Managing Contingencies and Change Orders in Construction
For project managers in the construction industry, making informed decisions is crucial, particularly when it involves financials and maintaining healthy subcontractor relationships. Brandon Manning and Zak Krauss dive into the nuances of managing project contingencies and the delicate balance of handling change orders.
Managing for the Long Game
Understanding the current financial standing of a project, including the remaining contingency, is essential for project managers. It can dictate whether it’s time to tighten up on subcontractors or if there’s wiggle room for flexibility. While the goal is to control change orders and match them with the owner’s approvals, there are times when maintaining a good relationship with a subcontractor may take precedence. “It’s about the long game,” Manning says, emphasizing the importance of relationships in construction projects.
Profitability Impacts
Change orders have a deep impact on a project’s profitability. Granting concessions to a subcontractor might mean digging into the projected profit margins. For example, a seemingly small change order can reduce a projected 30% margin down to 25%. This is why understanding the financial implications of every decision on-site is critical.
The Balance with Subcontractors
Striking the right balance between financial prudence and strategic relationship management is essential to both profitability and relationship building in the industry. Project managers must be well-versed in the project’s financial standing at every stage to make decisions that benefit both the current project and future collaborations.
For construction businesses seeking to optimize their project management strategies and maintain profitability, managing contingencies and navigating the complexities of change orders helps to preserve crucial subcontractor relationships and your bottom line.
