T ECHNICAL A RTICLE
Quantifying the Effect of
Change Orders on Electrical
Construction Labor Efficiency
Dr. Awad S. Hanna, PE; Dr. Jeffrey S. Russell, PE; and David Thomack
T
he primary objective of this ar-
ticle is to quantify the effects
that change orders have on
project-level labor efficiency
in the electrical construction industry.
Labor productivity is a risky aspect of a
project, and it affects a project’s prof-
itability. In addition, it is often difficult to
measure. Determining the exact cost of
change orders is a difficult, maybe even
impossible, process. However, by tracking
labor performance as it is affected by
change orders on a large number of past
projects, a better explanation can be pro-
vided by contractors hoping to obtain fair
compensation for work performed. The
effects on efficiency are explored here at
the macroscopic level, and are not specif-
ic to the scope, size, type, or timing of any
one specific change order on a given proj-
ect. Although there are many factors that
reduce the efficiency and/or productivity
of construction labor, this article explores
the effects of change orders to better un-
derstand their influence on labor produc-
tivity.
BACKGROUND
Owners have the right to initiate
changes on a project. The only rule ap-
plying to such decisions is to provide di-
rectives to the contractor doing the work.
It is to the advantage of the owner and the
contractor that any notifications of
change come as early as possible. The
contractor, in turn, has the right to equi-
table adjustment for any and all services
rendered. Conflicts can occur when the
cost of a change is not agreed upon by the
owner or his/her representative. The ef-
fect of changes on the construction
process can be difficult to quantify. In
36
many cases, contractors are not properly
compensated for the work they perform
and the results experienced on the esti-
mated baseline productivity. At the same
time, owners have a tendency to feel they
are being unfairly charged for work per-
formed on directed changes, for reasons
ranging from mismanagement that results
in poor productivity to an unreasonably
low initial bid.
A change order can be defined as
written authorization provided to a con-
tractor that approves a change from the
original plans, specifications, or other
contract documents, as well as a change
in the cost [2]. In the real world, change
orders are not always authorized in writ-
ing. They can cause disruption in the
planned work schedule and result in in-
creased costs through rework and de-
creased productivity. Some problems re-
lated to change orders include the
following:
• changing the project scope, render-
ing the original plan incomplete;
• loss of efficiency due to interruptions,
interference, and a lack of the tools,
labor, and materials needed to meet
the requirements of the new scope;
• difficulty in determining just com-
pensation for the parties involved;
• an increase in project management
costs;
• an increase in the frequency of plan-
ning and replanning efforts; and
• loss of the learning curve effect due
to interruption of work.
The connected nature of the electri-
cal trade magnifies the results of change
orders during the construction process.
The electrical trade is a labor-intensive
field where, in many cases, a minor
Cost Engineering Vol. 40/No. 2 FEBRUARY 1998
change can result in a substantial loss in
efficiency. As a result, electrical contrac-
tors can be underpaid and often spend a
great deal of money and time document-
ing the true impact and cost of a change.
Furthermore, some are facing litigation
and detrimental accusations of price in-
flating to cover anticipated or unantici-
pated losses. Electrical contractors have
not had industry-aggregated data to sub-
stantiate their position, whatever it may
be, because of the substantial effort re-
quired to quantify these effects.
PRODUCTIVITY AND
EFFICIENCY
Efficiency is the ratio of actual per-
formance to the theoretical maximum
performance [2]. Depending on the
source, productivity can be defined by the
output divided by the input, or input by
output. The input in most cases is labor
hours, but also can be expressed in terms
of capital. Upon collection of data from
completed projects, the output variable
for productivity was found to be unattain-
able. The input, or labor hours expended,
was readily available; for this reason, effi-
ciency is used as the measurable in this
study. Efficiency, for the purpose of this
research, is defined as the actual labor
performance compared to the estimated
or standard performance. The variable
that will be used to determine efficiency
is called “delta” (∆), and is defined as the
difference between the base project labor
hours (actual hours - change order hours)
and the original estimated labor hours
when the contract was awarded. Figure 1
illustrates this measure.
LITERATURE REVIEW
There have been few publications
and/or studies dealing with the quantita-
tive effects of change orders on labor pro-
ductivity. This article focuses on the pro-
duction level of a construction project, in
part because productivity is the most im-
portant determinant between a successful
and unsuccessful project. The other rea-
son for studying productivity is the mea-

