As a Trusted Advisor and Consultant to the construction industry I am privileged to work with some of the finest folks I have ever known. I meet Men and Women that are building great companies and as they grow, the demands of their time and energies are spread thinner and thinner. Things slip through the crack and information is delivered in a haphazard and undisciplined manner making it hard, and in many instances impossible, to make informed and decisive decisions.
When performing Organizational Assessments for companies I find two areas that are directly tied to a company’s profitability and organizational efficiency but overlooked as being either irrelevant or misunderstood and include:
- Work In Progress Reporting (WIP) and How To Prepare and maintain a WIP
- Labor Burden Rates and How to Accurately Calculate the Burden
The good news is that these concepts are easy to understand and incorporate into your business with the right tools and having someone walk you through the process. Once you understand the concept you will be able to accurately understand and monitor these two vital financial realities that affect the bottom line.
This article will address WIP reporting. As a business owner you have an ethical responsibility to plan and manage the resources you touch each day in conducting business. That responsibility is known as Stewardship. It is impossible to effectively manage and make informed economic decisions regarding jobs if you don’t know or cannot produce real time accurate job cost data for each of your projects.
I can’t overemphasize the importance of the WIP Report as a management tool. As a contracting business owner, I spent a minimum of an hour each Friday after the payroll and the weeks’ pay applications and or sub / vendor invoices has been posted to review the overall financial picture of our operation.
I would run the WIP report generated by our accounting system and use those numbers as well as my own data and numbers from my knowledge of the jobs and how they were “going OVERALL” and enter them in my own personal WIP Report in Excel. I have attached an Excel Spreadsheet of the report I used and would be glad to send you a copy of the excel file if you would like. It might appear simple but it has numerous formulas embedded in the spreadsheet and you can save a ton of time if you have an original. Just e-mail me at email@example.com and I’ll send it to you.
Keep in mind that at any one time my company might have had 20+ jobs in progress ranging from $75,000 to $7mill + and by “going OVERALL” I mean things like:
- Are there any apparent change orders from our company or the subs that are anticipated and are we going to be able to bill the owner for these changes or have to “eat” the costs?
- How is the budget and schedule looking compared to say “reality”?
- Who is managing the project and what is their historical record in keeping the budget and schedule intact at each stage of completion?
- Are there any Code or Inspection issues that could impact the cost of the project?
- From my personal experience, do I sense any undetected or unintended consequences that might have a cost impact on each project?
I would review each job’s performance in detail and manually enter changes to the values as I deemed necessary in my Excel based WIP. By doing this exercise I had intimate and firsthand knowledge of each job’s performance. I respected our Accounting department and trusted their numbers but keep in mind they were only looking at and entering data into the system that had hopefully been through some type of validation or approval process and was seldom recorded in real time. I wanted to see real data in real time and as the owner, the buck stops here. I wanted to evaluate and anticipate the financial condition of each job before we started back to work each Monday.
I would print out a copy of my WIP each week and carry it with me as I visited jobs (yes, as the owner, you have to get out and visit your jobs) and Clients and always had the confidence I knew the real financial condition of each job. I could anticipate problems before they became disasters and communicate both good and bad news, effectively with everyone involved in a project from the smallest sub to the Owner to the Bank or Surety Company.
I will tell you that, as the owner of your business, this is in my opinion the most important task you should complete each week. I don’t care if you are a small contractor / subcontractor or a large operation with a Controller. You absolutely positively must know where you are financially on every job at any time. This is not a task you can delegate. It is your responsibility as a leader and as a Steward of the resources you have been charged to manage.
Remember that knowledge is power – and in our world it more importantly builds respect and credibility from those whom you have a fiduciary relationship. Be a Good Steward. Micro Manage your WIP.
At The FlatRock Group we help companies grow their businesses by clearly defining their Core Values, Aligning their Operational Processes and Building Cohesive Teams. Call us today and start growing your business.
Kent Leighton firstname.lastname@example.org 830-201-0678
© 2014 The FlatRock Group