Work in Progress is an ever present danger. High utilisation, high realisation, low variance of actual fees against standard fees, good gross margins – these are all good signs at a professional services organisation, assuming volumes of work hold steady, but even if these signs look good your organisation might still be in trouble if your work doesn’t get turned into revenue, and your revenue doesn’t get turned into cash. Cash is worth more than invoices, and invoices are worth more than unbilled time. Don’t kid yourself that it’s otherwise!
So it’s vital that you keep an eye on Work in Progress – all the time and expenses that you haven’t yet invoiced. For a start, the older the work in progress, the lower it’s value tends to be. There’s often a reason why you can’t bill it. You may be in discussions with a client about how much of it you can invoice. Or it may be that you’re deep into a fixed price project and you’re overrunning on time. Either way, not only should you know how much work in progress you’ve got on your books, you also need to know whether you should apply provisions to it to reflect the fact that it probably doesn’t have the value you wish it had.
Keeping an eye on both Work in Progress Days and Value is the best way of tracking your vulnerability and assessing your risk.
Read more in Work in Progress.