What is Work-in-Progress (WIP) in Construction?

With years of experience in construction accounting, Vanessa Conlin, a Principal at SVA, has helped countless contractors make sense of their financial data and project reporting. Her expertise lies in translating complex accounting concepts into practical tools that improve business visibility and decision-making.

In this Q&A, she shares her perspective on what WIP means, how it’s calculated, and why it’s a cornerstone of healthy project management.

How Would You Define Work-in-Progress in Construction?

Work-in-progress represents “the total value of work that has been started but not yet completed at a specific point in time on a project.” Essentially, it represents the cumulative costs and revenues associated with a project that is still underway.

WIP can appear as either an asset or a liability on a company’s balance sheet. If work has been completed but the contractor hasn’t sent an invoice, that’s considered an asset. “But if you’ve billed more than what’s actually been earned,” Vanessa says, “that’s a liability.”

RELATED CONTENT: BIZ TIP

UNDERSTANDING THE BASICS OF BALANCE SHEETS

OPEN IN NEW WINDOW

How is WIP Calculated?

The formula itself is simple, but it requires good data. To calculate WIP, take the total cost incurred to date and divide it by the total estimated cost of the project. That gives you the percentage of completion. Multiply that percentage by the total contract price, and you’ll find your earned revenue.

For example, if a contractor is working on a $1 million project that’s 60% complete, they’ve earned $600,000 of that contract value so far. “That’s how you determine what’s been earned versus what’s been billed,” she says, “and it’s the foundation for understanding a project’s financial progress.”

Why is WIP Reporting So Important in Construction?

Vanessa calls WIP reporting a financial reality check. It reveals whether a company’s books align with what’s actually happening in the field. For accountants, it helps ensure financial statements reflect the real status of projects. For project managers, it provides insight into progress versus budget.

Accurate WIP reporting also supports cash flow management. If a company has overbilled, it’s sitting on “cash ahead,” while underbilling represents “cash lag.” Monitoring those balances helps contractors manage working capital more effectively. “You don’t want to sit on too much up-front billing because your liability increases,” Vanessa notes. “At the same time, you want to make sure you’re billing timely for the work that’s been done.”

WIP also ensures transparency in project performance and profitability, which is key information for stakeholders. It’s also an expectation among many financial partners. “Most bonding companies and lenders want to see percentage-of-completion reporting,” Vanessa adds.

(Download Video Transcript)

What are Some of the Most Common Challenges Contractors Face with WIP?

According to Vanessa, one of the biggest pitfalls is inaccurate cost tracking or estimated total costs. “Those estimates drive everything,” she says. “If they’re off, the whole report is off.”

Another issue is misalignment between accounting and project management teams. Project managers may feel a job is 75% complete, while the financials suggest something closer to 60%. “That disconnect happens all the time,” Vanessa says. “It’s not that one side is wrong, it’s that they’re working from different data.”

Timing also plays a role. “By the time project managers and accountants meet, they’re often looking at last month’s numbers,” she explains. “There’s usually a lag, and that means decisions are being made based on outdated information.”

To address that, she points to software and systems that integrate field and accounting data in real time, reducing delays and improving accuracy.

RELATED CONTENT: BIZ TIP

SOLVING COMMON JOB COST ACCOUNTING ISSUES IN CONSTRUCTION

OPEN IN NEW WINDOW

What are Some Best Practices for Effective WIP Management?

Vanessa’s first recommendation is consistency. “Reconcile your WIP regularly: monthly at a minimum,” she advises. Keeping schedules up to date ensures that reports reflect the latest information.

She also encourages companies to use integrated construction accounting software, which links field operations with financial reporting. “That way, you’re not relying on manual updates or spreadsheets,” she says.

Collaboration is equally important. “Accounting and project management teams need to communicate,” Vanessa adds. “And training project managers to understand how their decisions affect financial outcomes can make a big difference.”

RELATED CONTENT: BIZ TIP

HOW THE OBBBA RESHAPES CONSTRUCTION INDUSTRY TAX PLANNING

OPEN IN NEW WINDOW

Any Final Advice for Construction Businesses?

Vanessa emphasizes that understanding WIP is about more than compliance: it’s about control. “When you know where your projects stand financially, you can make smarter decisions,” she says. “It’s not just about the numbers. It’s about managing your business proactively and maintaining trust with lenders, bonding companies, and your own team.”