How often should a WIP schedule be prepared?

Monthly for most contractors, as part of the close. Preparing it only at year-end means the numbers are used for reporting rather than for managing jobs while they can still be corrected.

What burden should be applied to labor?

The employment costs the business actually incurs on that hour — employer payroll taxes, workers' compensation, and benefits — expressed as a rate over base wages and reviewed periodically as those costs change.

Is overbilling a bad sign?

Not by itself. It is normal on front-loaded billing schedules. It becomes a risk when the cash has been spent on other jobs, because the work behind that billing still has to be performed and paid for.

Do small contractors need this, or only large ones?

Any contractor running more than a handful of jobs at once benefits, because company-level reporting cannot show which job is losing money. The depth of the system should scale with job size and volume.

Can this be done in standard accounting software?

Often yes, provided cost codes, committed costs and retainage are set up deliberately. Where the platform cannot support it, the gap usually shows up as manual spreadsheets that stop being maintained.

Guide

Construction Job Costing and WIP Reporting

Contractors rarely lose money evenly. One job goes wrong, and because the books are kept at company level, it stays hidden until the year closes and the margin is gone.

Job costing puts cost where the work happened. A work-in-progress schedule then translates that into earned revenue and billing position, which is the language lenders and sureties read. This covers how both are built and how to read the output while jobs are still running.

All resources

Foundation

Setting up cost codes that survive contact with the field

The cost code structure decides whether job costing is useful or just extra data entry. Too coarse and it tells you nothing; too fine and the field stops coding accurately, which is worse than no data.

Use consistent cost types across every job: labor, materials, subcontractors, equipment, and other direct costs
Match codes to how you estimate, so estimate and actual can sit side by side without translation
Keep the list short enough that a foreman can pick the right code without asking
Separate change order costs from base contract costs from the day the change is approved
Code at the point of entry — on the timesheet, the bill, the purchase order — not in a monthly reclassification pass
Keep indirect and overhead costs out of job codes unless you apply them by a documented, consistent method

If you would rather not run this yourself, job costing and project profitability is the service that covers it.

Accuracy

Burdened labor and committed costs

Two things separate job costing that reflects reality from job costing that flatters it.

The first is burdened labor. Base wages alone understate what an hour on site costs. A burdened rate adds employer payroll taxes, workers' compensation, benefits and any other employment cost, so job margin is measured against what the labor actually cost the business.

The second is committed cost. A signed subcontract or issued purchase order is money spent, whether or not an invoice has arrived. Job cost reports that only count received invoices show a healthy job right up until the subcontractor bills, then show a loss that was there all along.

Illustrative pattern, not client data. Job-level margin is usually lost in one or two cost codes. Comparing estimate to actual while the job is still running is the only point at which it can still be fixed.

In flight

Comparing estimate to actual while the job is running

01
Load the estimate as the budget
The original estimate, by cost code, becomes the baseline. Revise it only through approved change orders so variance stays meaningful.
02
Track cost-to-date against it weekly on live jobs
Cost incurred plus committed cost, by code, against the budget for that code. A code overrunning at twenty percent complete will not correct itself.
03
Update the estimate to complete honestly
This is the judgement call that drives every downstream number. It should come from the project manager and be reviewed by someone who is not responsible for the job's result.
04
Watch change orders separately
Work performed on an unapproved change order is cost with no matching contract value. Track approved, submitted and unapproved separately so the exposure is visible.
05
Review the outliers, not every job
Sort by variance and by margin movement since last month. Two or three jobs will explain most of the company result.

Illustrative pattern, not client data. Billing ahead of earned revenue flatters this month and borrows from next. Billing behind it hides revenue you have already earned. Sureties and lenders read this schedule first.

WIP

How the work-in-progress schedule is built

The WIP schedule converts job cost data into revenue recognition and billing position. Under the cost-to-cost method, the arithmetic is straightforward once the inputs are right.

Percent complete is cost incurred to date divided by total estimated cost, where total estimated cost is cost to date plus estimate to complete. Earned revenue is that percentage applied to the current contract value, including approved change orders.

Compare earned revenue to amounts billed. Billing above earned revenue is an overbilling — a liability, and cash you are holding against work not yet done. Billing below earned revenue is an underbilling — an asset, and work you have performed but not yet invoiced.

Every input in that calculation depends on the estimate to complete being honest. An optimistic estimate raises percent complete, pulls revenue forward, and produces a profit that later reverses.

Interpretation

What lenders and sureties look for

Consistent gross margin on a job across successive periods, rather than margin that improves suddenly near completion
Underbillings that are explained, since large unexplained underbillings suggest cost overruns or billing delays
Overbillings that the business can actually fund, because that cash finances work still to be performed
A WIP schedule that reconciles to the income statement and balance sheet
Job fade — completed jobs finishing below the margin previously reported — as a measure of estimating discipline
Backlog and remaining contract value, and whether current capacity supports it

Pitfalls

Where contractor reporting usually breaks

Labor costed at base wage with no burden applied
Committed subcontractor and purchase order costs omitted until invoiced
Estimates to complete left unchanged from the original bid
Change order costs incurred but never added to contract value
Retainage tracked outside the accounting system, or not tracked at all
Overhead allocated to jobs by an inconsistent method, making job margins incomparable
A WIP schedule prepared once a year for the surety and never used to manage the business

FAQ

Questions we get asked about this

Where to go next

Back to resources

Job costing

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Construction Job Costing and WIP Reporting

Setting up cost codes that survive contact with the field

Burdened labor and committed costs

Comparing estimate to actual while the job is running

Load the estimate as the budget

Track cost-to-date against it weekly on live jobs

Update the estimate to complete honestly

Watch change orders separately

Review the outliers, not every job