The Hidden Cost of Inaccurate WIP Reporting for Construction Firms

A process improvement manager at a water-tank fabrication and erection contractor remembers the moment his controller got asked how a job was doing. The answer: “Well, we find out at the end.”

That’s not a rare admission. Nine out of ten construction projects run over budget, and only about 3 in 10 come in within 10% of their original number, according to a KPMG survey cited by Autodesk Construction Cloud. On calls with contractor CFOs and finance leads, the same pattern comes up without prompting. A finance lead at a union electrical contractor running roughly 500 jobs at once rebuilds cost-to-complete by hand, in Excel, for every job, every month. “I essentially run a new cost to complete for every single job every month,” he said. He’s stopped trusting his own PMs’ numbers too: when a projection comes in lower than expected, he takes the higher number, because he can’t verify what’s underneath it. At a roughly $60 million mechanical contractor, the CFO hand-builds WIP schedules every week and distributes them to PMs out of an Excel job folder on SharePoint.

The blind spot that shows up more than any other isn’t the lag. It’s burden and fringes. As that same mechanical contractor’s CFO put it: “We have their labor budget, but the burden and fringes are split out. So our cost on our labor is way under, and then you’ve got to add the burden and fringes back in.” For union contractors especially, labor looks profitable right up until the fringe math lands, and a WIP schedule that isn’t tracking fully burdened labor cost is telling a story that isn’t true yet.

The gap shows up in a few other predictable places too. Labor and material costs get entered days or weeks after they hit the job, so the actual cost to date figure is always behind reality. One $14 million mechanical contractor didn’t know whether a job was profitable until 45 days after it wrapped, across 23 active jobs running at once. Change orders get priced and approved in one system, or one inbox, and job cost in another, so the budget a CFO is looking at doesn’t reflect commitments the field already made.

Estimating errors compound the problem. Roughly a third of construction cost overruns trace back to errors in the original estimate, according to research cited by Project Control Academy. An imperfect estimate is manageable if the drift gets caught early and adjusted for. It becomes a real problem when the WIP report that’s supposed to catch it is itself running weeks behind the job. There’s an accounting stake here too, not just a cash flow one: most contractors recognize revenue on a percentage of completion basis, and that percentage comes straight out of the WIP schedule. If the underlying numbers are off, the margin reported to ownership and the bank is off too, and it can affect bonding capacity if a surety notices the pattern.

The fix isn’t more spreadsheets. It’s connecting job cost accounting to the same system tracking labor, material, equipment, and subcontractor commitments as the transactions happen, so the WIP schedule reflects the job as it is that week, not as it was at last month’s close. Acumatica Construction Edition, the construction-specific configuration of Acumatica’s cloud ERP, deployed and supported by WM Synergy, builds WIP reporting directly into Construction Financials and Job Cost Accounting, including fully burdened labor cost. Labor, material, equipment, and overhead code to a project automatically as costs are entered, and the Construction 360 dashboard surfaces budgeted revenue, actual cost to date, and margin to date without a separate reporting cycle.

The difference shows up in hours, not just accuracy. Alpha Insulation & Waterproofing cut 1.5 days out of its WIP calculation process every reporting cycle after moving off manual reporting, time that used to go into reconciling numbers instead of acting on them.

The live version of this pain, on calls with construction PMs, sounds less like a WIP problem and more like this: “I can’t just pull a report.” If your WIP numbers take a week to pull together and another week to trust, the report isn’t doing its job.

See what accurate WIP reporting looks like:  Explore WM Synergy for Construction

Sources

• Autodesk Construction Cloud, citing KPMG Global Construction Survey (autodesk.com/blogs/construction/cost-overruns-construction)
• Project Control Academy, cited in Construction Cost Overrun Statistics, Contimod (contimod.com/construction-cost-overrun-statistics)
• Acumatica, ERP Software for Construction (acumatica.com/industries/construction)