delta
can be positive or
negative
Labor Hours
∆ (base + change)
Estimate
t = 0%
Project Time Line
Figure 1—Graphic Illustration of ∆
surable, quantifiable nature of the pro-
duction.
Past research has indicated that there
is a direct correlation between an increase
in change orders and a loss of productivi-
ty. One study [3] reported losses in pro-
ductivity associated with change orders,
combined with other causes of disruption.
This relationship is more dramatic for the
electrical and mechanical sectors than for
civil/architectural work due mostly to the
interdependence of the trades. An inter-
esting finding is that losses in productivity
as a result of change orders are not affect-
ed by the type of construction, i.e., gener-
al building versus industrial projects.
A recent study conducted by the
Construction Industry Institute (CII) at-
tempted to quantify the effects of project
change. It focused upon three research
hypotheses:
• changes that occur late in a project
are implemented less efficiently than
those early-on;
• the greater the amount of change
there is on a project, the greater the
negative effect on labor productivity;
and
• the cumulative change effect increas-
es proportionately to the amount of
change on a project [1].
The information necessary to investi-
gate these hypotheses was difficult to ob-
tain; many participants just didn’t have
the needed information. Only 19 percent
of the submitted projects included infor-
mation needed for an analysis of hypothe-
sis 1; thus, a statistical evaluation of this
Total Labor
Hours
Base
t = 100%
hypothesis was not possible. An investiga-
tion of hypothesis 2 showed that produc-
tivity rates lower than planned are
achieved when construction change is
greater than 5 percent [1]. This decrease
in total job productivity increases as the
amount of change increases. This can be
attributed to the “ripple” effect of changes
on all aspects of a construction project.
The third hypothesis was that hidden
change (an unquantified effect on the
base contract) and project change are di-
rectly related. Statistical analysis revealed
that as the amount of project change in-
creases, so does the amount of hidden
change, or the impact on baseline labor.
The major conclusion from the study was
that professionals must improve identifi-
cation and measurement techniques for
project change to better measure the hid-
den change effects.
In a recent publication by Thomas
and Napolitan [4], an attempt to quantify
the effects of construction changes on
labor productivity was made. The authors
used daily productivity values from three
projects:
• a process plant—mechanical and
electrical trades were studied;
• a paper mill—electrical; and
• a refinery—mechanical, constructed
over a period of 4 years.
The project data included approximately
522 working days, and represented a lim-
ited sample (three projects). Multiple re-
gression techniques and an analysis of
variance tests, among other methods,
were used to analyze data from the three
Cost Engineering Vol. 40/No. 2 FEBRUARY 1998
projects. The results of the study showed
that while in many instances changes did
not affect labor productivity, on the aver-
age, a 30 percent loss in efficiency oc-
curred during the performance of
change-order work. To define efficiency, a
performance ratio (PR) was first defined
as the actual productivity divided by the
baseline productivity. Efficiency was then
defined as the average PR, with a given
factor present divided by the average PR
under normal conditions. Thomas and
Napolitan point out that disruptions dur-
ing the work process were the major
cause of production loss, resulting in daily
efficiency losses in the range of 25 to 50
percent.
The factor model [5] was used in this
study to analyze how change affected
labor productivity. Baseline productivity
was determined by monitoring and
recording work performed and quantities
installed on days when change-order
work was not present. The performance
ratio (PR) was then determined by divid-
ing the actual productivity by the baseline
productivity. Multivariate regression pro-
duced the following model:
PR = 2.57 + 1.07 × changes indicator
where
the changes indicator is an indicator vari-
able such that the presence of
changes = 1 and the absence of
changes = 0.
(equation 1)
With efficiency being the PR with
the changes indicator present (2.57 +
1.07 = 3.64) over the PR under normal
conditions (2.57), it was concluded that
the efficiency was 2.57/3.64 = 0.71, or an
average loss of efficiency of about 30 per-
cent when changes are present.
METHODOLOGY
A preliminary questionnaire was de-
veloped and distributed to two electrical
contractors to obtain data to quantify the
loss of efficiency due to changes. Feed-
back regarding the clarity of questions
and the availability of the data collected
was obtained. The questionnaire was re-
vised and distributed to six major electri-
cal contractors around the US. The ques-
37
tionnaire consisted of three sections:
company-specific data, project-specific
data, and change order-specific data for
the project. Upon completion of the ques-
tionnaires, follow-up interviews were con-
ducted to clarify and validate the data
provided. Hypothesis testing and linear
regression were performed on the collect-
ed data using MINITAB, a statistical soft-
ware package.
ASSUMPTIONS
Several assumptions had to be made
for the calculations needed to determine
