Work in Progress Construction - Ways to Keep Projects Profitable and On-Track

Updated: Apr 21

In this guide, we discuss what construction work in progress (WIP) is, why work in progress reports are important, how to create WIP reports, and more.

  1. What is Construction Work In Progress (WIP)?

  2. Why is Construction Work In Progress Important?

  3. How to Create a Construction WIP Report?

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What is Construction Work In Progress (WIP)?

A construction work in progress report is an essential financial tool used as a general ledger account in which the costs of construction long-term, fixed assets are recorded. This account has a debit balance report and will be reported on the balance sheet as a part of a company’s noncurrent or long-term asset section entitled Property, plant, and equipment.

The goal of the WIP report is that shows you whether you are over-billed or under-billed, and cash positive or negative. Then you can define construction work in progress as one of the accurate ways to determine the actual profitability of performing contract work.


The asset construction costs are accumulated in the construction work in progress schedule until the project is completely finished and is put into the service of the business. When the asset is fully ready to use, the account will be credited for its balance (the accumulated costs) and will be recorded with a debit in the appropriate property, plant, and equipment account. There are there major types of inventory and stages of the construction process, including:

  • Raw materials: Raw materials are the supplies necessary to construct a project. They vary depending on the types and scope of the project.

  • Work in progress: It refers to raw materials that are still in the process of being constructed into completed projects.

  • Finished projects: This term refers to finished projects that have reached the final stage of the building process.

>> More: Construction Accounting 101: Expert Guide for Contractors


Why is the Construction WIP Important?

Construction WIP reports are essential tools for risk management for contractors. Contractors use these tools to monitor the progress of their construction projects and analyze their work performance. If the WIP is done accurately and in a timely manner, it should serve as an early indication or warning, including:

  • As mentioned, construction work in progress is an account that measures everything about the costs when work is still on. They present exactly how much actual costs have been spent, as well as an estimation of the total costs required to complete a project. Thus, the owners and managers can rely on these WIP reports to get an accurate measurement of exactly where they stand financially with regard to each project. By looking at their billing, they can measure the percentage of completion and see if a project is under or overbilled.

  • WIP progress reports show what a company has accomplished at a construction site, they alert project operators to any problem, such as unforeseen costs increase or a missed milestone. Looking at the WIP reports, contractors are able to easily spot problems and handle them to ensure to run successful projects.

  • Contractors and project managers use WIP reports to improve the efficiency of a construction project. They can spot areas that require more staffing and determine how to allocate labor to increase performance and find other opportunities that can help the company reduce its expenditures and maximize profits.

>> More: A Complete Guide to Job Costing


How to Create a Construction Work in Progress Report

The format of the construction WIP reports can vary from company to company, it usually includes the current period and project-to-date financial metrics that detail each contract that the company is working on.


List Work Details

A WIP report offers an extensive overview of a project and a basic reference for where the construction project stands. The components of WIP reports include the project name, construction phase, start date, expected date of completion, and type of construction. Other relevant information includes:

  • The total amount as stated in the contract

  • Estimated costs

  • Remaining profit

  • Costs incurred so far

  • Percent completion of the project

  • Billed revenue

  • Paid revenue

  • Over/under billings

  • Project backlog


Include Completed Tasks

It’s important to list all completed tasks in your construction work in the progress report, and explain how long each task took to complete. Describe what remains of the entire project that can provide insight into the progress you make daily and whether you anticipate being able to meet the project deadline.


WIP report is based on work completed rather than work remaining that can identify red flags early on when job productivity is slipping and is in danger of running over budget.


Determine weather

Some projects are managed based on the weather forecast since weather conditions affect the progress of the project. For example, the contractor might need to work extra hours to meet the deadline. By determining the weather conditions in the region and describing it in construction work in progress, you can allocate specific work to employees to complete on the same day. Also, the project owner has an excellent overview of the weather you experienced during the construction process and any mitigation action you took.


List all construction resources when creating your construction WIP report

How much does it cost to complete the project? List how you used your construction resources, including labor, materials, and equipment.

  • List each of the employees along with their position and their work hours, subcontractors also included.

  • List each piece of equipment used at the construction site. Identify the usage of the equipment including damages, maintenance, or repairs.

  • List the total materials used at a construction site. Be sure to divide them into types of materials

Estimate Percent-complete

When you have all information about the project, you can use real-time and historical data to accurately estimate the percentage of the project that has been completed. Based on the WIP reports, you can clarify the profitability of the jobs and create accurate financial reporting.

In short, accurate and timely construction work-in-progress reports take information from the field and use it across departments, so you can manage cash flow and the progress of the project better. This involved tracking hundreds of inventory resources, and hour laborers, which can be extremely complex. Construction Cost Accounting provides end-to-end bookkeeping services that help you track and record daily transactions with high accuracy and real-time data. Contact us for help.

 

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