A Systematic Multi-Criteria Quantitative Model for Evaluating the Change Order Impact on Contractors’ Cash Flow

Construction projects in Saudi Arabia are frequently plagued by cost overruns and time delays, with change orders being a major contributing factor. These modifications, which can occur at various stages throughout the project lifecycle, tend to negatively impact costs and cash flows. This study developed a classification impact index model to assess the potential impact of change orders on contractors’ cash flow in building construction projects. This study identified the factors and subfactors affecting contractors’ cash flow, organizing them into a hierarchical structure of main and sub-main factors. The relative importance of these factors was then assessed using the Analytical Hierarchical Process (AHP). The findings showed that project financing schemes had the most substantial impact (44%), followed by contract type (30%) and characteristics of change orders (26%). Among the subfactors, cash availability under project financing had the highest influence at 56%, while the value of change orders was the most significant subfactor under change order characteristics, contributing 30%. The Multi-Attribute Utility Theory (MAUT) was subsequently used to evaluate the attributes of these factors, applying utility scores to provide a more comprehensive assessment. The resulting Change Order Impact Index integrates AHP and MAUT to quantify the impacts of change orders. This model categorizes the effects of change orders into four levels: minor, moderate, significant, and severe. The developed Change Order Impact Index provides a systematic approach for proactively managing financial risks, optimizing project financing decisions, and supporting contractors in mitigating the impacts of change orders to maintain financial stability and reduce negative impacts on their cash flow.