WIP Reports are Like Car Engines

The following information is based strictly on the Percentage of Completion type of WIP Reporting, which we suggest as the best practice for our commercial subcontractor or trade clients. However, this is not the only style of WIP reporting that can be created in the construction space.

Essential Elements of WIP Reports

Just as an automobile engine has key components working together to convert fuel into motion (thus powering the vehicle), there are essential elements of WIP Reports that work together to accurately reflect a given project’s financial health and progress (thus powering informed decision-making).

Here is a brief look at some of those essential elements and the part they play in compiling a WIP Report. 

Estimated Costs: A fundamental part of a WIP Report is the benchmark against which actual costs are compared – it consists of creating detailed and accurate cost budgets upfront on every job. This helps to assess project progress, profitability, and potential cost overruns. The information enables construction companies to make adjustments and ensure the project remains on track to completion within budget.

Important Note: Sometimes, contractors are advised to ‘guesstimate’ for the sake of speed – especially when a WIP report is needed quickly for a third party. But it’s detailed budgeting at the start of every project that truly powers accurate WIP reporting and deeper financial insight. Don’t skip this crucial step in your project planning!

Job Costs to Date: This represents the total costs incurred on the project up to the date of the report. It includes labor, materials, equipment, and other direct expenses. Tracking job costs to date is essential for comparing with the project budget and helps identify potential overruns.

Percentage Complete: Calculated by dividing job costs to date by total estimated costs, shows the project’s progress as a percentage. It is the basis for determining earned revenue and assessing whether the project is on track with the schedule and budget.

Billed to Date: This reflects the total amount invoiced to the client up to a given date. Comparing billed-to-date with earned revenue can help identify whether the project is overbilled (billing ahead of completion) or underbilled (billing behind completion).

Earned Revenue to Date: Under the percentage of completion method, this is calculated by multiplying the percentage complete by the contract value. It reflects how much revenue the company can recognize to date, regardless of how much has been billed.

WIP Reports Give Construction Contractors Power

Starting with Financial Accuracy and ending with maintaining Cash Flow, here is a list of the powers found in WIP Reports.

Financial Accuracy: They contribute to financial accuracy by providing a detailed, real-time view of ongoing projects, enabling construction businesses to recognize revenue, track costs, and forecast profitability accurately. Further, they offer a systematic approach to tracking project-related revenues and costs.

Revenue Recognition: By showing the percentage of completion and tracking earned revenue based on project progress, construction companies get a more accurate picture of their financial performance. WIP reports help to align revenue recognition with actual project progress and costs, ensuring accurate billing.

Cost Management: WIP reports help with cost management and control by providing data concerning project costs. They allow for the monitoring of spending and identifying potential cost overruns. They also enable proactive risk management.

Project Management: Through WIP Reports, contractors gain a management tool to monitor progress, identify issues early, determine better resource allocation, and make more informed decisions.

Financing: A well-prepared WIP Report can be crucial for contractors seeking funding. It demonstrates financial discipline, proficiency in estimating, and skills for managing job costs. It also provides lenders with a clear picture of the project’s progress.

Cash Flow: WIP Reports provide a clear view of the financial status of ongoing projects. They help ensure that billing is done correctly. By tracking costs incurred, revenue recognized, and the percentage of work completed, WIP reports help identify potential overbillings or underbillings that can impact cash flow.

WIP Reports Serve You

WIP Reports are a valuable project management tool. Waiting for project completion to determine “what the heck just happened” can be disastrous. By knowing the direct labor, materials, subcontracting costs, and allocated overhead associated with construction work as it is performed, construction contractors can proactively identify issues and take timely corrective actions.

Do you have an understanding of the essential elements of WIP Reports that work together to accurately reflect a given project’s financial health and progress (thus powering informed decision-making)?  Remember that, just as an automobile engine has key components working together to convert fuel into motion (thus powering the vehicle), WIP Reports that include the essential elements are a powerful decision-making tool.

We understand if all this seems a bit overwhelming. The good news is we have the knowledge and tools that help put this information to use. So, we can help you start the engine.

Ambitious Construction Contractors look to The Profit Constructors to provide advocacy in dealing with:

• Clients and customers

• Employees and subcontractors

• Vendors and service providers

• Governmental entities

Working with The Profit Constructors gives Construction Contractors the means to organize their operations in ways that help them:

• Remain informed

• Avoid hassles

• Reduce risks

• Be future-ready

Ready for action? Or want to know more? Get in touch today to schedule a complimentary discovery call. 866-629-7735