Data to Dollars: What Each Metric Means & How to Use It to Drive More Profits: Series #5 - Metric One of “The Trifecta”: WIP Reporting Accuracy

When I first started working with builders on their financials, I’d walk into our meetings armed with accurate data, detailed reports, and carefully tracked metrics. I was confident and excited to share what I’d uncovered, knowing these numbers could transform their business.

But there was a problem: I might as well have been speaking another language. It became very clear very quickly that my clients didn’t just struggle to understand the reports—they didn’t know what the metrics meant, let alone what actions to take, if any.

By the time I explained the significance of the metric, I’d already lost their focus. And the worst part? We never got to the best part—the actionable insights that could actually drive their dollars to meet their goals!

Enter: The Data to Dollars Series and The Playbook for Builder Profitability! In this series, we’ve broken down the key metrics residential construction companies need to track, what they mean for your business, and—most importantly—what to do with them to drive profitability and growth. We’re currently taking every metric covered in the series and packaging them altogether into one Playbook especially for Builders. Armed with this Playbook, you’ll know exactly what to do when with what you find in your financial reports.

Let’s dive into this week’s metric and see how it can help you turn some data into dollars.

#5 - The Trifecta #1: WIP Reporting Accuracy

What is “The Trifecta” -

The next three metrics are of utmost importance for tracking the finances of your individual projects so they meet your overall business profitability criteria. Therefore, we have aptly named them “The Trifecta for Financial Project Management.”

The Trifecta —WIP Report Accuracy, Overhead Allocation Comparison, and Project Profitability—represents the three critical metrics every custom home builder needs to master for profitable and efficient financial project management.

Each metric offers a unique perspective:

• WIP Reporting Accuracy compares a project’s actual costs incurred with its percentage completion and revenue recognized. WIP analyzes the Est vs Actuals, Change Orders & Revised Budgets, Committed Costs, and Estimated Cost to Completion with Estimated Gross Profit Margin to manage a job’s progress.

• Overhead Allocation Comparison ensures operational costs are fully absorbed by your jobs.

• Job Profitability shows whether individual projects are meeting financial expectations.

Together, they provide a 360-degree view of a project’s financial health, helping you identify inefficiencies, refine estimates, and drive better results.

With this in mind, let’s take a look at WIP Reporting Accuracy-

What It Is -
The Work in Progress (WIP) Report is a financial tool that compares a project’s completion percentage to its costs incurred and revenue recognized. The process of maintaining WIP accuracy ensures that revenue recognition aligns with the actual progress of your projects.

WIP Accuracy comes down to correctly matching three elements:

1. Percent Complete: The portion of the project that’s finished.

2. Costs Incurred: All expenses tied to the project to date.

3. Revenue Recognized: How much of the project’s revenue has been earned so far.

How we calculate it -

WIP Reporting Accuracy is a bit more complicated than a simple metric formula, and we have spreadsheets we use to speed the calculation process up.

**Before we lose you in a calculation, I want to emphasize that in order for your Work in Progress Report to be accurate, it’s essential that project managers regularly review their Estimate vs Actuals reports to ensure all costs are tracked against the correct cost codes and that Committed Costs and Change Orders recorded in your system, This is critical. Without these, your WIP report risks being incomplete, which can lead to inaccurate revenue recognition and flawed financial decisions. By staying proactive with these inputs, project managers can ensure the WIP reflects the true financial state of the project.

Ok, back to the calculations -

1. Determine % Complete = Total Costs to Date ÷ Total Estimated Costs × 100

2. Determine $ Revenue Earned = % Complete × Total Contract Value

3. Determine Over/Under Billing Amount = $ Revenue Earned - Total Billed to Date

For example, if a project has a $500,000 contract value and estimated $400,000 cost to complete. To date $200,000 costs have been incurred and $100,000 has been billed to the homeowner:

1. Determine % Complete = ($200,000 ÷ $400,000) × 100 = 50% complete

2. Determine $ Revenue Earned = 50% × $500,000 = $250,000

3. Determine Over/Under Billing Amount = $250,000 - $100,000 = $150,000 underbilled (costs in excess of billings)

This means the project is 50% and has a contract asset of $150,000

Why We Track It -
WIP Report Accuracy helps prevent overbilling or underbilling, both of which can create financial distortions. Overbilling inflates your cash flow temporarily but creates future liabilities. Underbilling leaves money on the table and can strain cash flow in the short term.

Inaccurate WIP reporting also affects your ability to identify which projects are on track and which need intervention.

Why You Need to Know It -

Tracking WIP accuracy ensures that you:

1. Recognize Revenue Correctly: Match revenue to actual progress, so your financial statements are accurate.

2. Avoid Surprises: Catch billing or cost discrepancies early, before they spiral out of control.

3. Make Informed Decisions: Use WIP data to plan cash flow, forecast profits, and prioritize resources..

What WIP Report Accuracy Tells You -

• Good: Revenue, costs, and progress percentages align, showing that your project is on track financially.

• Bad: Discrepancies between these elements indicate errors in cost tracking, project management, billing, or revenue recognition.

Action Steps Based on the WIP Reporting -

1. If WIP Reports Are Accurate:

   • Use the data to confidently forecast cash flow and profitability.

   • Leverage accurate WIP data to present clean financials to lenders or investors.

2. If WIP Reports Show Discrepancies:

   • Review Cost Tracking: Ensure all job costs are allocated to the correct project and cost code. Check for untracked change orders, untracked committed costs for overbillings from subs, bills that either were not allocated to the project, either from missing bills or receipts or from vendor statements not being reconciled properly.

   • Reconcile Billing: Match your billings to progress milestones or completed work.

   • Align Revenue Recognition: Verify that revenue recognized corresponds to the percentage of the project that’s complete.

3. If WIP Reporting Is Inconsistent:

   • Implement Clear Processes: Standardize how percent complete, costs, and revenue are calculated across all projects.

   • Use Project Management Tools: Adopt software that integrates job costing and billing to reduce errors.

   • Train Your Team: Educate project managers and financial staff on how to update and use WIP reports effectively.

Conclusion

Accurate WIP reports ensure that you’re recognizing revenue fairly, managing cash flow effectively, and catching project issues before they escalate. Project management plays a huge part in making sure project data is accurate, so your financial ops coordinator will need to work closely with your project manager in reviewing the supporting reports like Estimates vs Actuals, Change Orders and approved Purchase Orders/Committed Costs.

At Catalyst Construction Accounting & Consulting (Catalyst CAC), we specialize in helping residential construction businesses just like yours track and understand key metrics like GPM and more. Whether you need help with construction bookkeeping (data accuracy, essential construction financials), construction controllership (holistic oversight over construction financial processes & strategic financial guidance), or a construction CFO advisor (forward-looking, strategic, big-picture financial guidance), we’ll work with you to eliminate financial chaos and give you the tools to drive profitability and growth.

Let us help you turn your data into dollars. Contact us today to learn how we can become your valued partner in building a stronger, more profitable business.

What’s Next -

Have you ever wondered if your jobs are truly carrying their weight when it comes to covering overhead? In the next episode of the Data to Dollars Series, we’re diving into The Trifecta #2: Overhead Allocation Comparison—a critical metric that ensures your projects are absorbing their fair share of operational costs. If you’re not tracking this, you could be leaving profits on the table. Stay tuned!