6 Principles of Engineering Change Order Management

The goal of this article is to provide you with some guiding principles you can use to reduce waste in your organization by developing and implementing a more efficient change management process. So, grab a cup of coffee, and let’s go!

Principle 1: Understand when a change order is needed

Not every design change requires an engineering change order. In general, formal change orders are saved for larger changes, such as those that increase the cost of a project or will necessitate extra work.

For example, in product design, change orders are common when:

• A design mistake isn’t discovered until the product has already been modeled or built
• The customer requests a redesign
• The material or manufacturing method needs to be changed

When changes orders are necessary may also depend on the client. For example, the City of Lincoln, Nebraska, requires contractors to submit change orders in three situations:

• When there’s an increase or decrease in a unit price
• When a project is delayed
• When “substantial revisions” must be made, meaning to the amount of work or the price of the contract

These conditions are pretty standard, but the details may differ from project to project. For example, in Lincoln, the definition of “substantial revisions” to the price of the contract depends on the original contract amount. If the original amount is less than $25,000, then anything greater than or equal to 20% of the contract amount requires a change order. However, if the original contract amount is greater than $200,000, a change order is only required for changes that will cost more than $25,000.

Principle 2: Avoid unnecessary changes

This principle and the three that follow (i.e., reduce impact, detect problems early, and speed up the process) were originally formulated by Wharton’s Christian Terwiesch and the University of Cambridge’s Christopher H. Loch, in their paper Managing the Process of Engineering Change Orders: The Case of the Climate Control System in Automobile Development. While the paper focuses on automotive engineering, the principles themselves are universal. What follows is a summary of their findings and recommendations.

Terwiesch and Loch report a shocking finding: On average, every automotive component needs to be changed once. As a result, many engineers don’t do their best work the first time, because they know they’ll have to redo it anyway.

Talk about a self-fulfilling prophecy! If your engineers don’t do it right the first time, then change orders are practically guaranteed. What’s worse, these types of change orders are totally unnecessary.

Fortunately, there’s a simple solution: spend more time upfront on the initial design.

A second way to avoid unnecessary changes is to have guidelines for determining whether the cost is worth it. For example, one project manager offered Terwiesch and Loch this rule of thumb:

“If a change pays back in a year, I go for it. If it takes two years to pay back, we discuss it with our financial services for cash-flow details. Everything that needs a longer amortization period, I veto.”

Your payback heuristics may be different. The important thing is that you have them in place.

Principle 3: Reduce impact

Have you ever had one change order necessitate another change order necessitate another change order……

Terwiesch and Loch refer to this as the “ECO [engineering change order] snowball effect,” which happens as “a function of the couplings between the activity causing the change and interdependent other activities.”

You can decrease the likelihood of an ECO snowball by reducing complexity. This means reducing dependencies and making your designs more modular, for example, by using standard typicals that can easily be switched out if necessary. (Incidentally, this approach can also help you save time and money on the design process.)

Principle 4: Detect problems early

As you know, the later in the process they come, the more difficult, time-consuming, and expensive engineering changes will be. Thus, the earlier you can identify potential changes, the better.

Terwiesch and Loch suggest two approaches for frontloading engineering change orders early in the process:

• Technological. With modern engineering tools, like simulation software, you can almost completely test a system before you build it. This means you can identify problems before they happen. Be sure to build plenty of simulation time into your project schedule — you’ll make the time and investment back many times over when fewer ECOs hit your inbox.
• Organizational. Engineering disciplines have traditionally been isolated, with projects passed from one department to another in a linear fashion. But this siloing can cause myriad problems, including resulting in too many change orders. Terwiesch and Loch recommend consulting manufacturing, logistics, and even after-sales service experts early in the design process. They may be able to point out things that will necessitate ECOs down the line.

Principle 5: Speed up the process

This last principle from Terwiesch and Loch focuses on the process of managing change orders.

And, frankly, what they observe isn’t encouraging.

They note that “the time it takes between the detection of a need for change and the time the ECO is finally in place is disproportionate to the amount of work it takes to perform the intermediate steps.” That’s something of an understatement — one study found that for every day of processing (i.e., the administration of the ECO), there are two weeks of waiting time (i.e., “the ECO is on someone’s desk, pending further processing”).

These long processing times exacerbate other issues:

• Problems go unresolved for a very long time.
• Many problems are open at the same time, which adds another layer of complexity as changes often need to be coordinated. This can be especially difficult if engineers are all working on the same data, but in different systems.
• In the end, long delays mean everything will probably cost more.

Terwiesch and Loch identify several solutions for speeding up the ECO process. Here are just a few of them:

• Match the timing of when capacity is needed and when it’s provided (e.g., plan staffing appropriately)
• Share workloads among engineers
• Use better computer-aided technologies, or CAx (we have one in mind)
• Enable communication and collaboration among engineers
• Prioritize excellence in your process, not just your products

Principle 6: Go lean

In the introduction, we mentioned Mikael Strom’s work. The goal of his thesis was to see if he could improve the engineering change process using the lean principles.

Strom’s work is extensive, looking at lean principles in many different engineering contexts. One of his contributions is a lean change management toolbox, which provides recommendations for managing process, technical tools, and people. Several of his recommendations echo the ones we saw earlier from Terwiesch and Loch.