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Work Breakdown Structure and Cost Breakdown Structure

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    ABSTRACT

    The purpose of this paper is to carry out an in-depth study of how implementing Work Breakdown Structure and Cost Breakdown Structure will lead to efficient resource planning. Also, there is a need to demonstrate the advantages of integrating both the tools in a firm for resource management.

    As we know in today’s time of global crises, firms need that one extra plus point in order to differentiate it from the rest of the firms. For this reason, this paper presents descriptions of resource planning, WBS and CBS, highlighting the important benefits gained from the tools and what benefits they can bring to organizations if a combined approach is taken.

    For any project to be successful there should be a starting point. Management of resources acts as a stepping stone. Resources are finite; hence there is a need to properly manage them. With proper planning, these resources can be utilized in an optimal way and over or underutilization of resources is hence avoided. This paper focuses on the idea as to how to achieve proper planning; through the use of Work Breakdown Structure and Cost Breakdown Structure. It gives detailed descriptions of the methods and the different ways in which they can be demonstrated. It goes on to talk about the benefits a firm achieves with the implementation of these approaches. And finally, integrating cost elements into a WBS seems to be as the smart move for it associates the costs with individual tasks

    The paper ends with conclusions and proposed recommendations in order to achieve success rates.

    INTRODUCTION

    In this era of globalization, firms all around the world face immense pressure on in order to stay competent and achieve acceptable growth levels. In order to do so there is a dire need to plan out the use of the company’s resources. This is where the term resource planning emerges from. Resource planning is a term used to describe how to manage and maintain resources in the most optimal manner. A successful project is one which is a result of proper planning of an organization’s resources. Resources include human resource, equipment, funds, etc. resources may be storable or non-storable. Storable resources are those resources whose availability remains unless they are used and may require stocking up. Non-storable resources are those which need to be renewed time and again even if they are not used up previously.

    An efficient way to carry out resource planning is through the use of Work Breakdown Structure and Cost Breakdown Structure. A WBS is a structure used by firms to define the work scope of the project. This is achieved by breaking down the bigger tasks into smaller ones and outlining all the smaller activities taking place under a one large single job. It takes the approach of handling the activities needed to be carried out in increments. A CBS is a structure which breaks down the costs related to all the components of the structure. This is also used to compare actually costs with the budgeted costs. A combination of the WBS and CBS makes the project seem much more organized and enables managers to have a finer control over activities.

    This paper discusses in detail the usefulness of both the Work Breakdown Structure and the Cost Breakdown Structure. It would also discuss how implementing both these ideas into resource planning would help firms progress in today’s pressurized time.

    DISCUSSION OF FINDINGS

    METHODS OF RESEARCH

    The research methodology mainly includes secondary sources of information. The information obtained for the idea development of the paper includes the following sources:

    Online research papers
    Websites
    Magazine articles

    WHAT IS RESOURCE PLANNING?

    Before plunging into the full fledge description of Work Breakdown Structure and Cost Breakdown Structure, there is a need to present a full depth understanding of resource planning.

    Resources are required for completion of projects. A lack of a resource may hinder the flow of activities and cause a slowdown in the overall process. Hence, careful planning is an extreme necessity. Resource planning facilitates a systematic workflow and an optimal usage of resources. It is cost beneficial, enables managers to identify loopholes, provides them control over the whole procedure and finally managing the operations becomes much easier.

    With resource planning, businesses are able to define their boundaries as to what should and should not be done given their level of resources. Identification of the business needs and requirements is done in its truest sense.

    Resource planning can take up different forms. They are as follows:

    Human Resource Planning
    Information Technology Resource Planning (ITRP)
    Enterprise Resource Planning (ERP)
    Services Resource Planning
    Manufacturing Resource Planning

    Human Resource Planning

    The most important asset of a firm is probably its workforce. Hence, the need to plan out how to utilize this resource is important. This is just what Human Resource Planning does. It an extensive process that a company carries out in order to ensure that their workforce is up-to-the mark and fit to do their jobs.

