What the WIP schedule shows
| Column | Source | Meaning |
|---|---|---|
| Contract value | Original contract plus approved change orders | What you will be paid |
| Estimated total cost | Current budget including approved changes | What it will cost |
| Cost to date | Job cost ledger | What it has cost so far |
| Percent complete | Cost to date ÷ estimated total cost | How far along the job is, in cost terms |
| Earned revenue | Contract value × percent complete | Revenue you may recognize |
| Billed to date | Customer invoices and pay applications | What you have invoiced |
| Over billing | Billed − earned, when positive | A liability: billings in excess of costs and estimated earnings |
| Under billing | Earned − billed, when positive | An asset: costs and estimated earnings in excess of billings |
The formula, and the one input that is always wrong
Earned revenue = contract value × (cost to date ÷ estimated total cost). Three of the four inputs come straight from the ledger. The fourth, estimated total cost, is a judgment: the project manager’s current forecast of what the job will cost when it is done. If that forecast is stale, the whole schedule is wrong. Most contractors with WIP problems do not have a reporting problem; they have a cost-to-complete problem, where the forecast is only updated when someone is asked for it.
The fix is procedural: the project manager updates cost to complete per cost code before the close, accounting reviews jobs where the projected margin moved more than a set threshold, and the schedule is run from those numbers rather than from the original budget.
Reading over and under billing
Over billing is normal and healthy in moderation: you billed the owner for mobilization or front-loaded the schedule of values, and the cash is in the bank before the cost. It becomes a problem when it is large and the job is nearly complete, because the remaining work has to be done with no remaining billing. Chronic over billing across the whole book means revenue is being pulled forward.
Under billing is the one sureties worry about. Small under billings are timing: work done in the last week of the month, billed in the next. Large or persistent under billings usually mean one of three things: the estimated total cost is too low (the job is losing money and no one has admitted it yet), change-order work is being performed without an approved change order, or billings are simply late.
What the bank and surety look for
- Every open job on the schedule, including small ones, with contract and estimate totals that tie to the ledger
- Gross profit on completed jobs this year compared with what the earlier WIP schedules projected for them (profit fade)
- Under billings explained job by job
- Backlog: contract value less earned revenue, by job
- A schedule produced from the accounting system, not rebuilt in a spreadsheet each month
A monthly WIP process that holds up
- Post all job costs for the period, including subcontractor pay applications approved through the cutoff and accrued costs for work done but not yet billed to you
- Record approved change orders in both contract value and estimated cost
- Have each project manager update cost to complete by cost code
- Run the WIP schedule; review every job where percent complete moved against expectation or the projected margin changed
- Book the over/under billing adjustment to the balance sheet and revenue
- Keep the schedule and the supporting job cost reports with the close package
How Forge ERP handles WIP
Forge builds the WIP schedule from posted job cost, contract value and approved change orders, with cost-to-complete forecasts captured and approved in Forge rather than typed into a spreadsheet. Over/under billing is computed per job and the adjusting entry is prepared for review; it posts through the same governed ledger as everything else, so the schedule always ties to the general ledger.
Forge ERP covers projects, purchasing, accounts payable, billing and receivables, job cost and WIP, reporting and close. Payroll runs in your payroll provider and lands in Forge as job-costed labor with burden. Forge is in beta with a 14-day free trial.
Frequently asked
- Is over billing good or bad?
- Moderate over billing is normal and improves cash flow. Large over billing on a nearly complete job, or chronic over billing across all jobs, means revenue is being recognized ahead of the work and the remaining work is unfunded.
- How often should the WIP schedule be run?
- Monthly, as part of the close. Sureties and banks typically see it quarterly or annually, but a monthly schedule is what lets you catch a fading job while there is still time to do something about it.
- Does the WIP schedule apply to cost-plus and T&M jobs?
- Revenue on cost-plus and time-and-materials work is generally recognized as cost is incurred, so the over/under calculation is simpler, but those jobs still belong on the schedule so the full book is visible.