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How do write-offs and write-downs affect services firm performance?
Write-offs reduce the value of WIP or invoices you will not recover, and write-downs reduce billed value below recorded time value. Both lower realisation and profit, and indicate scoping, pricing or quality problems that need fixing.
Formula in words: write-off rate equals value written off divided by value recorded or billed, multiplied by 100.
It matters because a small percentage across many projects adds up to a large figure.
Commonly misread:
- Treating write-offs as unavoidable cost rather than a signal about estimates, scope control or staff training.
- Failing to record the reason, so patterns cannot be found.
- Looking only at the firm total and not by client, project manager or work type.
Record reason codes and review them regularly with project owners.
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