Join Bob McGannon for an in-depth discussion in this video Budgeting around a solid work-breakdown structure, part of Project Management Foundations: Budgets.
Going somewhere you've never been before, without a GPS, or even and old school map, can be a very daunting task. Moving down the path of delivering a project without appropriate information, is a lot like not having a GPS. The work breakdown structure, or WBS, is like a map from which you can build your project budget. A Work Breakdown Structure is a logical grouping of things that need to be produced by you project. It can be a diagram, table, or list that arranges product deliverables into manageable sections.
These sections are then broken down in tasks, or work packages, that can be assigned to a single person to handle. The detail you build into a work breakdown structure can make budgeting a lot easier. Every task becomes easy to identify as tasks all come at a cost whether that's time or dollars, you can then more accurately budget for them. There are two ways to put a budget together using your work breakdown structure. You can either go from the top down, or the bottom up.
Let's look at top-down first, which I suggest you use at the beginning of your project to develop your initial project budget. First, start with the project at the top of the work breakdown structure. From there, break down the project into levels of project deliverables that you know about at the start of the project. You may not have all of the detail you need at the start of your project but that's okay. This results in your initial work breakdown structure for example, let's say I'm building an airplane.
So at the top of the WBS, you have the aircraft. The next level down is the engine, wings, fuselage, and landing gear. Major deliverables you need as part of the airplane. We can take this a step further and break down a deliverable such as the landing gear, which consists of the wheel, brakes, tire, light and shock absorbers. Second, from this initial work breakdown structure build a top down budget estimate. The top down budget estimate is all about the big picture.
Most senior managers will want to know how much a project is going to cost before it starts. That's why they like the top down approach as it helps with their budget allocation, and tracking. So, in our example, we could add a comparative number of dollars to each of the aircraft components to highlight the cost. Third, see how your initial budget fits into the cost expectations for the project. You can help set or adjust those expectations, and refine your initial budget by comparing your results to cost data taken from other projects.
Use this cost in initial WBS deliverable information to set initial expectations for the project, so that's the top down approach. Let's now look at budgeting using the bottom up approach. When you have more detail about the project, you can evaluate the tasks needed to produce the products of your project. These detailed tasks give you the means to work from the bottom up of your work breakdown structure. So, the first step in a bottoms up WBS and budgeting approach is to define tasks and delegate each to a resource for instance, to construct the landing gear you may require tasks such as purchase the tires.
Design the shock absorber, build the shock absorber, purchase lights and mount the lights on the landing gear shaft. You will want to assign a person with the appropriate skills to each of these tasks. Second, allocate costs to each task. This is achievable because at the task level things like time, resources, effort, skills and requirements or work instructions become easier to identify. Third, group the task and cost together logically working your way up to the project level.
From project management perspective you can gather the cost of quality management information at this point. You can also discuss the costs of various deliverables associated with your project, and adjust your costs in deliverables together if budget issues exist. Finally, assign a budget to a specific department or sub team, to produce the project work described in the WBS. For instance, you would detail a specific budget for the landing gear team to produce their piece of the overall airplane. A solid workable budget needs a work breakdown structure.
It takes time to plan, but it should pay you dividends when producing and managing your project budget, by helping you manage expectations and understand how each product you produce affects the cost of your project.
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- Discovering costing standards
- Examining capital and operating costs
- Assigning costs to resources
- Communicating your budget
- Recovering a bloated budget
- Addressing budgeting issues<br><br>
- The PMI Registered Education Provider logo is a registered mark of the Project Management Institute, Inc.