UPDATE - We have since made another one of these using florists ribbon (or you could use cassette tape) to make a waterproof, outdoors version.
Step 1: Get your polystyrene
The polystyrene is several inches thick so pieces won't break off easily (although lots of tiny particles will make a break for freedom so you might want to do this outside when it's not windy put a sheet down etc).
Mum removed the branches and twigs embedded in the polystyrene from where it got blown into bushes.
Step 2: Adding the wool
We discovered early on that as long as we kept the yarn taught then it cut into the edges of the polystyrene and we didn't have do too much tying off.
We began randomly wrapping wool around the polystyrene ...
Step 3: Create an hole
By creating a large hole we effectively had an anchor to pull the wool in different directions as well as a focal point for our piece.
Step 4: Finishing touches
Then, each kid chose a colour and concentrated on one particular area and worked on that independently until their ball of wool ran out.