Importance of the Work Breakdown Structure (WBS) to the Project Cost Management

In this podcast Ricardo discuss the relevance of the Work Breakdown Structure (WBS) to the Project Cost Management, specifically during the budget estimating. The podcast also discuss the influence of the WBS quality to the budget quality and the difference between cost and price in a project.

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Episode transcript

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Hello, everybody. Welcome to the five minutes BM podcast today. I do like to make a connection between the WBS or the work breakdown structure and the Cost, the Management for me do most important to me to use, to manage the, and to calculate the project budget is the use of the WBS that that would be as decomposed, all the Project into Work. Yeah, beca and the work back, which is basically the lowest level off.

This is a structure. And in this level, we put all the resources, all the work to be done. If we have a clinic a year and precise, we can easily connect it into and the cost management system and calculate, define a project budget. Let's think a little bit about that. The Work package, the Work package contains all the work that must be done.

All the laugh and all, all the resources are applied into the work package. Let's suppose that we have one task that we'll spend two days with one resource that cost us one us dollar per hour, one us dollar, or do they eight hours per day. How much does it cost this package? $16 this year, the cost of that package that has only one of them.

The resource two days, eight hours per day, we can do the same process for all the other work packages. Let's suppose that my Project has a 1000 Work packages. I think we can do this 1000 times in each package. I can clear it, the find its cost base down the cost of it. A resource. If I have one face that is divided in two packages, one Cost 16 U S dollars. The other one Cost 10 us dollars.

The total cost we'll be $26. If I have one phase that cost 26 and the second phase cost 30, then my project will cost 56. It's my project. We'll be divided into this two phase. So which only calculate the cost of the Work package. An add up up to the final Cost two important things. First one, we need to have perfect WBS chart.

If we don't have, or don't know exactly which Work must be done by the project, then we can miss some work packages. And the whole, of course, that this work package, you will cost money. And then we will hurt our budget because we forgot to put new work packages or this Work Becca, just to make the final Cost. Second is extremely important thing, as I need to know also exactly which kind of resource that I will need in each package.

And this will take a lot of time in a lot of work, but this will be the most important work to make a good and the proper budget. If I know exactly which kind of resource I will need an also the Xactly cost of each of these resources, then a will have in a very precise way, the cost of each work package. And then I cannot eat this up to the final Lavalle and check the final project budget.

The things that I'd like to remember, You the first one it's financing. If you have project that will be financed by a bank, or if you're a boring Demani to use in the project, then what I suggest you to do is to include some work packages or include one area or one phase called project management or indirect costs, and then insert on Work package to include all the interests that you will need to pay for the projects, because this will be a cost to be included in your budget.

I'm not talking about the principal, but all the interest, because the interest is a real cost. You will not need to do that if you can borrow money without any rate, but for me, it's, it's quite possible to be done. The second topic that I want to close this podcast is the difference between cost and price cost is directly related with your resources.

With your work package. Price is a commercial and marketing decision, or of course, that we expect that the price is tied to relate it to the cost. But in some cases, this will not be true. Price is a commercial decision, may be, I want to make more client or that client is important for me. Then I can't sell for a price lower than my Cost.

This is a commercial decision. So it's very important to not makes up things. Price is a marketing in a commercial decision costs is a project management tasks related to the work packages and related to all Project resources' and sorry. Again, for my poor English, I tried as a Portuguese speaker. I'm trying to do the best to translate my ideas to English. And I hope you have a wonderful week and see you next week with another five minutes before the Podcast see you.

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Ricardo Vargas

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Importance of the Work Breakdown Structure (WBS) to the Project Cost Management

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