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What kinds of information are included in a cost account? A cost account (CA), also called a “control point,” is, graphically, the intersection of the Work Breakdown Structure (WBS) and the Organization Breakdown Structure (OBS). A cost account represents a “work package” (WP) which is defined by budget, resources, responsibility and control points. Cost accounts, along with the work packages they represent, act as a database from which all other scheduling, planning and controlling processes are coordinated. Cost accounts aid in justifying roll-up figures. Example:
In this example, the cost account for the testing of the case packer was budgeted to $2,000 (the left side of the cell represents a the cost per work package; the right side is the total of the left side). I was NOT the project manager nor the project engineer on this project so the above figures are only estimates. What kinds of info are included in work packages? Work packages (WP) include information such as time (duration), budget, resources, responsibility, and control points. In addition, a WP can also have an ID number to identify it as being part of the larger project. WP’s are usually formal documents. In the example given in above, I was involved in the testing phase of the case packer project. This cost account (CA) consisted of two WP’s: electrical test and mechanical test. Each of which were 12 hours long and cost about $1,000 each. Example of WP document: ConAgra Grocery Products Company – Aseptic Operations (Project: CAGPC _M04-000) WP Description: Electrical Test; Page: 1 of 1 What is a time-phased (T-P) budget in a WP? At the start of a project, financial officers formulate estimates of the cost of the project. However, a cost estimate only becomes a budget when it is time-phased. A time-phased budget is a procedure to determine WHEN the money must be made available. Obtaining a time-phased budget requires knowledge of the duration of a WP. Once this is done, and other WP’s are taken into account, a project network is developed; this schedules when WP’s will start and end. Finally, the time-phased budgets for WP’s are assigned to schedule time periods to determine the financial requirements for each period during the lifecycle of the project. This strategy helps an organization forecast future cash outflows and track actual cost variance. I think another reason for time-phased budgets is that companies like to keep their money in interest-bearing accounts as long as possible before having to spend it. What is the meaning of the term “project rollup” and what is its significance to the project manager (PM)? Project rollup (PR) means that, starting with the individual WP’s, costs and resources can be rolled up into higher “elements” (called deliverables for WBS and organizational units for OBS). Project rollups can be in terms of the WBS or the OBS. It is important to note that the units being rolled up are not necessarily dollars – they can be material resources, hours available, etc. Looking at the example given above, the individual (WP) costs of the case packer (aka element or deliverable) can be rolled up to a total of $2,000,000, as shown. Since, the machine was purchased from an outside source, the only other WP’s, other than a purchase WP, were electrical and mechanical testing by in-house technicians. Similarly, the Purchasing unit, within our organization, had a budget of $1,998,000 to purchase the machine. The ability to consolidate and integrate via the roll up process is critical to the PM and company for organizing the project. In other words, this an important exercise that helps to control costs as well as make efficient use of resources and time. If such accountability was absent during a project, gross errors in misallocation of time, budget and resources could result. NEXT: Project Management Training — FAQ part 3: Work Breakdown Structure and Slack |
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