Steve: Welcome to the Tim Faller Show, where production is paramount and we discuss the tools, time and people associated with getting jobs done and making a profit.

Steve: On today’s episode of The Tim Faller Show, we will be talking about change orders, getting the coding right. But now a special guest, Trevor Robertson of Innovative Design Build in Atlanta, Georgia, alongside Tim Faller. Amy co-hosts Steve Wheeler. Here is the Tim Faller show.

Tim: Hey everyone, Tim Faller here and welcome to another what I think’s going to be a great episode of the Tim Faller Show. This is a topic that was requested and I just want to reinforce that. I appreciate it when people write in and say, Hey, can you do this? Because it helps me to make sure that I get stuff on the air that’s helpful for everybody.

Tim: So if you have an idea, send it to me at ten that remodelers advantage dot com. So the request came in to talk about change orders again. And I don’t say that in a negative way because it’s probably a topic that really needs to be talked about over and over and over again because it just doesn’t get done well in our industry.

Tim: And so while we’re going to be talking about some general change order stuff, there’s also a lot of chatter out there in my world about how do you track this stuff, How do you track the cost versus the estimate of a change order? And so how do you just add it to the body of the estimate? In other words, if you had $1,000 under a task and you added $400 in changes, does that does the new estimate simply become 1400 dollars or do you create your own cost code forum?

Tim: Like when I was a production manager, framing was 1 to 6, and if it was a change order, it was 106.020. That created a change order. And of course that created an extra layer of, you know, reporting by our lead carpenters to make sure that we got everything right. So do we do it like that? Or maybe some companies, I think, actually have like one cost code number.

Tim: That’s all the change orders written for a job. And so there’s like Costco, number of 30 change orders, you know, 1200 dollars for all the change orders. Estimated actual cost, $800 and and whatnot. And so we’re going to be talking about a lot of different things here. And probably no matter what we say today, somebody is going to have a different answer.

Tim: But we’re the experts today on this. So listen up and learn from some folks that are making it work. Let’s go to Steve.

Steve: All right. So Trevor Robertson has been the project manager for innovative design build for over five years. He specializes in custom residential renovations in the greater Atlanta area. Trevor consistently demonstrates that change orders are not a problem, but an opportunity for increased profit and also customer satisfaction. Welcome to the show, Trevor.

Trevor: I appreciate it. Good to be here.

Tim: I really appreciate it. Those of you who listen to this show often you’ll recognize innovative design build out of Atlanta. Eric Bahn, the production manager, has been on and one of the other project managers has been on with us. And so we like to use them as a resource because they seem to be doing things pretty well in that part of the world.

Tim: So Trevor, just give us a little bit more about your role at Innovate of Design, Design Build. Tell us a little bit more about what the project manager does.

Trevor: Well, I mean, in addition to managing all this jobs and the in-house labor, you know, on site daily and all that, as far as change orders go, our process is basically that before the job starts, the whole project is basically handed over to the project manager and the production team through a series of in-house meetings and then ultimately it’s it’s handed off to the production team in front of the client at the pre-construction meeting.

Trevor: So basically from that point forward, if there are any change orders, whether unforeseen or requested by the client, they go directly to the project manager and we handle them pretty much from start to finish. So pretty much regardless of size, regardless of scope, we would actually handle all of that from the estimating to presenting it, putting in into putting it into our builder train system and then ultimately releasing it and, you know, assuming it’s approved at that time, we would put all the pieces together to make it happen.

Tim: So do you have any kind of a form or a

Tim: Template that you use for like estimating and making sure you’ve got everything accurate for that change order? Or is it just a yellow pad with a pen? And you’re right now what you think it needs to be done. Is there any kind of form that goes with this?

Trevor: I mean, in our builder train system, which is what we use for pretty much everything we would enter each line item into that program and that’s where we would we would type everything out now. I mean, we could write it all down or, you know, obviously there’s some prep work to that. Yeah, figuring out the material we need or talking to the subs, getting their pricing and all that.

Trevor: But yeah, we would enter that all into the system, line item by line item, mark that up, put in a description and then you know, send it to the homeowner.

