performance data that is accurate and well organized.
This questionnaire is designed to expedite your responses and minimize
the amount of time required to complete the questionnaire. Quantitative
project information is needed to perform the research project change analysis
and develop industry change multipliers.
Projects selected should meet the following criteria:
o

Projects can be either domestic or foreign so long as costs and


performance were not greatly influenced by currency exchange

Projects should have a Total Installed Cost (TIC) over $15 million

Projects should have been completed within the last 5 years

Make copies of this survey form for each project. If you wish, feel free
to send a copy of this questionnaire to the contractor or client that you
worked with on this project.
Send the completed questionnaires to the researcher listed below. If
you need additional copies or information contact the researcher directly:
Professor Bill Ibbs
Dept. of Civil Engineering
c/o Walter E. Allen
3636 Rhoda Avenue
Oakland, California, 94602
Phone: (510) 530-8661
Fax: (510) 643-8919
Please return all completed pilot questionnaires no later than
September 1, 1993.

85

PROJECT INFORMATION
Project Name __________________________________________________
Project Location - City & State _____________________________________
Project Country _________________________________________________
What was the Total Installed Cost (TIC) for the Project ___________________
1.

Is your organization an/a:


Owner _____________
Construction Contractor only_____________
Turnkey (EPC) firm _____________
Construction Manager_____________
Engineering/Design Firm _____________

2.

What was the contracting strategy for this project?


Design/Build ______________
Separate design/construction (Design/Bid/Build) ______________
Some other form ______________

3.

What was your organization's role for this project?


Owner______________
Engineering______________
Construction Contractor______________
Turnkey Contractor______________
Other (Describe)______________

4.

Was the owner of this project Private Sector Company_________


Government Agency _________
Other (Describe)_________

86

5.

Was the working relationship between owner and contractor


positive _________
neutral __________
negative _________
to the project change process.

6.
Rank the project driving factors in the order
project (Scale 1 = Highest and 4 = Lowest):
Cost ______ Schedule ______
Other (specify) _______
7.

of importance for the

Safety ______ Quality _______

Circle the project type(s) that best categorizes your project:


Commercial Building
Pipeline
Petroleum/Natural Gas
Power plant
Marine
Pharmaceutical/Chemical
Utility (Electrical)
Mining
Ore Processing
Utility (Municipal)
Manufacturing
Plastic/Rubber
Highway
Treatment Plant
Food Processing
Airport
Refinery
Pulp/Paper
Other (Describe)_______________________________________________

8.
9.

Was the project a revamp to an existing structure _______ or new


construction ________?
Check one overall description of the project
Standard

10.

______Complex

________Very Complex

________

Was this project reimbursed on the basis of

Lump Sum _________ Cost Plus Fixed Fee _______


Unit Price ________ Other (specify) _________

87

Cost Plus % Fee ______

11.

What was the Original Control Budget (OCB) for:


engineering labor_____________
construction labor_____________
permanent materials_____________
other expenses_____________
Total OCB_____________

12.

When was this OCB established?


pre-engineering__________
10% engineering__________
other (specify)__________

13.

What was the Final Control Budget (FCB) for:


engineering labor_____________
construction labor_____________
permanent materials_____________
other expenses_____________
Total FCB_____________

14.

When was this FCB established?


pre-engineering _________
10% engineering_________
50% engineering_________
100% engineering_________
other (specify)_________

15. Were there any project changes that were escalated or settled outside
the routine change order procedures; e.g., mediation, arbitration or formal
litigation?
Yes

___________No

__________

88

16.
If the answer to question #15 is yes, what percent of TIC did those
change costs represent according to dispute resolution method category?
Total Percentage
Litigation
Mediation
Arbitration
Executive Conference
Some other mechanism (please describe)
17.
Did the original project budget estimate
contingency for project changes?
Yes _________

______________
______________
______________
______________
______________
______________

contain a cost account or

No __________.

18. If yes, what was the amount


budget calculated:

_____________ and how was the change order

1. Fixed Percentage _______ What was the percentage __________


2. Risk Analysis by specific item ____________
3. Other method, please explain _________________________________
_________________________________________________________________
19A. Were the majority of project changes priced and approved within your
organization's established time period? Yes __________
No __________
19B. Were the majority of project changes processed in accordance with your
organization's standard operating procedures? Yes ________
No _______
20.

