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Monthly WIP Review Process

Overview​

The Work in Progress (WIP) schedule is the financial heartbeat of every construction company. It tells you — and your bank, surety, and CPA — exactly where you stand on every active project. Are you making money or losing it? Are you billing ahead of your work or falling behind?

An inaccurate WIP is like a broken compass — you think you're heading in the right direction, but you're actually lost. This playbook walks you through the process of producing accurate, trustworthy WIP schedules every single month.

Why WIP Schedules Matter​

Who Requires Them​

  • Banks — your line of credit depends on your WIP. Banks use it to assess your financial health and determine how much they'll lend you
  • Sureties — bonding companies use your WIP to evaluate your ability to complete work and decide your bonding capacity
  • CPAs — your accountant needs the WIP for financial statement preparation under the percentage-of-completion method
  • Internal management — project managers, executives, and owners need the WIP to make informed business decisions

What They Reveal​

  • Which projects are profitable and which are losing money
  • Whether you're overbilling (billing ahead of work completed) or underbilling (doing more work than you've billed for)
  • Cash flow patterns and potential problems
  • The accuracy of your original estimates
  • Trends in project performance across your portfolio

The Cost of a Wrong WIP​

  • Overbilling you don't recognize masks losses until the project ends — then all the bad news hits at once
  • Underbilling you don't address drains cash flow and may indicate scope creep you're not capturing
  • Inaccurate cost-to-complete estimates lead to bad business decisions — you might take on work you can't afford or pass on profitable opportunities
  • Unreliable WIP data erodes trust with banks and sureties, potentially reducing your credit line or bonding capacity

The WIP Formula​

At its core, the WIP calculation answers one question: Have you billed more or less than the revenue you've actually earned?

Revenue Earned vs. Revenue Billed​

TermDefinition
Revenue EarnedThe portion of the contract value you've actually earned based on work completed
Revenue BilledThe amount you've invoiced the client to date
OverbilledYou've billed more than you've earned — you owe work
UnderbilledYou've earned more than you've billed — the client owes you money

Step 1: Calculate Percent Complete​

Percent Complete = Costs to Date / Total Estimated Costs

Example:

  • Total estimated costs: $800,000
  • Costs incurred to date: $400,000
  • Percent complete: $400,000 / $800,000 = 50%
Important

Use cost-based percentage of completion, not the contract schedule percentage or a subjective estimate. Cost-based is the standard that banks, sureties, and CPAs expect.

Step 2: Calculate Earned Revenue​

Earned Revenue = Contract Value × Percent Complete

Example:

  • Contract value: $1,000,000
  • Percent complete: 50%
  • Earned revenue: $1,000,000 × 50% = $500,000

Step 3: Compare to Billings​

Over/Under Billing = Billings to Date - Earned Revenue

Example A — Overbilled:

  • Billings to date: $600,000
  • Earned revenue: $500,000
  • Overbilled: $600,000 - $500,000 = $100,000 overbilled
  • You've collected $100,000 more than you've earned. This is a liability — you owe work.

Example B — Underbilled:

  • Billings to date: $450,000
  • Earned revenue: $500,000
  • Underbilled: $450,000 - $500,000 = $50,000 underbilled
  • You've done $50,000 more work than you've billed for. This is an asset — you're owed money.

Monthly WIP Process​

Follow these six steps every month, every project, no exceptions.

Step 1: Gather Cost Data​

What you need:

  • All job costs posted through the end of the month (labor, material, subcontractor, equipment, other)
  • Pending invoices not yet posted (accrued costs)
  • Any cost reclassifications or corrections

Key actions:

  • Close out the accounting period — make sure all costs are posted before starting the WIP
  • Accrue any known costs that haven't been invoiced yet (sub work completed but not billed, materials received but not invoiced)
  • Review the cost ledger for any miscosted items or posting errors

Step 2: Calculate Percent Complete​

For each active project:

  • Divide costs to date by total estimated costs
  • Compare to last month's percentage — large jumps or drops need investigation
  • Verify the result makes sense given what you see on the jobsite

Step 3: Calculate Earned Revenue​

For each active project:

  • Multiply contract value (including approved change orders) by percent complete
  • This is the revenue you've earned regardless of what you've billed

Step 4: Compare to Billings​

For each active project:

  • Calculate the over/under billing position
  • Identify significant changes from last month
  • Flag any project where the over/under position doesn't make sense

Step 5: Review Every Job​

This is the most important step. The WIP meeting should happen monthly with every project manager present.

