« Building Information Management | Main | Company Integration »

The Work In Progress (WIP) Series

For a construction financial manager, mastering the understanding of how a work in progress calculates and compiling the report successfully are only the first steps in really working with this important tool. The work in progress is much more than in income reconciling tool. Taking the time to gain understanding on what affects the numbers really do have on the health of a project will lead you to a greater understanding of construction processes.

Let's take the a look at change orders and extra work for instance. What affect does extra costs hitting a project have on the calculations of earned revenue? What if the contract is not adjusted to meet the value of what is actually to be expected? The affect is that the project looks as though more work has been completed. Because the schedule is driven off of the original estimate, as actual costs rise the mathematical calculation against the projected earnings essentially rises causing an increase in the under billed. That is why it is so important for changes to be updated on both sides of the system. Costs are naturally captured. Estimate adjustments/documentation of change orders are driven only by how well processes are set in place. Discovering whether or not extra costs are going to lead to increased revenue in the way of billable change orders or if the case is that the project is running over early on in the project is crucial. Examining line item budget items if over billing occurs will lead you right into whether or not a project is running over budget or is just not invoiced up to date. Identifying cost overruns makes a huge difference in the steps that will be taken from that point on. If it's discovered that a project truly is running over early enough, perhaps you as the CFM can be the star in assisting the turn around on a project.

In summary, a CFM should always question the under billed. Assuming the cause is a lack of billing that will catch up in the next cycle is if nothing else is dangerous. Apply business sense to the numbers that appear in front of you and it's surprising as to what might be uncovered. Especially in an under-billed situation. There are many factors in the life of a project that can affect the numbers on the work in progress. Learn what they are. Don't just produce the work in progress and balance out the income on the financial statement.

Posted by LeAnn on July 19, 2007 10:00 AM|Permalink

TrackBack

TrackBack URL for this entry:
http://www.dbrownonline.com/mt/mt-tb.cgi/1980