If the answer to question 19A or 19B is no, what caused the delay.
Negotiations _________Completion of Estimate _____________
Slow Approval Process _________Completion of Paper Work __________
Other_________________________________________________________

21. In general what type of pricing method was used to estimate these
project changes?
Unit Pricing ______________Forward Pricing ____________
Retrospective Pricing _________Time & Materials ___________

89

22.

Do you think that the number of changes on this project were:


more than normal _____, comparable with industry norm _____ or lower
than normal _____.

23. In which area of your project was construction productivity most


affected by change orders and by cumulative change impact:
Site & Earthwork______
Wood/Plaster/Insulation______
Concrete______
Steel______
Piping/Instrumentation______

Metals & Specialties____


Subcontractors____
Electrical____
Mechanical____
Admin./Overhead____

INSTRUCTIONS FOR COMPLETING QUESTIONNAIRE CHART


The remaining portion of this questionnaire requires quantitative
information from the project. Most of this information should be collectable
from monthly project reports and project close-out files. The shaded areas
of the chart represents the most important information needed for our
analysis. Please make them your top priority.
In general, if you have any questions about our terminology refer to
CII publications 6-1, Project Control for Engineering, and 6-5, Project
Control for Construction. Otherwise call the Berkeley research team.
Headings for Table 1: TOTAL PROJECT CHANGE IMPACT
The main purpose of this table is to test our 1st hypothesis:
Changes that occur late in a project are implemented less efficiently
than changes implemented early.
Col. 1.

Percent Complete: The table seeks data at several milestone points


based on progress of the work. The first set of percentages refers
to percent complete milestones in detailed engineering; the second
set to milestones in construction.
100% complete in engineering is defined as the time when the last
specification or drawing required for construction is issued.
Field engineering or field representation for the purpose of
interpreting drawings, the production of "as-built" drawings,
project data books and reports, operating manuals and the like, are
considered outside "detailed engineering".
0% complete in construction is the time of physical mobilization at
the site.
100% complete in construction is at the time that the physical
scope of the facility agreed in the contract is physically
90

complete, and the owner has obtained beneficial use of the


facility.
Col. 2.

Project Week Plan: This column seeks information on when the


accomplishment of project milestones were to be achieved in the
project plan. The project calendar starts with the kickoff of
"detailed engineering" and runs continuously to the end of
construction. Insert in this column the point in time during the
project calendar, expressed in weeks from the project start, when
the physical complete milestone (e.g., 25% engineering) was
scheduled to be reached (e.g., project week 15). For construction
dates, follow the same procedure, again counting project weeks
from the start of detailed engineering.
For example, if
construction mobilized 18 weeks after the start of engineering,
one would insert "18" for 0% construction, and all other
milestone dates would follow this calendar.
The project schedule to be used here is the "Original Control
Schedule", sometimes referred to as the "Baseline Schedule". It
may be that the construction control schedule was established
later than the engineering control schedule. If the baseline
schedule for physical percent complete is expressed as an "early"
schedule and a "late" schedule, use the average between the
two values.

Col 3.

Project Week Actual: This column seeks information on when


physical milestones on the project were actually achieved. The
project calendar, again, starts with the kickoff of detailed
engineering and ends with actual construction completion.
To establish the project week for each physical milestone, physical
progress for the engineering or construction may need to be
re-calculated from the point of view of the completed project,
including scope changes. For example, if the engineering scope of
a project was increased 30% after the original 50% milestone was
achieved, the dates 25% and 50% milestones that were originally
reported would have to be revised to reflect the new final scope.

Col. 4.

Change % Growth in Forecast Labor-Hours: At each of the points


indicated in the project, give the growth in the labor-hour
forecast as a percentage of the original control budget reported at
the time the actual percentage milestone was achieved. For
detailed engineering, give the percentage of growth in the
forecasted engineering labor-hours only. In construction, give the
percentage of growth of the forecasted construction labor-hours
only. In both, include both direct and indirect (project-specific
overhead) labor-hours. It is possible for the forecast for
construction labor-hours to increase above the control budget
during engineering and before construction mobilization.
Therefore, the value at 0% complete in construction need not be
"0".
91

Col. 5.

