Name: How Work in Progress Can Drive Profitability and Cash Flow
Uploaded: 2026-08-18T19:30:44.085Z
Duration: 56 min 24 s
Description: How Work in Progress Can Drive Profitability and Cash Flow

Transcript for "How Work in Progress Can Drive Profitability and Cash Flow": Good afternoon or good morning, depending on what time zone you're joining us from, and welcome to today's webinar. We will begin shortly. But before we get started, I'd like to go over a few quick housekeeping notes. For the best experience, we recommend you use Google Chrome. The audio for today's presentation will be streamed to your computer. There's no dial in, so please make sure the volume is turned up. You can download the slides via the resource tab up in the top right hand corner. And please note that you will receive an email with a link to the on demand recording of today's session within twenty four hours after the webinar ends, so please feel free to watch it back, share it with others within your organization or within the construction industry that may benefit from today's content. And as always, please feel free to type in questions in the q and a box throughout the presentation. We'll get to as many as we can. At the end of the presentation, any we don't get to, we will certainly follow-up individually offline. So today's topic, how work in progress can drive profitability and cash flow. This is one of, many educational sessions in our Construction Accounting University. So when you get that link to the on demand recording, please feel free to browse through the other sessions as well. There's a lot of good content out there in our Construction Accounting University, so please feel free to not only watch this back, but watch any of the other relevant sessions that you may benefit from. Just a quick introduction. For those of you that don't know me, I'm John Ivers, vice president general manager here at Deltek Computorees. I've spent over thirty five years working in the construction industry. Started my career in construction working for a large contractor. I held various roles over my ten years there, and I've spent the last twenty five plus years serving the over 6,000 contractors across the country that use the Delta ComputerEase solution. Yeah. My role here at Delta ComputerEase is to help equip contractors with the tools they need to manage profitability, drive growth, and meet the ever changing complex construction requirements that we all face each and every day. What we're gonna talk about today, yeah, strategies to manage WIP effectively for to help you improve your cash flow and profitability, you know, relationship between the WIP to schedule values of backlog, the general ledger, and other financial components, and then certainly how to compare and analyze WIP reports for different time periods to help give you a baseline to to measure those, you know, those projections or those forecast. We'll get into all that here in just a little bit. Before we get, in too deep here, I wanna launch a quick polling questionnaire. So I'm gonna launch the first of the polling questions here. I'd like to know if you are currently using your current software to prepare your work in progress reports. And we'll leave that open for about thirty seconds or so. Hopefully, for those of you using, the computer solution, the answer would be yes. You you know, I'm I'm sure we have a number of QuickBooks users on the call here today, and I'm sure the answer is likely to be no because there is not the, you know, the ability in a generic tool like QuickBooks, a generic accounting tool like QuickBooks to do things like work in progress within the solution. We'll leave that open for another ten seconds or so. I'll go ahead and close that, kinda share the results. It looks like almost two thirds of you are using the your current solution and about a third of you are not. So we'll kinda talk about some of that as we go through. And then I'm gonna go ahead and launch one more quick polling question while we're here, and I'd like to know how often do you run your work in progress report. You know, do you prepare one monthly, quarterly, never, or some other cadence? And we'll give everyone about thirty seconds or so to answer that as well. Give it about another fifteen seconds or so. Seeing the votes coming in here. I'll give it about another five seconds. Alright. So it looks like about 56% of you are doing it monthly. I think that's a a really good cadence. I I like to think that if you're not doing it if you're doing any less frequently than monthly, it's probably not often enough. Some of you are doing it quarterly. That's certainly better than than the next choice, which is never. Or then certainly some are in that other category, which may you know, some may be more frequently than monthly, some may be less frequently. So, thank you all for sharing that, information. So we'll go ahead and now we'll jump back in, and let's get into, the the meat of the presentation here. Alright. So let's talk about the financial impact of work in progress. You know, why do we there's many reasons we prepare a WIP schedule, but, certainly, the the WIP has a big impact on our financials. I mean, I would say that it's very difficult or if not impossible to produce an accurate financial statement as a contractor if you don't have the over under billing accounted for, which is one of the big outputs results of the WIP process is you're going to determine the actual revenue recognized to date and determine the over under billing. You know, so we need to align the revenue recognition with the actual job progress. It's you know, the fact that I have billed or spent 50% of the budget or billed for 50% of the contract may have nothing to do with the percent of work that has actually been completed, and the whip process determines, you know, whether that project is over or under billed. If I, for example, have have, you know, spent 50% of the budget, but I've only done 40% of the work, and I've been termed billed for 50% of of the contract, but I've only done 40% of the work, I am overbilled. On you know, the opposite could be true if I've, you know, if I have billed and spent 50% of the contract or in the budget, but I've done 60% of the work, then I'm underbilled. But, you know, managing this this process and manage this manage this, like I said, ideally on a at least a monthly cadence is gonna help us identify problems before it's too late. It's gonna help us make proactive decisions. It's gonna help us prevent profit fade and the eroding of margins over time. We're gonna see things are off track before we get there. We'll we'll talk about some examples of that here in a minute and look at some examples. But, you know, the best example I can I can give is, you know, if if I have spent 50% of the budget and I only look at that and that alone and I confuse that 50% spent with 50% complete, and I think that's one of the, you know, one of the big no no's is never confuse percent spent with percent complete because how often are you going to spend exactly what you had budgeted? Probably very rarely if ever. So, therefore, assuming because you've spent 50% that that you have done 50% of the work is almost always, if not always, going to be inaccurate. And that's what we're gonna, you know, talk about today. How do we how do we forecast properly? How