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Month: July 2023

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Accounting Accounting Software Construction ERP Software Features

Simplified WIP Accounting

The WIP report is one of the most valuable reports that a construction company has. Also known as a Work In Progress report, this tool allows management to identify potential cash flow issues, project progress, and the overall trajectory of their projects. But these reports are tough to maintain and require constant updates. And here’s a hint: that spreadsheet won’t cut it.

This guide will explain what WIP reporting is and the benefits that construction management software can offer.

What is a WIP Report?

A WIP report, or Work in Progress report, is a document used to detail a company’s current profitability on a project quickly. It tracks the amount of money expended on the project, the amount billed, and the amount still required and compares it against the contract total.

Most companies use spreadsheets to complete their WIP reports, which means there isn’t a standard template. However, most WIP reports contain the following information:

  • Project name and identifying information
  • Total contract value sold on the project
  • Estimated cost at completion
  • Estimated profit
  • Pending Change Orders
  • Amount Billed
  • Job progress percentage
  • Over/Under budget amounts

These reports can contain data from all of the company’s projects, different aspects of one large project, or simply just one project.

WIP reports are essential (and even required by the IRS) on large, long-term projects. They’re also incredibly valuable during progress billing contracts. They help the contractor identify if there are cash flow issues before they become too large to overcome. But, that’s only if the reports are maintained correctly—and that’s pretty hard to do with a standard spreadsheet.

The Benefits of Using Premier Construction Software for WIP Accounting

WIP reports aren’t explicitly construction-specific reports. Many industries use these reports to track the process of bringing a product through the manufacturing process. For this reason, there are lots of different WIP report types and templates. But, using software designed specifically for construction can help simplify the process. The following are some of the most significant benefits of using construction software for WIP accounting.

Customized WIP Reports

Most construction companies would prefer to see the same data on their WIP reports: total amount, amount billed, amount expended, and current over or underbilling. However, there may be specific values they don’t need to see or other matters they’d like to track. Premier allows users to customize the values they see or track on their reports.

Beyond the individual values, our software will also allow users to quickly generate WIP reports for all, several, or just one of their projects. They can get a quick overview of their company’s cash flow with a general report or drill down into each project to identify the cash flow challenges they may be facing. They’ll then be able to address the issues with those projects in less time than it would take for them to assemble a complete report.

Real-Time Reporting

One of the challenges of maintaining WIP reports with standard spreadsheets is keeping them updated. Each invoice or change order that comes in will effectively change the WIP report, and without someone constantly updating the report, it won’t reflect the true status of cash flow and progress on the project.

But with Premier Construction Management Software, keeping up with the latest data isn’t a problem. Our software allows for electronic payments and approvals, meaning any payments going in or out as well as any potential profit changes are automatically tracked in the system. Any values those payments impact will automatically update across multiple reports, including the WIP, ensuring the data is always up to date in real-time.

Improved Communication

WIP reports bring two parties together: project management and the accounting staff. Both parties need to watch these reports carefully to ensure that the project is on track and remains profitable. Unless that document is easily available to both parties at the same time, communication becomes a challenge.

A software like Premier, which is designed for construction can simplify the communication process. Our reports are cloud-based and easily accessible by project management and accounting staff. Both parties can be looking at the same WIP report at the same time, and since the system updates the report automatically, they’re sure that the data is up to date. Any questions or concerns they have can be expressed and discussed in real time because the software ensures everyone is on the same page.

Accurate Data

Manually updating spreadsheets and subsequent reports is a recipe for disaster. Every data point entered by a person is an opportunity for human error, meaning values might not jive and the reports generated might not be accurate. For this reason, contractors can never be entirely sure that the WIP report they’re looking at is full-proof and accurate, and just one decision based on bad data can be disastrous.

Using our software won’t remove every chance for error (a human has to input the original data, after all), but it can help reduce mistakes drastically. Since our software will automatically update values affected by the latest data, there won’t be any forgotten changes, misplaced decimal points, or mathematical errors. This helps contractors make the best decisions possible by knowing the data is accurate.

Correct Cash Flow Issues Before They Become Severe

Construction is a cash-hungry business, and tracking cash flow is essential to staying on top. That is the point of a WIP report in the first place. However, when it’s a spreadsheet that is updated infrequently, cash flow issues can become severe before anyone notices them.

With an automatically updating, accurate WIP report generated by software like Premier, users can identify cash flow issues when they’re small enough to correct. As project progress continues and management recognizes they’ve underbilled, they can send an invoice to get things back on track. And, since many of these programs can be customized to send budget warnings, project management might be able to get ahead of a budgetary issue before even checking the WIP report.

Impress Stakeholders

WIP reports are some of the only reports the average investor even cares about. These reports tell them where the project is headed, how much money it will make, and where it stands from a cash flow standpoint. They want these reports to be simultaneously comprehensive and simple to understand.

Premier can do just that. With the ability to instantly generate a report, project managers can show investors exactly what they want to see and when they want to see it. And, since the data is accurate, those stakeholders will be able to make better decisions in less time, making them happier with the project and contractor involved.

