Work in progress (WIP) refers to any work that has been started but isn’t yet finished, and in business it specifically means the costs that have been invested in something that hasn’t been completed or sold. The term shows up in manufacturing, construction, professional services, and project management, with slightly different meanings in each context. Understanding WIP matters because it directly affects how a business values its inventory, recognizes revenue, and manages workflow.
WIP in Manufacturing and Production
In a manufacturing setting, WIP represents products sitting somewhere between raw materials and finished goods on the factory floor. A car that has its frame and engine installed but hasn’t been painted or fitted with seats is work in progress. The value of that partially built car includes three cost components: the raw materials already used, the labor hours spent assembling it, and a share of overhead costs like factory rent and equipment depreciation.
Accountants calculate WIP value by assessing the percentage of total raw material, labor, and overhead costs already incurred for items still in production. Overhead allocations are typically based on labor hours or machine hours. If a product requires 10 hours of machine time and has used 6 so far, 60% of the allocated overhead gets assigned to its WIP value.
On a company’s balance sheet, WIP in manufacturing is reported as a current asset, grouped alongside raw materials and finished goods under inventory. It sits between those two categories in the production lifecycle: raw materials haven’t been touched yet, WIP is partially complete, and finished goods are ready to sell.
Work in Progress vs. Work in Process
These two phrases sound interchangeable, but they carry different meanings in accounting. “Work in process” typically describes partially completed goods in repetitive manufacturing, where standardized products move through a predictable set of steps and are usually finished within a short period. A batch of smartphones moving through an assembly line would be work in process.
“Work in progress” refers to longer, larger undertakings, often tied to construction or capital asset development. Building a bridge or a commercial high-rise might take years to complete. Because these projects span such long timelines, work in progress is usually reported as a noncurrent asset on the balance sheet, unlike the current-asset treatment for manufacturing work in process. Construction companies also use “progress billings,” getting paid based on the percentage of a project that’s been completed rather than waiting until the entire project wraps up.
In everyday conversation, most people use “work in progress” for both situations, and context usually makes the meaning clear. But if you’re reading financial statements or working in accounting, the distinction matters for how costs are classified and reported.
WIP in Professional Services
Law firms, consulting agencies, and other service businesses use WIP to describe work that’s been performed but not yet billed to the client. If a lawyer works 20 hours for a client during the first three weeks of a month but doesn’t invoice until month’s end, those 20 hours represent WIP, sometimes called unbilled revenue.
This matters because a firm’s WIP balance directly affects its cash flow and financial health. A company might be doing plenty of work, but if that work sits unbilled for weeks or months, the revenue doesn’t show up on the books yet. Tracking WIP helps service firms understand the gap between effort expended and money collected, and it plays a key role in revenue recognition, which is the process of recording income in the correct accounting period.
WIP Limits in Project Management
Outside of accounting, WIP takes on a different but related meaning in project management, especially in agile and Kanban workflows. Here, WIP limits are caps on the maximum number of tasks that can exist in any single stage of a workflow at one time. A software team might set a WIP limit of three items in their “in review” column, meaning no more than three tasks can sit in that stage before someone finishes reviewing one.
The purpose is to prevent teams from starting too many things at once and finishing none of them. WIP limits force a team to complete existing tasks before picking up new ones, which reduces context switching (the mental cost of jumping between unrelated tasks) and improves throughput. When a column hits its WIP limit and work stalls, it makes bottlenecks visible. The team can see exactly where things are piling up and address the root cause rather than simply starting more work elsewhere.
Teams that use WIP limits consistently tend to deliver work faster, not because they work harder, but because they focus on fewer things at a time. The principle applies well beyond software development. Any team managing a flow of tasks, from marketing campaigns to customer support tickets, can benefit from capping how much work sits in any given stage.
How WIP Costs Are Tracked
Businesses use two main approaches to track WIP costs, depending on what they produce. Job costing assigns costs to a specific, identifiable job or project. A custom furniture maker, for example, tracks the materials, labor, and overhead for each individual order. This makes it straightforward to see the WIP value of any single job and helps with both pricing and tax reporting.
Process costing, on the other hand, pools costs across large batches of identical or nearly identical products. A paint manufacturer producing thousands of gallons of the same color doesn’t track costs per gallon. Instead, total costs are accumulated for the entire production run and divided across all units. WIP under process costing is calculated by estimating how far along the batch is as a percentage of completion, then applying that percentage to total costs incurred.
Both methods aim to answer the same question: how much money is tied up in things we haven’t finished yet? That number matters for inventory valuation, tax obligations, and understanding whether production is running efficiently or whether too much capital is sitting on the factory floor in half-finished form.
Why WIP Matters for Any Business
Whether you’re running a factory, a consulting practice, or a software team, WIP is essentially a measure of investment that hasn’t yet produced a return. In manufacturing, high WIP means capital is locked in products that can’t be sold yet. In services, high WIP means work has been done but hasn’t generated an invoice. In project management, high WIP usually means the team is spread too thin.
Keeping WIP under control is one of the most practical things a business can do to improve cash flow and efficiency. Lower WIP in a factory means faster turnaround and less money tied up in inventory. Lower unbilled WIP in a service firm means invoices go out sooner and cash comes in faster. Lower WIP on a project board means the team finishes what it starts. The concept is simple, but the discipline of measuring and managing it separates well-run operations from chaotic ones.