Tim: So I was just going to ask that question. I know Builder Trend has sort of added this wrinkle, which I’m not sure I’m comfortable with. I actually want to be there when the client starts reading the change order, but do you guys just send it as an email and they get a chance to look it over and then sign it and send it back?

Tim: Or are there some times when you guys actually are there sort of presenting, if you will?

Trevor: Yeah, I mean, typically it’s it’s understood that a change order is being processed or being created. You know, they’re talked about in our weekly walkthroughs with our homeowners. So we never just create a change order and send it, you know, without it being discussed.

Tim: Yeah. Okay, good.

Trevor: Now, if they know, let’s say last week we talked about adding some data lines or whatever, like I would just send it a few days later, write certain things within reason, don’t really need to be discussed face to face at the time. It’s now again, it’s communicated before and then if it gets really large, then yeah, ideally it’s best to run through it face to face with the homeowner, you know, preferably on site.

Trevor: Mean that way, you know, they can see what they’re going to pay for, especially, like I said, when it gets when it gets in the thousands of dollars range. Yeah.

Tim: Yeah. So Eric actually said you are really, really good at your change orders. And so I’m kind of wondering what you think is behind what’s the reason why you’re really good there? It’s a mystery to me sometimes, or some people are really good at doing change orders and some people are just really terrible at it. So what do you think it is about you that makes it work for you in terms of not only writing but getting these change orders through this, the through the process?

Trevor: Yeah. So before I joined Innovative, I worked for a flooring subcontractor where I, where I basically did estimates and sales and then I also manage the crews. So estimating was a big part of my, my job and you know, making sure the numbers were accurate also directly impacted my commission structure. So, you know, if I was making bad estimates, I was making bad money.

Trevor: So it’s just something I’m used to and comfortable doing and, you know, I’m not worried about presenting the costs to the homeowner. You know, the cost is kind of the cost typically. So I think a lot of fear goes into that of what the homeowner is expecting versus what, you know, the price comes out to be. So just, I don’t know, being confident in your numbers and yeah, making sure you do it right the first time because you know, I never try and ask the afterwards.

Trevor: It’s you either hit it or you you miss it. Learn and move on. Yeah.

Tim: So now I don’t I can’t remember in my conversations with anyone there, do you actually have a bonus structure where your bonus. A little bit by profitability.

Trevor: No, not, not at this company. That was my position before. But I mean, we we do get a bonus. So every dollar we make, I mean.

Tim: Yeah, so there’s still a little bit of that financial motivation behind it. As you as you get into it, right?

Trevor: Yes.

Tim: Yeah. All right. So I guess I mean, kind of answer this a little bit, but I’m kind of curious as to know how long did it take you to kind of learn the system, if you will, at innovative just you know, when you came on as a project manager, obviously were you were used to quoting numbers to clients and, you know, making sure that the company got paid.

Tim: But how long did it take you to really embrace the change order set up there?

Trevor: Yeah, it took a while. I mean, when I first started, like we didn’t have that process at all. It was still in question who would even provide the change orders? So, you know, the sales team didn’t want to give that up quite yet because they weren’t comfortable with it working out properly. So at the beginning we would we would potentially put the numbers together and get the bids together and then send it back to the salesperson and have it approved and then send it back.

Trevor: But it just took too long. And with the way we managed jobs, like the salesperson at that time, could be completely removed from the job, you know, not that they don’t follow up with the project, but they don’t know the day to day happenings. So we just found that over time, like it just made more sense for us to absorb it.

Trevor: You know, sometimes they get large and, you know, we do kind of circle back and just have the numbers kind of checked compared to what their thoughts are. But, you know, it took a while until finally we just had it going and we have it in our process and so it’s part of what we do now.

Tim: So was it mostly a matter of speed and convenience that it moved from sales into the project managers hands?

Trevor: Yeah, and a lot of unforeseen issues. You know, they need to be reacted to immediately. So there’s no time to to wait, you know, with people schedules and let’s say they were out of town or who knows, I mean, it just made more sense for us to do it and, you know, change orders oftentimes add and scheduled days.

Trevor: So the longer it takes to figure out a number and had it approved, the longer it pushes out the job and so on and so forth.

