Cost codes, WBS and the cost-loaded schedule

A cost code is the address of a cost. Every hour worked, every invoice paid and every dollar committed must be charged to one, so that actual cost can be compared with the budget line for the same work. The cost code structure therefore shapes everything else in the cost system: how fine the budget is, what the field has to record, what the reports can show, and how cost links to the schedule. This lesson explains how cost code structures are built, how they relate to the work breakdown structure (WBS), how much detail is enough, and how loading the budget onto the schedule produces the planned value curve that earned value analysis needs.

What a cost code identifies

Most contractor cost codes combine several pieces of information in one string. A typical structure has a job number, a work item based on a standard classification, sometimes a location or area, and a cost type.

Standard classifications give the work item a meaning that is consistent across jobs. In North America the most widely used is MasterFormat, published by the Construction Specifications Institute (CSI) and Construction Specifications Canada (CSC), which organizes work by specification section into 50 divisions (the 2020 edition is the current base edition, with periodic updates). UNIFORMAT II, which organizes cost by building element (substructure, shell, interiors, services), is common in early estimates and owner cost plans. Many contractors use a simplified, company-specific version of MasterFormat so that codes stay short and familiar to the field.

Cost codes and the work breakdown structure

The work breakdown structure is a hierarchical decomposition of the project scope into deliverables and work packages (CON-210 Lesson 2 used it to build the schedule). The cost code structure and the WBS answer different questions: the WBS asks what must be delivered, while cost codes ask what kind of work and cost it is. On many building projects the two are combined, with the WBS providing the upper levels (building, floor, system) and cost codes the lower levels (work item and cost type).

Where they meet, earned value practice uses the term control account: the point at which scope, schedule and budget are integrated and assigned to one responsible manager. On a contractor's building project, a control account might be 'level 2 structure' or 'concrete work, all levels', depending on how the work is managed. The important thing is that each control account has a defined scope, budget and schedule, and that actual cost is collected at the same level, so that planned value, earned value and actual cost can be compared like for like (Lesson 7).

How much detail is enough?

More cost codes give more information but cost more to run. Each code is something the foreman must choose on a timecard, the coordinator must allocate invoices to, and the cost engineer must report on. Too few codes hide problems: if all concrete labour is one code, a loss on formwork can be masked by a gain on finishing. Too many codes produce poor data: foremen faced with eighty codes guess, and the result is precise-looking nonsense.

Useful tests for a self-performed labour code are: it covers work that one crew does as a distinct activity; it has a measurable quantity, so that progress and productivity can be tracked; and it is large enough to matter, perhaps more than a few hundred hours. Subcontract work usually needs only one code per subcontract, because the subcontractor tracks its own detail. Area codes are worth adding where locations are clearly separate and the work is repetitive, such as floors of a residential tower, because they let productivity be compared floor by floor.

Cost codes in the field

Cost data are only as good as the coding at the source. Practical steps help. Print or display a short list of active codes for each crew, with plain descriptions, rather than the full company list. Close codes for work that is finished so that time cannot be charged to them. Have the superintendent review timecard coding daily or weekly while memories are fresh. Use mobile time-entry apps that show only the codes for the crew's current activities. And explain to foremen why coding matters; a foreman who sees the productivity report for his crew each week will code more carefully than one who never sees the results.

The cost-loaded schedule

A cost-loaded schedule assigns budget amounts to the activities in the project schedule. Because each activity has planned dates, the budget can then be spread over time, giving a planned value for each period and a cumulative curve. This curve, often called the S-curve because of its typical shape, is the baseline against which progress and cost are measured. It is also the starting point for the owner's cash flow forecast and the contractor's own cash planning (Lesson 11).

Activities can be cost loaded in several ways. Each activity can be assigned its own budget directly; or budget lines can be linked to activities, with one line spread over several activities or several lines combined into one activity. The spread within an activity is usually linear (equal amounts each day), but front-loaded or back-loaded spreads can be used where the work is not uniform, such as a mechanical package where equipment is delivered late in the activity.

# Cost-load a simplified Riverbend schedule and print monthly planned value (amounts $1000)
acts = [  # name, start month, duration (months), budget
    ("Site and foundations", 1, 3, 1_420), ("Structure L1-L4", 3, 5, 3_160),
    ("Envelope", 6, 5, 2_740), ("Mechanical and electrical", 5, 10, 3_310),
    ("Interiors", 8, 8, 2_880), ("General conditions", 1, 16, 1_904),
    ("Site works and close-out", 14, 3, 710),
]
months = 16
pv = [0.0] * (months + 1)
for name, start, dur, bud in acts:
    for m in range(start, start + dur):
        pv[m] += bud / dur                          # linear spread
cum = 0
for m in range(1, months + 1):
    cum += pv[m]
    bar = "#" * int(pv[m] / 40)
    print(f"Month {m:>2}: {pv[m]:7,.0f}  cumulative {cum:8,.0f}  {bar}")

Month  1:     592  cumulative      592  ##############
Month  2:     592  cumulative    1,185  ##############
Month  3:   1,224  cumulative    2,409  ##############################
Month  4:     751  cumulative    3,160  ##################
Month  5:   1,082  cumulative    4,242  ###########################
Month  6:   1,630  cumulative    5,872  ########################################
Month  7:   1,630  cumulative    7,502  ########################################
Month  8:   1,358  cumulative    8,860  #################################
Month  9:   1,358  cumulative   10,218  #################################
Month 10:   1,358  cumulative   11,576  #################################
Month 11:     810  cumulative   12,386  ####################
Month 12:     810  cumulative   13,196  ####################
Month 13:     810  cumulative   14,006  ####################
Month 14:   1,047  cumulative   15,053  ##########################
Month 15:     716  cumulative   15,768  #################
Month 16:     356  cumulative   16,124  ########

The monthly amounts rise as more trades work at once and fall during close-out, so the cumulative curve is steep in the middle and flat at both ends. Comparing the budget total with the final cumulative value is a useful check that every dollar has been loaded onto an activity.

Pitfalls in cost loading

Cost-loaded schedules are powerful but easy to distort. The most common distortion is front-loading: assigning more value to early activities than they are worth so that early billings run ahead of cost. Owners and their consultants look for this, because it shifts cash and risk to the owner and leaves less money in the contract to finish the work if the contractor fails. A second pitfall is loading cost onto summary activities or milestones that do not represent real work, which makes the planned value curve meaningless. A third is failing to update the cost loading when the schedule is revised, so that planned value no longer matches the plan the team is actually following.

Many Canadian owners require a cost-loaded schedule or a schedule of values tied to the schedule, and the payment certifier compares progress claims against it (CON-220 Lesson 5). A front-loaded schedule of values may be rejected, or the certifier may reduce early claims until value matches work in place.

Two baselines: cost and billing

Contractors often maintain two cost loadings. The owner-facing schedule of values loads the contract value (including fee and markups) onto activities or line items for billing. The internal control baseline loads the cost budget, so that planned value can be compared with actual cost. The two curves have similar shapes but different totals, and on a lump sum job only the internal one is shown in the cost report. Mixing them causes errors: comparing actual cost with planned value based on contract value overstates the apparent cost underrun by the amount of the fee.