Project financials are often managed in a spreadsheet which is manually updated and prone to error, leading to neglect simply because it’s difficult to keep up. In addition, project financials tend to be completely divorced from the operational aspects and does not represent the current reality of the project.
The cost breakdown structure (CBS) in Adeaca Project Business Automation, a generation 3 project business system, is a comprehensive financial structure for all projects and represents the costs of the components in the work breakdown structure (WBS).
Generation 1 and 2 systems today use the WBS to manage both the financial and operational components of the project which causes a major project governance flaw. The fact is, complex projects that involve thousands of tasks will get to a point where it becomes impractical, if not impossible to manage the project financials based on the project schedule.
Due to the true integrated nature of a generation 3 system, the CBS in Adeaca PBA enables project-driven companies to manage their project financials with real-time analysis that gives them more control over the costs of their project. Successful project-driven companies understand the importance of employing a CBS parallel to the WBS.
Linking Project Financials Directly to the Project Schedule
Maintaining a CBS in a spreadsheet that is not linked directly to the operational aspect of a project does not represent the current reality of the project. Having the CBS separate but working parallel with the WBS means you always known what is happening in the project.
As a critical tool in managing the project lifecycle, more specifically the financial aspects of a project, the CBS creates a structure for applying measurable cost controls. The structure helps to improve cost control, understand cash flow, and accurately report on revenue.
As part of Adeaca PBA, the CBS is directly connected to the WBS to provide insight that is actionable and current. Since the schedule and costs are always up to date and in sync, if a change in the schedule affects the financial aspects of a project, it’s known immediately. Therefore, you can quickly take mitigating actions against any issues that arise.
Budget Management in the Cost Breakdown Structure
Operating in a generation 3 project business system allows you to establish the budget directly from the WBS because of the completely integrated nature of PBA, where the project schedule is in the same system as the project financials.
For example, when creating the project schedule, you’ll know what kind of labor you’ll need, how much of it, and when. Then you can copy that information directly into the CBS, and it will be time phased with the right amounts, all based on the project schedule.
In addition, any changes made to the project schedule can be captured in a change set. The cost of the change set can be recorded and then copied directly into the budget. The CBS provides a full audit trail of all budget versions including estimation of deliverables, contingencies, and undistributed budgets for rolling-wave planning.
Project Success Depends on Both the WBS and the CBS
Managing complex projects involves a lot of moving parts and a lot of hands-on deck. Using a single hierarchy (the WBS) often results in insufficient details for operational planning and is too granular for budget, estimation, cost collection, and variance management. As a result, both ends of the project suffer. The CBS in Adeaca PBA guarantees project costs and the project schedule are always up to date.
To learn more about the Cost Breakdown Structure, download the Cost Breakdown Structure Feature Brief.