Project Cost Procedure - Work Breakdown Structure (WBS)

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TABLE OF CONTENTS
1 INTRODUCTION 3
2 STANDARD 3
3 DEFINITIONS 5
4 PROCESS 6
4.1 Overview 6
4.2 Creating a WBS 6
4.2.1 WBS for Opex 6
4.2.2 WBS for Capex 6
4.3 Maintaining a WBS 9
4.4 Closing-Out a WBS 10
5 ROLES & RESPONSIBILITIES 10
APPENDIX 1 PROCESS FLOWCHART 11
APPENDIX 2 OPEX WBS EXAMPLE 12
APPENDIX 3 CAPEX WBS LIFECYCLE 13
APPENDIX 4 CAPEX WBS EXAMPLE – ONSHORE 14
APPENDIX 5 CAPEX WBS EXAMPLE – OFFSHORE 15
APPENDIX 6 CAPEX WBS EXAMPLE – PROJECT DIRECTOR HEADED 16
APPENDIX 7 CAPEX WBS EXAMPLE – OVERVIEW 17
APPENDIX 8 ERP INSTRUCTIONS 18
REFERENCES 18


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1 INTRODUCTION
The primary aim of this procedure is the development of Work Breakdown Structure (WBS) for the
Select, Define & Execute phase of projects. The purpose of the WBS is to sub-divide a project into
components where the work and associated budget can be effectively managed and controlled.

This procedure is in line with the Opportunity and Project Management Guide (OPMG), Project
Guide 6 and Project Standard 06. Additionally, it is included in the Cost and Planning Toolbox, iPMS
and the Finance in Projects Toolkit.

This document should be read in conjunction with Project Cost Procedure Cost Time Resource (CTR)
Catalogue.

The standard in section 2 defines the mandatory requirements. The remaining sections provide detailed
complementary instructions on the implementation of the standard.

Drilling only programs are temporarily excluded. These will be subject to further review.

The standard within this procedure sets out the basis on which the project teams will be audited.


2 STANDARD
The standard applies to the following Shell managed asset development projects:

• Exploration & Production (EP) Top 70 and Next 100.
• Downstream (DS) projects, including Renewables, with Group Investment Proposal (GIP) headline
size exceeding US$ 100 mln Shell Share.
• Gas & Power (GP) projects with Group Investment Proposal (GIP) headline size exceeding US$
100 mln Shell Share.

These projects shall comply with this standard and must meet the minimum mandatory requirements
listed below in this section. Whilst not mandatory, projects outside this classification should also seek
to comply with the principles of the procedure.

The project team shall:

Key Activities
• Produce a project specific WBS procedure for the Project that satisfies the mandatory
requirements of this Section 2 and complies with the structure and definitions of this
document. The Project may either directly use or adapt this procedure.
• Create a WBS for Opex and input into the ERP system, at the latest, during the Select
phase.
• Decide the WBS level of detail required for budget control purposes.
• Create a WBS for Capex and input into the ERP system during the Define phase and
before pre-Final Investment Decision (FID) expenditures that can be capitalised.

Key Controls
• Ensure that the WBS for Opex is documented and signed-off by the Project Manager
(and/or Project Director, if applicable), Project Services Manager and Project Finance
Manager before input into the ERP system. Note that in the Select phase these key
positions may not have been established and authorisation may be required from persons
acting part-time in the role.
• Ensure that the WBS for Capex is documented and signed-off by the Project Manager
(and/or Project Director, if applicable), Project Services Manager, Project Finance


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Manager and Project Contracting & Procurement Manager before input into the ERP
system.
• Ensure that each WBS element is only released for use as required and when the Project
and any Co-Venturer approvals (e.g. Authorisation For Expenditure or Work Programme &
Budget) have been obtained.
• Ensure that each WBS element in the ERP system has a corresponding WBS element in
the project schedule.
• Ensure that any change to the WBS is approved by the Project Manager, Project Services
Manager and Project Finance Manager.
• Ensure that each WBS element is closed when all expected transactions are complete.
• Ensure that the procedure is approved by the Project Director or Project Manager, the
Project Services Manager and either the Project Finance Director or Project Finance
Manager or local Finance Manager.
• Ensure that a procedure with non-compliant elements is reviewed and endorsed by the
Global Project Services Manager and either the Vice President EP Finance Projects or Vice
President GP Controller or applicable DS Class of Business Vice President Finance before
it is approved by the Project. For EP Projects regional support is required prior to
requesting endorsement.






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3 DEFINITIONS

A Work Breakdown Structure (WBS) is a hierarchical subdivision of the project work scope to be
controlled by the project team.

A WBS element is one of the subdivided components, either Hardware or Function, within the WBS.

A Hardware Item is a physical component of the Project.

A Function is a service, including procurement, carried out to construct or decommission a Hardware
Item.

