Cost Breakdown Structure

Dr Charu Bisaria
 Cost Breakdown Structure
A Cost Breakdown Structure (CBS) is a terminology within project management. It
is closely linked to what is called a Work Breakdown Structure (WBS).
The WBS represent all the tasks that needs to be done within a project. The CBS
represent all the cost categories that needs to be purchased within tasks.
 Why is it important?
1 – You will get better control on your cost and budgets
Splitting spend into logical cost categories makes it easier to control cost. By
doing this, you can easily see what you are committing to in relation to the
spend within a cost category (as apart from the total budget).

2.- You get better insight

Allocating spend into cost categories also provides insight to how much you
are spending within different cost categories. This insight is important to
understand how you are tracking against a budget. You will have the insight
you need to make important business decisions.
3 – You can use it as reference for pricing (also that you do not miss anything)
A sales quotation to a client is often based on a cost estimate broken down into cost categories.
Having a good insight into actual cost from earlier budgets can increase the quality of cost estimate.
It can also act as a security to ensure that all types of costs are captured. Making sure that the cost
base is correct is important to ensure that you get the right profit margin.

4 – It helps you assess deviations from your plan

A good cost breakdown structure provides insight on overspend, or underspend, against your
original plan. Having a good structure makes it straightforward to understand deviations. When you
see deviation from plan within a cost category early it is easier to make the right decisions for
improvement. Someone might have made a mistake. There can be cases where certain cost
elements were out of original scope. In this occurs, the cost might be subject for recharge to the
client. Furthermore, you will easily identify areas you can reduce spend to ensure you stay on plan.
 Where should you structure your Cost
Breakdown Structure (CBS)
Some companies use excel, others create a structure using their G/L accounts. Others use software
such as a purchasing software or a project management software.
It is easy to getting started with spreadsheets, but they come with several limitations. Typical
limitations are data quality, on the structural side and sharing capabilities.
Using the accounting systems will provide you with the ultimate answer, but since the accounting
system is structured to look at the history you would not get full visibility until your project is over. In
addition, the purpose of the G/L accounts (nominal codes) is to ensure proper governmental
reporting and tax treatment rather than providing insight into the cost in a project. On the reporting
side the accounting system focus mainly on fiscal years, rather than a project timeline.
Using a purchase order system will let you capture cost on a category from the time you approve cost
internally helping you get real-time control on your cost throughout the project. You will also be able
to capture any deviation between a purchase and invoice to ensure alignment with the accounting
system. You will also get multiple other benefits such as capturing goods receipts, sharing relevant
data with team members and on the reporting side.
 Resource Breakdown Structure
Resource Breakdown Structure (RBS) is a project management tool that
provides a hierarchical decomposition of resources, either structured by
resource category, types or by IT/business function that has resource
needs.
Here is a Resource Breakdown Structure example:
 Here are some examples of resource types.
• Customer Support - The kind of customer and the type of support
required for the project
• Facilities: The facilities required for project (e.g. conference room, data
center)
• Equipment: Describe the hardware needed for the project (e.g. printer,
scanner).
• Software Tools: Describe the software requirements for the project
(e.g. Visual Paradigm).