Tim: So before Steve jumps in here, what’s the biggest change order you’ve ever saw while you were there at Innovative?

Trevor: A dollar amount.

Tim: Yeah. Yeah. I’ve just a just a random. Yeah. Give me an idea.

Trevor: Like $30,000.

Tim: 30,000? Yeah, that’s a big number. That’s almost like for many people, that’s almost like selling a job. So yeah, that, that’s a big number. Go ahead. Steve.

Steve: Yeah. Tim The second you said, you know what makes him good at doing change orders, I was going to chime in and say, Where are you in sales? But you know, I guess but so you mentioned kind of the time limit on well, they’re being it time constraints on a change order for unforeseen. What’s the delineation there of things that you expect as an unforeseen like what are your guidelines there.

Steve: Well give me some examples of an unforeseen change order.

Trevor: I mean, a lot of it’s you know, when we open up walls and the plumbing is not the code, The electrical is not the code. There’s wood, right? The framing is missing. Headers are cut. I mean, you name it. So a lot of it’s basically when we open up walls, I mean, our sales team and our estimating team, they all do a really good job.

Trevor: Like our scopes are really tight, our eyes are really long. But that’s important because they’re really detailed. But I mean, you don’t know what you’re getting into until you open something up.

Steve: So basically it’s unexpected. Something was potentially done poorly or or wrong. Nothing you could have seen in your estimating process.

Trevor: Correct? Yes. Yeah.

Tim: So one of the things that I often talk about with companies is setting expectations. Is there anything particular that you do in that pre-construction meeting? You as a project manager where you’re essentially setting the client up for these unexpected? Because that that tends to be the place where we get the most fight from clients. In other words, if a client comes to us and said, I want to put another window in, it’s like, that’s what I want, but it’s these unexpressed rated things that they tend to push back and say maybe things like, Shouldn’t you have seen that or something like that?

Tim: How do you how do you set the client up? That sounds like a bad, bad thing. But how do you set the expectations that, hey, we’re going to run into these things.

Trevor: During our pre-construction meeting? I mean, it is discussed. It’s brought to everyone’s attention that, you know, change orders can be unexpected. You know, as much as we don’t want them there, they’re they’re very common. Yeah, they’re almost unavoidable. I mean, to be honest, in my experience and with those unexpected, it’s like you just kind of have to be empathetic.

Trevor: Like, we don’t really want to present these change orders either, you know? Yeah, nobody wants to do that kind of work. So, you know, just making it known that we can’t see behind walls and we can’t expect to find certain issues. Now, if it’s something that we think we missed or may have been, you know, overseen a little bit.

Trevor: Yeah. Then, you know, sometimes we’ll just cover it to keep the relationship because usually that’s at the beginning of the project. So, you know, you get into these poorly built homes or rotten bands and all that. Yeah, Yeah. I mean you still have a couple of months of the project last, so you’re trying to keep a relationship as well.

Trevor: Yeah. And then just being honest and saying, Hey, look, this, this needs to be fixed. We’re going to fix it. And we’re sorry that this happened, but this has to happen.

Tim: So yeah, you don’t run around going, boy, more money. That would that would ruin the relationship quickly. So let’s talk a little bit about this coding thing that I mentioned in the intro. So it is as detailed as you can. How do you guys like when you do the estimate? Does it like if it’s a framing change, does it go into framing as a general category?

Tim: Or can you see that the change order for framing had $1,000 extra so that you can track costs against that? How do you how do you do that?

Trevor: Yes. Yes. And no. So, you know, let’s say we have a budget for framing of $10,000 and there’s $1,000 change order for framing, you know, in our budget it would increase from 10000 to 11000. Right. And then, you know, as the job progresses, you know, we could see if we hit our number. If we didn’t hit our number.

Trevor: But the way we track it is is through separating kind of what our change order profit margin is versus what our initial profit margin was that the job sold right. You know, on a prior $100,000 project, you know, let’s say we have $5,000 of change orders, but we spent 3000. So we’d say we made 2000. Like we would have that percentage.

Trevor: So we can we can’t track it down, you know, but so much, I don’t know, But we can track the overall kind of profit margin to see if we’re close to what we we sold it at end.

