The Work In Process Schedule

1. The Work In Process Schedule

2. The WIP Schedule • The POC Calculation • Underbillings • Overbillings • How to use our system reports • Reconciling the WIP and P/L • Constructing a P/L from just a WIP • Cash Flow in WIP Analysis

3. The POC Calculation • Need the 4 basic WIP Figures • Contract Price, Total Estimated Cost, Cost to Date, Billed to Date • Can use Estimated Gross Profit or Cost to Complete • Three step Process • Calculate percent complete • Calculate Total Earned on Project and Earned Gross Profit • Calculate Under/Over Billing

4. The POC Calculation • Calculate the Percent Complete • Need Total Estimated Cost and Cost to Date • Divide Cost to Date by Total Estimated Cost Cost to Date/Total Estimated Cost = Percent Complete

5. The POC Calculation • Calculate the Total Earned on Project • Contract Price x Percent Complete = Total Earned on Project • Calculate Earned Gross Profit • Not needed here, but useful in determining current period earnings • 2 ways to do it • Total Earned on Project – Cost to Date = Earned Gross Profit or • Total Estimated Gross Profit x Percent Complete = Earned Gross Profit

6. The POC Calculation • Calculate Over/Under Billing • Total Earned to Date – Billed to Date = Over/Under Billing • If number is >0, it is an Underbilling • If number is <0, it is an Overbilling

7. Underbillings • “Underbillings never come from something good!” • Contractor has not billed for the amount of cost and profit they have put in place • Early stage Underbillings are sometimes explainable • Late Stage Underbillings are nearly always an issue • Unapproved Change Orders • Profit Fade not yet recognized • Always a negative cash flow effect

8. Overbillings • Can be an indication of deferred profit increases • Can be a cash flow tool if used correctly • Becomes an issue if overbilled and heavily into the bank line • Also can indicate job cost system issues • Can create Pure Job Borrow

9. Pure Job Borrow • Occurs when you have billed your entire profit before it is earned • Looks at total billings and cost to date only, excluding earned profit • If Billed to Date – Cost to Date > Total Estimated Gross Profit, then there is pure job borrow • If cash balances are low, then this is a much larger issue, as they will need the cash in the future

10. P/L Reconciliation • Should use to check CPA’s work if the schedule is not included • Can also use if you have a new CPA firm and want to check their work • Have an excel spreadsheet that can be used

11. WIP Cash Flow Analysis Contractor Cash Flow Analysis