Work In Progress (WIP) Financial Management

Work in Progress (WIP) is billable time and expenses that have NOT YET been billed on a client invoice and/or recognized/accrued in the financial books and records. It is work that is already completed, or expenses already incurred, but it is in the progress of being billed and/or recognized.

In one of the world’s top 5 stock exchanges, the budget of its US$25 million project had been overrun for more than 3 months before its project managers, management committee and steering committee knew about it. This can happen if your project management tool doesn’t support WIP accounting.

Production is a continuous process. So, any work that has been started but is not yet completed before the end of the accounting period is reported as work in progress (WIP) under Generally Accepted Accounting Principles (GAAP).

Projects in industries such as banking, healthcare, IT/software, insurance, professional services and securities aren’t material-intensive but labor-intensive. Different from the materials in an assembly line production, the human resources allocation and utilization in a project can change in a much more dynamic and complex manner. In addition, the following must be figured out before the actual project labor cost can be calculated:

• The human resource working overtime in the project without overtime pay
• The human resource working overtime in the project with overtime pay at the regular rate
• The human resource working overtime in the project with overtime pay at a different rate
• The same human resource working for multiple projects for different rates
• The human resource’s timesheet to be approved by the managers of different projects that she participates
• The human resource’s indirect cost to be distributed to different projects that she participates

The information for figuring out the above lies in a high-quality project management system.

Yes, PPM provides the following features for the automatic recognition of other WIP costs in a project:

• Expense Report for capturing and recognizing on-demand travel costs
• Inventory Request and Purchase Order for capturing and recognizing WIP material costs
• Procurement Contract for capturing and recognizing WIP service costs
• Fixed Asset for capturing and recognizing the depreciation and amortization costs of capital investments

Yes, PPM provides the following features for the automatic recognition of WIP revenues:

• Revenue Recognition Policy Settings
• Sales Contract Payment Terms and Invoice Generation