For each project, the PM must answer:

  1. Are the costs to date accurate and complete?
  2. Is the total estimated cost still valid, or does it need updating?
  3. Are there any pending change orders that should be included?
  4. Are there any known risks or issues that could affect the estimate?
  5. Does the percent complete match what you see in the field?

Red flags to watch for:

  • Percent complete hasn't changed in two or more months
  • Costs are increasing but percent complete isn't moving
  • Large overbilled position late in the project
  • Estimated profit margin has dropped significantly since the original bid
  • Project is over 90% complete but still has significant costs to go
  • Cost-to-complete estimate hasn't been updated in three or more months

Step 6: Update Estimates​

After the WIP review meeting:

  • Update total estimated costs based on PM input
  • Adjust contract values for approved change orders
  • Document the rationale for any significant estimate changes
  • Recalculate all WIP positions with updated estimates

WIP Schedule Template​

┌──────────────┬──────────┬──────────┬──────────┬──────────┬──────────┬──────────┬──────────┐
│ Job Name     │ Contract │ Costs    │ Est. Cost│ %        │ Earned   │ Billings │ Over/    │
│              │ Value    │ to Date  │ to Compl.│ Complete │ Revenue  │ to Date  │ (Under)  │
├──────────────┼──────────┼──────────┼──────────┼──────────┼──────────┼──────────┼──────────┤
│ Main St Bldg │ 1,000,000│  400,000 │  400,000 │  50.0%   │  500,000 │  600,000 │  100,000 │
│ Oak Ave Sch  │   500,000│  350,000 │   75,000 │  82.4%   │  411,765 │  375,000 │  (36,765)│
│ River Bridge │ 2,000,000│  200,000 │1,600,000 │  11.1%   │  222,222 │  250,000 │   27,778 │
├──────────────┼──────────┼──────────┼──────────┼──────────┼──────────┼──────────┼──────────┤
│ TOTAL        │ 3,500,000│  950,000 │2,075,000 │          │1,133,987 │1,225,000 │   91,013 │
└──────────────┴──────────┴──────────┴──────────┴──────────┴──────────┴──────────┴──────────┘

Key:
- Est. Cost to Compl. = Estimated remaining costs (Total Est. Cost - Costs to Date)
- % Complete = Costs to Date / (Costs to Date + Est. Cost to Complete)
- Earned Revenue = Contract Value × % Complete
- Over/(Under) = Billings to Date - Earned Revenue
- Positive = Overbilled (liability)
- Negative = Underbilled (asset)

Manual Process: Excel Spreadsheet​

If you're managing WIP in a spreadsheet, here's how to set it up:

Setup​

  1. Create a workbook with one sheet per month (name tabs "2024-01", "2024-02", etc.)
  2. Set up columns matching the WIP template above
  3. Add formulas for percent complete, earned revenue, and over/under
  4. Create a summary sheet that pulls current month totals
  5. Add conditional formatting to highlight red flags (jobs over 10% overbilled, jobs with declining margins)

Monthly Workflow​

  1. Copy last month's sheet as a starting point
  2. Update costs to date from your accounting system
  3. Update billings to date from your AR records
  4. Meet with each PM to review and update estimates
  5. Update the estimated cost to complete for each job
  6. Review the summary for overall company position
  7. Save and distribute to stakeholders

Limitations​

  • Data entry errors are common and hard to catch
  • No audit trail — you can't see who changed what and when
  • Manual updates mean the WIP is only as current as your last update
  • Difficult to trend data across months without additional work
  • Sharing and version control issues with multiple users

Digital Process: Integrated System​

If you use construction accounting software (Sage, Foundation, ComputerEase, Vista, etc.), much of the WIP process can be automated:

Automation Benefits​

  • Costs flow automatically from job cost ledger — no manual data entry
  • Billings update automatically from accounts receivable
  • Percent complete calculates automatically as costs are posted
  • Month-over-month comparison is built into the report
  • Audit trail tracks every change and who made it
  • Real-time visibility — WIP position is always current, not just at month-end

What Still Requires Human Judgment​

Even with an integrated system, these steps still require PM input:

  • Reviewing and updating the estimated cost to complete
  • Assessing whether pending change orders should be included
  • Evaluating project risks that aren't yet reflected in costs
  • Confirming that the cost-based percent complete aligns with physical progress

Common Mistakes​

1. Using Contract Percentage Instead of Cost Percentage​

The schedule says the project is 60% complete, so you report 60% on the WIP. Wrong. Cost percentage and schedule percentage are different things. A project can be 60% through the schedule but only 40% through the costs (or vice versa). Always use cost-based percentage of completion.