the effect of change orders on labor effi-
ciency. The first assumption was that the
project estimate was accurate and/or
valid. This assumption was made with the
following factor in mind: the contractors
in this study had been successful in the
industry for a number of years, during
which time they amassed large amounts
of data and knowledge used to arrive at
accurate bids. Similarly, the second as-
sumption was that the estimated labor
hours reported for change-order work
were accurate. Over one-half of the proj-
ects did not track the actual hours ex-
pended on change orders. The reasons for
not tracking these hours were insufficient
time to collect data and difficulty in ob-
taining accurate numbers.
DATA COLLECTION
AND CHARACTERISTICS
Forty-four projects from five electri-
cal contractors were collected, spanning a
wide range of project types and sizes. The
projects ranged from $50,000 to over
$5,000,000 in total installed cost, and
covered a variety of project types, ranging
from power plants to institutional and
commercial buildings. In the majority of
these projects, the electrical contractor
was a subcontractor.
Company and Project Characteristics
The average annual sales in 1995 for
the participants were $62 million, with
the minimum being $18.5 million and
the maximum $123 million. The projects
primarily involved union labor. The con-
38
struction project types consisted of the fol-
lowing categories:
• industrial (manufacturing or process
plants, paper mills, wastewater treat-
ment plants, etc.)—38 percent;
• commercial (banks, retail, schools,
office buildings, and others of the
type)—34 percent;
• institutional (hospitals and correc-
tional facilities)—14 percent; and
• power plants—9 percent.
There were two responses of “other” (5
percent—a theater and a museum proj-
ect). Industrial and commercial projects
constituted over 70 percent of all of the
project types.
The project delivery approach was
the next project-related variable collect-
ed. Three types were reported:
• design-bid-build without a construc-
tion manager—67 percent;
• design-bid-build with construction
manager services—29 percent; and
• design-build approach with a con-
struction manager—4 percent.
Determination of Effects
The questionnaire asked contractors
to indicate if the job being considered
were affected by change orders. This was
defined as a job experiencing more
changes than past projects of similar size
and contract duration. The determina-
tion of whether or not the job were affect-
ed was made using the project manager’s
experience. The question was subjective
for several reasons, the main one being
that in many instances, the numbers re-
ported in job cost reporting systems do
not adequately reflect the nature of the
project. More specifically, a job could be
severely affected by change and still finish
ahead of the planned labor projections.
The projects were grouped into two out-
come categories: affected projects and un-
affected projects. The projects were then
divided into two further categories: those
with a positive value for ∆, and those with
a negative value for ∆. Of the 21 positive
delta projects, 6 were characterized as un-
affected; similarly, 6 projects were report-
ed as affected and having delta values
below zero.
Cost Engineering Vol. 40/No. 2 FEBRUARY 1998
REGRESSION ANALYSIS
Regression analysis is the statistical
tool used to measure how well a group of
independent variables “explains” a given
dependent variable. The model presented
here consists of a two-term regression
equation, with one of the terms being an
indicator variable. The data were first ex-
amined by graphical methods to show re-
lationships between different parameters
that warranted further investigation and
possible inclusion in the model. In the
model formulation and fitting stages, the
model was implemented, and fitted val-
ues for the dependent variable were cal-
culated. These values were then plotted
against their actual values in an effort to
validate the model. Finally, diagnostic
checking, or data and model criticism,
was performed.
The graphical distribution of estimat-
ed labor hours was skewed to the left, giv-
ing unequal weight to projects with a
lower number of labor hours. To normal-
ize the data, they were plotted on a natur-
al logarithmic scale. This distribution of
the normalized data represents a much
more symmetrical or normal observed
distribution. This transformation is shown
in figures 2 and 3.
Regression Model Selection
In an effort to be all-encompassing,
the initial regression model contained all
44 of the projects reported. The indepen-
dent variables for the model were deter-
mined to be estimated labor hours at proj-
ect conception and if it were affected or
not. The dependent variable was identi-
fied as ∆ measured as a percent of the
total actual labor hours. The equation in-
cludes the following:
∆%tot = 0.517 + .150 impact
- .0586 LnEstHR
where
∆%tot = actual base labor hours minus es-
timated labor hours divided by the
total actual labor hours;
impact = 1 if the project is affected and =
0 if unaffected;
LnEstHR = original contract estimated
labor hours in natural logarithmic
units.
(equation 2)
 tractor pursuing additional compensa-
25 tion.
The negative sign associated with the
20 natural-log of the original estimated labor
hours appears to be a cause for concern,
but can be partially explained by a num-
Frequency