Tim: And you’ve just opened up a another topic here and like, do you actually have a different profit margin? You don’t have to share the numbers, but is your profit margin different on change orders deliberately?

Trevor: No, we just we try and keep it the same. Okay. The reality is I don’t think we meet that a lot of the times. But, you know, again, it’s just trying to keep the relationship and a lot of the change orders are typically unforeseen. So you know, trying to keep the job moving. But now.

Tim: So are you seeing any kind of increase in profitability as as a job goes through when change orders are added?

Trevor: No, I’d say it stays the same. Okay. Or it’s less profitable. Okay. And the job sold.

Tim: Okay. So hopefully it’s being sold enough where you have room for a little slippage there and still maintain a good, good net profit. So hopefully that that works well. So I guess one of the things that I, I know I experienced when I was a production manager was we had a hard time getting our field staff to really focus on this.

Tim: Is Labor directly related to a change order versus labor that’s directly related to original costs? And I guess, do you have any kind of experience like that or is it because it’s all lumped together? It seems like maybe that’s not an issue. Maybe that’s one of the benefits of not separating them out into different cost codes.

Trevor: Yeah, we don’t do that. You know, we don’t separate it into different cost codes. So it is a little, I guess vague, but because we track our budgets weekly, we can usually kind of tell if we’re tracking well or not. And then if we had change orders, we would know if I make money on it or not. So, you know, when we’re using a trade partner, like if they give us a number, you know, we mark it up and we typically make that number.

Trevor: Now we use our in-house guys. It can be a little harder to track because I may estimate it takes 10 hours and it really took 12 talking about, you know, a small amount in the scheme of things. So it’s really about tracking the budget on a weekly basis to be able to figure out if our change orders are are profitable or not.

Trevor: Yeah, Yeah. That’s how we figure that out. So but so.

Tim: Tell us a little bit more about that. How does that work at innovative with this weekly tracking? Because many companies, they let it go and let it go and let it go and then they go, we’re not, you know, we’re off. So how do you guys do that? Weekly tracking. What’s the process for that?

Trevor: well, we typically have a weekly meeting with, you know, Eric, our production manager, and we’ll go through the budget of each of each job, you know, line item by line item. We’ll look at the numbers. We’ll kind of say, Hey, this week and this week we’ve missed this. I think we’re going to lose $500 or maybe we made money on this item and then we enter it weekly and then we’re able to kind of track it from the beginning of the job to the end.

Trevor: So that way, at the end of the job, we don’t all of a sudden say, no, we’re $10,000 over budget. Yeah, you would pretty much say, yeah, I knew I was $9,000 over budget and then we lost $1,000 on punch out. So I knew we were at $10,000 already. So that’s how we did that.

Tim: Yeah, that’s, that’s really cool. So this has been really good. Some good general information about MWR changes. So maybe to kind of wrap things up, what little bit of advice would you give to companies maybe that has made innovative really good at this change order process that they might be able to put into place?

Trevor: Well, I guess I mean, in my experience, you just have to trust that the people on the ground to do the change orders. I think that they have the most information available to them and they have the relationship with the homeowners on a day to day basis. So like keeping that relationship positive is really important to the the benefit of the job.

Trevor: And I mean, just being able to track it, you know, trying to mark it up enough to where you can keep and keep an even keel throughout the project. And yeah, I guess keep keep a good relationship with the homeowners.

Steve: Yeah. And Trevor, I just wanted to touch a little bit more on the hesitation that some PMS helicopters may have on introducing the change order to the client and you no hesitation on pricing the delivery point If you were training someone new to either, you know, replace you or do you know, be another project manager, would you do some sort of sales training or how would you you matched incentive to, you know, the way that you do it.

Steve: You said I used to be you know smarter and salesperson for flooring company because that’s how you got paid. It’s not necessarily the case but yeah, there’s an awareness there, you know, that if you do the change audit and the company makes money, you know you have that connection. How would you train or explain? Would you add sales training into project management?

Steve: How would you bring that piece to make them better at introducing change orders to the client because there’s an issue?

