Construction WIP Report: What It Is and How to Build One

DEFINITION

WIP report

Work-in-progress schedule — a financial report comparing earned revenue to costs and billings on all open jobs. Used to calculate over-billings and under-billings and to present accurate job profitability to a bonding company or bank.

DEFINITION

Over-billing

When the amount billed to the owner or GC exceeds the earned revenue on a job. Creates a current liability on the balance sheet — the contractor has collected cash for work not yet completed.

DEFINITION

Under-billing

When earned revenue exceeds the amount billed. Creates a current asset (costs in excess of billings). The contractor has completed work they haven't invoiced yet.

DEFINITION

Percent complete

The fraction of a job's total estimated cost that has been spent. Formula: actual cost to date ÷ total estimated cost. Standard method for specialty trade subs preparing WIP reports for bonding or banking purposes.

DEFINITION

Cost-to-complete

The remaining budget on a job: total estimated cost minus actual cost to date. If a job has a $200,000 cost estimate and $110,000 spent, cost-to-complete is $90,000. Inaccurate cost-to-complete estimates are the root cause of most WIP errors.

What Problem the WIP Report Actually Solves

The WIP schedule is not a reporting formality. It tells you, in concrete numbers, whether the revenue you’ve recognized on open jobs is real.

Here’s the problem it addresses: a sub does $4M in revenue this year and books a $200,000 net profit. Looks fine. But if $300,000 of that revenue was over-billed — billed before it was earned — that profit is partly borrowed from future periods. When those jobs hit cost overruns next quarter, the profit evaporates. The WIP report is what catches this before it becomes a year-end surprise.

For specialty trade subs with $2M-$10M in revenue running 10-30 open jobs at a time, the cumulative over/under-billing position can swing $200,000-$500,000 between months. That swing shows up as working capital, not as a revenue problem — which is why your bank and bonding company want to see it.

The Cost-to-Complete Problem

Every WIP error eventually traces back to a bad cost-to-complete number. Percent complete is only as accurate as the denominator — if the total estimated cost is wrong, every calculation built on it is wrong.

Two scenarios cause this: (1) the original estimate was too low, and (2) the estimate wasn’t updated when change orders were approved. Both produce an overstatement of percent complete. A job estimated at $200,000 that actually costs $250,000 will show 55% complete when only half the work is done, which overstates earned revenue by $50,000.

The fix is keeping your cost estimates current. Every approved change order should update the estimated cost for the affected cost codes. Every material takeoff revision should flow back to the estimate. This is manual work in Excel and one of the main reasons subs use job costing software — an updated estimate automatically recalculates percent complete and earned revenue.

Reading the Numbers Your Bonding Company Sees

Your surety underwriter looks at two ratios when they review your WIP: the under-billing ratio and the backlog-to-equity ratio.

Under-billing ratio compares your total under-billings to your total backlog. A small ratio (under 10%) is normal — you have some unbilled earned work. A large ratio (above 20-25%) raises a flag that you’re front-loading costs and delaying billings, which creates cash flow risk.

Backlog-to-equity compares your contracted-but-unearned work to your net worth. High backlog relative to equity means you’ve committed to a lot of work that depends on completing jobs profitably to generate the cash to finish them. Bonding companies limit how much work they’ll bond based on this ratio.

None of this is complicated math. But you can’t manage either ratio without an accurate WIP schedule.

When Excel Stops Working

For a sub with 3-5 open jobs, an Excel WIP takes 30-45 minutes to update monthly. You pull actual costs from QuickBooks, enter them manually, recalculate percent complete, update the billings column, and let the formulas run.

At 15-25 open jobs, the same process takes 2-4 hours. The risk of a data entry error that cascades through the calculations goes up with every row you’re maintaining by hand. And if the cost data in QuickBooks doesn’t match the cost data in the WIP spreadsheet because someone entered a journal entry that bypassed the job cost codes, you spend another hour reconciling.

Job costing software that auto-populates the WIP from actual job cost entries eliminates most of that work. The WIP becomes a report you run, not a spreadsheet you build.