15
ber of reasons. The main reason is that
small jobs, measured in direct field labor
10
hours, are susceptible to change orders of
any magnitude. This is true of jobs of any
5
size, but the issue here is that smaller
projects can have a larger delta percent-
0
age just because of their size and because
5 15 25 35 45 55 65 75 85 95 105 of how the change orders compare to the
Estimated Labor Hours (1,000 Hours) original size of the job, while larger jobs
have more hours to dilute the effect of
Figure 2—Distribution of Labor Hours these change-order hours. This issue of
scale is seen in the fact that it takes a
10 much larger delta, or difference between
the base and estimated labor hours, to af-
8 fect the delta measured as a percent of the
total labor hours on a large project versus
Frequency

6 a small one.
Another possible explanation is that
4 contractors react better or are forced to
give more attention to projects that con-
2 tain large numbers of change-order
hours. The converse of this is the possi-
0 bility that on jobs where change orders
6.5 7 7.5 8 8.5 9 9.5 10 10.5 11 11.5 account for only 5 to 15 percent of the
total labor, they become a nonissue for
Natural Log Estimated Labor Hours
managers and get lost in the everyday ac-
Figure 3—Natural Log Transformation Distribution of Labor Hours tivities of the project, and thus have more
effect on the baseline productivity of
workers.
∆ % Total Values Figure 4 illustrates the actual values
of delta as reported by contractors partici-
0.5- • pating in the study plotted against the val-
0.4- • ues of delta as calculated from equation
0.3- • • 2, or fitted values. It can be seen that the
0.2- •• • • prediction equation provides an accurate
• • • •
Actual Values

0.1- • result in the trend of the data. The t-val-

•• • • •• •
0.0- •• • • ues associated with each coefficient ex-
• •• •• • • ceed 3.5 in absolute value. The R2 value,
-0.1- • •
-0.2- • • or coefficient of determination, is 0.480,
R2 = 0.480 indicating that the model explains 48 per-
-0.3-
-0.4- cent of the variation in delta. The Ra2
value adjusted for the degrees of freedom
-0.2 -0.1 0.0 0.1 0.2 0.3 is 0.452, just slightly lower.
Fitted Values

Figure 4—Fitted Value Plot for ∆ % Total Values SAMPLE APPLICATION

The signs and magnitudes of the esti- expended. It is imperative that the owner, The delta is defined as the base con-
mated regression coefficients provide in- contractor, and specialty contractor ac- tract hours minus the original estimated
sight into the variables’ relationships. For knowledge the existence of this when hours, and given that the model returns a
a particular project, holding all other vari- changes occur. The responsibility to doc- value for delta in terms of the percentage
ables equal, an impacted project adds 15 ument the effects on labor as a result of of the total actual job labor, allows the
percent to delta in terms of the total labor change-order work belongs to the con-

