WHAT A WIP SCHEDULE SHOWS, LINE BY LINE.
A WIP schedule is five items per job, and the fifth one only means something sitting next to the fourth. Here is what each line is and what it's telling you.
A construction WIP schedule is a report that puts five items next to each other for every active job: total contract value, costs incurred to date, percentage of completion, revenue recognized, and billings completed. It exists because construction projects often last months or years, so revenue can't simply be recorded when the project finishes and has to be recognized gradually as the work is performed instead. Comparing revenue recognized against billings completed is what determines whether a project is overbilled or underbilled. Without accurate WIP reporting the financial statements can mislead in both directions, because a project can appear profitable while a loss is developing inside it and another can show profits lower than they truly are. For a subcontractor running several projects at once, the schedule is the visibility that makes those problems identifiable early rather than at completion.
The useful part of the report isn't any single line. It's the last two lines of each row, revenue recognized and billings completed, printed side by side so the difference between what the job has earned and what the job has invoiced has nowhere left to sit unnoticed.
This post covers what each of the five lines on the schedule is. Read How to Read a WIP Schedule for the complete treatment, worked figures included.
WHY WIP REPORTING EXISTS AT ALL.
Construction projects often last months, and plenty of them last years. Because of that, revenue can't simply be recorded when the project finishes, because a report built that way would say nothing about the job for almost all of the job's life. Revenue has to be recognized gradually instead, as the work is performed.
WIP reporting is the process that tracks it. That's the entire reason the report exists, and it's why every construction financial statement worth reading has one behind it.
THE FIVE ELEMENTS OF A WIP SCHEDULE.
A typical WIP schedule carries the same five items for every active job, and it carries them in the same order so the rows can be read against each other. Take any one of the five out and the schedule stops answering the question it was built to answer, which is whether each project is overbilled or underbilled:
Revenue recognized set against billings completed is the whole overbilled or underbilled read.
WHY THE ACCURACY OF THIS DECIDES THE STATEMENTS.
Without accurate WIP reporting, financial statements can be misleading, and they can mislead in either direction. A project may appear profitable while a loss is developing inside it. Another may show profits lower than they truly are.
Accurate WIP reporting is what makes the financial reports reflect the true performance of the ongoing work. That's a stronger claim than it sounds like, because it means the statements of a construction company are only as good as the WIP schedule sitting underneath them.
USING WIP TO MANAGE PROJECT RISK.
For a subcontractor managing multiple projects, the WIP schedule is the visibility. It's what identifies a potential problem early, while the job is still running and there's still something an owner can do about it.
Without it, financial problems get addressed after the projects reach completion. Completion is the one point in a job's life when nothing about that job can be changed, so a problem found there's a problem you get to explain rather than fix.
THE SHORT LIST.
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