About the Cost Breakdown Structure Template
When talking about a project’s financial aspects, a company or an organization has to create a structure to lay out and apply measurable cost controls.
Organizations also call this CBS. This is a hierarchical representation or a breakdown of various costs in a specific project. It represents the costs of components in the WBS or the Work Breakdown Structure. A solid structure like CBS allows an easier understanding of how a project is tracking against a plan.
Why is cost breakdown structure important?
Budget or finances are an integral element in a project; thus, thorough planning and structure to avoid leaving out any essential aspect in the whole project. The following are some key points explaining the essence of CBS in a project.
- You can have better control over your budget and other costs. Splitting spending into categories allows you to have a clearer view and management of project costs. You can have an overview of what you are committing to concerning the specific spending cost within the cost category.
- Having an excellent CBS gives you better insights into how much you are allocating within different cost categories. This will provide you with ideas on the financing aspect and when making vital business decisions for the project.
- You can have the CBS as a reference for pricing. Having an excellent background into the actual cost from an earlier budget increases the quality of the project’s cost estimate.
- With CBS, you will have a clearer view and understanding of underspending or overspending. Also, when you see strange trends in your project plan in the costing aspect, you can immediately make decisions for improvement.
What is the difference between CBS and WBS?
Cost Breakdown Structure or CBS is closely related to Work Breakdown Structure (WBS). The WBS illustrates all the tasks that need to be accomplished within a project. Meanwhile, the CBS tackles all about the cost aspects that must be purchased within tasks. These two must go hand in hand for better project outcomes. There can be instances when organizations do not utilize CBS, leaving the WBS to function as both the operational and financial hierarchy of a project. While using a single hierarchy for both can be feasible, it is also prone to project failures. Organizations tend to compromise on both sides, making project performance suffer.
How to create a cost breakdown structure?
You can utilize a built-in cost breakdown structure template and formula-driven estimation tools in creating project budgets. The first step in creating an efficient project cost structure is to determine the following key elements:
- Cost drivers: specific units, items, specific works, or services
- Amounts: the amount of work or time, number of items, amounts of materials
- Hidden or overhead costs: these are costs that do not bring any direct value; however, they will indirectly influence work processes.
You can also group the cost data into two parameters:
- By time periods: Organizations can use this data grouping in their CBS to estimate weekly, monthly, and quarterly costs. This is usually combined with the workflow steps and provides a total for the entire project.
- By cost types: This approach is used when the purpose is to define the manageability of specific cost elements and to figure out ways to decrease total costs.
Cost types can also come in various categories in building CBS:
- Labor costs
- Outsourcing and subcontracting costs
- Material costs
- Overhead costs
- Logistics costs
Creating an effective and efficient cost breakdown structure can be a handful and a tedious task. However, this structure is essential for future communication with your clients and better understanding how to manage costs in the project process.