AutoPilot
  • Home
  • The Team
  • Blog
  • Client resources
    • FAQ
    • Release notes
    • Next release
    • Support
    • Manuals
  • Search
  • Menu Menu

Why do written off expenses feature in ‘Work in Progress’ for lump sum work packages?

Published by Blogger on 16/02/2017

In AutoPilot Work in Progress (WIP) tells us what the value of the stock is. The trick is here to determine the value of the stock as accurately as possible. Basically, it is about the value of produced own work, subcontracted work and expenses. To determine the value of WIP the work that has already been invoiced is deducted. In this blog, we will explain why written off expenses feature as value in WIP for lump sum work packages even though they cannot be invoiced.

Lump sum work packages

When a lump sum is created, expenses should be stated in advance. Expenses cover non-chargeable expenses and amounts for sub-consultants. Furthermore, it is just as important to continuously review the fee breakdown, if circumstances change. As expenses are  stated they are deducted from the total fee. What we have left is the fee that should cover own work. This way you get an overview of the fee that needs to cover own work. It is important when planning those hours that are needed for a project.

What do you risk by not stating any expenses in the fee breakdown?

If you do not set aside amounts for the costs, then you risk planning using more than is available for own work. That means that the costs are not allowed for in the calculation of the expected current rate of return. The consequence is that the work package is completed with a worse rate than the expected current rate of return you see in planning. On the other hand, if you maintain the amount set aside for costs, then you can always plan based on the actual fee that is for own work.

Calculation of work in progress

In the calculation of WIP written off expenses have a positive value so the expenses are not deducted twice. It is easier to explain using an example.

In a work package with a total fee of £10,000 we may set aside £1,000 for expenses. That means we have £9,000 remaining for own fee. So already in the fee breakdown have we deducted the expenses from the total fee. Therefore, written off expenses are added positively in the calculation of WIP so they do not get deducted twice. This way it balances with the amount that was set aside for expenses when the work package was created. The purpose of deducting the expenses from the total fee is to be able to calculate the value of own work.

Below is a case based on our example. To calculate the value of own work for lump sum projects you multiply cost with rate of return. We assume here that the expected current rate of return (CRR) is 2. In example 1 we multiply £2,250 by 2 and get £4,500.

Total fee £10,000, Set aside for expenses £1,000, CRR = 2

If WIP is negative, it is because you are ahead in regards to invoicing the client related to the work you have completed. But if WIP is positive, you are behind in invoicing related to the work you have completed.

For work packages where an amount has been set aside for expenses, own WIP will be negative, because what you invoice the client also must cover the amount set aside to cover expenses. Therefore, invoiced own fee will be higher than the value of own work and thereby own WIP becomes a negative amount. On the other hand, WIP expenses will be positive even though the expenses cannot directly be invoiced. These expenses are covered by the amount set aside for expenses and figure as value in WIP as they are used. Therefore, expenses with a positive value figure in the calculation of WIP, even though they have been written off.

Time charge basis work packages

For time charge basis work packages WIP expenses are simpler. To calculate WIP expenses you deduct written off expenses and invoiced expenses from the sales price of the expenses incurred for the work package. That is straightforward, but in some cases, it may look like the calculation doesn’t add up. Often, the reason for this is that the column featuring written off expenses has not been enabled. If it is not enabled, then a piece of the calculation of WIP expenses is missing.

To solve the above problem, you can put a check mark next to ‘Written off expenses’ in the ‘View’ menu to enable the column. This way you can get an overview of the written off expenses that you yourselves must cover and the calculation for WIP expenses will add up.

For a more technical explanation of WIP for both lump sum and time charge basis work packages, please go to the online manual Work in Progress.

  • Share on Facebook
  • Share on Twitter
  • Share on WhatsApp
  • Share on Pinterest
  • Share on LinkedIn
  • Share on Tumblr
  • Share on Reddit
  • Share by Mail
You might also like
Get the overview by planning with internal transfer
What do you gain by allocating fees to activities?
Recent
  • AutoPilot moves to London14/09/2020 - 11:40
  • We have recently welcomed our newest clients: LA archit...10/08/2020 - 12:25
  • Corona Update12/03/2020 - 13:01
  • New UK clients: Guarda Landscape and NestaDot Ltd11/03/2020 - 14:40
Popular
  • Hand in your timesheet daily and you will get up-to-date...25/04/2017 - 13:13
  • Analysis of the architect industry 201511/05/2016 - 14:25
  • Does it pay to use AutoPilot?13/06/2017 - 13:05
  • CEO Jørgen Korsgaard presents at The Liveable City in ...28/06/2016 - 14:14

Newsletter

Areas of interest

Privacy policy.

Contact



    This site uses cookies © AutoPilot ApS.

    Unless noted, all prices are in DKK ex VAT.

    Get the overview by planning with internal transfer Competent project management creates job satisfaction and financial profit at...
    Scroll to top

    Ved fortsat brug af sitet accepterer du vores brug af cookies og privatlivspolitik.

    OKNej tak

    Cookie and Privacy Settings



    How we use cookies

    We may request cookies to be set on your device. We use cookies to let us know when you visit our websites, how you interact with us, to enrich your user experience, and to customize your relationship with our website.

    Click on the different category headings to find out more. You can also change some of your preferences. Note that blocking some types of cookies may impact your experience on our websites and the services we are able to offer.

    Essential Website Cookies

    These cookies are strictly necessary to provide you with services available through our website and to use some of its features.

    Because these cookies are strictly necessary to deliver the website, refuseing them will have impact how our site functions. You always can block or delete cookies by changing your browser settings and force blocking all cookies on this website. But this will always prompt you to accept/refuse cookies when revisiting our site.

    We fully respect if you want to refuse cookies but to avoid asking you again and again kindly allow us to store a cookie for that. You are free to opt out any time or opt in for other cookies to get a better experience. If you refuse cookies we will remove all set cookies in our domain.

    We provide you with a list of stored cookies on your computer in our domain so you can check what we stored. Due to security reasons we are not able to show or modify cookies from other domains. You can check these in your browser security settings.

    Other external services

    We also use different external services like Google Webfonts, Google Maps, and external Video providers. Since these providers may collect personal data like your IP address we allow you to block them here. Please be aware that this might heavily reduce the functionality and appearance of our site. Changes will take effect once you reload the page.

    Google Webfont Settings:

    Google Map Settings:

    Google reCaptcha Settings:

    Vimeo and Youtube video embeds:

    Accept settingsHide notification only