Definitions for Cost Time Resource (CTR), Activity and Network can be found in the Cost Time
Resource (CTR) Catalogue procedure.

Ref. Shell Project Processes – Procedure: PSM-I-U-001182-FA-6180-0027 Cost Time Resource (CTR) Catalogue
Ref. Shell Project Processes – Procedure: PSM-I-U-001182-FA-6180-0004 Cost & Planning Glossary of Terms

Chart 1 illustrates the relationship between WBS elements, activities and networks within the WBS. Note
that this chart shows the WBS levels for the Project only. In some ERP systems the Project’s WBS may
be embedded within an overall standard hierarchy i.e. the Project may not be the top element in the ERP
system.









Chart 1: WBS Overview
FUNCTION LEVEL
CTR 1 = NETWORK 1 CTR 2 = NETWORK 2 CTR 3 = NETWORK 3
Resources
Cost
Time
WBS Element
WBS Element
Project
Work Scope
Activity
WBS Element
WBS Element
WBS Element
Activity
Activity
Activity
Time
Resources
Cost
WORK GROUPING
Resources
Activity
Activity
Activity
HARDWARE LEVEL(S)
WBS Element
W
O
R
K

B
R
E
A
K
D
O
W
N
PROJECT
Cost
Time
Activity
Activity
4 PROCESS
4.1 Overview
WBS’s for both Opex and Capex are used for asset development projects. Note that Opex is referred to as
Revex in some business areas. Once the WBS for Opex and Capex have been created they are used in
parallel to the end of execution.

WBS for Opex
The WBS for Opex is designed to capture all project costs that cannot be capitalised. For this reason, the
Opex WBS for the Select, Define and Execute phase does not follow any general design principles. The
WBS must be created and entered into the ERP system, at the latest, during the Select phase.

WBS for Capex
The WBS for Capex breaks down the Project into components that can be effectively managed and
controlled. The Cost Time Resource (CTR) sheets, that are used to monitor and control activities, are
assigned to the lowest level WBS elements. The WBS design is a joint effort between the Project Manager,
Project Services Manager, Project Finance Manager and Project Contracting & Procurement Manager. The
WBS must be documented and signed-off by all four disciplines before the Project takes FID. The WBS
must be entered into the ERP system during the Define phase and before any pre-FID expenditure that can
be capitalised (e.g. long lead items). The WBS in the ERP system will be the basis for the WBS of the project
schedule. Each WBS element in the ERP system must have a corresponding WBS element in the project
schedule. The schedule, however, may be further sub-divided.

The cost estimate sub-divides the work scope of the Project into a Hardware-Function matrix. The work
scope, estimate and schedule are refined in the Define phase and the associated Hardware-Function matrix
is overlaid with the contracting strategy. This enables the build-up of the WBS in the ERP system with an
iterative process to develop the CTR Catalogue.

At the start of the Execute phase the WBS and the approved GIP P50 budget for the Project should be fully
aligned. The work scope, cost and schedule can be taken to a lower level of detail as contract execution
provides more information. In addition, the outcome of project changes impact on maintenance of the
structure. Finally, when the work is completed the WBS elements are closed.

Ref. Appendix 1 : WBS Process Flowchart.
Ref. Appendix 3 : Capex WBS Lifecycle.

4.2 Creating a WBS
4.2.1 WBS for Opex
The WBS for Opex is a hierarchy with elements to capture initial project expenses, typically for timewriting,
seismic work and third party (feasibility) study work. A more expanded WBS may be needed for appraisal
drilling activities. The WBS must be documented and signed-off by the Project Manager, Project Services
Manager and Project Finance Manager before input into the ERP system. In some cases, in the Select phase,
these key positions may not have been established and authorisation may be required from persons acting
either part or full-time in the role. The intent is to receive input, review and agreement from the three
Disciplines. The WBS elements generally remain active until the end of the Execute phase of the Project.

Ref. Appendix 2 : Opex WBS Example

4.2.2 WBS for Capex
To create the WBS for Capex a matrix combining Hardware and Functions should be developed. Both
Hardware Items and Functions should be identified from the Basis for Design (BfD), Project Specification
(PS) or Basic Design & Engineering Package (BDEP).




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Chart 2 reflects the Hardware-Function Matrix overlayed with the contracting strategy and associated CTRs.
In the matrix some Functions are shown as being executed by the project management team, meaning that
no third party contractor is involved. Where an area is marked with no work scope, the Function is not
applicable to a particular Hardware Item.


The WBS for Capex is based on the Hardware-Function Matrix. The first WBS level of the Project should
represent Hardware Items. These items may be further subdivided and a single project should typically have
2 Hardware levels. The lowest level of the Project WBS should be at the level of Functions. If a specific
Function is not required for a Hardware Item, the associated WBS element should not be created.

