Why Exception Management?

Exception management is a critical concept in the construction industry, where the complexity and scale of projects often lead to unexpected changes, deviations, and challenges that must be addressed swiftly and efficiently. BuilderChain, along with BuilderPay, Builder Validation, and the advanced capabilities of Palantir, offers a comprehensive approach to exception management, ensuring that these deviations are not just managed, but turned into opportunities for optimizing project outcomes. A prime example of this is the management of variance purchase orders (VPOs), which are essential in handling exceptions related to project scope, costs, and timelines.

Understanding Exception Management in Construction

Exception management in construction refers to the processes and systems put in place to identify, track, and resolve deviations from the original project plan. These exceptions can include cost overruns, schedule delays, design changes, material shortages, or compliance issues. The goal of effective exception management is to minimize the impact of these deviations on the overall project, ensuring that projects stay on track, within budget, and in compliance with all regulatory requirements.

 The Role of BuilderChain in Exception Management

BuilderChain provides a robust framework for managing exceptions across all stages of a construction project. By leveraging blockchain technology, BuilderChain ensures that all project data is recorded in an immutable, transparent ledger. This creates a single source of truth that all stakeholders can access, making it easier to identify when and where exceptions occur.

When an exception is detected, such as a variance in cost or material requirements, BuilderChain triggers an automated response through its integrated digital rails—digital payment, credentialing, and repository systems—that ensure the exception is managed efficiently and transparently.

Managing Variance Purchase Orders with BuilderChain

A variance purchase order (VPO) is a specific type of exception that occurs when there is a deviation from the original purchase order due to changes in project scope, material costs, or other unforeseen factors. Managing VPOs is critical to maintaining project control and ensuring that deviations do not derail the overall project. BuilderChain’s exception management capabilities are particularly effective in handling VPOs.

When a variance is detected, BuilderChain’s system automatically generates a VPO and routes it through the appropriate approval channels. Using smart contracts, the system ensures that the VPO is verified, approved, and logged without delay. This automated process reduces the risk of errors and accelerates the resolution of exceptions, preventing small issues from escalating into major problems.

Integrating BuilderPay and Builder Validation for Seamless Exception Management

BuilderPay and Builder Validation further enhance BuilderChain’s exception management capabilities. BuilderPay automates the financial aspects of managing exceptions, ensuring that payments related to VPOs are processed quickly and accurately. Funds are securely held in a Project Escrow account, and smart contracts govern the release of these funds only when the VPO is fully resolved and verified.

Builder Validation plays a critical role in ensuring that all credentials and compliance requirements are met before any exception is finalized. This is particularly important in the context of VPOs, where changes in scope or materials may require additional certifications, inspections, or regulatory approvals. Builder Validation automates these checks, ensuring that all exceptions are handled in full compliance with industry standards and regulations.

Leveraging Palantir’s Capabilities for Advanced Exception Management

Palantir’s process mining and data integration capabilities provide the analytical backbone for BuilderChain’s exception management system. By continuously monitoring data across the project lifecycle, Palantir identifies patterns and trends that may indicate potential exceptions before they occur. This proactive approach allows project managers to anticipate and mitigate exceptions, reducing their impact on the project. In the case of VPOs,

Palantir’s capabilities enable real-time analysis of cost data, material availability, and supplier performance. This ensures that exceptions are not only managed but also optimized to achieve the best possible outcome for the project. The integration of these insights into BuilderChain’s workflow automation ensures that exceptions are addressed quickly and effectively, without disrupting the overall project.

Operationally, it's how you execute at scale...

How It Works

Exception Management, or Management by Exception, is a management practice that advocates a process-oriented approach to business operations, including the process of identifying and measuring process exceptions.

In summary, Exception Management follows these steps: • Plan the work • Work the plan • Document changes to plan • Analyze and implement plan changes Each of the above steps constitutes an important part of the Exception Management practice. Combining these steps in a systematic, integrated method taps the power of exception management. We'll review each step in greater detail below. 

Plan the Work

One of the primary elements in Exception Management is clearly defining and documenting your company's standard business processes — the processes that occur when everything is working according to plan:

 • What needs to be done and how should it be accomplished

 • Who is responsible for what and who else needs to know about it

 • When is the process supposed to begin — and end

 • How much should it cost

As you map your processes, you'll identify standards and determine what fits in the plan. We won't go into detail about documenting your business processes here, other than to encourage you to make the investment in this step — whether it entails devoting in-house resources or contracting with an outside specialist. Blending your business processes with your software systems and identifying cross-department workflow are an integral part of this process.

You'll also want to consider which events do not conform to plan. Events that don't fit the plan — the exceptions — need a separate process that provides a mechanism for both documenting and analyzing each exception occurrence. See the section entitled Document Changes to Plan on the following page.

