Best Ways to Analyze the WIP Schedule (What Contractors Should Know)

WIP report

In this article, you will learn how to analyze the WIP schedule, which many contractors create on a monthly, quarterly or bi-annual basis. Some think that this Work-In-Progress (WIP) schedule is used for financial statements, bonding or lending purposes only.  That is not the case.  The WIP schedule can be utilized as a powerful management tool.

Olivia Roemer_1
Olivia Roemer is the Construction Software Division Manager at Plumb, a premier outsourced accounting firm for the construction industry and Authorized Sage Reseller. She is a Certified Construction Industry Financial Professional and Sage Certified Consultant for Sage Construction Software.  With over 12 years of construction accounting and software experience, she has gainied a lot of knowledge on the best ways to analyze the WIP schedule.  Here she shares her tips on how to use the WIP schedule as a prediction tool.

What if I told you the WIP could help you predict how profitable or unprofitable a job would be at completion?  Would you look at the WIP schedule more closely? Of course you would!

1. Prepare your WIP Schedule with Accuracy

First you need to start by preparing your WIP schedule. Make sure that the WIP schedule is in balance with your financial statement. If it is not, then the tips I am going to share could give you an inaccurate picture of a jobs overall health.

Download:

analyze the WIP Schedule

  • 4 Key components of the WIP schedule
  • Basic information from the WIP schedule
  • Key performance indicators of the WIP report

2. Analyze the WIP Schedule: Over and Under Billings

Now let’s take a look at over and under billings. What truly is making a job swing one way or another? This is where you need to start the WIP analysis process.

I tend to analyze the WIP schedule by looking into the jobs that are underbilled by a certain amount. This amount may vary by job or organization. Some business owners and managers have told me, “I like underbillings because they increase my revenue each month.” While that is the case from a financial preparation standpoint, underbilled jobs are not something to be proud of. Underbillings can tell you one of two things: a job is truly underbilled or a job is going poorly.

If a job is underbilled, then this means you have been using your cash or credit card to fund the building of a project interest free. Who wants to do that? If a job is going poorly, it means you can be losing money.  And, no one wants to be losing money on a job.

When looking at jobs that are underbilled, you need to identify whether the cause is true underbillings or profit erosion.  I suggest you start by doing some research.  By having a construction-specific accounting software system in place, like Sage 100 Contractor or Sage 300 Construction and Real Estate, you can easily search the total billings and change orders of a job.

Ask these questions:

  • Is there a billing every month?
  • If there is not a billing every month, why not?
  • Are there unbilled change orders for work completed?
  • How is the Schedule of Values (SOV) balanced?
  • Is the front end loaded or is all the profit being billed on work completed at or near the end of the job?

By now you should have a good idea whether or not a job is truly underbilled.  If you are still uncertain, you may need to do additional research or speak with key personnel to answer these questions accurately.

3. Review Job Cost Reports

The next step you should take is review a job cost report for the project in question. A good construction accounting software package will provide you with a report that includes the following information by cost code:

  • Original budget
  • Budget change orders
  • Revised budget
  • Costs to date
  • Outstanding committed amounts

When reviewing job cost reports ask yourself the following question: Are there any cost codes with cost overruns? If so, why? To answer the why, you may need to do additional research and/or speak with key personnel. Then take the appropriate action to resolve the underbilled job by either making sure that the amount underbilled in resolved in the next billing cycle or reduce the projected profit amount.

4. Research Jobs with Large Overbillings

Next, look at jobs that have large overbillings. Overbilled jobs can tell you one of three things. The jobs is truly overbilled, there are costs that have not been accounted for, or, and this is the one you want, a job is more profitable than initially thought.

Ask these questions:

  • Is there more than the average billings per month? If so, why?
  • How is the Schedule of Values (SOV) balanced?
  • Is it front end loaded?
  • Have you billed for change orders, but the work has not been started or completed yet?
  • Are there costs that have not been received for work completed and billed?

5. Consider Purchasing Construction-Specific Accounting Software

By doing a little research with a construction-specific accounting software package and speaking with key personnel you should be able to determine the cause of the overbilling and take appropriate action, whether it is accruing costs on a job or hopefully, increasing the profit projected on the job.

You have learned just a few of my tips for WIP analysis and have probably gained some insight on the health of your jobs. Now you have the information that you need to take the necessary actions.

If you are unable to answer any of these questions without asking key personnel, you may need to consider purchasing a robust construction accounting software package. My team here at Plumb can help you to identify whether or not a construction-specific accounting software solution can help you and your business.  Take Construction Software Needs Assessment

Plumb can also assist with the evaluation process, so you can feel confident that you purchase the right construction accounting software solution for you organization.

Don’t have enough time to prepare and analyze the WIP schedule?

We have experienced staff here at Plumb that can do it for you. Then you can use that information to make critical business decisions. Plumb provides outsourced accounting services for the construction industry, giving you the added expertise to help strengthen your accounting department.  We can handle project work – temporary accounting help with your Work In Progress schedule and maintenance.  For a list of outsourced accounting services, click here. 

To schedule a Sage construction software demo or consultation on how to analyze the WIP schedule, contact us.

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