Four Construction WIP Errors to Avoid

Written by: Kristin Moody, CPA, CFE

An accurate Work-In-Process (WIP) schedule is essential for contractors to effectively manage projects, make informed decisions, maintain financial stability, and meet contractual obligations. It provides a comprehensive view of project performance and enables better control over costs, revenues, and overall financial health. Because it is a crucial tool for success, exercising diligence and care in maintaining the WIP schedule is important.

It is easy to become complacent during the good times when jobs or projects are simple and estimates are straightforward. But when there are economic shifts, jobs or projects become more complicated, or the environment becomes more volatile, you may regret not dedicating the proper time or resources needed to maintain an accurate schedule.

The following common errors in your WIP reporting can lead to improper revenue recognition, further distorting the company’s financial position.

  1. Perhaps the most common error in a WIP schedule is inaccurate or incomplete data. This can happen when the contractor fails to record or update project information properly, leading to incorrect calculations or projections.
  2. Misclassification or failing to include all project-related costs is also very common. Contractors may overlook certain project costs, such as subcontractor expenses, materials, equipment rentals, or indirect costs. They may also mistakenly classify costs in categories or fail to allocate them correctly to jobs or categories. These errors can lead to a distorted financial picture or misrepresent an individual job’s financial performance.
  3. Unrealistic estimates occur when the contractor’s initial estimates for project costs, timelines, or completion percentages are inaccurate or overly optimistic/pessimistic. Typically these stem from attempts to avoid unfavorable variances. Job estimates should present management’s best knowledge and expectations so that the schedule appropriately reflects the status of the job.
  4. Lastly, contractors can fail to reconcile the WIP schedule regularly to other financial records, such as the general ledger or job cost reports. Reconciliations are important because they could identify other errors or discrepancies and are imperative to maintaining an accurate schedule.

Maintaining the WIP schedule can be daunting and requires cooperation and participation from both operational and accounting departments, especially in larger-scale operations. The recent volatility of costs, supply issues, and other economic factors in recent periods have also added a layer of complexity to the estimation process. Still, we believe regular reviews, reconciliations, and adherence to proper accounting practices can help mitigate these issues and accurately represent the project’s financial position.

If you would like more information on this topic or need to address the errors discussed in this article, contact Kristin Moody at 304-343-4126 or