Construction WIP Schedules: 3 Common Myths Debunked
A construction company’s work-in-progress (WIP) schedule—also known as a contract status report—may be the most insightful financial report for businesses operating in the industry.
When used well, it’s the lifeblood of your construction company—but common misconceptions and myths lead many organizations to underestimate its value.
Here, we’ve outlined the three most common myths about construction WIP schedules, the reasons why they aren’t true and the practical steps you can take to leverage this report to your advantage.
Myth 1: A construction WIP schedule only requires the original estimates.
Most construction companies start with initial estimates in their contract status reports—but many fail to update them later.
Making regular updates to a construction WIP schedule is critical. A WIP schedule that only includes initial estimates doesn’t reflect the true costs needed to complete a project.
Making these updates requires intentional effort. Updating a WIP schedule should involve input from your entire team, including the superintendents, project managers, estimators and the accounting department.
But if done correctly and consistently, it can produce tremendous value. By keeping the WIP schedule up to date, you can identify jobs that are overbilled, see jobs where you may be underbilled, identify jobs with profit fade and stop potential issues before they start. Having all of this information in one place allows you to most effectively measure your company’s most critical financial metrics and tap into valuable insights for your business operations.
Myth 2: My company bank account balance is a more up-to-date representation of our financial status than my construction WIP schedule.
Many construction companies evaluate their financial health based on their cash reserves, assuming that if the company has enough cash to cover payroll and expenses that the organization is financially stable.
But, because of the long-term nature of construction contracts, the current balance in your bank account may not accurately reflect the company’s current financial position.
If you’re using your bank account balance to evaluate your company’s financial health, you may find yourself floating jobs on billings from other jobs.
Your construction WIP schedule is a much more accurate measure of your company’s financial health because it accounts for the timing of contracts and the relationship between costs, revenue and billings.
While it may seem counterintuitive, your job costs are the key driver for earning revenue. Collecting payment from your customers might seem like earning a profit, but it’s actually a liability until the work is completed and revenue is earned.
By reviewing your construction WIP schedule, you can gain a clearer and more precise understanding of the company’s financial health, ensuring long-term stability and success.
Myth 3: My construction WIP schedule isn’t valuable because it’s just an estimate.
Creating an accurate and reliable WIP schedule requires significant effort, time and coordination throughout an organization. Unfortunately, many construction executives believe that the value of the WIP schedule isn’t worth the effort because the WIP schedule contains estimated information.
While it does use estimated job cost information, your WIP schedule can help you to effectively measure a job’s success over its lifetime. Doing an interim and postmortem review on your completed jobs can help you in future bids.
By comparing your actual performance and activities to the original estimates within the WIP schedule, you can gain valuable feedback, learn and make necessary adjustments.
For example, you may identify jobs with a certain subcontractor that habitually runs over schedule, or you may notice trends in certain jobs that should have had material price escalation clauses. Identifying where you missed or excelled—whether in material purchasing or labor efficiency—provides insights for improvement.
Over time, a WIP schedule allows you to look ahead in your bidding process, recognize the projects you excel at, and focus on jobs that align with your strengths.
Learn More About Analyzing Your Construction WIP Schedule
Common misconceptions and myths might have you believe that a WIP schedule is nothing but a burdensome and obligatory estimate. But in reality, when it’s updated well and used appropriately, your construction WIP schedule can positively transform your company’s financial management and improve your project success.
To learn more about updating, understanding and applying the insights gained from your contract status report, contact your Warren Averett advisor directly, or ask a member of our Construction Industry team of accountants and advisors to reach out to you.