The Project must decide the WBS level of detail required for budget control purposes giving consideration
to optimising the balance between the number of WBS elements required for control and the effort required
for maintenance in the ERP system. The project team has the flexibility to define their own Hardware Items
and Functions including the level of detail for control purposes. The design of the WBS should generally
result in the budget being held at the lowest level WBS elements.

The first WBS level of the Project should include project management and contingency elements. Project
management can be further subdivided into other WBS elements as required by the Project. In addition,
project management can also be a Function under a specific Hardware Item. Contingency must be one
separate WBS element.

In some cases, where one contractor carries out a Function that applies to many Hardware Items, the
Function itself can become the primary control element. This is by exception and results in the Function
Chart 2: Hardware Function Matrix


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being created at the first WBS level of the Project. Function 6 in Chart 2 is an example and could represent
onshore site preparation or offshore installation.

Functions are split into activities which form the detailed networks (CTRs) below the WBS. These networks
need to have a corresponding activity in the project schedule. The schedule however, can have additional
lower levels of activity for progress control. An interface between the ERP system and planning system may
be established for transfer of schedule data.

The contracting strategy determines the number of CTRs that relate to a contract and WBS element. Lumps
Sum type contracts typically require less CTRs than reimbursable but this should not dictate the number of
WBS elements and levels. The contractors should be requested to provide data consistent with the CTR(s)
hence WBS.

Ref. Shell Project Processes – Procedure: PSM-I-U-001182-FA-6180-0028 Cost Management of Contracts

Chart 3 reflects how the Capex WBS elements are derived from the Hardware-Function Matrix.


Ref. Appendix 4 : Capex WBS Example - Onshore
Ref. Appendix 5 : Capex WBS Example - Offshore
Ref. Appendix 7 : Capex WBS Example - Overview
Chart 3: WBS for Capex


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In addition to the Hardware-Function Matrix the following factors, which influence the WBS, must also be
considered:
• Project – If multiple GIPs exist for a project (e.g. pre-FID, FID and FID revision), where possible, these
should be grouped under one project for Capex and one project for Opex.
• Wells – Wells are classified as Hardware Items and require a separate first level WBS element. This
element can be further subdivided as required by the Project and the Wells department should provide
input.
• Government Rules & Tax Regulations – The WBS should only group and/or breakdown Hardware in a
specific way (i.e. not in accordance with this procedure) if the ERP reporting functionality is technically
not able to meet governmental (e.g. Production Sharing Agreement) and tax requirements.
• Billing – If the development is sub-divided into different projects with different co-venturers or if the co-
venturers are the same but the percentage ownership is different, separate WBS elements should be
created for billing purposes.

Factors that should not influence the WBS are:
• Capitalisation Breakdown Requirements – The design of the WBS should not be determined by the
breakdown requirements for capitalisation purposes. Capitalisation can be achieved through an
allocation process.
• In-country & Out-country Costs – The WBS should not reflect the split between in-country and out-country
costs. These can be obtained from ERP cost reports at the network activity level.
• General Cost Reporting – Co-venturers should accept the WBS, as defined by the Project, and associated
ERP cost reports.
• Authorisation For Expenditure (AFE) – AFEs are raised in accordance with a created WBS and should
therefore not influence the work grouping and breakdown.
• Work Programme & Budget (WP&B) – The WBS should not reflect the split between the various WP&B’s.
Annual cost data for WP&B’s should be obtained from ERP cost reports.
• Business Plan – Data can be obtained from ERP cost reports and the business plan requirements should
therefore not influence the WBS.
• ORP Phases – The WBS should not reflect the split between the various ORP phases. Only one Opex
and one Capex WBS is required to end of the Execution phase.

Projects headed by a Project Director
A project where the work scope has been divided into sub-projects and headed by a Project Director will, in
general, require an additional Hardware level within the WBS. Each sub-project will require its own
individual structure within the Project. The funding that is controlled by the Project Director will also
require its own structure but this will be restricted to Directors project management and Directors
contingency i.e. the Director will not control Hardware Items.

Ref. Appendix 6: Capex WBS Example – Project Director Headed

4.3 Maintaining a WBS
Following creation of the WBS in the ERP system, WBS elements must only be released for use as required
and when the Project and any Co-Venturers approvals (e.g. AFE or WP&B) have been obtained.

As the Project progresses and more detail becomes available the WBS may be expanded. In addition, WBS
modifications can be caused by work scope changes to CTR(s) or contracting strategy changes.

Any change to the WBS must be approved by the Project Manager, Project Services Manager and Project
Finance Manager. If the change to the WBS is a result of a project change, the WBS approval can be
obtained through the Management of Change process.



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The project schedule must also incorporate any WBS modifications for Capex to ensure that each WBS
element in the ERP system has a corresponding element in the schedule.

