How To: Get The Most Out Of Your Work-In-Progress (WIP) Report

A Work-In-Progress report, or WIP report, is a critical tool for any growing construction business. It’s a standard dashboard of data used by most $9M+/year construction companies, as well as other industries with similar long-term project structures that require systematic accountability and transparency in order to ensure profitability. Just like charts, radar, and GPS keep ships on course and away from dangerous rocks and currents, WIP reports keep businesses financially on track and afloat. In this guide, we review exactly what a WIP represents, and how to make it work for you.

What Is A WIP Report?

To put it simply, a WIP report shows the status of ongoing jobs. It’s like a snapshot of where each project stands financially at any particular point in time. A fully functioning WIP will track project progress, compare actual costs against budgeted costs, and show how much work is completed versus how much is left. It will also provide information to ensure revenue can be recognized as earned revenue (an important detail to track if bankruptcy isn’t an objective).

As you can imagine, a WIP report requires many different components in order to paint the full picture of a project’s financial health. Here are some key things to look for:

• Contract value: The total amount that has been agreed upon for the project. This can be revised based on changes agreed upon with the customer, and it is important to update the report to reflect any revisions.
• Budget: The total amount of costs expected for the project. This should be updated frequently as change orders occur or expected costs estimates fluctuate.
• Costs to date: The costs that have been incurred up to the date of the report.
• Billed to date: The revenue billed to the customer up to the date of the report.
• Revenue earned: The income that should be recognized based on the work completed so far.
• Cost to complete: An estimate of the remaining costs needed to finish the project.
• Percent complete: The percentage of actual costs compared to budgeted costs.
• Over/under billing: This shows whether the client has been billed more (over) or less (under) than the work that has been completed.

Now that these key terms have been defined, let’s take a look at how to interpret a WIP report.

How To Utilize Your WIP Report

When reviewing your WIP, there are some crucial findings that can help you determine a project’s financial efficacy, and prevent you from making any costly mistakes. For example, before coming to kept.pro to get their accounting in order, one of our rapidly growing construction clients spent several years incurring costs associated with a project they had collected and recognized all the revenue on. They had no dashboard view that kept everyone honest about the project’s economic performance – in other words, they had no WIP.

Here are some important figures to review in your WIP report:

• Compare costs-to-date vs. budget. Look at how much has been spent so far versus what was planned. Are the costs within the expected range?
• Check the percentage of completion against expenses. For example, if a project is 50% complete, it means half of the work has been done, and only half of the budget should ideally be spent. If that doesn’t align, you need to reassess.
• Review revenue earned vs. revenue billed. Ensure that the revenue recognized matches the amount of work completed. If the revenue is significantly higher or lower, investigate why.
• Look for any red flags. If costs are much higher than expected, or if there’s a large difference between costs incurred and revenue recognized, it might indicate potential issues like cost overruns or delays. A WIP can help you catch these red flags before it’s too late.
• Assess the cost to complete. Consider whether the estimate to complete the project is still reasonable at this point in the process. If the remaining budget is tight, there might be a risk of overspending.

By examining your WIP with this data in mind, you can prevent costly mistakes and course-correct as needed.

Key Questions To Ask

Once you have a firm grasp of what a WIP report is – and how to interpret the data it represents – it’s time to ask some key questions. You’ll want to ensure your project is on budget by comparing the actual costs with the budgeted costs. Another thing to evaluate is whether the project is on schedule? Confirm that the percentage of completion aligns with the project timeline, and dig into the cause of any delays. Finally, review your WIP critically to see if there are any financial risks. Look for any signs of cost overruns or under-billings, and rectify ASAP. On long-term projects with many moving parts, it’s easy for little things to slip through the cracks. But with a robust WIP report in your toolkit, you will have all the information you need to make informed decisions.

At kept.pro, we meet the unique needs of your business by building a fractional accounting team around your specific challenges and goals. Our experts are experienced across a wide range of industries, including construction, ecommerce, craft breweries, tech, and more. If you’re looking to upgrade your accounting processes, schedule a free call with us today.