Waiting until a job is over to take stock of your finances is like trying to fly a plane with one eye closed. Sure, you might still get where you’re going, but you’re taking an awfully big risk. Because construction projects are such long, expensive undertakings, you need to be able to keep an eye on your financial health in real-time if you want to make better decisions and protect your profit margins. This is where work-in-progress reports come in.
Also called a WIP report or a WIP schedule, work-in-progress reporting gives you the insights you need to keep projects running as you planned them - so you can focus on delivering results without pulling funds from your own pocket. Here’s how they work.
Key Takeaways
- Work-in-progress reports give you a real-time overview of project progress and status. With information on budget, percent complete, actual costs to date, and more, you can see if a job is currently overbilled or underbilled.
- WIP reports should be delivered to project managers and other stakeholders on at least a monthly schedule.
- Maintaining accurate WIP reports is essential if you want to grow your bottom line over time.
What Is a Work in Progress Report?
A work-in-progress report (WIP) is a must-have document that provides an overview of a project’s status at a specific point in time. A foundational part of good construction project management, WIP reports combine all job costing together in one place, enabling your construction company to make informed decisions and deal with potential problems proactively. Think of it as another layer of financial transparency that makes it easier to complete projects on time and within budget.
Usually, construction WIP reports encompass all the open jobs your business is working on. This way, you can see an accurate representation of each job’s status, which in turn gives you a good look into your business’s overall financial health. Sometimes, companies also like to use completed WIPs to evaluate what happened on a project after the fact.
Work-in-progress reports consolidate information on a given project’s schedule, budget, and progress, along with any issues or challenges that have popped up (and how they’re being addressed). You can also include info on the status of individual tasks or milestones, as well as the status of any subcontractors or suppliers involved in the project.
Here’s an example of a typical WIP:
You’ll see the original budget amount, the revised budget amount, the total amount billed, total costs incurred, percentage complete, and over/underbillings. Each job is represented on one line item with all the amounts for that job. At the bottom, all of the jobs are totaled up for each column.
Why You Need WIP Reports in Construction Accounting
There’s a good reason work-in-progress reports are a key component of construction industry accounting. Not only does it provide a systematic way to maintain financial accuracy across all projects, but it also enables proactive cost management and control in a business (in)famous for its unpredictability.
By implementing accurate construction work-in-progress reporting into your workflow, you’ll be able to:
Understand Your Business at a Higher Level
WIP reporting offers a bird’s eye view of your business all in one space, so you can understand the flow of what’s going on — both at a high level and at the individual project level. With this information, you can easily see how well individual jobs are staying on track, and how much work you have left.
Plan Better
If you have a clear picture of how much work is left on a job, you can make better estimates and know when/where to allocate labor and resources. This is information both general contractors and subcontractors can benefit from. For example, maintaining an updated WIP can flag if you’re about to experience a lull in work, or need to hire more subcontractors for a busy season.
Maintain Your Cash Flow
No one wants to dip into their cash reserves to fund a project. One of the nice things about a work-in-progress report is that it will show you point blank if you’re overbilling or underbilling your active jobs. If you’re underbilled, that should raise a red flag. Over time, maintaining an accurate WIP will tell you how effective your business is at billing.
Go Beyond the Numbers
A WIP report includes a lot of numerical data and financial reporting, but the real value lies in the insights you can glean from that data. If you’re thinking strategically about your business, you should be consulting both your work-in-progress report and your sales pursuit report, making sure those line up. All the details here will guide you in the direction you need to go in terms of your workforce and possible cash needs.
With enough attention and consistency, you should ideally be able to forecast your WIP. What we mean by this is, that if you’ve built up and implemented a series of effective processes and workflows, you should know how they affect project progress, budget, and billing. If your WIP report confirms your predictions, you’ll know you’ve invested in the right processes.
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How to Create a WIP Report
Whether you’re working off an Excel sheet or a dedicated software, the process of creating a WIP report is largely the same. For each open job, you’ll have columns for:
- The total contract amount
- Estimated costs to complete
- Estimated profit and estimated profit percentage
- Actual costs to date
- Billing to date
- Project percent complete
- Revenue recognized
- Over/underbilling
- Backlog - Revenue
Additionally, creating a comprehensive WIP means gathering the following information from project managers, foremen, and site supervisors:
- A summary of the project's status, including the current phase of construction, any major milestones that have been reached, and any change orders issued.
- A list of tasks that have been completed and those that are still in progress.
- A schedule of upcoming tasks and deadlines.
- A budget summary, including information on actual costs incurred to date and any variances from the original budget.
- A list of any issues or risks that have been identified and the steps being taken to address them.
- A summary of the workforce on-site, including the number of workers and their roles.
- Any relevant safety or quality control information.
Your work-in-progress report should be shared with all key stakeholders, including the project manager, and other members of the project team. You’ll evaluate the WIP on a regular basis (ideally monthly at a minimum) and keep it updated with the latest information as the job moves forward.
Common Mistakes Construction Companies Make With WIP Reports
Good WIP reporting is more than accurate data entry. If you want to get the most out of this document, you’ll want to avoid these common pitfalls.
Not updating your WIP often enough: It’s tempting to put off updating the work-in-progress report until after billing for the month, but this can get you in trouble if you’re not careful. To avoid getting into a situation where you’re underbilling, you need to be proactive in updating your WIP as soon as you know people are going to be billing you. This way, you can get the right billing to the entity you’re contracted with.
Recording inaccurate data: On that same note, make sure you’re correctly recording over and underbillings to get the most accurate picture of your revenue.
Inconsistency: Every journal entry in your WIP report should be recorded the same way each month, especially when it comes to reporting over/underbillings. Be as detailed as possible with your notes as well to prevent misunderstandings and paint a clear picture of a job’s financial outlook.
Last Thoughts
Knowing where your project stands at all times lets you know when you can keep on truckin’ - and when you need to pivot. Still not sure where to fit all this into your busy workflow? Let purpose-built construction accounting software do the heavy lifting for you.