Facility Cost Forecast ($): This column represents the overall


project facility cost forecast, reported at the time the actual
milestone was achieved. This forecast should not include the cost
of land or owner costs related to facility operation. Only owner
costs related to the EPC process are included; e.g. owner's
engineering, contract administration and engineering management
expenses.
Please give a short explanation of what is and is not included in
the forecast, and the originator of the forecast (owner, engineer,
contractor):
_______________________________________________________________
________________________________________________________________
In projects with overlap of engineering and construction, show the
forecast under engineering until construction mobilization, then
show the forecast under construction.

Col. 6.

Total Project Contingency ($): In this column, give the remaining


total project contingency at the actual milestones indicated. As
in the "Total Facility Cost Forecast", show the contingency figure
under engineering until construction mobilization, then show the
figure under construction.
The remaining columns of this table gives the cumulative estimated
costs of change orders.

Col. 7.

Total Change ($): Give the cumulative total estimated cost of the
change orders numbered in column 7.
In Columns 8-11, give the breakdown of the change order cost given
in Column 7. The sum of columns 8-11 should equal the figure in
column 7.

Col. 8.

Permanent Material ($): Includes the cost of permanent materials


and permanent equipment.

Col. 9.

Construction Labor ($): Includes the cost of all construction craft


labor and their immediate supervisors.

Col. 10.

Engineering Labor ($): Includes the cost of all engineering labor


and their immediate supervisors.

Col. 11.

Other Costs ($): Includes all costs associated with owner costs
(if known); engineering personnel; construction indirect personnel;
subcontractors; and construction equipment and materials.

92

Col. 12.

Construction Labor-Hours: Gives the construction labor-hours


represented in the "construction labor" figure in column 9.

Col 13.

Engineering Labor-Hours: Gives the engineering labor-hours


represented in the "engineering labor" figure in column 10.

93

Our 2nd hypothesis is:


The more change there is on a project, the more of a negative
impact there is on productivity.
To test this hypothesis, please answer the following questions:
20.

What was the total number of


this project? ____________

21.

What was the total number of labor-hours expended for authorized changes
originating during the project's engineering phase? __________

22.

CII's definition of a project's productivity ratio is earned labor-hours


divided by expended labor-hours. What was the final productivity ratio
for the engineering work on this project? __________

23.

What was the total number of labor-hours expended for construction


during the construction phase on this project? ___________

24.

What was the total number of labor-hours expended for authorized changes
that originated during this project's construction phase?
__________

25.

What was the final productivity ratio for the construction work on this
project? (Productivity ratio is earned labor-hours divided by expended
labor-hours.)
________

26.

When was the original control budget for engineering developed for this
project?
Pre-engineering
10% engineering complete
30% engineering complete
50% engineering complete
100% engineering complete
Other (Please specify)

27.

labor-hours expended for engineering on

_____
_____
_____
_____
_____
_____

When was the original control budget for construction developed for this
project?
Pre-construction
10% construction complete
30% construction complete
Other (Please specify)

_____
_____
_____
_____

95

POINT OF CONTACT INFORMATION


Your Name ______________________________________________________
Title __________________________________________________________
Role During The Project_________________________________________
Street Address _________________________________________________
City/State/Zip _________________________________________________
Telephone ______________________________________________________
Fax ____________________________________________________________
Would you be available for a follow-up telephone interview.
Yes _____________ No ___________

96

Attachment I
General Glossary of Terms
Change: Any event which results in a modification of the original scope,
execution, time or cost of the work.
Change Order Formal documentation which recognizes the existence of a change
and modifies the agreement between contracting parties accordingly.
Detailed engineering: Engineering and design work perfumed to produce
drawings and specifications for construction. Differs from "conceptual
engineering' which includes studies, estimates and other consulting
activities performed to assist the owner in establishing the scope of
the project
Direct Labor: Labor which is consumed directly in the production of
engineering deliverables or in the fabrication or erection of physical
construction quantities. For the purposes of this research, "direct
labor" includes only labor included in the calculation of progress
(percent complete).
Indirect Labor: Other labor attributed to the project, but which is not
included in the calculation of physical progress.
Owner: The organization that will ultimately occupy the facility, and is
ultimately paying for design and construction of the facility.

