How to break the cycle of recurring WIP problems

Why the same WIP problems come back every year

Everyone's busy and nothing's moving. It's a familiar feeling for practice owners, and it's usually a WIP problem: plenty of work happening, not much of it turning into money. And it repeats. Same pile-up, same June clean-out, same conversation twelve months later. The habits haven't changed, so the curve doesn't either.

WIP is inventory, and lower is better

WIP is your inventory, and like any inventory it's a current asset you don't want much of. Most firms carry about two months of it, which is neither unusual nor shocking. Getting to one month frees up a whole month of invoicing and leaves it in your bank account all year. The cash maths is unforgiving. Two months of WIP plus a month of debtors is 90 days of paying wages at a 67% gross margin, which is roughly cash zero before overheads. That's a permanent overdraft, without anyone ever making a bad decision.

The real cost is the question mark

WIP is a cloud of confusion hanging over every client, every job and every person all year. Sitting down to reprice a client, you can see twelve months of invoicing and twelve months of time, then ten thousand dollars of WIP that might be invoicing and might be write-offs. Nobody knows yet. Same with a pay review. It's hard to tell Susan she's earned a rise when two months of her effort is still unresolved. Shrink the cloud and better decisions on pricing, jobs and people follow almost by accident.

Most of the old measures no longer work

Aged WIP died when firms started invoicing in advance. A 30/60/90 view only holds if you invoice 100% in arrears, not 99%, because time on a fixed fee job ages while the deposit invoice offsetting it doesn't. WIP days have the same problem. So do individual WIP targets. Tell Sarah to keep her WIP under $30k and it will look massive anyway, because the invoices on her jobs sit at job and client level until wash-up.

There are only three WIP curves

Level gets all the attention. Shape gets none. Plot your closing WIP across the last twelve months and you'll be one of three shapes. The rocket ship and cliff climbs all year and gets written off in June. The big squiggle means you can see the problem and only fix it once it gets bad. The low squiggle is what good looks like. The target isn't complicated: what your firm invoices in a year, divided by twelve. Two months' worth is the upper limit of acceptable.

The dog with two owners dies

Accountability can't live at an individual level, but it works at job manager, client manager or partner. Pick one of those boxes, put one name in it, and make that person responsible. Not two. When more than one person is responsible, nobody is. And it only holds if that person also has the authority to act. Asking a manager to own a WIP balance they can't write off without three signatures isn't accountability.

WIP problems don't repeat because the work is hard. They repeat because nobody's name is on them.