do we ask the right questions? How do we get the right answers? How do we get the whole story? These are all things that can be very difficult because it'd be easy for me as a project manager if you if I'm asked the question on my job, even knowing I've only done 40% of the work, but but I've already spent 50% of the budget, be easy for me to hide behind the fact that, well, I'm okay because I I've only spent half the budget. Well, when and when you're in reality, I'm not okay because I should be concerned that I've only accomplished 40% of the work, but I've already spent half of the budget, half of the hours, half of the dollars, you know, and or dollars, you know, but so that that's something that it's you know, you we gotta break through, and we have to encourage that communication and that real time job costing and the forecasting is that's where all this comes into play. And the end result is a work in progress schedule that's going to then tell us where we're headed based on where we're currently at. Certainly, the, you know, WIP can have an impact on cash flow. You know, certainly, we wanna make sure, you know, having an accurate WIP schedule, we wanna make sure that we are billing for at least the percentage of work that we've completed. Ideally, you know, I I would prefer to be in a slightly overbilled situation. You remember overbilling, couple things. One, we never confuse overbillings with profit. That you know, we we cannot do that. Two, overbilling is not a bad thing unless it's not managed properly, and I'll I'll say that again because it's so important. Overbilling can have a tremendous positive impact on cash flow, but it can be catastrophic if we don't manage it. If we in other words, if we if we confuse overbillings with profit, we confuse that money that that we build for and ultimately will collect as ours to spend when in reality, it is money we've been paid for in advance of work we have yet to do. So that's, you know, if you, you know, if you wonder, you know, what's the first thing the, you know, the somebody outside of your organization when they wanna see a a financial statement, what do they also wanna see? Corresponding whip schedule. Why? Because that's exactly what they're looking for. When the, you know, when the bonding agent, when the surety underwriter, when the banker, when they ask for your financials, you know, they're never gonna take the financials at face value without the corresponding whip schedule. And they're looking for those over under billing adjustments in the in the p and l and and the corresponding entries on the balance sheet. So they because they wanna make sure that we are managing the over under billings. That's the key. We we know it's never gonna be perfect, but we can perfect the management of that. So, you know and and the WIP flushes all this out and helps us identify future cost and future and future revenue. We may have been paid for work that we have yet to do overbilled. That's fine as long as we manage it properly. We may not have billed for work we already did underbilled. Once again, ideally for cash flow, that's not a good position you wanna find yourself in, but it is it is a reality sometimes. It happens, you know, from month to month, and we but we as long as we identify that and we adjust the revenue on the p and l side and and the corresponding entry for on the on the balance sheet, you know, we're gonna be able to manage that. And, you know, overbilling, you know, overbilling is a liability. Underbilling is an asset. So, you know, the the overbilling, we we have billed and ultimately paid for work we haven't done. So we have the liability out there to go complete work that we've already been paid for. Underbilling, we're going to get paid for work that we've already done. So we have a future asset, and we're gonna get paid for work that that we've already completed. So we've already spent the money, but we haven't we haven't billed and collected for it yet. You know, as and, you know, if you just look at it and, you know, kinda go through this, but, you know, overbilling, we're billing ahead of work completed. We bill for 50%, but we've only done 40%. And as I said, and it's worth repeating multiple times here, if managed properly, overbilling can certainly have a positive impact on cash flow. We're gonna get paid for work that we haven't done yet. And we know that the cash flow challenges we all face. You know, every every job, you know, starts in a negative cash position. We're spending money before money is coming in. So being overbilled, if properly managed, is not a bad thing. But the the problem is if it's unmanaged, it can be problematic because you will if you confuse overbillings with profit and you therefore think I have money in the bank, so it must be mine to spend, you're not gonna have the cash to fund the remaining work. That's why we must have a healthy balance sheet that supports that we recognize that liability. We have that cash on hand to do the work that we've already billed for. Underbilling, as I mentioned, that occurs when we when we bill for less than what was completed. You know, once again, it's not necessarily a bad thing, but it's really a negative drain on our cash flow. So if I've already done 50% of the work and spent 50% of the budget, but I only build for 40%, guess what? I'm I'm helping contribute to that negative cash flow. I'm helping fund the job. And, you know, the sooner we get out of a negative cash position into a positive position where we're no longer funding the job or part of the job, the better. So that's something we wanna be aware for. There's there would be no, you know, typically no legitimate reason that if I've done 50% of the work, I'm not entitled to bill for 50% of the work. Yeah. We launched the poll, and we and we, you know, we saw some various answers. You know? I think, you you know, the the answers I don't like to see, one is never. I think this is a is a great practice. It's a great tool. And and and one thing to keep in mind, a lot of times, you know, because I've been doing this, you know, as I mentioned, thirty five plus years, and I'll ask people. And a lot of times, you know, it'll be, well, I don't do it at all or I only do it when somebody asks me for it. So okay. Well, I I get it. You, you know, maybe you want to get a you need to get a bond on the job or you need to get your bonding capacity raised and the surety underwriter or the bonding agent is asking you for a work in progress schedule. So I'm gonna scramble to put one together. Or you go to the bank and you're you need to get a loan to buy a piece of equipment or you're looking to increase your line of credit or establish a line of credit. And what's the first thing the bank wants to do? They wanna see your financials and the corresponding work in progress schedule. So, okay, it's required now because somebody's asking you for it. But the the main reason you should be doing this whole WIP process is because it's the it's a great tool to help you manage your business. Forget about the other people that may want that report. You're gonna have it for them when they need when when you're asked for it because you are preparing it for yourself. So think about why you're doing it, and the reason shouldn't be because someone asked me to do it. It should be because this is a great tool to help