In the construction industry, managing ongoing projects efficiently is crucial for success. One essential tool that aids in tracking progress and financial performance is a work-in-progress (WIP) schedule.
In this blog post, we explore what a WIP schedule is, why it’s important, the benefits of utilizing it effectively, and how to create an effective WIP schedule for your business.
What is a construction WIP schedule?
A work-in-progress (WIP) schedule is a tool that construction companies use to track the progress of current projects. It tracks the costs and expenses associated with each project, as well as the amount of work that has been completed.
A WIP schedule helps project managers and stakeholders monitor the project’s financial health, track progress, identify potential issues, and make informed decisions. It’s also a tool many surety companies require from contractors before approving a surety bond. It should contain updated and accurate information regarding a contractor’s current jobs, including:
- Total contract price
- How much has been billed to date
- Cost to date
- Estimated total cost
- Cost to complete the project
- Gross profit
What does “work in progress” mean?
Work in progress refers to the construction activities that have been started but are not yet completed – within a specific accounting period. It includes the labor, materials, and overhead costs associated with the ongoing work. WIP is an important metric for construction companies because it can help them track their costs, expenses, and progress on projects.
It also gives an overview of the monetary value of a contractor’s work thus far – before invoicing. It reveals the profitability of a project and whether any under- or over-billing is taking place.
Why is WIP important?
WIP benefits contractors by helping them track where they stand on individual projects and their work as a whole. Construction companies can track their costs and expenses, identify potential problems early on, and adjust as needed to keep projects on track. A contractor can also identify areas for improvement and increase efficiency.
1. Monitor project progress.
By tracking work in progress, project managers can determine how much of the project has been completed and assess whether it aligns with the project timeline and objectives.
2. Identify cost overruns.
WIP allows project managers to compare actual costs incurred with the estimated costs, highlighting any cost overruns or budget deviations. This insight helps in taking corrective actions and controlling project finances.
3. Make informed decisions.
With accurate WIP information, project stakeholders can make data-driven decisions regarding resource allocation, scheduling adjustments, and potential changes to optimize project outcomes.
By monitoring work in progress, project stakeholders can identify potential cost overruns, schedule delays, or resource constraints early on, enabling proactive measures to address these issues. Additionally, WIP helps ensure accurate revenue recognition and financial reporting, providing stakeholders with a comprehensive view of the project’s financial performance.
A WIP schedule is also essential for a surety’s underwriting. It provides an update on a contractor’s backlog and profitability. A good WIP schedule will show a contractor completing jobs:
- On time and at budget
- Without severely over- or under-billing
- With a reasonable amount of work based on their given resources
Conversely, failing to track this information carefully can make it difficult for an underwriter to decipher a contractor’s current backlog.
How to Calculate Work in Progress
To calculate work in progress, you will need to know the following information:
- Contract price including change orders
- Billings to date
- Incurred cost to date
- Estimated cost to complete
From those four items, you can calculate the rest of the important items on the work-in-process schedule.
1. Calculate the total estimated project cost.
Incurred Cost to Date + Estimated Cost to Complete = total estimated project cost
2. Calculate the earned billings.
Incurred Cost to Date / Total Estimated Project Cost * Contract Price Including Change Orders = Earned Billings
3. Calculate current estimated project profit.
Contract Price Including Change Orders – Total Estimated Project Costs = Estimated Project Profit
4. Calculate profit earned to date.
Earned Billings – Incurred Cost to Date = Profit Earned to date
5. Calculate over billings and under billings.
Billings to Date – Earned Billings = Over/Under Billings
- If the total comes out positive, the contractor has overbilled.
- If the total comes out negative, the contractor has underbilled.
Frequently Asked Questions
What are common mistakes contractors make on their WIP schedule?
It’s crucial to maintain accuracy and consistency in updating and calculating WIP. Some common mistakes that people make when creating and using WIP schedules include:
- Not tracking the work in progress regularly
- Inaccurately assessing the percentage of completion
- Not updating the work-in-progress information when changes occur
- Failing to account for all costs associated with the work in progress
- Not using the work-in-progress information to make decisions about projects
How often should you run a WIP report?
WIP reports should be generated regularly, typically monthly or quarterly, depending on the project’s duration and complexity. Regular reporting ensures that project managers have up-to-date information to monitor progress effectively.
Who should manage this project?
The project manager is primarily responsible for managing the project, including the WIP schedule. However, involving relevant stakeholders, such as the finance department or senior management, is crucial to ensure comprehensive oversight and decision-making.
Regularly running WIP reports and involving key stakeholders in managing the project and WIP schedule ensures effective oversight and promotes successful project execution.
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