The Work in Progress schedule is the most important financial document a construction company produces. More important than the income statement. More important than the balance sheet.
Sureties use it to decide whether to bond your next project. Lenders use it to decide whether to renew your line of credit. Sophisticated buyers use it to value your company. And when it's wrong, the consequences aren't just accounting problems — they're existential business problems.
Here are the five WIP mistakes that cause the most damage, and what accurate WIP management actually looks like.
Mistake 1: Using Cost-to-Cost Percent Complete Without Validating the Denominator
The percentage-of-completion method drives your revenue recognition. The formula is simple: costs incurred to date divided by total estimated costs. But the denominator — total estimated costs — is where the trouble starts.
If your project manager updates the cost-to-complete estimate too slowly, or doesn't update it at all, you'll recognize revenue based on a budget that no longer reflects reality. The job looks profitable on the WIP schedule until the final month, when the cost overrun suddenly appears.
What this looks like to your surety: A project that was 80% complete and showing strong margin is suddenly underwater at 95% complete. That pattern — healthy all the way through, then a surprise loss at the end — is a massive red flag. Sureties call it "back-end loading" and they will pull your bonding line over it.
The fix: Cost-to-complete estimates should be updated every month by project managers, reviewed by the CFO, and challenged when the numbers look too clean. A job where the cost-to-complete estimate never changes over a 12-month project is a job where someone isn't doing the work.
Mistake 2: Ignoring Overbilling Until It Becomes a Problem
Overbilling (billing in excess of costs incurred, shown as "billings in excess of costs" on the balance sheet) is sometimes legitimate — it means you've collected cash efficiently. But persistent, growing overbilling on a project is a warning sign that something is wrong.
- •Your cost estimates are too high (the job is going better than expected), or
- •You've been aggressive on billing and you're going to have trouble earning your way out of it in the back half
The second scenario creates a cash flow crisis in the final stages of a project when billing slows down but costs are still running. Contractors who don't track their billing position by job run into this repeatedly.
The fix: Flag any project where billings in excess of costs exceeds 15% of the contract value and require project manager sign-off on the explanation. It might be fine. It might not be.
Mistake 3: Not Reconciling the WIP to the General Ledger
This sounds basic. It isn't. In many construction companies, the WIP schedule is built in a spreadsheet from project management data, while the general ledger reflects actual accounting entries. The two drift apart — costs posted to wrong jobs, billing adjustments not reflected, change orders recognized in the accounting system but not the WIP.
When the WIP and GL don't reconcile, neither is accurate. Your auditors will find it. Your surety will find it. You probably won't find it until someone else does, because the work to reconcile them is painful and nobody wants to do it.
The fix: Require a WIP-to-GL reconciliation as part of your monthly close process. The variance should be zero or explainable in two sentences.
Mistake 4: Treating Change Orders as Revenue Before They're Approved
Unapproved change orders are not revenue. They are potential revenue, contingent on a negotiation you haven't won yet. Recognizing unapproved changes in your WIP inflates your backlog, inflates your projected revenue, and potentially inflates your percent complete calculation on projects where the scope is genuinely in dispute.
If an owner rejects a change order you've been recognizing for three months, you have to reverse that revenue. That reversal hits your income statement in the period you finally lose the argument — which is exactly the wrong time, because you're probably already in a dispute and your relationship is strained.
The fix: Only recognize change orders in WIP when they are approved in writing, or at most when they are probable and estimable per ASC 606 guidance. Track unapproved changes separately as a contingent item.
Mistake 5: Letting Project Managers Control WIP Without Finance Oversight
This is the culture problem that underlies all the others. In many construction companies, the WIP schedule is "owned" by project management, and finance just formats it and sends it to the surety. The numbers don't get challenged. The cost-to-complete estimates don't get questioned. And project managers, who are compensated partly on job margin, have a natural incentive to be optimistic.
Finance has to own the WIP. Not control the cost estimates — project managers understand the field — but own the review process, challenge the numbers, and be accountable for the accuracy of what goes out the door.
The fix: Make the monthly WIP review a standing meeting between finance and operations. The CFO should be able to explain every number on that schedule to the surety agent without notes.
What Accurate WIP Management Actually Requires
Getting WIP right is a data problem before it's an accounting problem. You need:
- •Cost actuals by job from your accounting system, updated continuously
- •Current cost-to-complete estimates from project managers, updated monthly
- •Approved contract values and change order status from your project management system
- •Billing history by job from your AR system
Jake's job costing capability pulls all four data sources together, maintains the WIP calculation automatically, and flags anomalies — overbilling spikes, cost-to-complete estimates that haven't changed in 60 days, jobs where recognized revenue and billing are diverging. The goal is to catch the problems before the monthly close, not discover them during it.
Because the worst time to find a WIP problem is when your surety agent is sitting across the table asking why your third job in a row had a surprise loss in the final month.
See how Jake maintains real-time WIP visibility across your active projects. Explore the Job Costing agent or schedule a demo to see it with your data.