Ref. Shell Project Processes – Procedure: PSM-I-U-001182-FA-6180-0002 Management of Change
4.4 Closing-Out a WBS
When the work scope applicable to an individual WBS element is complete (i.e when all the work associated
with the CTR’s connected to the element is complete), the element should be closed for further
commitment. Following completion of all transactions the WBS element must then also be closed. These
close-out actions should be carried out as soon as possible, on an ongoing basis, and not delayed to the end
of project execution. Surplus funds must be returned to contingency in accordance with the Budget
Management procedure. At the end of project execution all WBS elements must be closed.

Ref. Shell Project Processes – Procedure: PSM-I-U-001182-FA-6180-0041 Budget Management
Ref. Shell Project Processes – Procedure: PSM-I-U-001182-FA-6180-0060 Data Collection


5 ROLES & RESPONSIBILITIES

The table below provides an overview of the roles and responsibilities of the different stakeholders within
each WBS sub-process.












Although Project Services is responsible for the WBS, the associated accounting transactions are managed
by Project Finance.







Table 1: RASCI chart
Project / Venture
Management
Project Services Finance in Projects
Contracting &
Procurement
Creating WBS Accountable Responsible Support Support
Maintaining WBS Accountable Responsible Support Support
Closing-out WBS Accountable Responsible Support Support
APPENDIX 1 PROCESS FLOWCHART

System
Business Development Manager
Project Finance Manager
Engineering Manager
Contracts Manager
Project Services Manager
Project Manager
Create
Opex
WBS
Type 3
Cost
Estimate
Integrated
Project
Plan
(Level2)
70A C&P
Strategy
& Tactics
Field
Development
plan
Basis of
Design /
Basic
Design
package
Billing
Requirements
Wells
Gov Rules &
Tax
Regulations
Level 2
Project
Plan
BDEP /
Project
Spec.
DG3
Create High
Level Capex
WBS
Expand WBS
for execution
levels
Input Opex WBS
in ERP System
Input Capex WBS
in ERP System
FID
Approve Capex WBS
Signoff by: PM, PS,
CP & FiP
DG2
Maintain & Sequential Close-out of Opex & Capex WBSs
70C
C&P
Post
Award
Maintain
Capex
WBS
41 Budget
Management
27 CTR
Catalogue
27 CTR
Catalogue
27 CTR
Catalogue
27 CTR
Catalogue
Approve Opex WBS
Signoff by : PM, PS &
FiP
41 Budget
Management
03
PCP
60 Data
Collection
Release
Opex
WBS
Release
Capex
WBS
APPENDIX 2 OPEX WBS EXAMPLE



APPENDIX 3 CAPEX WBS LIFECYCLE

The following chart represents the lifecyle of a project’s Capex WBS throughout the different Opportunity Realisation Process (ORP) phases.





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APPENDIX 4 CAPEX WBS EXAMPLE – ONSHORE

The chart below shows a typical onshore project Hardware-Function Matrix overlayed with the contracting strategy and associated CTRs. The methodology
would lead to the attached WBS where each box shown is a WBS element. Note that this chart shows the WBS levels for the Project only. In some ERP
systems the Project’s WBS may be embedded within an overall standard hierarchy i.e. the Project may not be the top element in the ERP system.





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APPENDIX 5 CAPEX WBS EXAMPLE – OFFSHORE

The chart below shows a typical offshore project Hardware-Function Matrix overlayed with the contracting strategy and associated CTRs. The methodology
would lead to the attached WBS where each box shown is a WBS element. Note that this chart shows the WBS levels for the Project only. In some ERP
systems the Project’s WBS may be embedded within an overall standard hierarchy i.e. the Project may not be the top element in the ERP system.


APPENDIX 6 CAPEX WBS EXAMPLE – PROJECT DIRECTOR HEADED

The chart below shows a typical WBS for a development headed by a Project Director where division by sub-project is required. In general, the WBS will
need an additional Hardware level. Project Director funding will be held separately and only include Director project management and Director contingency.

Note that this chart only shows the WBS levels and elements for a development headed by a Project Director. In some ERP systems this WBS may be
embedded within an overall standard hierarchy i.e. the Project may not be the top element in the ERP system.


APPENDIX 7 CAPEX WBS EXAMPLE – OVERVIEW





WBS Example -
Overview


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APPENDIX 8 ERP INSTRUCTIONS

<UNDER DEVELOPM>


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REFERENCES

1. Opportunities and Project Management Guide:
http://sww.shell.com/ep/toe/opmg/

2. Project Guides Website:
Enterprise:Global Solutions:Joint Activities:GS - iPMS (SWW Public):-:Project Guides

3. Investment Decision Manual (IDM):
http://sww.shell.com/finance/authorities/

4. Cost and Planning Toolbox:
http://knowledge.europe.shell.com/GetDoc?dataid=2305925&instance=publsiep&guest=true