We all know attending one more meeting each week is everyone’s favorite thing to do. Having your work questioned ranks right up there with it. Getting operations and accounting to speak the same language can feel like pulling teeth, and no one has found that magical crystal ball on Amazon yet.
But what if we could? What if there was a way to be one step ahead of the common issues seen in projects that affect the work-in-progress (WIP) financial reporting? Identifying these things sooner can potentially result in higher job margins, increased profitability, and improved internal and external relationships. This article will offer tips to help improve the effectiveness and efficiency of WIP reporting so all players can reap the benefits.
Who is involved in the meetings?
At a minimum, an accounting and operations representative should communicate on project status monthly—typically during accounting close. Twice a month also could be helpful, depending on the nature and average cycle of projects. Whether these are formal staff meetings or just quick one-on-one note-taking sessions can depend on the organizational environment. Some organizational structures might have project accountants who are responsible for meeting with operations and gathering all the data necessary to build a WIP report for the projects they are assigned, which is to be provided to the accounting and finance department for final WIP generation. Others might have the accounting and finance department completing the entire process themselves.
Operations representatives involved in the meeting should be those closest to the action or with the best knowledge of the real story. These are the individuals who live the job, so to speak. They know if subcontractors are causing delays, if materials are adequate and delivered timely, how the crew is performing, and if the project is actually on schedule. This can include project managers or superintendents. If the estimator is different than the project manager, consideration should be given to including estimators as well.
What does the meeting look like?
Ultimately, it is just a normal conversation, but there are a few suggestions to help facilitate the dialogue between accounting and finance and operations.
- Consider meeting with the operations personnel in their office and not the conference room to discuss items so they are more at ease.
- Meet in the middle—learn the basics of each other’s language. If the accounting and finance department can use the proper operations terminology, this starts a rapport and helps guide the discussion down a more open path.
- Show empathy by understanding some individuals may initially take questions as accusatory or become defensive.
- Remember the purpose of these meetings. As you work through this process, there will be ups and downs. It is important for everyone to be cognizant of the bigger picture.
- Offer possible scenarios, using appropriate technical vocabulary, as explanations when asking questions. This not only demonstrates an understanding of the basic operations world and will be appreciated but also helps gain credibility.
A best practice to consider would be to create a dashboard that identifies the project manager and estimator and highlights each job with a financial information section and a notes section. This can make it easier for both parties to stay on point and not rehash old information while focusing on current updates. A maturity goal for this practice could be to house the reports on a shared drive so updates to the notes can be made and reviewed as they happen. Meetings then become streamlined to clarify and verify the information noted. Maintaining a collection of these dashboards also allows you to create a lessons learned library to refer to as new work becomes available for bid in similar genres.
What is on the agenda?
The breadth of points to discuss in each meeting can be very granular or take a 20,000-foot approach, but it should align with the company’s strategic goals. Some best practices for suggested points to address include:
- Projects reporting greater than 100 percent complete
- Billings to date greater than estimated contract
- Negative backlog
- Loss jobs
- Large over- or underbillings
- Receivable status
- Estimated gross profit on projects greater than 90 percent complete in detail
- Schedule—on target or delayed?
- Any potential cost issues, such as claims, subcontractor performance issues, or rework possibilities
Other matters may come up on a case-by-case basis that are more specific, but this list is generally a good starting point.
What are the benefits?
Regular WIP meetings aren’t just an attempt to take up time in the day. There are certainly pros to outweigh the cons of filling a slot on your calendar. First, keeping these conversations fresh leads to maintaining a better pulse on the accuracy of job margins. This can lead to better management of any fade and also help increase any additional profit to be gained. It is important to note that just because a project is reporting positive margins within the estimate does not mean there’s nothing more to gain to beat the estimate.
Having an open dialogue surrounding job cost status also is a proactive approach to creating a space that discourages complacency, promotes an expectation to remain alert to potential issues, and works to circumvent surprises (at least the bad kind). Timely discussions further result in more accurate forecasting because the information being analyzed has not gotten too stale, giving it more integrity. This can help strengthen relationships internally by demonstrating an effort to learn outside of the financial world and relay more timely financial information to the operations sector. It also helps to gain external confidence with the bank, bonding company, and other users of the financial reporting package.
The discussion doesn’t always have to center around job cost though. In fact, it shouldn’t. Using the focused attention wisely is an opportune time to discuss any potential collection issues. This can save the exercise of attempting to file a lien under pressure because the clock has almost run out, as an example. A positive result would be learning the owner representative advised the project manager that payment will be made in the next week. It’s also the perfect time to give the signal to start the payment workflow.
Overall, open and consistent communication is a good thing. Once monthly WIP meetings become a regular process, the benefits become clear on both sides of the table. Even though the positive effects likely will not happen overnight, continue to engage the conversation. Learn the language and focus on the important pieces of the puzzle.
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