In the manufacturing industry, the finance and project management teams utilize an earned value management methodology to track the workload by individual subcomponents called work breakdown structures (WBS) If you were manufacturing a chair composed of 4 legs, supports, and backing made of wood, and the seat made from metal and upholstery you might break down the project into two separate WBS’s to track the production and cost of the chair legs and associated components as one project and the seat as a separate project because the components are made of different materials, require different manufacturing methods, have different lead times, and costs. Apply this principle to manufacturing a car, boat or commercial aircraft and you can easily have a few hundred WBS’s set up to track the progress and costs associated with different integrated systems.
From a finance perspective, the team monitors the forecasted monthly cost for each WBS to identify if costs are running above or below the anticipated run rate. By tracking different WBS’s it’s possible to identify exactly which cost elements are out of line and put protocols in place to fix the problem without affecting the production and costs of other areas. Applying a similar strategy towards your own finances can help you create a budget, track your expenses, and identify overspending. [Read more…]