2. Ignoring Pending Change Orders​

You've submitted $200,000 in change orders but they haven't been approved yet. Do you include them in the WIP? It depends — approved changes should always be included. Pending changes should be included if approval is probable and the amount is reasonably estimable. Discuss with your CPA.

3. Stale Estimates​

The cost-to-complete estimate hasn't changed in six months. That's a red flag. Estimates should be reviewed and updated monthly. Construction projects are dynamic — material prices change, scope shifts, productivity varies. An estimate that doesn't change isn't being reviewed.

4. Inconsistent Job Costing​

Costs are coded to the wrong jobs or cost codes. This throws off the WIP for multiple projects. Consistent, accurate job costing is the foundation of a reliable WIP. If your job costing is messy, your WIP is unreliable.

5. Monthly Lag​

You're producing February's WIP using January's cost data because the books aren't closed yet. This one-month lag means your WIP is always showing a stale picture. Close your books promptly — aim for the 10th of the following month at the latest.

6. Not Being Honest​

This is the biggest mistake. PMs don't want to report bad news, so they keep their estimates optimistic even when they know a project is in trouble. A WIP only has value if it's honest. Encourage a culture where reporting problems early is rewarded, not punished.

What Your Bank Sees​

Your bank reviews your WIP to assess lending risk. Here's what they're looking for:

Fade Patterns​

Banks track your estimated gross profit at project start versus where it ends up. If your projects consistently "fade" (start at 15% margin and finish at 5%), the bank sees a pattern of poor estimating or project management.

Overbilling​

Some overbilling is normal and expected in construction. But excessive overbilling — especially late in a project — signals that you may have spent the client's money and still owe significant work. Banks get nervous when total overbillings exceed 10-15% of total contract values.

Underbilling​

Persistent underbilling means you're financing the project out of your own pocket. Banks worry about your cash flow when you have large underbilled positions, especially if you're also carrying significant receivables.

Large Jobs​

Banks pay extra attention to any single project that represents more than 20-25% of your total backlog. The failure of one large project can threaten the entire company.

Old Jobs​

Projects that linger at 95%+ complete for months raise red flags. Are there disputes? Punch list issues? Retainage you can't collect? Banks want to see projects close out cleanly and on schedule.

What Your Surety Sees​

Your bonding company uses the WIP to evaluate your ability to complete work and take on new projects:

Backlog Profitability​

The surety looks at your total backlog (remaining contract values) and the projected margins on that work. A large backlog at thin margins is riskier than a smaller backlog at healthy margins.

Completion Ability​

Can you actually complete all the work you've committed to? The surety evaluates your work-in-progress against your resources (people, equipment, cash) to determine if you're overextended.

Overbilling Ratio​

Sureties track overbilling as a percentage of total billings. An overbilling ratio that exceeds historical norms suggests you might be front-loading bills to cover cash flow problems on other projects.

Best Practices​

  1. Close books by the 10th. The faster your books close, the more current your WIP. Stale data leads to bad decisions. Set a hard deadline for the monthly close and hold everyone accountable.

  2. Hold monthly WIP meetings. Every PM should present their projects. Make it a standing meeting on the calendar. This is not optional and not delegable — the PM who runs the project reviews the numbers.

  3. Update cost-to-complete every month. Never let an estimate go stale. Even if nothing has changed, the PM should actively confirm the estimate is still valid. Write "Reviewed — no change" rather than leaving it blank.

  4. Track overbilling and underbilling trends. A single month's snapshot is useful, but the trend over time is more revealing. Create a chart that shows your total over/under position by month. Sudden changes warrant investigation.

  5. Be honest. This cannot be overstated. A WIP that hides problems is worse than useless — it's dangerous. It gives you false confidence, misleads your lenders and sureties, and delays the corrective action that could save the project (and maybe the company).

The Bottom Line​

The monthly WIP review isn't just accounting homework — it's how you keep your finger on the pulse of every project and your company's overall financial health. Banks, sureties, and CPAs all depend on your WIP to make decisions about your business. More importantly, you depend on it to make decisions about which projects to pursue, where to allocate resources, and when to raise the alarm.

Build the discipline of monthly WIP reviews into your company culture. Do them on time, do them honestly, and use the results to make better decisions. The companies that master WIP management are the companies that survive market downturns, win bigger bonds, and build lasting relationships with their financial partners.

ResourceLink
WIP Reporting GuideWIP Reporting
Pay Application PlaybookPay Application Process
Job Costing GuideJob Costing 101
Financial KPIs GuideFinancial KPIs
Cash Flow Projection CalculatorProject Cash Flow

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