me see where I'm at and where I'm going based on that information. So, you know, it it when when you and I've seen that in my years when I when I get a contractor to to change their mindset and all of a sudden they're like, okay. I'm not doing this because I'm required to or because somebody's asking me for it. I'm doing it because it benefits me in my business and the management of my business. So, yes, then when when they ask for it, I have it. It's it's no big deal to to provide it to them because I'm already doing it for myself. So if you that one little simple change in the way you look at things can can give you, I think, all the incentive in the world to do this on a monthly basis, maybe even more. You know, I have I have some that do it biweekly or even weekly, but I think, you know, I think most would agree monthly is a really good cadence. You're typically preparing a financial statement monthly. I can't prepare a financial if I don't have a web schedule. I don't do the over under billing adjustments. So it's just something to think about. I mean, there could be reasons where quarterly, maybe you're only preparing financials quarterly, so maybe quarterly would be be okay. But I think, you know, if I if I pulled all the contractors that I work with, the vast majority would be doing it would be doing it on a monthly basis. Yeah. So what are some of the challenges we face in the in the WIP management? And I think the you know, one, it's, you know, data accuracy and consistency. I think that's you know, we need to have a good job cost accounting solution such as Computerease. It's, you know, why and this, you know, certainly, this is not a a knock on some of the, what I'll call, generic accounting solutions. But, you know, a generic accounting solution, you know, typically is not going to have, you know, such as QuickBooks, typically not gonna have strong job costing, certainly not gonna have WIP forecasting and and WIP, report management, you know, built into the solution. So some of the, you know, the the data accuracy and consistency can can be difficult because you end up doing it in in Excel. So if you're, you know, you're preparing your WIP schedule outside of your accounting job costing solution, right away, I I would I would say you're gonna have data accuracy problems and you're gonna have consistency problems. You know? And you're gonna have trouble reconciling it back to your job costing because, one, it's not coming from the same place. So I think that can be certainly, you know, a challenge. You know, limited visibility into the real time job cost, into the real time progress on a job. So, you know, one, we gotta it's gotta start we gotta have real time job cost. And for, you know, I know I shared, you know, my background in thirty five plus years, and the definition it's one thing I talk talk about quite often with contractors. The definition of real time job costing has changed. You know, when when I started in construction, real time to us meant after we gathered time on, say, Monday or Tuesday for the week before because remember, there was no, you know, remote tools in the field where people could turn in time. They're either manually filling out time sheets, calling in time. You know, at some point when we had a maybe a a a big enough job or we had a a job trailer in a in a landline with a fax machine, when fax machines were introduced, we could and, yes, I was doing this before fax machines were introduced, believe it or not. You know, we could actually fax the time in, but all of that took time. And we had to gather all the time. We had to enter it into our system. We had to process payroll, and then we had to post it. And at that time, job cost was real time. It was as real time as we could get. But in reality, it was a week and a half old. I mean, I'm I'm getting payroll processed and posted on Wednesday of this week, and it's and it it includes time from Monday of last week, ten days ago, nine days ago. So but today, you know, if you have a good strong job cost accounting solution and corresponding, you know, field tools, time app to be able to you should be collecting time daily. That time should be coming in daily. It should be visible And your job cost report is pending payroll cost. Those those people work today. My crew work today. I'm committed. It's no different than writing a purchase order, and, you know, we'll talk a little bit more about committed cost in a minute. But, you know, same way when I you know, a purchase order subcontract agreement should be showing on your job cost report, so should labor in real time. So that way I can get a job cost report today that includes today's labor even though that won't be paid until sometime next week. You know? And then certainly not having visibility in into all this. I mean, we need to you know, there's no reason today that everybody shouldn't be on the same page. It's not accounting versus project management versus field, you know, personnel versus ownership. We're all on the same team. We're all after the same goal, and, you know, so we all need to have visibility into this data in real time. And once again, with a solution like Computerease, we give you the ability to share that information and collaborate, you know, amongst the teams. We need to do a good job of forecasting. You know, that that the you know, when you think about WIP, there there are, you know, five key components to WIP. It's the, you know, the the contract amount, the budget, cost to date, and bill to date. And those first four things, if we have a good system, should be very simple. We we know what we you know, we we did a takeoff. We did an estimate. We marked it up. We we had a sale price. We got a we got a signed contract. So I know the contract and the budget. I know my original estimated profit. We have a good job cost accounting solution. We should know our real time cost to date, and and we should know our real time build to date. There's only one other variable, and it's very, very crucial in in the forecasting, and that's what have we done for what we've spent? What is the cost to complete? We're gonna look at some examples of that here in a minute. But and there's a couple different ways to get it. We'll talk about the different ways we can get there. But that's the key forecasting component is, I know I've spent 50% of the budget, but how much work have I done? Either what percent of my of work have I done? How much work do I have left to do? Or if I have a measurable unit, and we'll talk about all three of those, you know, options here, shortly, you know, if I have a measurable unit, how many units have I completed, and I can let that derive the percent complete. You know, we need to make sure that we are aligned with the rest of our financial components or financial reports. I've seen people go through all the trouble and prepare a great work in progress schedule, and then they don't make the financial entries for the over under billing. Well, now we're we're now the two are they're they're misaligned. And, you know, sometimes, once again, without the right tool, it can be a resource constraint. I mean, if you're having to do all this manually, and I say manually today, typically means doing it in Excel, but you're you're disconnected from your from your job cost accounting solution, it's gonna take more time and