Instead of manually tracking and entering your time, benefits of time tracking software with BQE show the exact time spent on a project, including...
Tips for Creating a Strong Work in Progress (WIP) Report
A strong work in progress (WIP) report can answer that important question- how much money will it actually take to finish this project?
Imagine how much easier your day-to-day work life would be if you had a 360 view of each project. Now, imagine you could answer, with confidence, from beginning to end “how much money is it going to take to finish this project?” You can, if you have a successful work in progress (WIP) report set up.
Your work in progress report is an integral part of your business. It’s that secret tool that gives you a full look into your project. Understanding where you’re leaving money untouched is just as important as setting the future financial state of the projects in your business.
So, how do you create an efficient work in progress report for your next project?
What is a Work in Progress Report?
Whether you’re already using a work in progress report, you’re familiar with the term, or you have no idea what it means, let’s take a deeper look into what it is, what it does, and most importantly, how it helps you.
A work in progress (WIP) report shows the billable time and expenses you’ve done but not invoiced. It’s important to track as an asset on your balance sheet and as revenue on your income statement.
A WIP report not only tells project managers how far along work is currently but also acts as a booster if your firm needs a line of credit or loan.
A WIP report is used for various key performance indicators (KPIs), but mainly to:
Get the team on the same page in terms of the billing process
Make sure the team knows where the job/project stands
Monitor for cash flow or profit fade
Why is a WIP Report Important?
A WIP report is an essential part of any project and helps you keep an eye on your resources and how far along they are.
If a project is under-billed, cash will flow in after the work is completed and all resources are used up. An under-billed project means you end up being responsible for financing the project.
If a project is over-billed, this means the work lags behind the actual pace of the billing, so your client ends up financing the project.
An over-billed project might not seem like an issue; however, this means the cash is front-loaded without accounting for cost overruns which in turn becomes cash-flow problems by the end of your project.
A WIP report is valuable as it essentially shows you whether a project is over or underbilled before it gets out of hand.
Ideally, your goal is to have the project cash come from your client through overbilling. If you get stuck dealing with under-billings, this shows you are financing your projects which can negatively impact your final profit.
A WIP report assists by considering whether you have billed over or under the percentage of your completed project. It is a critical tool for staying on top of your projects and keeping them profitable.
Project managers that set up a strong WIP report can keep a detailed eye on progression and resolve any issues before they become a problem.
A WIP report can also help you calculate how to adjust financials to create a clearer picture while the project is still in progress. Since under-billings or over-billings can impact your reported revenue, you want to be as accurate as possible in your report so that:
Your firm’s finances are accurate
You can adjust for project jobs that encounter unexpected issues
You are not over-reporting, therefore not harming your job profit
What to Include in Your WIP Report
Now let’s talk about what you should be putting into your WIP report to make it as beneficial as possible for you and your team.
When putting together a WIP report, you want each row to represent a job. Most work in progress reports include the contract amount, estimated costs, costs to date, percent complete, billed revenue, earned revenue, and over/under billings. Other columns in your report can include a backlog and remaining profit.
One number you want to be completely accurate is the cost-to-complete. If the cost estimate is even slightly off, this can throw your entire WIP report out of order. The cost estimate and percent complete will be off, while the income statement and over/under-billings will be wrong. When incorrect, this can create unwelcome surprises and unrealistic expectations later in the project.
Include Real-Time Data
For accurate WIP reporting, you want accurate data. Otherwise, your time is wasted.
Using a project management platform for your WIP report that includes real-time visibility can help you create dynamic information directly from your projects. This includes the actual costs, progress made, and change orders.
Excel spreadsheets are a pain to use and can be too time-consuming since they must be updated manually. For the best WIP reporting, cloud-based project management and accounting software can quickly gather, update, and share information and data in real-time for a smooth workflow.
Track Completed Work Instead of Labor Costs
It is also beneficial to know the amount of work that has been completed on the project so far.
Many labor-intensive projects base the percentage of work completed on actual work done instead of hours or labor costs.
When your WIP report is based on the work the team has completed compared to the work remaining, this can provide early insight that job productivity is slipping and could run over budget.
Estimate Percent-Complete and Cost to Finish
Exact financial data isn’t always readily available. A project management platform can help you use real-time and historical data to identify trends and estimate the percentage of what is completed so far.
As we mentioned in the beginning, one of the big questions a WIP report helps answer (and one we all want to know) is “how much money will it take to finish the project?”
In your reporting, make sure to include labor, materials, and other valuable resources needed to complete the project- along with adding a margin for error.
When your WIP report is accurate and timely, your team better manages cash flow. A WIP report also clearly shows the project profitability and helps with accurate financial reporting.
Using modern project management software that helps you build your WIP report will help you identify and stop any financial losses.
Partner with Project Managers
Sure, accounting handles the numbers, but it’s still valuable that the project manager is involved with the WIP report. The numbers on paper are not always identical to what’s going on with a project- and only the project manager will have this detailed insight.
For instance, cost-to-complete isn’t just as simple as what the WIP report shows: budget costs to date. Your cost-to-complete needs to be an exact estimate of where the job stands right now if you want to finish on time.
Everyone knows that plans on a project can change whether the costs go up, more labor is needed, or there are disputed change orders.
If the accounting team isn’t made aware, then the estimated cost-to-complete will not accurately compare to billing expectations. If change orders are unreported, the project appears underbilled. This results in lower profits.
Overall, everyone will end up with a very different project on paper than what the team sees in real life.
Partner with a project manager on your WIP report. Project managers are experts when it comes to knowing the real-time costs.
A spreadsheet might make it look like the job is complete, but a project manager using accurate management software for their WIP reporting will know what stage the project is always in and what is needed for completion.
Improve Your Project Profitability with BQE CORE
When it comes down to it, building a WIP report can be easy. It doesn’t have to be difficult. But to make it easy for you and your team, you want the right software.
When you have the right project management software available, you and your team can create a valuable WIP report, track time and expenses, and more, so that you remain in complete control of your project and see high profits in the end.