In construction, staying on time and within budget is not easy. Projects usually have several moving parts, ranging from labour and supply chain management to contracts and cost estimation.
To prevent overruns and overspending, construction companies must be able to track and report on efficiencies in detail. This is particularly true for work in progress (WIP) where there may be many stages of project completion.
Every day, project managers have to deal with multiple change requests that require rapid decisions. This constant state of flux can make tracking and reporting on WIP a very difficult undertaking.
What is a WIP Report in Construction?
Projects often involve several phases of completion. This can make it hard to keep track of WIP and the accounting side of things. To make life easier on the financial and project management front, construction companies are increasingly relying on WIP reporting tools and software solutions designed specifically for the industry, such as a construction enterprise resource planning (ERP) system with accounting software.
A construction WIP report allows you to see the status of projects that are underway, including whether or not they are on a budget, based on the timeline. The report also provides invaluable insight into cash flow and financials, how they relate to the various project phases and where the money is coming from — something that investors and stakeholders are very interested in.
A typical WIP report will include:
- Estimated costs
- Remaining profit
- The total amount in the contract
- Billed and paid revenue
- Over- or under-billing
- Project backlog information.
Compiling this data across all departments can help contractors become more efficient, which in turn can increase productivity and profitability.
WIP Report Challenges
The construction industry has been slow to digitise, which adds to the complexities of managing accurate WIP reporting. Paper documentation can be cumbersome and lead to inaccuracies, duplications and errors.
When accounting departments and project managers rely on spreadsheets, they can end up being swamped with updates to inventory resources and vendors, which can change quickly.
The good news is that there are technological solutions available that address the unique needs of the construction industry. Digitisation, combined with cloud-based technology, is providing real-time access to data, which is helping to improve success in the construction industry.
How WIP Reports Mitigate Financial Risk in Construction
Construction firms often extend credit and borrow money. Both of these practices carry an element of risk. Using WIP reports can aid risk management. With construction ERP software in place, you can use the data within the system to create WIP reports that pinpoint inefficiencies and potential overruns by:
- Identifying opportunities to improve efficiency. The WIP reports enable managers to identify areas of the business that may require more (or fewer) staff members; how to allocate labour to improve efficiency; and opportunities to reduce expenditure and enhance profits
- Increasing transparency – WIP reports that show progress on-site can alert the project manager to potential cost increases and fast approaching (or missed) deadlines, both of which may result in cost overruns
- Helping construction firms to make quicker and more accurate business decisions – enabling lenders to provide underwriters with more accurate data will in turn improve underwriting analysis and risk.
When you have accurate, precise information at your fingertips about a project’s progress, costs to date and remaining budget, it’s far easier to mitigate financial risks upfront.
How to Use WIP Reports to Manage Construction Projects
Having the right software in tools in place is just the start. To succeed in managing a construction project you also need to know how to use them, including:
- Maintaining accurate, real-time data – you’ll need to digitise your processes
- Tracking work completed (rather than hours or labour costs) – this approach will provide early alerts if productivity is lagging and overruns are lurking
- Estimating ‘percent to complete’ more accurately – by using real-time and historical data to spot project trends
- Knowing your ‘cost to complete’.
With a construction-specific solution, like RedSky’s ERP software, you can better mitigate financial risks to achieve a more successful construction project and an improved bottom line. Learn more about how RedSky’s solutions can improve your profitability by requesting a demo with one of our specialists. You can also get in touch through our contact form or by giving us a call at +44 (0)20 3002 8600.