effort and resources than it would be if you had a solution that would that can do this for you. So what are some of the strategies we can use to manage WIP effectively? You know, one, you know, we need to come up with that cadence. You know, what's what's our update and review of WIP schedules going to look like? You know, we need to make sure that we align billing with the the progress on the job. If I'm 50% complete for this billing cycle, let's make sure when we prepare this billing cycle's invoice that it's going to be get us up to 50% complete or more, ideally, if we can be slightly overbilled. You know, use technology. Use tools like Computease where your job cost accounting solution includes the whole WIP management process. Streamline the collaboration between the teams. This is one thing and and I you know, when I started in construction, I didn't know any better. I just thought, well, this was, you know, this this seemed like it was us versus them. We had project management down one end of the hall and accounting at the other end of the hall. And it was like, well, why are they bugging us for this information? And why are they why aren't they giving us this information? And, you know, it took me a little while to figure out, boy, aren't we after the same thing here? And and, eventually, I figured that out, and we figured out a way to better collaborate internally between the teams. It's not an us versus them. If you if you're, you know, if you're on the accounting side of the house, you'll understand, but yet you you know that the you know, what the project managers and the field personnel are doing. But at the same time, I gotta work with them to get the information that I need, you know, to put together the WIP schedule. If you're on the project management side of the house, you know, understand that accounting is not doing this to aggravate you. They're working with you to make sure that we can collaborate and come up with the the right information and the, you know, the current information that's gonna help all of us. You know, make sure you have a good process in place to to track the the variances. I mean, it's it's one thing to put projections out there, but if you don't have a baseline or something to track it against, then what you know, I if I'm just seeing projections go up and down from month to month with without any way of of comparing it to a prior point in time. Typically, I'm comparing this month to the previous month. And if something had a wide swing one way or the other, I'm gonna go and make sure that I look into that job first. I'm gonna drill down into the details and find out, well, why did this job have a have a big swing? Certainly, you know, all this is gonna help you with your cash flow forecasting. And, really, you know, we want the whole team to buy into this. If your entire organization and there was a number of people answered. They never put together a WIP schedule. Well, the first thing we need to do is we need to get everybody on board with the why. Why are we doing this? Why is this important? How does this impact us? How does this help us as a company? And when everybody understands why we're doing this and if we're not doing it just so we can aggravate each other. We're doing it because it's what we need. It's a tremendous tool to evaluate where we're at. I mean, it's the one chance you get to literally see where you're going, where you're going to end up based on before you get there. Now things can change, but you certainly have a good idea if you've already spent half the money, but you've only done 40 of the work. You have a good idea that at that pace, we're going to be over budget. I don't wanna wait until the job's over, add it all up, and find out we're over budget. I mean, certainly, the that information is relevant then too, but guess what? I have no chance to go back and do anything about it. And that's what this is all about. Give me the information so that I can use it, and that's where the collaboration and communication is critical. And and as as I that example I gave before, it's real easy for me not to share that information. I don't think any of us likes to share bad information. It's much easier to share good information. So when you ask me how we're doing, if you'll accept the fact that I say, we're we're doing okay. I've only spent half the budget. If you'll let it go with that, even if I know I've only done 40% of the work, in my mind, I'm thinking I'm gonna make that up, but they're not gonna push me. But it's my job to push for more. I need to push for, okay. That's great, John. I know you've done I know you spent 50% of the budget. I can see that on our job cost report. I need to know how much work you've done. And that's the key piece of information that we're looking for. And that that makes all this work. And it's it's okay to share bad information. That we need to build that culture into our organizations. We've all any of us that have been in construction any amount of time, no. It's not a you know, every every job will not go exactly as we plan. But the sooner we talk about the problems and the challenges, we we identify potential budget overruns that are that may be coming based on what we've done so far, the better chance we have to to, you know, take corrective action. And but if we if we don't share that information, if we don't collaborate and we don't talk about that, you know, it's gonna be too late once we find out. Certainly, the schedule of values, you know, has you know, plays a part in the WIP and certainly the the the billing and the, you know, over or under billing. You know, schedule values for for those of you who are billing on a progress schedule is, you know, breakdown of your contract by billable work items. There are many different formats. You know, there's a standard, you know, AIA format such as, you know, the AIA g seven zero two, g seven zero three. There's very similar billing forms, like that. But at the end of the day, it's gonna show the total value and the work completed and billed for each line item on the project. When you're building that schedule of values, you know, you wanna think about how you how you weight the the schedule values. And ideally, you know, I wanna put a little more weight maybe on the things that are gonna be done on the front end because then I can get paid for those, reverses that, you know, sooner rather than later. So just, you know, don't just haphazardly throw together a schedule of values. Think about that. And, you know, I don't wanna I don't wanna overweight something that's gonna be at the end of the job where it where it has, you know, more than its share of the profit tied up in an activity that I'm not gonna be able to to bill or get paid for until the very end. So just something to think about when you're building those schedule schedule values. I mean, at at the end of the day, you know, it drives the, you know, the amount we bill for each project, and it certainly has an impact on the over under billing. And as I you know, so there to me, there really is an art to building a cash flow friendly schedule values. You know, you can, you know, you can build one that's so out of whack that it won't get approved. You know, you can build one that is you know, maybe you you put the thumb on the scale a little bit heavier on certain items because I