CONSTRUCTION Accounting ARTICLE -
Whip Your WIP Report into Shape

Target Audience: Construction Industry Professionals, General Contractors, Construction Accountants

Is your profitability lagging? Does your surety seem a bit more hesitant than usual? If so, there may be a number of things you need to do. But one of the simplest is a reassessment of your work-in-progress (WIP) report.

As you know, a WIP report is intended to provide a real-time snapshot of how jobs underway are doing and what’s coming up on the horizon. Yet the breadth of detail and accuracy of data in these critical documents can often suffer over time.

Look at the right things

A WIP report should include all revenues and costs for each of your current and future signed contracts.

More specifically, for each contract, the report should reflect the total contract amount (including change orders) and the estimated gross profit (reflecting signed change orders). Some WIP reports even show the original estimated cost to complete a project, including direct and indirect costs. Additional items may include:

• Current year totals for revenues earned, cost of revenues, gross profit and percentage complete on each job,
• Estimated costs to complete each project,
• Billings to date,
• Actual project costs to date, and
• Actual gross profit to date.

Many WIP reports also have a backlog column to represent billings left on each contract, taking into account the over/under billings currently on the respective contracts. Almost all reports include the over/under billings per contract — also seen as costs in excess of billings and billings in excess of costs.

See where you are

Check into the comprehensiveness of your latest WIP report. It should enable you to readily compare the estimated cost of each contract with the actual project cost to date in as much detail as is useful. You want early and frequent warnings of any profit fade on a job as it starts to occur, giving you a chance to get that project back on track.

You can also use WIP reports to discover patterns that need correcting. If you regularly estimate a 15% gross profit, but your actual profit is typically 10%, you may need to re-examine your estimating strategies.

Last, surety underwriters often look at WIP reports when considering how much bonding to offer a construction company. If your cash balance is low, but your WIP report shows a profitable backlog, a surety may still underwrite your project.

Make the commitment

For the most accurate picture of the financial status of each job, update your WIP report daily, if possible, or at least weekly. Updating more often does mean more work, but it’s a commitment worth making.

Find out how our expertise in construction accounting can add value to your business. Email us or call us at 1 (888) 875-9770.

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