Maintaining profits and keeping jobs on track is not easy in the construction industry. Mechanical contractors are constantly balancing labor, equipment, materials, scheduling, subcontractors, and customer expectations across multiple projects at once. That’s why accurate, real-time Work in Progress (WIP) reports are essential for keeping projects running smoothly—and protecting your bottom line.
So, how does it all work? Let’s take a closer look at everything mechanical contractors need to know about WIP reporting and how it can help your business stay profitable and proactive.
What is Work in Progress?
Work in Progress (WIP) is an essential part of construction accounting. It calculates the progress of all ongoing work, allowing you to see what’s been completed and what’s left to do—helping you manage budgets more effectively. This information can then be used to generate reports and track project development using percentage complete figures.
For example, if a WIP report shows that an HVAC installation project is 30% complete but has already consumed 70% of its budget, there’s a strong chance the project will go over budget. This allows mechanical contractors to take a proactive approach to project management and address issues before profitability is impacted.
WIP reporting also helps create accurate financial statements by outlining exactly how much revenue should be recognized for each project. This information supports better decision-making across the business, especially when evaluating cash flow, project performance, and overall financial health.
How to Calculate Work in Progress
Calculating WIP allows you to determine whether a project has been overbilled or underbilled.
Overbilling
Overbilling occurs when you’ve billed for more work than has actually been completed. While this can improve short-term cash flow, it can also create financial risk if the remaining work costs more than expected to complete.
Underbilling
Underbilling occurs when contractors bill for less money than what has been earned based on the work completed to date. This can negatively impact cash flow and force your business to finance portions of the project out of pocket.
To calculate whether a project is over or underbilled, you’ll need to know the projected cost at completion, also known as the revised estimate.
The percentage of work completed is calculated by dividing actual costs to date by revised estimated costs.
Percent Complete = Actual Costs to Date Revised Estimated Costs
You can then calculate earned revenue by multiplying the percentage complete by the total contract amount.
Comparing earned revenue against the total billed to date helps determine whether the project is overbilled or underbilled.
What Should a WIP Report Include?
A WIP report should provide a clear snapshot of project performance and financial health. Generally, WIP reports should include:
- The total current value of the contract
- The total original estimated costs
- Revised estimated costs
- Total costs to date
- Revenue earned to date
- Amount billed to date
- Percentage complete
- Whether the project is currently overbilled or underbilled
For mechanical contractors, this visibility is especially important on projects involving long lead times, fluctuating material costs, change orders, or multiple project phases.
How Often Should You Run a WIP Report?
How often you run WIP reports depends on your business goals and project volume. Contractors managing several active projects may choose to run WIP reports weekly or bi-weekly, while others may review them monthly.
At a minimum, WIP reports should be updated monthly to support accurate financial statements and timely decision-making.
The key is using current, real-time data—not outdated information from weeks ago. Running company-wide WIP reports alongside project-specific reports gives you greater visibility into both overall business performance and individual project health.
WIP Calculation Methods
The most important part of a WIP report is the projected cost, which is used to calculate the percent complete. Since the percentage of budget spent rarely equals the actual percentage of work completed, many contractors use additional methods to determine projected costs more accurately.
Here are the three most common WIP calculation methods:
1. Percentage Complete Method
Track progress using the estimated percentage complete to calculate the revised total estimated cost.
2. Units Complete Method
Compare completed units against the total units budgeted to determine the percentage complete.
For mechanical contractors, this could include completed duct runs, installed HVAC units, piping systems, or completed service phases.
3. Cost-to-Finish Method
Add the total costs spent to date to the estimated remaining cost to finish the project.
This method is especially useful when labor productivity, material pricing, or equipment costs fluctuate during the project lifecycle.
Common WIP Report Mistakes to Avoid
WIP reports are only valuable when they are accurate and consistently maintained. Simply comparing costs spent to date against the original budget does not always provide a complete picture of project performance.
For example, a project may appear healthy because only 60% of the budget has been spent. However, the work itself may only be 40% complete due to labor inefficiencies, equipment delays, or rising material costs.
Using multiple WIP calculation methods helps mechanical contractors identify issues early and make adjustments before profitability is impacted.
Here are some common WIP mistakes to avoid:
Not Tracking Committed Costs
Committed costs include labor that has been performed but not yet processed through payroll, purchase orders for HVAC equipment or materials, and subcontractor agreements that have not yet been invoiced.
If these costs are not tracked accurately, the WIP report may overstate profitability.
Entering Incorrect Data
Even small data entry mistakes can significantly impact WIP calculations and financial reporting accuracy.
Not Running WIP Reports Frequently Enough
WIP reports should be reviewed regularly to ensure projects remain on track. Waiting too long between reviews can make it difficult to correct budget overruns before they become major issues.
Treating Overbilling as Profit
Overbilling is not profit—it is cash flow intended to fund future scheduled work. Spending those funds too early can create major financial strain later in the project.
Failing to Link WIP Reports with Financial Statements
WIP reports should tie directly into your profit and loss statements and balance sheet to provide a complete and accurate picture of business performance.
Delayed Expense Tracking
Tracking labor, equipment, subcontractor, and material expenses in real time creates more accurate WIP reports. Delayed entries can create the illusion of profitability while major expenses are still outstanding.
Construction Accounting Software and Training
As your mechanical contracting business grows, construction accounting software can help you proactively manage jobs, maintain cash flow visibility, improve forecasting accuracy, and stay compliant.
Solutions like Deltek ComputerEase help contractors streamline WIP reporting, track committed costs, monitor labor productivity, and improve project profitability.
Free construction accounting training is also available through Construction Accounting University.