know those are gonna be completed before some other items. So, you know, think about that, and don't don't treat that just as throwing some numbers on a page to to, you know, check a box and build a schedule of values. It really is strategy, and and it really is, you know, an art to building a proper schedule of values. So we talked a little bit about how we get to that projected cost. As I mentioned, you know, we're gonna talk about those, you know, the five components of WIP, but most importantly, we're gonna talk about that key variable, the fifth component, which is the the cost to complete. And so I mentioned there's gonna be three ways we can get to, you know, the the amount of work we've done. One, you know, percent complete. You know, maybe we don't have a measurable unit and, you know, taking a look at the item and saying, I think we're about 40% done is gonna be better than saying, I don't know or certainly better than assuming percent spent is percent complete. So, you know, in and I, you know, I talked about this before, but, you know, it's really important that you're asking the right question and getting the full answer. Like I said, if I say how we doing, what I really wanna know is what we spent, which I should already know, and how much work we've done for what we've spent. But sometimes that's misinterpreted and somebody just says, yeah. We're okay. We we still got half the budget to go. Well, that wasn't really the answer I was looking for, and maybe I didn't fully explain the question. So I wanna ask it in such a way. Okay. John, I see that we've spent 50% of the budget. How much work have we completed for the amount that we've spent? That's what I'm looking for. So, you know, in this example here, you know, if I were to look at this this example on this work in progress schedule, you know, we can see there that, you know, for that on that first job as an example, I've spent half the budget. I've spent 50 of the $100,000, you know, so and I have and I have billed for 50% of that. But what if I'm only 40% done? You know, if I go over there and look at the the percent complete column, I've only done 40% of the work. So guess what? The remaining 60% is going to cost me $75,000 estimated cost remaining. If I spent 50,000 to do 40% of the work at that pace, I will spend 75% to do the remaining 60%. So, therefore, you know, the the final profit is now going to be zero where originally I was I was expected to make $25,000 on that job. I'm now not going to make anything because my revised estimate is showing at this pace, we're gonna spend a $125,000. And, you know, in this example, we've already billed for half of the contract, $62.05 of 125, But if I'm only 40% done, guess what? I'm only entitled to recognize $50,000 in revenue. Therefore, I'm 12,500 over billed. So just, you know, asking the right question, getting understanding that even though I've spent 50%, I've only done 40% of the work is gonna give you the right the right information. I mean, you know, and that that's what we need to tell the system. We need to tell it that we're 40% done. And in this example, we'll look at some of the other methods here in a minute. But, you know, if I tell it 40%, the rest is all just math. You know, cost to date, I know it's 50%. Well, the math says if you if if you only did 40% of the work for $50,000, it will take you $75,000 to to complete the job. And and also, you know, as as I said, it's also gonna do the calculation. Once again, just a mathematical formula. Well, for 40% done on a $125,000 contract, we're entitled to recognize $50,000 or 40% of that is revenue. We've already billed $62.05. Therefore, I'm 12,500 overbilled. So that overbilled is not a bad thing, but I need to make the appropriate financial entries to record you reduce revenue by twelve five and show that as a as a liability on the balance sheet. You know, the the second method, if you have a measurable unit, you know, we can certainly look at that. So for example, maybe you have a 100, you know, light fixtures to install, and we've done 50 of them. We could assume based on that if that if that is representative of what it's gonna take, that we're 50% done. But what if we've already spent 80% of the budget? Once again, we're not over budget yet, but this will highlight and show us a problem. So we wanna track the unit's complete. So, you know, based on dollars spent here, we're 57% complete. We've spent $16 against the $28,000 budget. But what if we're actually tracking the units and we've done, you know, we've done 800 of the, you know, the excavation units. We've done 600, square feet of the form work, and we've poured, you know, 200 or 20% of the of the concrete. Well, then the system is gonna say, okay. Based on that, what percentage? And and in total here, we're 51% instead of 57%. I've already spent 57%, so I'm projecting a cost overrun in total of a little over $3. But notice here, in this example, actually, one line item, I'm expected to to come under budget, but the other two, I'm expected to come over. And in total, I'm expected to be over by about $3. And if I go back and run the work in progress report using the projections, the reality is we're 51% done. So our revised estimate is no is up from $28.07 50 to $31.07 70. Our final profit has been you know, projected profit has been reduced, and we are underbilled by, you know, a little a little over $18,000. So, you know, there there's a big difference when you look at the report with the with the actual numbers than just assuming percent spent is percent complete. And then the third method is, you know, maybe I don't have a measurable unit. Maybe it's really hard to look and say, I think I'm 40% done with this task on a job. And keep in mind, we're talking at the you know, we're talking, you know, typically, we're doing this at the task level within the job. You know, for today's presentation, we're talking about it as if it's just one, you know, one one the the job as a whole. But each line item is when we looked at that the example before, we had excavation, we had form work, we had concrete pour, all individual components within the job as a whole. And and in this case, yeah, I'm looking at a task, and I don't really it's really hard for me to eyeball it and and and project what percent we are complete, But I know what I need to finish the job. I know I got an additional $500 of material that I haven't committed to buy or haven't bought yet, and I know I need x number of labor hours. So I can then say, okay. I know what I spent to date because I've got a good job costing solution. I'm giving you my estimated cost to finish, and the sum of those two is my revised estimate. So once again, I can look at a job here, and initially, when we're looking at this, we're saying, okay. We have spent 58% of the budget, seventeen five of the $30,000 budget. Is it really 58 percent complete? Well, I'm gonna come in and say, well, based on what I know, you know, additional labor materials, subcontract equipment cost, I need $7,000 to finish the form work, and I need 7,500 to finish the concrete pour. So it's then going to project out and tell me that, okay. We're now projecting a $2,000 cost overrun. So when I come back and look, we're actually only 55% complete. And I know, you know, you might say there's not a big difference between fifty eight and fifty