Work the Plan

It's easy to work the plan when events hum along in a predictable manner — a well- oiled machine as some would say. For managing your construction process, it's fairly straightforward:

 • Create budgets / estimates based on standard plans/options • Identify job start

 • Release purchase orders and distribute to vendors

 • Create job schedules

• Build the unit dirt to finish

 • Pay vendors as work is complete and satisfactory

• Sell and close the unit

Events that occur according to plan require no special attention. Everyone knows what to do and when to do it. When you analyze job costs, there are no surprises: the unit ends up costing what you expected and because you performed the analysis required to create an accurate budget or estimate, you were able to set your sales prices accordingly and net a reasonable margin.

But, things are not always so simple...

Document Changes to Plan

Hopefully careful planning+experience+good weather help us dodge Murphy's Law most of the time. But, an established process for managing exceptions is an important part of your company's process arsenal. Noting and evaluating exceptions is the crux of exception management:

 • What steps need to be taken to address the exception

 • Who handles exceptions and who else needs to know about it

 • When does the exception get noted

 • How do we measure the exceptions

Two of the key ingredients to any management by exception practice are ensuring that the exceptions are noted as they occur and that they are accurately measured.

Noting exceptions after the fact can lead to shoddy, incomplete data; details are easily forgotten one job to the next. An established, documented method for measuring exceptions enables long-term analysis and provides you with the information you need to either change the plan, alter the way you work the plan, or change who implements the plan.

Your BuilderPay app provides a variety of methods of noting exceptions:

 • Cost variances, the primary subject of this manual, are recorded using BuilderPay's variance management features in the Purchasing module

 • Time variances can be managed using either BuilderPay 's scheduling delay feature, the BuilderPay “Payment Approval App” for a handheld device

 • Cost variances due to vendor reassignments [optional] are managed via BuilderPay 's Vendor Reassignment function (a function also enabled as part of the BuilderPay “Payment Approval App” for a handheld device

Other types of exceptions to note:

 • Although change orders are indeed changes to the plan, it is important to note that BuilderPay provides separate features for managing the change order function, specifically the ability to enter additional standard options and create custom options to incorporate into your job estimate.

 • Cost changes due to vendor price increases are usually considered adjustments to the budget, particularly if they occur between running the original estimate/budget and releasing purchase orders for distribution. BuilderPay provides an alternative method to handle vendor price Increases, but It is not intended as a substitute for keeping your vendor bid file current.  

Analyze and Implement Plan Changes

Exception analysis is one of the most important features of BuilderPay. You plan the work, work the plan, and document changes to the plan.  Then the next task is to figure out what the cost exception data means, see the patterns, piece together the various factors, and assess what needs to change.

There are a few important factors to consider when conducting variance analysis:

 • Why = variance reasons

 • Who = responsible vendor • Which products = evaluate by plan

 • When = activities/tasks

 • Which jobs/projects/superintendents =  analysis by job

BuilderPay provides a series of standard variance analysis reports designed to highlight key facets of your variance history. Then it's up to your management team along with the deep and industry-specific expertise BuilderPay provides to strategize how to lower variance costs.

Change the plan? Change how you work the plan? Change who works the plan? Change who manages the plan?

The key is in the data, of course. Sometimes a solution is easy to spot. For example, if you almost always record a variance on a particular plan/activity for additional material, most likely you need to adjust your standard plan data to add that material to the budget. Then, when you run future plan estimates, the material is included as part of the initial budget and there is no longer any need to record an exception.

Your exception data can also showcase partner performance. For example, if a particular vendor consistently underbids plans, arrives at the job site late, needs additional time to complete the work... if a particular project is consistently finding a materials shortage... and so on. Yet the key to any analysis process is ensuring that the basic transaction information — the data entered into the system — complies with an established process and meets defined standards. Each transaction adds a piece to the puzzle. In the case of BuilderPay cost exception data, it is important to ensure your variance transactions are detailed and correct, bringing us full circle to the foundation of exception management: establishing a process or a plan — in this case a plan for managing cost exceptions. When you implement a process for managing cost exceptions, you will want to consider the following:

Use meaningful variance reason codes in a consistent manner:

 • Apply the variance to the correct job/activity/original purchase order

 • Assign responsible vendors to support accurate partner performance analysis

 • Address back-charges at the same time as entering the initial variance purchase order

BuilderPay's cost control system — combined with the power of variance analysis — can transform your business. You not only maintain strict control over direct costs, but also reduce indirect costs and overhead, and highlight problem areas for quick resolution.  

Conclusion: Transforming Exception Management in Construction

BuilderChain, supported by BuilderPay, Builder Validation, and Palantir, offers a powerful solution for managing exceptions in construction projects. By automating the detection, approval, and resolution of exceptions like variance purchase orders, BuilderChain ensures that projects remain on track, even in the face of unforeseen challenges. This integrated approach to exception management not only minimizes the impact of deviations but also turns them into opportunities for improving project outcomes.

In an industry where the unexpected is inevitable, BuilderChain’s exception management capabilities provide the tools and insights needed to stay ahead, ensuring that every exception is managed with precision, transparency, and speed.