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Breakdown Structures Can Improve Your Cost Management

By PRICE® Customer Success TeamMay 19, 2020

In our research on project management and cost estimation, we often come across three different “breakdown structures” which are useful in dissecting a project from various points of view. The work breakdown structure (WBS) is oriented around project deliverables; it breaks a system down into subsystems, components, tasks and work packages. The organization breakdown structure (OBS) shows the structure of the organizations involved in the project, including how these organizations break down into sites, divisions, teams, etc. Finally, the cost breakdown structure (CBS) examines a project in terms of useful cost categories, such as budget appropriations.

These structures are useful for a variety of tasks. The WBS aids in defining scope and developing project plans. The OBS clearly defines the different groups involved in the project, and how they are relate to one another. The CBS is useful for project budgeting. Upon studying the relationship between these structures, a picture of a cube emerges, which yields more useful insights.

Looking at the intersection of the WBS and OBS, you can get a clear understanding of who is assigned various responsibilities, which clarifies ownership of tasks and facilitates communication. The intersection of the CBS and the OBS can help you monitor budgets across divisions of your organization. The WBS and CBS join to show how the project breaks down according to your budget and colors of money. Each of these three structures is inherently related, and one major feature tying them together is that each structure is inextricably linked to cost.

For an organization to have successful cost management, the decision-makers must truly understand the costs involved. Since all three structures are used by various decision-makers, cost estimates must be organized to match their unique point of view. Structuring a cost estimate such that it can be mapped to a WBS, OBS, and CBS is crucial in supporting cost management. As a cost researcher and designer of cost estimation solutions for TruePlanning, these ideas are considered when designing new solutions. In my next blog, I’ll dig further into the relationships between these 3 structures as it relates to estimating Total Ownership Cost.