Value breakdown structure

A value breakdown structure (VBS) is a project management technique[1] introduced by Stephen Devaux as part of the total project control (TPC) approach to project and program value analysis.

A work breakdown structure (WBS) in project management and systems engineering is a deliverable-oriented decomposition of a project into smaller components into a tree structure that represents how the work of the project will create the components of the final product. Resources and cost are typically inserted into the activities in a WBS, and summed to create a budget both for summary levels (often called "work packages") and for the whole project or program. Similarly, the expected value-added of each activity and/or component of the project (or projects within a program) are inserted into the VBS.

In most projects (and programs), there are some components and activities (and projects) that are mandatory and others that are optional. Mandatory activities are required, and have the full value of the project investment, as the project cannot be completed without them. In contrast, optional activities have only the value that they are adding to the project, i.e., their value is equal to the delta between the project/program value if they are included and the value if they are omitted.

For example, in creating an automobile, an engine, a driveshaft and wheels may all be considered mandatory, whereas cupholders are optional. If any of the mandatory activities are excluded, the project's value approaches zero. But the value of the cupholders is only the difference between the value of the car with and without cupholders.

The value from the VBS should also be used as the basis for tracking project value through Devaux's Index of Project Performance (DIPP). If scope is changed during execution, that change should be input into the VBS, the numerator in computing the Actual DIPP adjusted, and the DIPP Progress Index thus updated.

Unlike cost, which can be summed up the branches of a WBS to provide an overall budget, value cannot similarly be summed in a VBS. If the value of an automobile is $25,000, there are many components and activities that are mandatory in generating that value – leave any of them out, and the value of the project approaches zero. Therefore, the fact that the engine, driveshaft and wheels are all mandatory, and each therefore has a value-added of $25,000 does NOT make the value of the automobile $75,000.

The main purpose of the VBS is to prioritize components and work by the value they are expected to add, and to ensure that the value of the project investment is not reduced by the inclusion of work which has a value-added that is less than its true cost, which is the sum of its resource costs and its drag cost. This can often happen if the project's critical path changes so that different activities suddenly acquire critical path drag and drag cost: an optional activity that adds $10,000 to the expected value of the project and has a budget of $5,000 may make sense when it can be performed off the critical path but should probably be jettisoned if on the critical path if they now have a negative value-added due to a drag cost of more than $5,000.

Sources

1. Devaux, Stephen A. Total Project Control: A Manager's Guide to Integrated Project Planning, Measuring, and Tracking. John Wiley & Sons, pp. 93 - 102, 1999. ISBN 0-471-32859-6.

Further reading

• Devaux, Stephen A. (2015). Total Project Control (2nd Edition): A Practitioner's Guide to Managing Projects as Investments. CRC Press. ISBN 978-1498706773.

• Joris Van Ostaeyen et al., “Quantifying the Economic Potential of a PSS: Methodology and Case Study,” The Philosopher’s Stone for Sustainability: Proceedings of the 4th CIRP International Conference on Industrial Prouct-Service Systems, Tokyo, Japan, November 8–9, 2012, ed. by Y. Shimomura and K. Kimita, pp. 523 – 528.
• Gideon Koch (2013). Value Breakdown Structure VBS
• Kjetil Strand (June 3, 2014), “ACE Introduces the Value Breakdown Structure!”
• Stephen A. Devaux (June 16, 2014), “The Value Breakdown Structure: Features and Benefits”.