What is Risk Breakdown Structure in Project Management?

What Is Risk Breakdown Structure (RBS) in Project Management? 

A risk breakdown structure (RBS) is like a chart that arranges project risks from most serious to least serious and from most likely to least likely. These risks are grouped based on their type, which helps make sure we think about all the different possibilities.

It presents written documentation of all risks in a structured manner. Similar to Work Breakdown Structure, Risk Breakdown Structure in project management gives a medium to the project manager to organize potential risks that must be tracked and addressed. 

RBS comprises different levels from 0 to 4, each representing

• Level 0: The Project Name
• Level 1: The Category of the Risk
• Level 2: The risk
• Level 3: The actual risk
• Level 4: The detailed risk description

For instance, for a bike purchase, the different levels of risk breakdown structure will be as follows:

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Risk Breakdown Structure in Project Management: Risk Scoring

Initially, you begin by categorizing project risks. For instance, we have four categories: technical, organizational, external, and project management. Next, we will subcategorize each of these categories. 

Once we have identified and categorized all possible risks, it's time to prioritize them in a sequence so that allocating resources toward risk mitigation gets easier. 

PMI has proposed a P-I risk-scoring method that relies on probability (P) and impact (I). 

• P denotes the probability of risk occurrence:
• High probability (80% ≤ x ≤ 100%)
• Medium-high probability (60% ≤ x)
• Medium-low probability (30% ≤ x)
• Low probability (0%)
• 'I' denotes the impact of the risk:
• High: catastrophic (rating A - 100)
• Medium: critical (rating B - 50)
• Low: marginal (rating C - 10)

This P-I method calculates the risk score by multiplying Probability and Impact. The following risk breakdown structure example grid represents the risk scoring method as suggested by PMI.

Source

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Creating a Risk Breakdown Structure Template 

• Start by figuring out the major risk categories that match your project or industry. For example, if you're working on a software project, categories might include things like development environment, product engineering, and program constraints.
  
  
• Similarly, if you're dealing with construction projects, categories might be environment, client, industry, and project.
  
  
• Once you've got your categories, break them down into smaller subcategories. It's a good idea to do this with your team by brainstorming together.
  
  
• After you've set up the categories and subcategories, it's time to evaluate the risks. But always be ready to adjust the risk breakdown structure to fit the specific risks of each project.

What Are the Advantages of a Risk Breakdown Structure?

A risk breakdown structure in project management has the following benefits both for the project manager and the organization: 

• Promotes discovery of new risks: It increases the chances of potential risk suggestions from the team when a project manager presents the risk break structure. 
• Categorizes the project risks: It helps give a more ordered and complete view of the risks involved with a given project. Categorizing makes it simpler to discover the risk dependencies.
• Easier to understand: The breakdown structure representation makes it easier to understand risks. 
• Quicker allocation of resources: It facilitates a more appropriate allocation of resources and plans for the impacts of identified risks.

Why Is Risk Assessment Important?

Risk Prioritization Methods

Risk prioritization follows risk assessment. It helps classify high and low-risk events. For instance, in an IT project, a data breach and loss of critical operations is a high-risk event, while a minor budget overrun is a low-risk event. 

Project managers must focus on prioritizing risks with high likelihoods and high impacts, taking the help of prioritization methods. A risk matrix is one of the most effective tools for risk prioritization. 

Risk Matrix: It allows you to create a chart of each risk by likelihood and severity. This visual method provides insight into an organization's risks and their overall seriousness and probability.  

The likelihood of risks is charted on the Y-axis, while the severity of their implications is on the X-axis. When each axis is scaled up from low to high, the risk landing in the upper right corner is the one with the highest probability and deserves the highest priority.

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Conclusion 

Risk Management Structure in project management is a promising technique that equips you with responsible handling of the risks that imperil your company's future. Learn more such tools and techniques with Simplilearn's PGP Project Management Course and get future-ready by boosting your digital-age project leader journey!