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In the construction business, the Work-in-Progress (WIP) Schedule is a critical tool to track the overall progress and profitability of a company’s projects. It’s an essential financial tool that provides a point-in-time snapshot of each project’s profitability and enables – the contractor, the project manager, the accounting department, etc. – to view the same timely information simultaneously.
Unfortunately, many small and medium-sized contractors may find it difficult to keep their WIP schedules up to date with timely information when several projects are ongoing and resources are directed elsewhere.
The WIP Schedule is the Financial Backbone
The WIP schedule is the financial backbone of a construction business and the most critical part of a company’s financial statements when presented to outside parties. When updated in a timely manner, the WIP schedule allows you to see a job’s current profitability, projected profitability at completion, how jobs are progressing compared to budget, current progress billings, and the current backlog. It can provide real-time feedback, which allows for an understanding of what is going well and what isn’t. Contractors who know and analyze this information regularly can make more impactful course corrections, which may involve various modifications to strategy for completing the project, such as increases or decreases in the amount of equipment and labor resources allocated, timeline modifications, earlier identification and approval of change orders, etc.
But problems often arise with small and medium-sized contractors when WIP reports are not designed with enough automation built into the process. As a result, the WIP reports are put off for weeks or months at a time, delaying their data analysis and significantly limiting the ability to identify problems early enough to make meaningful changes. This scenario results in more “loss jobs” and lower margins on profitable jobs. . At best, what would have been a good year for the contractor becomes an okay year. At worst, an okay year turns into a loss year, jeopardizing bonding and banking relationships.
Delayed WIP reporting also frequently impacts cash flow, as a contractor may be consistently underbilled when progress is compared to billings, in which case the contractor may end up essentially financing the job for the project owners. Having the most up-to-date information will allow the contractor to monitor billing and cost issues as they arise and take corrective action in real time.
Improve Your WIP Reporting
A few simple strategies may help your organization improve the timeliness of WIP reporting:
- Invest in the right technology. There are cloud-based technology platforms that save the project manager significant time and streamline the process of WIP reporting. They can be run from a tablet or even a cell phone in the field. Even without the latest technology, management should ensure they are utilizing their accounting software efficiently and look to improve their internal controls regarding data recording on a job level.
- Establish a “set in stone” meeting day and time with all folks critical to the process and establish everyone’s role to achieve timely and accurate WIP reports. Increased communications can go a long way toward improving the WIP schedule. Management should ensure that project managers and the accounting department are on the same page. More frequent meetings mean more opportunities for supervisors, project managers, or the accounting department to identify potential missing information, project issues, customer issues, and trends at the project level or in the aggregate.
- Frequently challenge your current processes, considering how you enter and code data and when you enter it. You may need to refine your company’s process for gathering job site data and submitting it to accounting, determining whether it can be more automated. Finding the most efficient way to record job costs, indirect costs, billings, and change orders is a team effort, and input should be provided by all involved so that the team functions are efficient as possible.
We’re here to help
With the volatility of today’s economy, a contractor should know where their company’s contract profitability stands so they can make the proper decisions, notice trends, or adjust estimates on a timely basis and not just wait for the quarter-end or even worse, the year-end financial statements to be prepared.
If you have questions on how to keep your WIP up-to-date, JLK Rosenberger can help. For additional information, call us at 949-860-9890, or click here to contact us. We look forward to speaking with you soon.