How to Calculate Percent of Work Completed in Construction

February 5, 2024

In construction, percentage of work completed is the measure of how much of the project’s scope has been accomplished. This is an important measurement to determine whether the project is on schedule and within budget, or if it has fallen behind or overbudget. It’s also important to make regular assessments of the completion percentage so that any issues can be identified and resolved quickly.

The percentage of completion method is an accounting strategy that recognizes revenues on a project-by-project basis, depending on the company’s progress toward satisfying its performance obligations under the contract. This method is similar to the completed contract method, but differs in that the contractor must be able to estimate when it will reach the point of substantial completion. This method is commonly used in construction, but it can be applied to other projects with a long duration as well.

To calculate the percent of completion, a contractor compares its actual costs incurred to its estimated total cost at the beginning of the period. This number is then multiplied by the total contract amount to determine how much revenue can be recognized during that period. The calculation can be done using different measures, including units or labor hours, depending on the nature of the business. The result is reported in the work in progress report on the income statement.

It is important to keep in mind that project expenses never exactly match the estimates made at the beginning of a project. Keeping track of these differences can help contractors avoid cash flow challenges when the actual expenses are greater than what’s been billed.

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