97

APPENDIX B
CITED AND UN-CITED BIBLIOGRAPHY

98

Appendix B

Bibliography

Cited
Allen, Walter E. A Methodology for Evaluating the Effective Processing of
Project Change, Dissertation Proposal, December 1993.
Anbari, Frank T., A Systems Approach to Project Evaluation, Project
Management Journal, Vol. 16, No. 3, August, 1985.
Borcherding, John D., Improving Productivity in Industrial Construction,
Journal of the Construction Division, Proceedings of the American Society of
Civil Engineers, Vol.102, No.CO4, December, 1976.
Bitner, L. M., Project Management: Theory Verses Application, Project
Management Journal, Vol. 16, No. 2, June 1985.
Construction Industry Institute, Productivity Measurements:
Austin Texas: Publication 2-3.

An Introduction,

Construction Industry Institute, Project Change Management, Austin Texas:


CII Special Publication 43-1, September 1994.
Clark, William G., Claims Avoidance and Resolution, Transactions of the
American Association of Cost Engineers, Boston Massachusetts, R-1, pp. 1-6,
1990.
Dellon, Alfred L., and Dellon, Irene J., Documentation and Verification in
the Change Process, Transactions of the American Association of Cost
Engineers, New York, NY., C-7, pp. 1-5, 1988
Diekmann, J.E., and M.C. Nelson. "Construction Claims: Frequency and
Severity." Journal of Construction Engineering and Management, Vol .111, No.1
American Society of Civil Engineers, March, 1985
General Accounting Office, Internal Controls: EPA Needs to Improve Controls
Over Change Orders and Claims, Document GAO/RCED-88-16, Washington D.C.,
1987.
Halligan, David W., et all. Action-Response Model and Loss of Productivity in
Construction , Journal of
Construction Engineering and Management, Vol. 120, No.1 American Society of
Civil Engineers, March 1994
Hester, Weston T., Kuprenas, John A., Chang, T.C., Construction Changes and
Change Orders: Their Magnitude and Impact , Construction Industry Institute,
Source Document 66, October 1991.

99

Appendix B

Bibliography

Cited
Jacobs, R.C., and Richter, I., How to Cope with Claims and Change Orders,
Construction Contracting, McGraw-Hill, New York, N.Y., 1978
Krone, Stephen J., Modeling Construction Change Order Management, Project
Management Journal, Vol. 22, No. 3, September 1992
Leonard, Charles A., et all., Construction Productivity: Major Causes of
Impact, Transactions of the American Association of Cost Engineers, 1988.
Malloney, W.F., Productivity Improvement: The Influence of Labor, Journal of
Construction Engineering and Management, Vol. 109, No.3, American Society of
Civil Engineers, 1983.
Moselhi, J., Impact of Change Orders on Construction Productivity , Canadian
Journal of Civil Engineering, 1991.
Oglesby, C.H. Parker, H.W., and Howell, G.A., Productivity "Improvement In
Construction." McGraw-Hill Publishing Inc., New York, N.Y. 1989.
Paulson, B. C., Jr., Goals for Basic Research in Construction, Department of
Civil Engineering, Stanford University, Stanford, California., July 1975.
Thomas, H.R., Modeling Construction Labor Productivity, Journal of
Construction Engineering and Management, 116(4), 738-755, 1990.
Thomas, H.R., Effects of Scheduled Overtime on Labor Productivity , Journal
of Construction Engineering and Management, Vol. 118, No.1, American Society
of Civil Engineering, 1992.
Wilson, Roy L., Prevention and Resolution of Construction Claims, Journal of
the Construction Division, Proceedings of the American Society of Civil
Engineers, Vol. 108, No. CO3, pp. 390-395, September 1982.
Zeitoun, Alaa A., Oberlender, Garold D., Early Warning Signs of Project
Changes, Construction Industry Institute, Source Document, December 1992.

