Work in progress monitoring tool

Whether your company manufactures goods or supplies services, work in progress (WIP) control is an important element of working capital management. Excess WIP costs money and in the worst cases can end up being unbillable. Monitoring WIP on a monthly basis could be the answer to this risk.

Measuring wip

In manufacturing, WIP comprises partially worked materials which are not ready for sale, whereas in services, WIP is made up of partially completed or completed projects that are not yet invoiced. In both cases, working capital has been used up, whether to purchase materials or to pay labour and to cover the cost of your overheads. There are many ways to manage the level of WIP including forecasting demand, tighter sales and purchase contracts, quicker turnaround into sales as well as examining production methods and costs.

However, managing WIP starts with calculating its value and this should be done on at least a monthly basis with our Work In Progress Monitoring Tool. It leaves space for all costs of production and an allocation for production overheads to be included in your monthly WIP calculation.

In its simplest form, for management accounting purposes, WIP is valued at cost (Sheets 1 and 2 of work in progress monitoring tool) although companies in the service sector often value WIP at selling price in order to comply with accounting standards (Sheets 3 and 4 of work in progress monitoring tool).

Use your accounting system to provide the elements of WIP held by the business at the month-end.

Write-offs

Whatever WIP has cost the business, its value depends on a customer being prepared to buy the finished article. Not all WIP is ultimately saleable. For example, in manufacturing there is wastage, and in services work carried out beyond the client’s fixed fee quote.

Review the component balances within work in progress monitoring tool each month (or quarter) and record a write off for any unbillable WIP.