Let Premier Construction Software Simplify Your WIP Reports

With reports this important, does it make sense to take a chance with a spreadsheet? Improve cash flow & communication while reducing errors with Premier Construction Management Software. Let us simplify the WIP process while offering real-time data that you and your investors can rely on.

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Accounting Accounting Software Construction ERP Software Features Job Costing

Why Forecasting Project Costs Is Important For Your Construction Business

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From day one on a construction project, the number one question everyone has is whether the project will meet the expected budget. You can wait to answer this question at the end of the project when you can’t do anything about it, or you can assess where the project stands as you progress through the work, allowing you to act proactively if an overage is found. In order to assess the project costs before completion, however, you must forecast or predict the potential costs to complete the work.

A forecast to complete the project is a well-educated guess of how much you have left to spend to finish the work. It’s based on the current costs, the percentage of the project that’s complete, and what’s remaining to be finished. The better you are at tracking your costs, the easier it will be to predict how much is left to spend.

Before we get into how to forecast final costs on a construction project, let’s look at why it’s important to know how much the remaining work will cost you.

The importance of forecasting final costs

One of the primary benefits of forecasting costs is that you get an early warning if a project is losing money. Since many contractors rely on their profits to fund future work, losses on today’s job can quickly lead to real problems when it comes time to start the next one. Without adequate profits to fund the work, contractors have to rely on alternative financings, like bank loans or credit cards, that ultimately cost them more in the long run, further reducing profits. It’s a never-ending cycle of higher costs.

Predicting final costs also allows companies to identify their future cash flow needs and address any issues before they become real problems. If contractors know that they won’t have enough money coming in to finance their payroll or other necessary business expenses, they have time to move money from investments or seek lower-rate financing options.

Sometimes forecasting final costs can help contractors identify change orders that have been missed or haven’t been processed yet. If a change hasn’t been made to the project budget but extra materials have been paid for or work has been completed, it may show up as a cost overage. The contractor can then follow up with the owner or architect to determine the status of the required change.

Finally, forecasting allows companies to learn valuable lessons about the accuracy, or inaccuracy, of their estimates. If a contractor is always going over budget on labor costs, they will see that sooner and be able to adjust future budgets accordingly. This will make their estimates more competitive and lead to more work.

How to forecast final costs

One of the most important things you can do to help forecast final costs is to monitor costs as you go. If you’re relying on data from a single point in time to predict costs, it can be difficult to make the appropriate assumptions and gather enough data to accurately predict future costs. By tracking costs as you go, with an accounting system that supports job costing, you’ll be able to monitor the project’s progress and see cost patterns that may not be visible with a static report.

To forecast final costs, you’ll be looking at three data points: the amount remaining in committed costs, the amount remaining in your budget, and historical costs. Based on these three data points you should be able to predict, with a reasonable degree of accuracy, the final costs for a specific scope of work. Let’s look at an example to help illustrate how these data points help predict future costs.

Let’s say we are forecasting costs for the concrete scope of work on a project. The contract with the concrete subcontractor was originally for $100,000, and they have billed $80,000 so far, leaving $20,000 to bill. This is the amount remaining in committed costs. Based on our original budget, we know that we still need to purchase some rebar that wasn’t part of the concrete contract for $5,000. We also know, based on reviewing past projects and the amount of work left to be finished, that we have about $30,000 in work remaining to be completed. So, how do we predict what our future costs will be?

Remaining committed costs:                       $20,000

Remaining in the budget:                             $5,000

Historical data:                                                $30,000

The answer will be somewhere between $25,000 and $30,000, depending on whether we are looking at it for cash flow reasons or to assess what our profit margin is for this particular project. Either way, we are using the three data points to inform our prediction and will continue to improve the accuracy of each prediction as we analyze the data on more projects.

What to do when you’re over budget

The second most important question, after “Are we on budget?” is what to do when you’re over budget. The answer depends on why you’re over budget.

  • If there has been a change in the project scope that affects the budgeted costs but hasn’t been reflected in a change order yet, that could cause an overage.
  • If there was an unforeseen condition, such as bad soil, that caused additional costs, this may cause an overage.
  • Or, if the general contractor or a subcontractor made an error in their work, that could also cause a budget overage.

Depending on the cause, the contractor will need to either ask for a change order or make an internal budget transfer. The internal budget transfer will move excess monies from one line item of the budget to another to help cure the overage. It’s important to note the reason for the transfer for future lessons learned.

How Premier helps you predict future costs

Premier has made forecasting future costs in your projects easier with its forecasting module. Using this module, project managers can account for unexpected costs and request internal budget transfers to cover overages.

To see how Premier can help keep your projects on track, request a demo.

Categories
Accounting Accounting Software Construction ERP Software Features

Real-Time Reporting: The Benefits of Using Software To Track Project Progress

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Guiding a project to the best possible outcome requires lots of information. And, the decisions we make along the way are only as good as the quality of the information we have. With outdated or inaccurate information, project decision-makers could steer the project in the wrong direction. But, with accurate information collected by real-time reporting, decision-makers have the tools to make the best possible decision in much less time.