    Information Technology Resource Planning (ITRP)

    The main idea behind ITRP is to be able to manage services, customers, measuring performance using performance indicators, identification of stakeholders, generation of reports using information from IT procedures etc.  An Enterprise Resource Planning plays an important role in ITRP.

    Enterprise Resource Planning (ERP)

    An ERP is a software system which integrates the operations and information of various departments in order to better manage its resources, carry out business functions accurately and store and transfer information in real time. Some of the advantages are proper communication, information availability in real time, minimizing human error, keeping data centralized, tracking of revenue and profits, identification and elimination of inconsistencies within the firm to name a few. Also security features are provided in order to avoid incorrect utilization of resources.

    Service Resource Planning (SRP)

    An SRP system focuses on the maintenance of the skills, availability and functions of resources, both internal and external, that can be assigned to a job. It also involves searching for that best resource fit to carry out the task and finally the assignment of the job to that resource in a cost effective manner.

    Manufacturing Resource Planning

    Manufacturing Resource Planning, abbreviated as MRP II, is a method used by manufacturing companies to effectively utilize their resources. The focus of this method is to productively use human resources of the firm. It is a combination of skills of the workforce, a resourceful database and other computer resources. Some basic modules of an MRP II are Capacity Requirement Planning, Master Production Schedule (MPS), Material Requirements Planning (MRP) and so on.  The MRP II integrates these modules along with other systems working alongside to enable a free flow of information exchange.

    The above mentioned forms of resource planning all revolve around the idea of effectively managing the different types of resources and utilizing them in the best possible way. All of the different forms of resource planning benefit from the use of a Work Breakdown Structure and Cost Breakdown Structure.

    WORK BREAKDOWN STRUCTURE

    As discussed in the paper earlier, a Work Breakdown Structure simplifies a complex project into smaller and manageable parts. This structure can be used for easier assignment of job responsibilities, a more efficient resource allocation, and for better overall control of the project.

    Employees of the firms being the most useful resources are assigned these smaller components to be worked upon. Employees may work individually or in a group depending upon the task itself. They are provided with equipment and other useful resources in order to assist them to complete the job.

    Representation of a Work Breakdown Structure (WBS)

    A Work Breakdown Structure can be represented using a block diagram as well as an outline form.

    Figure 1.1 below illustrates a typical WBS.

    Figure 1: A Work Breakdown Structure Hierarchy

    It displays a number of levels that a project can be divided into depending upon its complexity. The top most level consists of the block of Project itself. The next level represents the number of Tasks the project is broken down to. Further down, each of the tasks is divided into smaller components and are represented by blocks of Sub Tasks. In the lowest level, these sub tasks are broken into Work Packages.

    Each of the blocks is assigned numbers. This enables the tracking of all operations easy.

    Figure 1.2 is another representation of a Work Breakdown Structure in an outline form.

    Level 1
    Level 2
    Level 3
    Task 1

    Sub Task 1.1

    Work Package 1.1.1

    Work Package 1.1.2

    Work Package 1.1.3

    Sub Task 1.2

    Work Package 1.2.2

    Work Package 1.2.3

    Work Package 1.2.3
    Task 2

    Sub Task 2.1

    Work Package 2.1.1

    Work Package 2.1.2

    Work Package 2.1.3

    Figure 2: An outline form of a Work Breakdown Structure (WBS)

    Certain situations arise where representation by a block diagram becomes quite complicated. This usually happens in extremely large and complex projects where there may be hundreds of thousands of activities in all. Hence, an outline form seems like a more appropriate approach.

    Different Terminology for Levels

    The terminologies used for operations in each level are not rigid. There exists no hard and fast rule for their usage. Different terminologies are used in different firms for no specific reason. The terms phase, entry, and activity may be used also.

    Accuracy in the Level of Detail

    Breaking down tasks into smaller components is always a suitable approach in the management of a project. However, care should be taken on the depth of the structure, that is, on the number of levels. Even though, breaking down the project helps in efficient resource allocation to each activity and in the assignment of job responsibilities, too much detailing may result in micro-management. On the other hand, too little detailing may result in tasks being too large to handle and inconsistencies may arise. With both extremes, it is likely that too little or too many resources may be allocated to the tasks. Hence it is important to find that right balance of detailing.

