Every underwriter I've ever spoken to says the same thing: they can tell within two minutes of opening a WIP schedule whether the contractor's finance team really understands their own jobs.
The WIP schedule is the single most scrutinized document. More than the balance sheet. More than the income statement. Because it tells the story of every active job - whether revenue is being recognized correctly, whether the contractor is billing appropriately, and whether profit is holding.
After 15+ years in construction finance, I've seen the same mistakes appear on WIP schedules over and over again. Here are the five mistakes to look out for:
1. Estimated cost to complete is a plug / stale number
The most important input on a WIP schedule is the estimated costs projected at completion (“PAC”). Unfortunately, it’s also the one most likely to be wrong. When the cost PAC is obviously stale or unrealistic, it calls into question everything downstream: the percent complete, the earned revenue, and the projected profit.
Issues I see: PAC figures that haven't moved in three months on an active job. PAC figures that are suspiciously round numbers. Jobs where the PAC is lower than the costs to date.
What to do: Require project managers to formally review and sign off on their cost PACs every month before the WIP is finalized. Make it a documented process, not an afterthought. The costs should reflect what it will actually cost to finish the job - not what you wish it would cost. Be realistic!
Quick test: Pull your last three monthly WIP schedules. Find three active jobs. Has the cost PAC changed month-to-month in a way that reflects actual field conditions? If every job shows the same cost PAC for three consecutive months, you need to revamp your process.
2. The WIP doesn't reconcile to the general ledger
Your WIP schedule shows costs incurred to date. Your general ledger also shows costs incurred to date. These numbers should match (to the dollar) for every active job.
They often don't, for a variety of reasons: costs posted to the wrong account, accruals that hit the GL but weren't included in the WIP update, and/or a job that was dropped from the WIP as complete ended up having additional costs.
What to do: Build your GL with specific job cost accounts and reconcile those accounts to the job costs on the WIP as part of your month-end close. A WIP that ties to the GL signals the company has a solid understanding of its costs.
3. Over/under billing trends that go unexplained
A single month of significant underbilling on a job isn't necessarily a problem. A pattern of underbilling on the same job for a long period of time or multiple jobs at a time can quickly become a cash flow crisis.
I always look for jobs that have been consistently underbilled without explanation, underbillings that are growing as a percentage of contract value, or a large underbilling balance at the company level with no narrative to explain it.
What to do: If possible, include a brief narrative with your WIP that explains any significant over or under billing positions. "Job #113 is underbilled by $380k due to a 60-day owner billing cycle per the contract." In addition, always review underbilled jobs to see if you can speed up the billing cycle on your side.
4. Profit fade with no explanation
Profit fade, when a job's projected gross profit shrinks from month to month, is one of the loudest red flags a WIP schedule can show. It suggests either the original estimate was wrong, costs are running over, or scope has expanded without a corresponding change order to the contract price.
A single job showing fade is a project management issue. Multiple jobs showing fade simultaneously suggests a systemic estimating or cost control problem, which is a big concern.
What to do: Track profit by job month-over-month and flag any job where projected profit has dropped more than 5% from the prior month. Investigate before the WIP goes out. If there's a legitimate reason like an unresolved change order, weather delays, or a known material cost spike, document it.
The rule of thumb: If you'd be uncomfortable explaining a line item to your underwriter face to face, it needs a note on the WIP before it leaves your office.
5. The format doesn't match what the underwriter expects
This one sounds trivial but it's not. Underwriters review WIP schedules from dozens of contractors. They have a mental model of what a well-prepared WIP looks like: standard column headers, clear subtotals, a column for revised contract value, a column for billings to date, earned revenue clearly calculated.
A WIP schedule in a non-standard format with missing columns, an unusual layout, no subtotals, or jobs sorted in a confusing order, can create doubt and make it hard for the underwriter to understand your active jobs.
What to do: Ask your underwriter what format they prefer before your next submission. Most have a template or a strong preference. Build your WIP to match it as best you can, then use it consistently every single month.
The bottom line
A good WIP schedule is accurate, reconciles, has a documented process behind it, and tells the story of the jobs clearly enough that an underwriter doesn't have to guess.
If your WIP schedule is a mess and you're not sure where to start, I'm available. Whether it's a one-time review of your WIP schedule, help preparing for an underwriter, or ongoing fractional CFO support - I'm happy to talk. Reply to this email and we'll set something up.
Paid resource: Coming soon - a WIP schedule template pre-formatted to the layout most underwriters expect to see with built-in formulas, monthly calculations, and back-log tracking. I’ll announce it here first when it’s ready.