The value of real-time reporting can’t be overstated, but it’s important to understand its benefits. This guide will explain the most important benefits of using software to track project progress and using real-time reporting to make decisions.

The Importance of Accurate Information

There are a lot of moving parts in every construction project. With one general contractor overseeing dozens of subcontractors, and each of those subs potentially having its own subs, it’s critical to know exactly where the project stands at all times.

But, accurate information is anything but easy to maintain (especially without management software). Manual data entry constantly introduces the potential for errors, cross-referencing and adjusting spreadsheets, and ensuring that all of the important values are updated. It’s tough to maintain a reliable source of data, especially with every subcontractor sending (or not sending) information each day.

On the other hand, when automation software is able to maintain sources of accurate information through real-time reporting, it opens a world of possibilities for builders, developers, and contractors. When issues arise, such as material delays, scheduling challenges, major change orders, and other unforeseen problems, management staff can rely on accurate data to help them make the best decision to solve them.

Accurate information can also help growing contractors take advantage of opportunities (or wisely avoid them altogether). Contractors can look at their current budgets and job progress reports provided by their project management software to determine if they’re in a position to bid on another project, purchase a piece of equipment, or even acquire another business.

Also, general contractors and project management owe it to investors and other major decision-makers to keep them informed with the latest data. They need the latest figures, schedules, and progress reports to ensure their investment is on track, and they expect that information to be on point. Taking outdated information to an investor meeting is a waste of time and energy, for the contractor and the investors, and project management software can ease that risk completely.

The Benefits of Real-Time Reporting

Accurate data is obviously important, but its benefits go beyond investor meetings and growth opportunities. There are benefits to real-time reporting that companies can leverage with their project management software every day. The following are just some of the ways that real-time tracking with the right software can improve how a construction business operates.
Accurate Job Costing
In most cases, job costing, even when the data is accurate, is a losing battle. It takes a concentrated effort to keep the data updated, and the second the job costing report is generated, it’s no longer accurate. The budget and balances keep evolving, meaning that even job costing reports generated in the morning aren’t accurate by the afternoon.

With real-time reporting, however, management and office staff can check their job costing reports at any time to determine where their budgets stand. This not only helps the management staff ensure the project stays on track and under budget, but it also allows drastic changes to be detected sooner.

And the best construction management software programs can be customized to send alerts when drastic changes are going to occur. When an approval will send a budget over, or a withdrawal will send a balance into the negatives, program users can handle the issue before it happens, making the most of real-time reporting.

Reliable WIP Reports

There isn’t always enough time to do a full report on all of a company’s projects when checking to make sure things are on track. While job costing reports are great for detailing where every last penny is going, sometimes a Work-in-Progress report, or WIP report, is more than sufficient to quickly determine how the company’s projects are doing. But, they’re only sufficient if the information is accurate.

With the right software program, management staff can quickly check the status of all their projects’ costs, remaining budgets, overages, pending charge orders and their impacts, and completion percentages on one dashboard. Since this data is available in real-time, management staff know what changes they need to make, if any, to keep all of their projects on track.

Instant Impact from Electronic Approvals

Electronic approvals offer lighting-fast communication and can help push a project forward fast. But, if they’re not tracked properly, they can also send a budget into an absolute spiral without much accountability. Real-time reporting, however, ensures that these approvals are reflected in every line item and budget they impact while also alerting users to potential challenges they may create.

For example, a contractor might set up an approval process for budgetary changes. If a project manager needs to shift money, they can submit a request with an electronic approval requirement. If that item is approved but will send an item over budget, management staff will know immediately. And, if this approval will impact more than just one project, the software program will update all of the impacted items automatically.

Improved Communication

Real-time tracking in construction management software also allows for improved communication. This is obviously in the sense of performing instant document transfers as well as sending and receiving electronic approvals, but software users can often use their software program to set up custom workflows.

For example, users can customize how certain job tasks occur and who is involved. They can program the system to automatically send documents, approvals, updates, alerts, and other specific parties. This could be other management staff, the company executives, project owners, project managers, and other folks that need to approve, deny, or simply be aware of pending changes. And, any approvals or denials are tracked, ensuring there is accountability across the board.

To-The-Moment Materials and Equipment Inventory

Real-time tracking can be a huge boost to inventory management and purchasing. With construction management software, inventory managers will know exactly how much of each material item they have in stock. With customizable part numbers for materials and stock, they’ll be able to organize and track all of the materials they have across any number of warehouses or yards.

The same applies to equipment usage. Construction management software allows users to track where the company equipment is and who signed it out. Users can even set up custom hourly rates for all of their equipment, allowing them to bill more accurately. And, since these items are tracked in real-time, they can automatically impact job costing and WIP reports for the most accurate and up-to-date information,

How Construction Software Impacts Project Management

Construction software’s impact on project management is a game changer. With real-time tracking and automated updates, the company knows it’s always working with the latest and most accurate information. This allows personnel to make informed decisions, ensure the project stays on track, and run their businesses as smoothly as possible.