Trevor: Well, I mean, I know from experience it’s like a bonus structure is a very positive thing. I’m not sure how common it is in the construction industry right. But, you know, every dollar we make, you know, the company as a whole makes. And there’s the potential for everyone in the company to make a little bit more. So like every action that we make, no matter what it is, how large or how small does impact, you know, our profitability.

Trevor: So just making people aware of that and, you know, having them involved and maybe budgetary discussions and stuff really kind of opens a whole new doorway. So I think it makes them feel important. Like they they do have a say when maybe they don’t think they do at the beginning.

Steve: And you’re never swayed by Trevor while you’re here. There’s this door I need to hang in all the time.

Trevor: But where are we? Where we can, you know, we’ll help, but. Yeah, yeah, I mean, it’s it’s. It’s inevitable. I think it’s just human nature to, you know, while you’re here. Yeah. And then the thing you’re missing. And we’ll do it for free then, too, You know, it’s a lot easier not to charge someone for extras than it is to, you know, keep them happy as well.

Trevor: But you got to find a healthy.

Steve: There’s a balance here.

Tim: Yeah. I think Steve was hinting that the idea of some sales training, but I think also part of the challenge is financial training as well. Because Trevor, you’re talking about this like, you know, the bonus and things like that. But not everybody understands how that.

Steve: How the connection.

Tim: How their actions impact a bonus structure. And so financial and financial savvy. I see that literacy is also huge in terms of making this really work. Well Trevor, this has been great. Really appreciate you taking some time and just share in some of the the cool things you guys are doing there with the change orders. And I know it’ll be a refresher for some folks, but for other folks it’ll be an eye opener.

Tim: I think there are little tidbits of information in there that we got that that are our golden nugget. So we really appreciate you taking some time today.

Trevor: I thank you for being here.

Steve: Thank you, Trevor. Take care. Tim. Every time I think that we can’t learn something new or squeeze the juice from this change, order information, somebody from the innovative team design build shows up and gives us, you know, a new perspective, additional information on ways that we can capitalize on collecting and performing change orders.

Tim: Yeah. So there’s a whole bunch of really good stuff in here. Like I said, right there at the end, some companies are going to go like, yeah, we got it. Others are going to go like, Hey, that’s a great idea. Just shifting it from sales to the project managers. And we talked about that a little bit as to, you know, the efficiency of, of getting them to do it versus waiting for somebody in the office to do all the calculating.

Tim: I think you heard Trevor say every now and then when the number gets big, they’re going to bounce it off somebody else just to make sure when when they’re getting ready to, you know, present that. I keyed in on this weekly meeting saying, I know that’s a huge part of why they’re successful, is they have this regular conversation.

Tim: Each project manager with the production manager about how is the job doing financially, and they can make adjustments. You know, In other words, if if Trevor is thinking like, maybe I can give something away and he and Eric meet and they go like, Whoa, we’re running behind. I’m just guessing he’s not going to give something away. He’s going to say, No, I got a hold, hold to my guns there.

Tim: And so that weekly in other words, it’s not totally up to him to bear the burden of all this. He’s got this this support person in there. And I think, Steve, what you brought up there toward the end, I do like the idea of some sales training. Obviously, Trevor comes from sales and so he is aware of how to talk with clients about various things.

Tim: And like he said, I’m not afraid of the numbers, but a lot of like carpenters, a lot of project managers or people coming into that role are afraid of big numbers, especially if you get up to $30,000, You know that that’s a number that a lot of us are afraid of. And so learning, you know, having financial literacy as well as some sales training, I think is a really, really good thing.

Steve: Great. Well, this has been another fantastic show. So we want to thank Trevor Robertson for joining us today. And we always want to thank you for listening to another episode of The Tim Faller Show.

Tim: And remember at the Tim Faller Show, we’re working hard to eliminate it is what it is from your vocabulary.

Steve: This has been another episode of the Tim Pallas Show, One to hire Tim and fast track your growth visit remodelers advantage dot com slash consulting to learn more. And if you’d like more information about roundtables, our World Class Peer Advisory program, please send me an email at Steve Remodelers Advantage. Okay. And of course, don’t forget to subscribe to the show and comment on iTunes.

Steve: Thanks for listening. We’ll see you next week.