How to Establish the Work Breakdown Structure (WBS)

At the core of each cost estimate is the work breakdown structure (WBS). I consider the WBS to be the centrepiece of cost estimating.

Wikipedia defines WBS as “a hierarchical and incremental decomposition of the project into phases, deliverables, and work packages”. For the cost estimator, WBS is the tool used to gather the full project scope in a tree structure breakdown of smaller packages and to compile and communicate the costs associated with each of these components to the stakeholders.

In his book, Project Estimating and Cost Management, Parviz. F. Rad defines WBS as “a uniform, consistent, and logical method for dividing the project into small, manageable components for purposes of planning, estimating, and monitoring”. He goes on to say that, when set-up properly, “the WBS will provide a roadmap for planning, monitoring, and managing all facets of the project, such as the following: 

• Definition of work 
• Cost estimates 
• Budgeting 
• Time estimates 
• Scheduling 
• Resource allocation 
• Expenditures 
• Changes to the project plan 
• Productivity 
• Performance”. 

All of the above are much more relevant in the conceptual cost estimating field than it is in the detailed cost estimating. When we do detailed cost estimating, the priorities change. I will cover this in a future blog post. For now, let’s focus on conceptual cost estimating.

In the development of capital cost estimates, the cost estimator is the one in charge of the development of the WBS. It is my opinion, based on many years of experience in the field that the cost estimator can understand who are the various recipients of the cost estimate and ask for their feedback.

The cost estimator has the experience to know the importance of the WBS and to communicate to all parties involved how the WBS should serve more than the purpose of collecting the costs.

When starting the development of the WBS, the cost estimator would be wise to consider the following:

a) How many levels should the WBS have? The 100% rule applies: each level of the WBS should include 100% of the cost estimate/project

b) What should be shown at each level?

c) Depending on the type of cost estimate, the lowest level of a WBS could be a task, or a code of account, discipline, area, etc. It is important to determine what is the desired and appropriate level of detail that it will show in the WBS. The level of detail is very much related to the type of the cost estimate and the level of design definition.

d) Input from all stakeholders regarding the cost estimate level of detail, the type of cost estimate reports required. Each stakeholder will have a different expectation from the cost estimate reports and it is important to get their feedback. I am not saying that all requirements can and should be implemented. The cost estimator should have a chance to review and discuss each requirement and respond to how and if it will be addressed.

e) Quick integration of take-off quantities into the cost estimate. If the design engineers deliver the take-off quantities in the format that mirrors the cost estimate WBS, integration, and future adjustments to the cost estimate will be easier to apply and control. It is not unusual for the design engineers to make last-minute changes on a design that translates into take-off quantity adjustments and ultimately changes to the cost estimate.

f) Integration with the project schedule is also important, and it should be considered.

g) The ability to use the same WBS in the next project development phase, by keeping the structure and adding more level of detail.

h) It is better to consider a WBS that is deliverable-based schedule-based. The cost estimate WBS should be used for developing the schedule WBS and not the other way around. In my practice, I always communicate with the project planner/scheduler and discuss the WBS, resources and formats of all data feed from the cost estimate to the schedule.

i) And finally, my experience showed me that a WBS should be agreed upon and validated by all stakeholders, before the start of any cost estimating activities. It gives everyone a preview of the cost estimate structure and an understanding of costs included and how they are allocated. It makes the cost estimate review process a lot smoother and reduces the requirement for any adjustments regarding cost allocation.

If you found this article useful, I also think that you would enjoy reading this article: Ultimate Guide to Work Breakdown Structure. This is an educational resource for readers who would like to take a deep dive into the WBS as part of the broad project management subject.

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