Boost Your Bottom Line With the WIP Report

work in progress reportIn the construction business, the work in progress (WIP) report can help control costs and increase profitability for each job. However, many companies aren’t realizing the full benefit they could receive from the data contained in the report because they aren’t utilizing it effectively. Don’t look at the WIP data as an obligatory report generated for the bank. Instead, use it to keep each project on track, make corrections if things go awry, and reduce profit shrinkage over the course of the project.

Why Estimates and Actuals Aren’t Enough

Estimates and actuals give you important information about the efficiency of your business and whether you can consistently operate within your stated budget. But they can’t always give you the data you need to make better decisions over the course of the project, especially if your goal is to identify and recuperate over-expenditures. Knowing that you have spent 50% of the projected budget to date, for example, doesn’t tell you how much of that project has been completed or how much you still need to finish. It doesn’t tell you whether you need to revise your estimate for the remainder of the project or whether your spending is on track.  For those kinds of decisions, you will need some additional data.

How to Calculate a WIP Report

When you purchase accounting software, look for an integrated package that includes WIP reporting. You can also purchase the module separately to work with your existing software. There are many methods for calculating work in progress, and you will need to determine which one works most effectively for each project based on the nature of the work. Your software should track and calculate the data needed for each method. Below are three examples of WIP calculation methods that could be implemented by a WIP accounting software module:

1. Units completed

If the job involves installing or maintaining individual units such as sinks, windows, light bulbs, or computers, you could track the number of units that have been installed and compare that number with the percentage of budgeted money that has been spent. If 75% of the budget has gone into completing 50% of the required units, you can easily see the discrepancy and make needed corrections.

2. Percent completed

For jobs that don’t involve specific units, you can estimate a percentage of completion and compare to the percent of budgeted funds spent. Percent completed is usually an educated guess but it is still better than flying blind.

3. Cost to finish

Periodically throughout the project, stop and take stock of how much money it will take to complete the remaining stages of the job. This number can be calculated by adding the cost of remaining labor and materials. Cost to finish goes one step further than comparing estimates to actuals. Rather than simply tracking actual spending to date and comparing it with the original estimate, the cost to finish method recalculates needed funds for the remainder of the project based on current numbers.

How Detailed Should the WIP Report Be?

In order to realize the most benefit from your WIP report, you’ll want to consider the overall big picture as well as data for individual projects and stages. A company-wide WIP report will help you monitor overall profitability for the business, while job-by-job reporting will keep individual jobs and activities on track.

If you have purchased accounting software designed for the construction industry, you won’t have any trouble tracking this data and generating the desired reports. If your current package doesn’t offer this function, however, it may be time to consider upgrading your software. Our software selection tool will help you find the right package or add-ons for your business in order to keep you operating at maximum efficiency.