Construction Work in Progress - ARGH!

Raging Pineapples

Hi guys!

Does anyone have any experience producing interim Work in Progress management reports for SME construction firms?

I work with a firm that turns over around the £2m mark, but because of the nature of construction it makes it extremely difficult to gauge the level of completion for the project. A common method that seems to be used is to compare the current cost to the estimated cost, but this simply isn't feasible as construction projects change drastically between the initial tender and the final account.

Has anyone had a similar role in the past who may be able to offer some guidance?

PGM

I deal with these.

The changes should be covered by AI's (architechs instructions), these will highlight for each change to the initial tender what has been added / omited.

Then you should be able to simply add or delete from the initial budget.

Other thing you need is a reliable project manager / foreman that can keep you on track at each stage of the project, so under/over spend doesn't come as a shock at the end of the project.

And allow for snagging, theres nearly always some bits to rework.

And retention, there's usually 5 or 2.5% withheld from the payments for a period of time. This should be highlighted in the contract.

K H

I have some knowledge of this, it is however (purely by the nature of the business) very hit and miss.

WIP is calculated as follows:

Firstly use best endeavours to calculate what the final estimated profit on the whole job will be, by talking to the QS.

Then at the year -end you apportion the estimated final profit by dividing it by total estimated costs on the whole job by costs to date.
This figure of pro rata profit is then added to the costs to date to give a figure from which you deduct the gross amount invoiced to that date( ignore retention just the gross figure is used)
That is your WIP.

Hope this helps.

PGM

K H wrote: »

Firstly use best endeavours to calculate what the final estimated profit on the whole job will be, by talking to the QS.

The accuracy relies totally on an accurate budget, so I'd do more than just speak to the QS, I'd want copies of documents to back up all amendments to the contract.

Then at the year -end you apportion the estimated final profit by dividing it by total estimated costs on the whole job by costs to date.
This figure of pro rata profit is then added to the costs to date to give a figure from which you deduct the gross amount invoiced to that date( ignore retention just the gross figure is used)
That is your WIP.

Hope this helps.

I use the same method to bring in profit (cost to date) / (total cost) x (budgeted contribution)

The retention is just something to be aware of, accrue for the income now, so its expected, doesn't get forgotten about or come in as profit in 12 months time.

Raging Pineapples

Yeah, the method I've used to date is similar to the one KH suggested.

The business decides the markup it aims at, say 20%. So I provisionally value them at:
Cost * 120% - Invoiced = Value

But then of course I have to run that past the Contract Manager to get an idea as to whether the job is on track to make 20% profit. This is how I was advised to do it by my predecessor, but it worries me, because I should be the one telling the Contract Manager how much profit his job is making, not expecting him to intuitively know and tell me...? It kind of makes a nonsense of the management accounts function, in my view.

The main concern is that none of the Contracts Managers seem to have the time or the will to sit with me going over a 3 page list of jobs, so I feel like I'm banging my head on the wall here.

PGM

You do reply on the contract manager, need to get them into regular weekly updates were you have their attention.

Without the budget and revenue changes you don't know if you're still running at 20% or whatever..

T.C.

I keep my own records for a construction company, albeit a bit smaller than the one you are discussing, but I keep all receipts separate so I log them in for different jobs. It only takes good ordering and record keeping for me to achieve a fairly accurate WIP figure at the end of the year. Just my way....