Lessons From The Butcher Shop - Project Reporting
Understanding Work in Process Reports: Essential Insights for Construction Companies
In the realm of construction, where projects are frequently complex and protracted, the importance of proper financial management cannot be overstated. As I have mentioned in other blog posts, my father managed a butcher shop and I have heard hundreds of stories about his experiences there. Just as father knew the margin on each steak at his butcher shop, construction companies must know the margin of each house or project. That is done by analyzing the Work in Process Report(WIP).
The Necessity of Work in Process Reports
Work in process reports provide a snapshot of the current status of construction projects, bridging the gap between project management and financial accountability. They detail the costs incurred, progress made, and expected outcomes, thus playing a pivotal role in ensuring that projects stay on schedule and within budget. A well-structured WIP report can guide financial decisions, help maintain cash flow, and enable timely amendments to project plans.
Most construction companies have a pile of canned reports that don't always paint a consistent picture. Lets put them all in a drawer for now, and focus on the WIP report.
Defining Key Components of WIP Reports
To create impactful WIP reports, construction companies must first understand the essential components involved. This includes:
1. Total Costs to Date: Document all expenses incurred from materials and labor to overheads. This serves as the foundation of your report and provides insight into current financial standing.
2. Estimated Total Costs: This projection helps assess the total financial commitment necessary to complete the project, allowing for better forecasting and resource allocation.
3. Percentage of Completion: An evaluation of progress made versus the overall project timeline, helping stakeholders understand how far along the project is and if it aligns with scheduled milestones.
4. Revenue Recognition: Closely tied to estimating costs, this determines how much revenue can be recognized based on the percentage of completion, adhering to accounting standards.
By detailing these components in a clear and organized manner, stakeholders—including project managers, clients, and finance teams—can have a comprehensive understanding of ongoing contractual commitments.
Leveraging Technology for Enhanced Reporting
In today's digital age, construction companies can leverage technology to elevate their reporting practices, similar to how my father embraced marketing automation. Utilizing project management software not only streamlines the documentation process but also provides real-time updates. Tools like Procore, Buildertrend, or CoConstruct can consolidate data into user-friendly dashboards, allowing teams to access critical information at any point. And believe it or not, Quickbooks Online job cost module is not too bad, although it is now called “Projects.”
Engaging Project Managers Through Effective Communication
I remember the importance of my dad’s weekly meeting with his employees reviewing the inventory that was available and the schedule for preparing it, which is a lot like a WIP report (by the way, a grass fed cow now costs $4000 if bought unprepared). Regular updates can help maintain trust and transparency with clients and project managers. When presenting these reports, consider the following approaches:
Consistent Schedule: Establish regular intervals for reporting (weekly, bi-weekly, or monthly) to ensure that stakeholders are consistently informed. When I was CFO of Alys Beach (https://alysbeach.com), I sat down with project managers every week to review a WIP report. Honestly, the first few months were incredibly difficult because so many things were wrong (concrete was over budget 50% across the board and plumbing expenses were being coded to HVAC. But eventually we were able to develop a cadence that could predict the profitability of each house very early. Visuals and Summaries helped tremendously: Use graphs, charts, and concise executive summaries to present complex data in an easily digestible format.
Utilizing Feedback for Continuous Improvement
Just as my father valued customer feedback from his customers, construction companies should view WIP reports as an opportunity for reflection and growth. Use the insights gained from these reports to fine-tune processes, identify bottlenecks, and enhance project management strategies. Engage team members in discussions about challenges faced during project execution to collaboratively develop solutions for future endeavors.
Conclusion: Building Foundations for Future Success
Someone recently asked me the number one indicator of success in the construction industry and my response was that the best companies analyze profitability throughout the project and address negative budget issues long before the project is complete. By integrating technology, prioritizing communication, and embracing continuous improvement, construction firms can navigate complex landscapes, ensuring that they not only meet project expectations but also cultivate lasting relationships with clients and stakeholders.