Cost Engineering Vol. 40/No. 2 FEBRUARY 1998 39

computation of the affected base labor
hours. More specifically,
affected base labor hours = (∆%tot)
× total actual labor hours
+ total estimated labor hours
(equation 3)
and, by definition
total actual labor hoursaffected
= base labor hoursaffected
+ total change-order labor hours.
(equation 4)
To illustrate with a numerical exam-
ple, data from a project submitted after
the completion of the regression analysis
was used in the regression equation. The
estimated labor at the start of construction
was reported as 32,729 hours. The actual
number of change-order labor hours was
23,840, with an extra 6,753 hours of work
that were not accounted for; assuming
this project was affected, the estimated
impact on this project is 5.8 percent.
{∆%tot = 0.517 + 0.150 (1) - 0.0586
(ln 32729)}.
(equation 5)
This is an estimate for ∆%tot. The actual
value for ∆%tot was 10.66 percent.
LIMITATIONS
It should be noted that the data used
to formulate the model contained proj-
ects with a maximum value for change-
order hours of 35 percent of the total
labor hours. This means that projects that
include change orders to a greater degree
than this cannot be used in the model.
Another limitation of the model is that
many factors were not included during
conception of the actual model. Factors
such as project type, project delivery ap-
proach, schedule increase, frequency of
change orders, and others were not in-
cluded in an effort to simplify the model.
T
his article is a first step toward
the quantification of the re-
sults of change. The model de-
veloped from the regression
analysis should be inspected with cau-
40
tion. The equation can be used to deter-
mine the amount of lost efficiency on the
base project resulting from change orders,
but is just one measure and is not the end-
all for future negotiations. It has a great
deal of merit in that it was derived from
actual electrical construction project
data, and the projects from which the
data came included other factors that af-
fected productivity, such as weather con-
ditions, trade stacking, overtime, and
more. Statistically speaking, the model is
a good predictor of delta, given the inde-
pendent variables in the equation. The
model has a coefficient of determination,
R2, higher than in previous studies per-
formed on the topic, and is based on a siz-
able database composed of projects rang-
ing in size from 1,700 to 147,000 total
actual labor hours. However, the model
has limitations as well. It is an after-the-
fact tool, meaning that the nature of the
variables allows the model to work only
when the project is complete.
Perhaps the best application for the
model would be to prove or disprove an
owner’s belief that losses a contractor
claims resulted from change orders actu-
ally resulted from mismanagement or a
poor bid. For a contractor to get reim-
bursed for additional labor hours per-
formed as the result of effects to the base
hours, he/she has to first determine how
many hours were added. By comparing
the contractor’s desired or computed
amount of additional labor hours to a cal-
culated value obtained with the model,
the factor(s) of mismanagement and/or a
bad bid drop out. This assumes that mis-
management and/or poor bids were not
common in the data used to formulate
the model—an unlikely scenario.
REFERENCES
1. Ibbs, C.W., and Walter E. Allen.
Quantitative Impacts of Project
Change. Source Document 108.
Austin, TX: The Construction Indus-
try Institute, 1995.
2. Means Illustrated Construction
Dictionary. Kingston, MA: R.S.
Means Company, Inc., 1991.
3. Moselhi, O., C. Leonard, and P.
Fazio. Impact of Change Orders on
Construction Productivity. Canadian
Cost Engineering Vol. 40/No. 2 FEBRUARY 1998
Journal of Civil Engineering 8
(1991): 484-492.
4. Thomas, H. Randolph, and Carmen
L. Napolitan. Quantitative Effects of
Construction Changes on Labor Pro-
ductivity. Journal of Construction
Engineering and Management 121,
no. 3 (1995): 290-296.
5. Thomas, H. Randolph, and A.S.
Sakarcan. Forecasting Labor Produc-
tivity Using the Factor Model. Jour-
nal of Construction Engineering
and Management 120, no. 1 (Janu-
ary 1994): 228-239.
Dr. Awad S. Hanna,
PE, is an associate
professor of construc-
tion at the University
of Wisconsin-Madison,
in the department of
civil and environmen-
tal engineering. He
earned a master’s de-
gree and a Ph.D. in civil engineering (with
an emphasis in construction engineering
and management) from Pennsylvania
State University in 1986 and 1989, respec-
tively. He worked as an assistant and then
as an associate professor at the Memorial
University of Newfoundland, Canada,
from 1989 to 1993. He has authored over
50 publications in journals and conference
proceedings in the areas of construction
productivity, constructability, and meth-
ods improvement.
Dr. Jeffrey S. Russell,
PE, is an associate
professor in the depart-
ment of civil and envi-
ronmental engineering
at the University of
Wisconsin-Madison,
and he is the chair of
their construction en-
gineering and management program. Dr.
Russell’s education includes a B.S. in civil
engineering (1985) from the University of
Cincinnati, as well as a master’s degree
(1986) and Ph.D. (1988) from Purdue
University. Dr. Russell’s research focuses
on developing decision-support tools for
the managerial aspects of construction, in-
cluding contractor prequalification, as
well as human and robotic performance in
the construction industry. He is an author
and coauthor of numerous publications in these areas. He is a
member of AACE International. DON’T BE THE
David Thomack is a project engineer with ONLY ONE WHO
the M.A. Mortenson Construction Company
in Minneapolis, MN. He received his under-
graduate degree from the civil and environ-
DOESN’T
mental engineering department’s construc-
KNOW—
5
tion engineering and management program
in 1994 at the University of Wisconsin-Madi-
son. He graduated from the University of
Wisconsin with a master’s degree in civil en-
gineering in 1996. He has worked as a project estimator for
Mortenson and has experience in the mechanical construction GET YOUR COPY OF THE
industry as well.◆
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Cost Engineering Vol. 40/No. 2 FEBRUARY 1998 41