five. I would argue that with the thin margins, a lot of times we're working off of that. That's a that's a huge difference, and I need to be able to I need to be able to manage that. So once again, you know, now that I I've I've put in my cost projections, I know I'm only 55% complete. We're now forecasting a final profit of only 4,000 versus the original 6,000, and my underbilling is updated as well. So I know there's you know, we're we're covering these at a at a at a very high level, but these these concepts are, I think, so important, and they're it's it's just that one extra piece of information. Like I said, if you think about what WIP is all about, there's five components. You already I know you have the first four. I I I you have the you know what you sold the job for. You know what your budget is, you know, what your estimate was. I hope you have a good job cost solution. If not, certainly, we can you know, with ComputeRees, we can help you with that. Then your job cost accounting solution is gonna, you know, give you real time cost and build to date. So you've got those four components. Once you have that, I only need one additional piece of information. How much work have I done, or how much do I have left to do? And either way, it's gonna get us to that revised estimate, which drives the entire WIP calculation. So while it it may seem complicated and cumbersome to do, at the end of the day, it's really not. It's just putting together a good process and putting together a workflow and getting everybody collaborating on, you know, on on you know, throughout this process. So as I mentioned, you know, there's really three, you know, methods you can you know, units complete, percent complete, and cost to finish. You know? So units complete is, you know, I have a measurable unit. I know how many I've done and use that as the percent complete. No measurable unit, I can look at it and, you know, and and identify or get a feel that I'm x percent complete. And then there's the cost to finish. Well, okay. I don't I'm not really sure, but I know I know what it's gonna take me to finish, so I'm gonna calculate that. These are there's no right or wrong answer. These can be interchangeable. I may start on the one task on a job. I may early on, the job may be easier to just estimate the percent complete. As we get closer to the end, it may be it it may be easier or more accurate to say, well, I know we need $10,000 to finish. All of these are significantly more accurate and better than just comparing estimated cost to actual cost or or, you know, percent spent. You know, we what we don't wanna do is assume percent spent equals percent complete. If you have a a 100 k budget on a task or on a job and you've spent 50%, probably your worst assumption would be that you're 50% complete because I'll, you know, I'll I'll ask you to ask yourselves, how many times do you do a job for exactly what you estimated it would cost? And the answer is probably never. And, you know, sometimes over, sometimes under, hopefully under. But so assuming that percent spent is percent complete is almost always, if not always, going to be inaccurate because the odds are against you that, you know, against you spending exactly a $100,000 if that was your budget. You're likely to spend more or less, hopefully less. And, you know but if more, I the sooner I know that, the better. Don't wait until I cross the $100,000 threshold to know that I'm over budget. I should see that coming long before I get there. And so what are the some of the common WIP mistakes we see that, you know, we don't compare the difference? You know, look between the difference between then and now. So let's say maybe, you know, you're getting projections in. You're just go you're just starting to get a good whip process in place, and you're looking at this month, but you're not comparing it to anything you you have no baseline to compare it to. You're not comparing it to the month prior. So it's really important that we we're able to look at and compare, say, this period, the current period, to any prior period, and you define current and prior. But for me, if I'm doing WIP on a monthly basis, when I do this month's WIP, I'm comparing it to last month's WIP. I'm looking for the gain or fade in estimated cost and profit. Certainly, the the reason the contract amount is in there, change orders can certainly have an impact on this. But in this case, there were no contract changes. You know, I had, you know, I had two jobs here, job number, you know, job m one. My estimated cost went up $25,000 between last month and this month. I hope that's not accurate, but it very well may be. But that's the red flag that says, okay. I wanna know why we're projecting to spend 25,000 more on that job than we were projecting a month ago. And in job three, we're projecting to spend 2,000 more. So, you know, if you have a list of jobs, you wanna start with the jobs that had the biggest variance. And I wanna go in. There should be a reasonable explanation. There's no reason I shouldn't be able to sit down with the project manager for for job one and say, why did our estimated cost go up by 25 our projected cost go up by $25,000 between last month's projections and this month. And there should be there there needs to be a good answer behind that. And if you don't have any to compare that to, I could just give you numbers to to answer the question. I'm not really answering it accurately, I'm just gonna throw some numbers out there because you asked me for something and not really you know? But if I know you're gonna hold me accountable to that and this is how you hold those accountable that are giving you those projections, I'm gonna come back and, you know, I I gotta be prepared to answer that question and tell you why I'm now telling you this month that I expect to spend $25 more than I told you last month. You know, as I said, you know, some of the, you know, the common mistakes we see over and over is, you know, once again, you know, we're using, you know, the the percent spent as the percent complete. You know, cost incurred often has nothing to do with to how far along we are. You know, we can fall under that false assumption that everything is on track. You know, I can say, well, I still have budget to spend, so therefore, I must be okay. When in reality, even though I'm not there yet, it certainly appears I have no chance of hitting that budget. And, you know, we we just don't have a full picture of where the job stands if we only look at what we've spent. We have to look at what we've done for what we've spent. So, you know, really, we wanna make sure that we are using one of those methods or some combination of those methods to determine the amount of work we've done for the amount of of budget that we have spent. As I mentioned earlier, one of the one of the mistakes I see, unfortunately, is we'll go through all this. We'll put together a great WIP schedule, and then we don't make the corresponding adjustments on the financials. Well, now our financials are wrong. They're not in they're not in sync. They're not in tune with our with our work in progress schedule. You know, we, you know, the we cannot properly recognize revenue if we don't have those profit projections and do the corresponding financial entries. I mean, our our financials are always going to be