(How Not To) Serve Up Change Orders: The Importance of Project Scope Definition in Small Capital Industrial Projects July 7, 2015March 6, 2019 HMdev1 Brandon Hogan Contributed by Brandon Hogan, P.E. – Operations Manager at H+M Industrial EPC _____________________________________________________________ (How Not To) Serve Up Change Orders: The Importance of Project Scope Definition in Small Capital Industrial Projects. If you’ve ever been to one of the “weigh the cup” frozen yogurt places, you have probably noticed that the only container options available are really, really big cups. And without constant micro-management, my kids will soon fill the very large cups with three different ice-creams, seven kinds of candy and top off their leaning towers with whip cream and a cherry that ends up costing more than dinner did. Good thing they take plastic. As anyone involved in projects knows, jobs can also run wild without the correct controls in place. The irony of small capital projects (<$20MM) is that small doesn’t mean easy. However, due to the reduced capital allocation, small jobs aren’t always controlled as closely as large ones. In some areas, this is prudent and common sense (who hasn’t been frustrated by a twenty page schedule for a two week job?). But in other areas it is as important, if not more important, to closely control the small job. With several jobs running concurrently and short schedules, they will finish quickly, and it doesn’t take much to blow a schedule or budget. The most important aspect of a project, small or large, is the scope definition. As simple as it sounds, this is the most common mistake we see repeatedly with projects from many different clients. After a project is deemed potentially commercially viable and capital budget estimates are sought, it is key that the client or contracted engineering group consider the appropriate priority and sequence of actions that must be taken in order to ensure the budget will be reliable. The key driver for the project should be identified and made clear from the beginning through the end to all parties involved. Is it a safety project? Schedule driven? Is cost the main factor? The driver should be posted as a North Star to the project to make sure that work in the weeds doesn’t change or mitigate the purpose of the job. Preliminary Engineering deliverables should include Infrastructure Surveys, Equipment Specifications, P&IDs and Equipment Layout prior to budget level estimates. Without these at a minimum, your budget nor EPC bids will be within acceptable limits. Some owners believe in saving money in the engineering phase and not ordering these complete items. Many times this will be proven to be an obvious mistake further into the project life when change orders arrive due to unclear scope. Other times, the project will be negatively impacted, unknown to the owner, because of the less than optimal prices received in bids due to the perceived risk charged for by the bidding contractors. Most long term contractors, contrary to some opinions, do not relish in delivering change orders. Change orders can cause tension in the owner-contractor relationship and disturb schedules, supply chain and workforce planning. An ideal project is one that is well scoped, bid at fair margins, and is installed safely, on time and in-budget. A client’s value to a contractor is the present value of all future work, not just a single project, so it is in the contractor’s best interest for the owner to be as successful as possible. So, the next time you let your kids get frozen yogurt, do like I do: Make them take a scale and Gantt chart with them. _____________________________________________________________ Brandon Hogan, P.E. – Operations Manager at H+M Industrial EPC B.S. in Chemical Engineering, MBA Brandon has more than 14 years of industrial engineering experience in operations and project settings. Responsibilities included managing the operations of the Engineering, Procurement and Construction divisions. His past experience includes over 10 years of engineering with The Lubrizol Corporation in Deer Park including process design, capital project management and engineering optimization.