Cost Estimating and the Work Breakdown Structure

Do you often find it easier to solve a large problem by breaking it down into smaller parts? This is what the work breakdown structure (WBS) does for a project manager. The WBS itemizes the many tasks that make up a project.

The work breakdown structure contains the entire project scope—all the work you need to complete in order to deliver the product. Throughout the cost estimating process, you should refer back to the WBS to ensure that you have included each activity. The WBS enables you to:

• organize your cost estimates
• identify each project activity that generates cost
• illustrate the project scope in a summarized, graphical representation.

A work breakdown structure is a type of tree diagram that enables you to see the project scope all on one page. It depicts a hierarchical listing of the work, showing how the work elements are broken down (or decomposed) into tasks, work packages, and detailed activities. The WBS is organized as follows:

• The top line of the WBS contains the name of your project.
• The first level of the WBS contains the major elements of the project. Most projects within a given organization will have similar project life cycles.
• The lower levels of the WBS show the continued decomposition of the phases. The third level usually contains tasks. Lower levels would be comprised of work packages and ultimately, individual activities.

The work breakdown structure is developed as an output of defining the project scope. When creating a work breakdown structure for a project, use the scope statement to identify each of the project's major phases or elements.
Each phase will have its key deliverables, which are further decomposed into tasks and then into work packages or activities. Keep in mind that different elements may have different levels of decomposition.

For each project you manage, you'll have to decide to what degree you will decompose your work breakdown structure. If you want to develop detailed, accurate cost estimates, you will need to fully decompose the work.

As a guideline, ask yourself: "Can adequate cost and duration estimates be derived at this level?" If the answer is no, then you must continue to break tasks into work packages, and these into specific activities. The steps below summarize the process of decomposition.

1. Identify the major elements of the project.
2. Decompose elements into tasks, work packages, and detailed activities.
3. Ensure that the lowest level items are tangible and can be measured for completion.
4. Verify the correctness of the decomposition by comparing it to similar projects or having a qualified person review it.
5. Assign a unique identifier to each item that corresponds to your firm's code of accounts.

Step 3, in which you verify that each bottom-level work package or activity is measurable, is the most important step to cost estimating. Ask yourself: "Can each item be appropriately scheduled, budgeted, and assigned to a specific department, team, or person who will be responsible to complete it?" You'll be able to produce fairly accurate and detailed cost estimates if each activity is measurable—if it can be assigned a duration and a list of required resources, including human resources, materials, and equipment.
The work breakdown structure makes it easy to find the total cost estimates. Once the work of your project is sufficiently broken down into measurable, verifiable activities, assign a cost to each item. The process of totaling bottom-level activities, assigning a total to the task, totaling all tasks belonging to a deliverable, and so on, is called "rolling up" the estimates.

In summary, project managers and their teams will refer frequently to the work breakdown structure during the life of a project. However, at no other stage is the WBS more important than when cost estimates are being prepared.