    Advantages of Work Breakdown Structure

    The Work Breakdown Structure plays a vital role in the resource planning process. It contributes immensely to resource management. Following are the advantages a firm may derive using a WBS:

    A strong foundation of resource planning
    Accurate identification of dependencies
    Accurate estimation of activity durations
    Facilitation in the overall resource allocation procedure
    Efficient assignment of job responsibilities to individuals
    Flexible
    Easy to understand and develop
    Cost efficient
    Gives a more organized touch to the process
    Helps in the estimation, planning and management of resources
    Defines the scope of the project
    Serves as a good communication tool

    COST BREAKDOWN STRUCTURE

    A Cost Breakdown Structure is a structure that demonstrates the various cost elements and how they contribute to the total cost of the project. Like the Work Breakdown Structure, a CBS is aimed directly at managing a firm’s finite resources in the most optimal manner to order to derive the most benefit at an affordable price.

    A very typical CBS is that of the profit and loss account, that is, the income statement. In this form of cost structure the costs are broken down according to the sort of expense being handled. Another type of cost structure is a very traditional one. It divides the costs into direct material, direct labor, and manufacturing overheads. According to Hundal (1997), there are five major kinds of cost structures:

    First Form of Cost Structure

    In the first form of cost structure, the costs are assigned to the individual components that a product is made of. This gives way to Bill of Materials (BOM).

    Second Form of Cost Structure

    The second form of cost structure takes a more departmental approach. Here, the costs are assigned separately to each department.

    Third Form of Cost Structure

    In the third form of cost structure, the costs are assigned individually to different product functions. This type of cost structure can be used in the stages of product development and would prove to be greatly favorable.

    Fourth Form of Cost Structure

    Assigning costs to different activities and tasks of the firm is yet another form of cost structure. Identification of these tasks is extremely important. Care must be taken to avoid omissions of any activity.

    Fifth Form of Cost Structure

    In this form of cost structure, costs are defined in any way. The Pareto rule is then applied in order to prioritize the cost elements in any desired point of view.

    Representation of Cost Breakdown Structure (CBS)

    There is no hard and fast rule on the representation of a CBS. Similar to the representation of Work Breakdown Structure, a CBS can be demonstrated using a block diagram or an outline form. An example will be shown for each of the two cases in order to make the idea clearer.

    Figure 3 below is an example of costs divided into smaller cost elements in a factory:

    Figure 3: A block diagram of a Cost Breakdown Structure of a Factory

    A Cost Structure is divided into three cost elements; Operation, Planned Maintenance and Corrective Maintenance. Operation is broken down into three smaller cost elements; Energy Cost, Efficiency Loss, and Minor Maintenance. Planned Maintenance and Corrective Maintenance are both further divided into Indirect Costs and Direct Costs. Indirect Costs include Down time and Direct Costs include Man hours and Spares.

    Figure 4 below is a representation of a Cost Breakdown Structure using an outline format.

    Overhead type: Labor (Baseline)

    Resource
    Hours/ Units
    Prime
    Burden

    BA1
    Business Analyst L1
    440
    15229
    17295

    DS1
    Designer L1

    552
    14643
    16321

    ME1
    Mechanical Engineer L1
    5585
    313023
    354284

    SC1
    Scheduler

    L1
    2072
    66593
    74931

    TE1
    Technician L1

    3641
    98459
    111818

    TS1
    Technical Support L1
    2664
    80082
    90297

    Labor
    Total
    14954
    588030
    664946
    1252975
    Overhead type: Material (Baseline)

    Resource
    Hours/ Units
    Prime
    Burden

    MAT
    Miscellaneous Materials
    129100
    139568
    2263

    Material

    Total
    129100
    139568
    2263
    141831
    Overhead type: Other (Baseline)
    Resource

