What is a Cost Breakdown Structure (CBS)? Why is it important?

When it comes to project cost controlling a critical part of it is to have a structure for estimating and following up project costs. A solid structure makes is easier to control and understand how your project is tracking against the planned budget.

This article describes what a Cost Breakdown Structure (CBS) is and why it is important for the development of a project. Beyond that, we will look at tools than can be used to ensure that there will be a good cost control process in your projects.

What is a Cost Breakdown Structure (CBS)

A Cost Breakdown Structure (CBS) is a terminology within project management process. It is closely linked to what is called a Work Breakdown Structure (WBS).

The Work Breakdown Structure (WBS) represents all the tasks that need to be completed in a project. The Cost Breakdown Structure (CBS) represents all the cost categories that need to be completed within tasks.

This article shares some insight into what financial commitments are. It also shows at who benefits most from tracking financial commitments, and how a project can get full value from tracking these financial commitments.

Why is it important?

Gives better control on cost and budgets

The splitting of spend into logical cost categories makes it much easier to control cost. When doing this, it is easy to see what the project is commited to in relation to the spend within a cost category (as apart from the total budget).

Better insight

The allocation of spend into cost categories also provides insight to how much the project spends within different cost categories. This insight is very important for understanding how costs are tracked against the budget. By having this information it is easier to make important business decisions.

It can be used as reference for pricing

When there is a sales quotation offered to a client, it is often based on a cost estimate that is broken down into cost categories. If you are having a good insight into actual cost from earlier budgets you can increase the quality of cost estimate. Thsi can can also act as a security to ensure that all types of costs are captured. By taking care that the cost base is correct then it is important to ensure that you get the right profit margin on the project.

It helps you assess deviations from your plan

When developing a fine cost breakdown structure, it provides insight on overspend, or underspend, against your original planned budget. When having a good structure makes it straightforward to understand deviations. If a deviation comes from plan within a cost category early, then it is easier to make the right decisions for improvement. It is not strange that someone might have made a mistake and there can be cases where certain cost elements were out of original scope. When this occurs, the cost might be the subject for recharge to the client. More than that is easier to identify areas where spending can be reduced to ensure that project is staying closed to planned budget.

Where should you structure your Cost Breakdown Structure (CBS)

In some projects excel spreadsheets are used, in other projects a structure is created based on their G/L accounts. In some cases a software is used such as a purchasing software or a project management software.

Spreedsheets

Spreadsheets are very common and easy to getting started with, but do not forget that they come with several limitations. Some of there typical limitations are poor data quality, on the structural side and sharing capabilities.

Accounting Systems

Another approach is by using the accounting systems that provide the project with the ultimate answer. But the accounting system is structured to look at the history and this will drive your cost control not to get full visibility until the project is over. Furthermore, the purpose of the G/L accounts (nominal codes) is to ensure proper governmental reporting and tax treatment rather than providing cost control data and information during the development of a project.  Finally on the reporting side the accounting system focus mainly on fiscal years and not in the project’s timeline.

Cost Breakdown Structure (CBS) with Rabio

Rabio was developed for using the Cost Breakdown Structure (CBS). For Rabio this is the central data structure where all project financial activities are recorded and managed.

In Rabio the CBS allows project management to define the level of details required to efficiently and effectively manage a given project or contract. In order to provide control on a project Rabio with CBS manages and tracks:

  • Budget
  • Actual Costs
  • Earned Value
  • Projection
  • Forecast
  • any other progress and productivity indicators

The data structure in Rabio is created based on Cost Centers (CC) and Cost Type Keys (CTK) following a typical Cost Breakdown Structure (CBS).

Check how you can manage equipment cost with Rabio using CBS here.

Create and control your construction budget with Rabio

Rabio is open-source software that was designed to manage and control budgets, their costs, and produce reports based on a flexible cost breakdown structure. It is budgeting software and it is distributed for free.

You can easily use it for your personal needs or your business. Using Rabio ‘s managers system you can design and control your budget and compare it with costs at any time using the easy reporting internal system.

Furthermore, you can alter your budget or create forecast and projection managers and compare new data with the original budget.

Rabio is open-source

You can download Rabio open-source version here

What is a Cost Breakdown Structure (CBS)? Why is it important?
Cost Breakdown Structure (CBS)