WIP (or Work in Progress) is something that project managers may often neglect. However, your financial controllers pay very close attention to this. WIP basically is all the work performed on a project that is not yet invoiced. Obviously organizations like to keep this value as low as possible to minimize risk and exposure on projects (WIP is basically a liability to a company in that it’s money expended on a project but not yet owed to them by way of invoicing). Project managers control WIP by ensuring that invoices are submitted regularly (basically invoices decrease your WIP by transferring funds from an unbilled state to a receivable state). This post will give three tips for effectively managing your WIP.
Clearly Defined Billing Triggers
When planning your project (or even your statement of work), it’s critical that you have very clearly defined triggers for invoicing your client. This is just as important for time-and-materials projects as it is for fixed price. Confirm with your client what they can expect for invoices from you and when (i.e. what will trigger the invoice and when you expect that trigger to happen). Getting your customer to agree to the billing schedule will help you ensure that you can control your WIP and not let it get too large, provided you adhere to your planned (and confirmed) billing schedule.
Constant Monitoring of WIP, Timesheets & Progress
What gets measured, gets done. When managing WIP, you need to keep a constant eye on it as it will accumulate very quickly, especially with larger project teams. Work with your organizational leadership to understand what the WIP tolerances are and where your attention needs to be given to reducing your WIP. Understand what progress is being made (you should be doing this anyways) and compare that to the time being logged to your project and measure your progress against your WIP to ensure that you are getting value from the team charging to your project. Reporting can be set up rather simply to measure WIP – just take all the time records that have not yet been invoiced to your customer (or attributed to a yet-to-be-invoiced deliverable. Stack that up against your organizational thresholds to make sure that you are taking action at the right time to make sure that your WIP does not reach an unacceptable level.
Adjust with the Project
As your project progresses, you are likely to experience changes to the project. New scope, altered deadlines, changing customer needs and commitments can all change how a project is executed and delivered. In order to keep your WIP in a manageable state, always review this on every project change (adding this to your change management process is a good idea).
When altering your project (assuming via change request), be sure to make sure that your WIP is also considered – perhaps it’s adding a new invoice to support additional scope or services.