wrong. So, you know, that that's one of the reasons that that people won't just take the financials at face value for a contractor. They need to see the corresponding WIP schedule because that tells the whole story. The financials without the WIP, you're only telling part of the story. I'm telling you what I build. I'm treating it all as revenue, but I'm not sharing with you the detail and, you know, and I'm not accounting for the over under billing. So, you know, really, all this is fairly simple to do if you have the right tool. You know, there's you know, you can do everything we talked about here today. You can do it all, quote, unquote, manually using Excel. You can have it disconnected from your accounting job costing solution. You know? But I think to me, you know, I certainly recommend that people get a tool that's built for your business. Or you know? And that's why the generic accounting tools, they're not they're not gonna have a WIP schedule built into their solution because, you know, there's a a whole lot of businesses would have no idea what we're talking about when putting together, the WIP schedule. In construction, it's it's critical. It's what we need to be doing. And like I said, if you remember one thing, remember, the WIP schedule is for you, not for the person that's asking you for it. I know people outside are asking you to put together a WIP schedule. That's great, and you wanna be able to provide it quickly and easily for them when they ask for it. But you need to do it because it's a great way to manage your business and make sure that you can start making proactive decisions. You're looking forward instead of backwards, and you see where you're going before you get there. So we have the WIP report. What do we do with it? That's that's certainly the, you know, the as we talked about, the the key is make sure we make the over under billing entries on the financial on the financials, the p and l on the balance sheet. Make sure that we have we have to do that on a regular cadence. It has to be real time. You know, that's why I think the you know, you tie that cadence if monthly I'm producing financials and a WIP schedule. And once again, it it needs to be quote, unquote real time. I don't wanna wait till the middle of the the next month to prepare the WIP adjustments for the prior month. It should be done, you know, in real time at the end of the month. But it's what it's what the, you know, the surety, the banking, others outside our organizations, what they're looking for. They're looking for the corresponding entries for over under billing on the p and l on the balance sheet. They wanna make sure you have a healthy balance sheet to support, you know, to support the business. They wanna make sure you're not confusing overbillings with profit. You have that accounted for. You have that liability recognized, and that's gonna give them the confidence that they need to get you a bond on a job, increase your bonding capacity, get you a line of credit, get you a loan to for a new vehicle, new piece of equipment, whatever it may be. That's what that's what you wanna give them confidence, and the confidence comes when you say, here's my financials and the corresponding WIP schedule. They don't even have to ask you for it. You should be offering that as a corresponding, you know, schedule to go along with the financials. As we looked at that, you know, analysis report a couple screens ago, you know, we wanna make sure that we're able to compare from one period to another. Wanna make sure that we're looking for the underbilling and the overbilling. Wanna make sure we can drill down into our job cost reports. Wanna make sure that we're looking at the, you know, actual versus budgeted cost, making sure that we build properly. You know, we wanna review the status of change orders. Keep in mind, change orders certainly can have an impact, and they certainly play a part in the in in the work in progress schedule. And, you know, I'll get people ask me all the time, well, how do I handle change orders? I've already done some, if not most or all of the work, but I haven't got the final signed change order yet, so I can't bill for it yet. Well, that that is that's a great question. And, you know, in in computer reads, once again, because we're built with this in mind, built for this industry, you you have the ability to assign a change order to the WIP calculation even before it's finalized. So, you know, it's kinda becomes a pending change order that you've you know, you have a verbal approval on. You've already incurred some, if not all, the cost. You still have the final document. You you have the ability to treat that as if it's a signed change order, all the while keeping track of the fact that you don't have the signed change order because, ultimately, I've gotta get that signed document. You know, certainly, backlog is something that would that is talked about in in in this process in general that, you know, backlog is the, you know, the amount of work you have under contract that has not been billed for yet. Once again, the the the WIP certainly can spell that out very, you know, quickly and easily. You have your contract amount, your build to date, and the the the difference between the two is is your backlog. That's something that, as a contractor, we wanna make sure we maintain a healthy backlog, you know, and that, you know, we have a, you know, a a a certain dollar amount we're gonna look for. One of the things that the the surety world looks at a lot of times is the you know, is that backlog and the movement of that backlog, you know, and they're, you know, they're gonna make sure they're not gonna let you get overextended by, you know, giving you the ability, you know, the bond capacity to, you know, to get your backlog to an unmanageable point. So, you know, it related to all this is certainly the backlog, and the backlog is simply what do we have under contract that we have not yet billed for. And we should be, you know, working off of that backlog and, you know, that's going down, you know, over the months as we bill for work, and then certainly it goes up as we add new contract at work through the schedule. Alright. So we, you know, talked a little bit about, you know, the you know, how we're doing those forecasts in ComputeRees. As I said, there's really three key methods that we use in ComputeRees, the percent complete, the units complete, the cost to finish. You know, once again, there is no, you know, right or wrong answer as far as what the you know, which one is the preferred method. As I mentioned, there's even, you know, the ability to interchange these throughout the life of the job. But remember, any one of these three or some combination of these three is gonna be always be more accurate than just assuming percent spent equals percent complete. So I know we got a lot of questions that have come in, so I'm gonna go ahead and jump into some of the questions here. While we do that, I am gonna go ahead and launch real quick one last polling question. If you'd like to be contacted to you know, if you're not already using ComputeRees or even if you are using ComputeRees, if you, you know, wanna see how ComputeRees can help you with this process, you if you're not familiar with Computerease at all, we'd be more than happy to to talk about Computerease as a