If you’re not actively using and regularly updating a Work-In-Progress schedule for your construction project, you’ll only know be able to analyze the project after it is complete. While a “post-mortem” analysis can be very useful, it can’t offer the same kind of immediate results that a WIP schedule can.
This is especially true if, at the time of your final analysis, you already have other projects underway. The WIP schedule lets you adjust your projects to fit new data gleaned through real-time analysis as it’s happening.
This is an incredibly important tool for construction project managers looking for ways to increase their efficiency on the job. A well-designed WIP schedule can offer numerous avenues for increasing profits and decreasing costs by planning for contingencies.
Indicators the WIP Schedule Contains
To be useful in this context, your WIP schedule needs to contain the following performance indicators:
- Contract price
- Estimated job cost
- Estimated gross profits
- Revenues recognized
- Costs incurred to date
- Billings to date
- Billings to date in excess of revenues earned
- Percentage completed
Determining Underbilling, Overbilling, and Profit Fade
This information is sufficient to allow you (or a third-party underwriter) to draw useful conclusions about your construction project. For instance, the report might indicate that your revenues exceed billings for a particular job. This is called underbilling and it suggests that you may be mismanaging resources, implementing unapproved change orders, or simply not paying sufficient attention to billing.
On the other hand, it may discover that you are consistently overbilling – billing for sums that exceed revenues to date. Generally, this should indicate that you’re doing a good job managing your cash flow effectively. High levels of overbilling, however, may indicate that you’re essentially borrowing against the job in order to compensate for lost profits on other, less successful jobs.
The WIP schedule can also point to a phenomenon called profit fade. As its name implies, profit fade is when the estimated gross profit of a project decreases over time. This may indicate that you are estimating costs or managing resources poorly. It may also indicate unexpected problems on the worksite – in either case, it is something that your bond agent doesn’t want to see.
A Well-Made WIP Schedule Report Helps Bonding Capacity
If your WIP schedule report indicates that your project’s profits are fading and you’re consistently underbilling for work completed, the project is in trouble. One of the most immediate consequences will be that your bond capacity will severely tighten, but if underwriters lose faith in your ability to manage the project, they may take more serious steps to protect their investment from mismanagement.
However, if you take the WIP schedule into account from the beginning of the project, you can plan for slightly overbilling – just enough to inspire confidence. You can also begin the project with a conservative estimated gross profit and then plan for it to rise gradually throughout the construction process. This activity is what underwriters want to see, and you’ll be rewarded for demonstrating it.