In construction, money is made in the field. The general ledger is just a scorecard. Realizing this, CFOs and controllers in construction companies are getting more engaged with their operations counterparts. One way some constructional financial managers (CFMs) are doing this is through a monthly work-in-progress (WIP) meeting.
Why have a WIP meeting?
As a CFM, you probably already touch base with your project managers to get project profit forecasts. A formal meeting takes that interaction to the next level and many contractors find it’s a good habit to get into. Why? Because it’s a forcing event for everyone involved, particularly project managers who are juggling many priorities and dealing with constant interruptions. A formal meeting forces project managers to think about their projects from a different perspective.
Who should attend?
Often these meetings are kept to a small number of essential personnel. Typical attendees include the company CEO or president, CFO or controller, and, of course, the company’s project managers. In larger organizations, an executive vice president or relevant division vice presidents might attend.
What should be covered
There are two key variables that need to be incorporated into every WIP schedule and, therefore, answered in your monthly meeting:
- What is the total projected cost to complete the project?
- What is the anticipated final contract amount for the project?
The difference between these two variables is the forecasted profit. Meetings can be structured in a variety of ways to get to these variables and reliable profit projections. Some of the things that can be discussed include, by project:
- Schedule status
- Change orders (pending, approved, executed, and denied)
- Buyout and submittals
- Cash flow
- Outstanding receivables
- Profit and loss variances
- Profit fade or gain (Is the projected profit trending up or down? Why?)
- Any other project related issues that could impact costs and profit
How to make the meeting effective
I’ve heard some project managers say that their forecasts are always changed by the CEO and CFO. If the numbers project managers provide are usually altered without explanation, project managers are going to question why they should take the time to do the work. View the WIP meeting as an opportunity for meaningful conversation. Ask project managers to help you understand their numbers. And, in return, help them understand the risks and other factors they may not be aware of. The best is to work together to restate the forecast based on that conversation.
The WIP meeting shouldn’t be just a report out of the numbers. It is a time to talk more strategically and tactically about the job. Should you write off a change order? Why were certain changes denied and how can you prevent that from happening in the future? Is it time to apply a notification of lien? How can you mitigate your financial risks? What follow-up actions need to be taken?
How to prepare?
Another key component of any successful WIP meeting is preparation. Project managers need to come to the meeting ready to answer any questions on variations, deviations, and changes. CFMs also play a key role:
- Make sure financial reports are timely and inclusive of everything that can impact the job.
- Provide accurate cost and billing numbers by project manager for each job.
- Assist the project managers with other reports and data they need.
- Help the project managers understand what they are looking at from a cost perspective.
Technology can make your meeting preparation much easier.
Beyond the meeting
The connection between finance and operations shouldn’t be isolated to just your monthly meeting. Introduce finance to the field. Put together a finance training session for your project managers and others involved with the creation of your work-in-progress report. Cover topics such as over and under billings, the importance of an accurate cost-at-completion forecast, and what is required by law. And when new project managers join your team make sure finance training is part of their onboarding process.
I’ve often talked about the importance of relationships in construction. None is more valuable than the collaboration between the finance and operations teams. Look for ways to reinforce that relationship in your own company to improve efficiencies, prevent profit fade, and encourage growth.