    Hours/ Units
    Prime
    Burden

    PRT
    Miscellaneous Parts

    900000
    97344
    0

    Other
    Total

    110000
    118873
    0

    Prime
    Burden

    921977

    668838
    1590815

    G & A

    342903

    Cost of Money

    0

    Fee

    193372

    Other Burdens

    0

    Total Unit Price

    2127090

    Figure 4: An outline form of a Cost Breakdown Structure

    In the figure above we can clearly see that the three different overhead costs are labor, material and other. Labor is divided into six resources; which are the cost elements: Business Analyst, Designer, Mechanical Engineer, Scheduler, Technician, and Technical Support. Material is then brown down to Miscellaneous Materials and Other into Miscellaneous Parts. This method is helpful in resource planning as it takes an organized and systematic approach.

    Advantages of Cost Breakdown Structure

    The Cost Breakdown Structure plays an important role in the resource planning process. Using a CBS can prove to be extremely advantageous for a firm. Following are the advantages a firm may derive using a CBS:

    Proper and accurate resource planning
    An organized approach
    Helps in the estimation of the costs and management of resources
    Facilitation in the overall resource allocation procedure
    Flexible
    Easy to understand and develop
    Cost efficient
    Identifies and sets cost boundaries
    Prevents over or underutilization of resources
    Serves as a good tool to compare actual with budgeted costs

    COMBINATION OF WORK BREAKDOWN AND COST BREAKDOWN STRUCTURES

    A combination of both the WBS and CBS would mean bringing together the advantages of both the approaches together. Generally, a WBS is integrated with cost codes in order to merge both the operations.  They are combined to provide a good, consistent organization throughout the project lifecycle. With successful merging, resource management would be done with great ease.

    Even thought they may differ in certain ways, both WBS and CBS increase in the level of detailing as their level increases. However, a correlation relationship exists. The costs represented in each block in a CBS are associated with the task to be carried out in a WBS.

    Advantages of combining a WBS and CBS

    Following are some of the advantages of incorporating cost elements into a WBS:

    Provides uniformity in the layout as each task has a cost element to go with it
    Prevents resource over or underutilization
    Enables managers to point out any omissions or errors and correct them
    The final diagram could be used again for similar projects for comparing completion time and budget
    The actual costs could be used in the future to estimate other project costs

    CONCLUSIONS

    Both the WBS and CBS are great tools to help in successful completion of a project. Success is inevitable. Employing cost codes in the WBS will eliminate redundancies and maximize profits. A more organized approach will lead to better and efficient utilization of resources.

    Some field engineers tend to avoid the usage of such tools. However, with globalization on the rise and current market conditions, there is a need to implement tools that will help firms manage resources efficiently. WBS and CBS allow updating of resource and project planning and reduce ambiguity. They will serve as more powerful tools as integration within firms continue to rise. The WBS and CBS serve as keys to understanding a firm’s underlying issues and constraints.

    REFERENCES

    Peterson, Forest. (April 2009).Case-Study: Scope-Cost-Time Integrated Model With Work Breakdown Structure. CIFE Working Paper # WP 115. Retrieved June 17, 2009 from http://cife.stanford.edu/online.publications/WP115.pdf

    Lahikainen, Tommi. (2004). Reflecting Business Logic Change With Cost Breakdown Structure. Retrieved June 17, 2009 from http://www.im.tut.fi/cmc/pdf/ReflectingBusinessLogicChangeWithCostBreakdownStructure.pdf

    NetMBA. Work Breakdown Structure. Retrieved June 17, 2009 from http://www.netmba.com/operations/project/wbs/

    Doetext. Cost Codes And Work Breakdown Structure. Retrieve June 17, 2009 from

    http://www.directives.doe.gov/pdfs/doe/doetext/neword/430/g4301-1chp5.pdf

     

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    Work Breakdown Structure and Cost Breakdown Structure. (2016, Dec 06). Retrieved from https://graduateway.com/work-breakdown-structure-and-cost-breakdown-structure/

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