whole, especially the WIP process within. If you're currently using Computerease, we'd be more than happy to to share more detail about how you can, you know, improve your WIP process within, within Computery. So with that, I'm gonna go ahead and launch one last polling questionnaire. If you'd like to be contacted to learn more, please go ahead and check the yes box here in the, in the polling question. So if you'd like to be contacted to learn more, please check yes, and we'll be more than happy to follow-up. I'll go ahead and leave that poll open for about fifteen or twenty seconds here as we get into some of the some of the q and a here. So I got a lot of questions that came in. Where do I find the variance report in Computery? So that's a great question. Job cost under reports, it's the, the, you know, profit fade gain analysis report, I think or or the variance report. But it's under job cost under reports. Just looking through the questions here. We're currently on QuickBooks. We'd like to get some more information about Computery. So, yeah, that's great. We'll we will certainly reach out and and talk to you about that. So, yeah, please, I know there's a number of questions very similar. So if you checked yes in the polling question, and I'm gonna go ahead and close that poll real quick here, or to be contacted, or you put in a question about the, you know, moving from, QuickBooks to Computease or some other solution as I know it's a couple other questions come in, we will certainly reach out. So anybody has a questions about moving to Computease, would like to learn more, I see a couple pricing questions in here. We will certainly reach out, and and talk to you more about that. Is this software a full replacement to QuickBooks? Yes. So this would replace QuickBooks as a full, you know, full job cost accounting solution. So it's going to do everything QuickBooks can do for you plus all of this advanced job costing, work in progress, you know, reporting, and much, much more that, so, yeah, we're more than happy, and we'll reach out and and and talk to you about that in a little more detail. So once, once again, a great, great question. Looking at a couple other questions have come in here. We are a mechanical contractor. Wanna know if Computerease can help us with our job cost accounting and WIP reporting needs. So, yeah, absolutely. And that's, I didn't I didn't happen to mention that, but my background, my years in construction, we're working for a mechanical contractor. So, yeah, we certainly, while we're we're a good solution for, you know, for all all types of contractors, certainly, I can speak firsthand to how great, this will work for, you know, for, you know, for many of the trades, but specifically mechanical because that's my background. Do you have any advice for how we get better information on our forecasting? So that great question. One, I think it's important that we, you know, establish, you know, a culture where it's okay to collaborate. It's okay to talk about problems. Matter of fact, it's more it's more important that we talk about problems than we talk about how well we're doing. I mean, everybody wants to share good news. We all do. But we have to share the bad news. We have to talk about the problems, the potential problems, what we see. So I think if you you to me, that's the biggest thing. If we can if we can eliminate the communication issues, we can get to a place where we can where we can do that. Just look at some of the questions here. I'd like to get some more training on the WIP process. So, yeah, we'll certainly reach out and talk to you about that. Couple couple questions about cost, and the size of companies that that use computers. Yeah. We really you know, because computers are very configurable, so, you know, we can work with contractors of all sizes. So we'll we'll reach out and and talk a little bit more about your specific situation. But, certainly, this is not a this is not a tool that you have to be a, you know, an enterprise level contractor to be able to afford or to be able to use. So, you know, our our goal is to make sure we have an affordable solution for everybody in the industry regardless of size, and the system can be configured accordingly. We, let's see. We need to increase the project management communication with accounting. Should you have some ideas to bridge that gap? So that's a that is a great question, and that is a very, very, very popular challenge. So, one, I think to to me, you know, it's gotta start at the top. You know, it it needs to start from the top down. I need to get ownership involved, you know, senior management involved. And we need to all be at the table in the meeting. When we're having a production meeting, there should be project management and accounting personnel there. Not accounting is down the hall in the corner, and we'll we'll tell them what they need to know, when they need to know it. I think, you know, to me, let's get everybody at the table, and and let let's let's be able to work together. And I think that's a that's that's a great place to start. You can bridge the gap when you can bring everybody to the table and get them all participating in the discussion because everybody has relevant information to the discussion. I mean, accounting has very valuable data that they can share with, collaborate with project management on. But if we don't get them at the same in the same meeting at the same table so I always thought one of the things I always found to be very productive was, okay. We're all gonna be in this production meeting. The right representatives from accounting project management ownership, and we're gonna talk through these things and get everybody engaged in the process. And as soon as you do that, you know, you you start to break down some of those you start to bridge the gap, break down some of those barriers. Alright. Couple more questions on pricing. Once again, we'll follow-up on that. One last question here. We're looking at at implementing Computerease and moving off of QuickBooks. So what does that process look like, and how long does that typically take? So great question. You know, the typical process, you know, is gonna take anywhere from, you know, four, six to eight weeks just depending on, you know, your particular situation. But, you know, we we really customize that implementation to your specific company's needs. So we'll be more than happy to reach out and and discuss that with you. So, thanks for that question, and thanks to all for all the questions. It's just a quick reminder, the next session in our Construction Accounting University series is get paid faster with cash flow management. That'll be coming up here in September, September 22. You can always, you know, not only view today's content and all the previous content at our construction accounting university at deltek dot com slash c a u. Once again, if you have any questions at all, please email in to [email protected], and we'll be more than happy to respond. But, appreciate everybody taking time out of their busy day. We'll be following up with a with a number of you that either, you know, answered yes to the polling question and or had questions that we weren't able to get to or had specific pricing implementation questions or training questions. So thanks again. Hope everybody has a great day.