What is Risk Breakdown Structure in Project Management? | Simplilearn

No business is short on challenging instances in its quest to accelerate development, especially in its early stages. To thrive against all odds, startups and enterprises must carefully navigate through treacherous waters, identifying and steering clear of perils as they present themselves. When managing risks that come with business ventures gets tedious, having a risk breakdown structure in your project managing toolkit can be a powerful asset. 

Learn the significance of risk breakdown structure in project management and how you can create your own risk breakdown structure template. 

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What Is RBS in Project Management? 

RBS is the abbreviation for Risk Breakdown Structure. It is a hierarchical chart that precisely breaks down the risks of a project, starting with high-level categories and moving down to sub-levels of risk. 

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:

Level 0

Level 1

Level 2

Level 3

Level 4

Bike

Purchase

Financial

Application

Loan Denial

The loan application can be denied due to a low credit score. 

Mechanical

Performance

Reliability

Buying an old bike may not be reliable as it may require frequent repair. 

Cosmetics

Paint Damage

An old bike may have paint damage.

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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.

Probability

Impact 

1=High (80%<=x<=100%)

2 = Medium High (60%<=x<=80%)

3 = Medium Low (30%<=x<=60%)

4 = Low (0%<x<30%) 

A = High (Rating 100)

Exposure – Very High (Score 100)

Exposure – Very High (Score 80)

Exposure – High (Score 80)

Exposure – Moderate (Score 30)

B = Medium 

(Rating 50)

Exposure – High (Score 50)

Exposure – Moderate (Score 40)

Exposure – Moderate (Score 30)

Exposure – Low (Score 15)

C = Low 

(Rating 10)

Exposure – Low (Score 10)

Exposure – Low (Score 8)

Exposure – Low (Score 6)

Exposure – Low (Score 3)

Source

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Creating a Risk Breakdown Structure Template 

Creating a risk breakdown structure template as a standard for all projects has helped organizations maintain consistency. To create a risk breakdown structure template, begin by identifying the major risk categories that correspond to your project/industry. For instance, risk breakdown structure in software project management will identify risk categories like a development environment, product engineering, and program constraints.

Similarly, the risk breakdown structure for construction projects will have categories like environment, client, industry, and project. 

Once you have created the categories, break them down into subcategories. It is best to collaborate with your team and brainstorm together. After you have laid down the categories, begin the risk assessment process. However, you must always keep room for customizing a risk breakdown structure to properly address the specific risks of every 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?

Bringing risk under control requires identification via thorough consideration of all aspects of your business. While some risks are easily identified, the risks that remain unseen unless scoured for can pose the most significant threat if left uncovered. 

After identification, assessing each risk’s nature and severity is crucial. Risk assessment gives an insight into how each situation is likely to happen and the potential impact of such an occurrence. 

While the impact of risks can range from basic harm to a catastrophe, failing to precisely assess risk can significantly impact the project submission. Also, certain risks with positive impacts, when assessed at the right moment, can actually improve or speed up the project submission.  

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!