100

Appendix B

Bibliography

Un-cited
Construction Industry Institute, Evaluation of Design Effectiveness, Austin
Texas: Publication, 1986
Construction Industry Institute, Organizing for Project Success, Austin
Texas: Publication 12-2, February 1991
Construction Industry Institute, Preview of Construction Implementation,
Austin Texas: Publication 34-2, February 1993.
Construction Industry Institute, Project Control For Construction, Austin
Texas: Publication 6-5, September 1987.
Construction Industry Institute, Project Control For Engineering, Austin
Texas: Publication 6-1, July 1986.
Civitello, Andrew M. Jr., Contractor's Guide to Change Orders, Prentice-Hall,
Inc., Englewood Cliffs, 1987.
Department of the Army Office of the Chief of Engineers, Modification Impact
Evaluation Guide, Washington, D.C., July 1979
Ibbs, C. William., Ashley, David B., Neil, James M., and Feiler, Frank W.,
"An Implementation Strategy For Improving Project Control Systems", Project
Controls: Needs and Solutions, American Society of Civil Engineers, New York,
New York, June 1987
Johnson, Charles F., "Early Warning Signs - Trending Techniques",
Transactions of the American Association of Cost Engineers, San Francisco,
California, pp. 125-128, July 1978, Morgantown, West Virginia: American
Association of Cost Engineers.
Mitchell, Paul James, "Holding Down the Cost of Change", The Role of the
Resident Engineer, ASCE Publications, New York, New York, 1985
Rogge, David F., "Delay Reporting Within Cost Accounting System", Journal of
Construction Engineering and Management, Vol. 110, No.2, June 1984
Scott, Donald F., "Effective Contract Administration in Construction
Management", Journal of the Construction Division, Proceedings of the
American Society of Civil Engineers, Vol. 100, No. CO2, June 1974

101

Appendix B

Bibliography

Un-cited
Suchanic, George, "Change Order Impacts on Construction Cost and Schedule",
1980 Transactions of the American Association of Cost Engineers, Washington,
D.C., F-3, pp. 1-7, 1980

102

APPENDIX C
SUMMARY TABLES & GRAPHS

103

APPENDIX D
GLOSSARY

132

Appendix D Glossary
Approved Changes: Changes which are approved by both parties.
changes are divided into two classifications discretionary and
unavoidable changes.

Approved

Change: Any event which results in a modification of the original scope,


execution, time or cost of work.
Change Order: Formal documentation which recognizes the existence of a
change and modifies the agreement between contracting parties accordingly.
Consequential Cost: Consequential costs are additional costs incurred as a
indirect result of some earlier project change. It is the result of a domino
relationship of cause and effect.
Contract Completion Date: The anticipated project Completion date that was
established when the Notice to Proceeded was provided, modified for any
change orders.
Contractor: The organization responsible for overall construction of the
project, acting as general contractor, prime contractor or as the
Construction Manager (CM).
Claim: A change that can not be resolved in the established change order
management system and must be resolved through arbitration or legal
proceedings.
Detailed Engineering: Engineering and design work performed to produce
drawings and specifications for construction. Differs from "conceptual
engineering" which includes studies, estimates and other consulting
activities performed to assist the owner in establishing the scope of the
project.
Direct Cost: Cost that can be easily and specifically traced to
the particular change or facility under consideration.
Direct Labor: Labor which is consumed directly in the production of
engineering deliverables or in the fabrication or erection of physical
construction quantities. For the purpose of this research, "direct labor"
includes only labor included in, the calculation of progress (percent
complete).
Engineer: The organization responsible for overall design of the project,
acting as architect or design professional.

133

Appendix D Glossary
Forward Pricing: The process of negotiating and resolving a change order in
advance of doing the work. All impact and consequential cost are estimated
and agreed to without further negotiations or claims.
Hidden Cost:

The combination of impact and consequential costs.

Impact Costs: The indirect effects that changes have on project budgets and
schedules as a result of delays, lowered productivity and material wastage.
These costs are some time referred to as "ripple costs". Indirect Cost
that must be allocated in order to be assigned to the change under
consideration. Indirect cost are items that do not become a part of, but are
a necessary cost involved in, the detail design and construction of a
facility.
Indirect Labor: Other labor attributed to the project, but which is not
included in the calculation of physical progress.
Original Bid: The initial budgeted amount submitted by the developer,
engineer or contractor to the owner for the established scope of work.
Owner: The organization that will occupy the facility or is paying for
design and construction of the facility.
Owner's Estimate: The owners cost calculation for the scope of work prior to
the owner requesting formal bidding or proposals submittal.
Project Completion Date: The actual date that the project was completed with
change order extension or other time extensions.
Retrospective Pricing: The process of evaluating a change's cost, schedule
and other impacts after the work is complete. Parties involved with
negotiating the change order wait until the change order work has been
completed to evaluate direct, indirect and consequential cost for determining
the total change order cost.
Ripple Effect:
and schedule.

The cumulative effect of multiple changes on a project's cost

134

Appendix D Glossary
Time & Material Pricing: The cost of time and materials are kept while
completing the change order work, and a profit and overhead figure are added
to the final change order cost.
Unit Pricing: This pricing method utilizes simple multiplication of units
and cost to determine the change order cost.

135