When it comes to risk management, a risk breakdown structure is a powerful tool in a project manager’s toolkit. According to the Project Management Institute (PMI), a project risk is defined as “an uncertain event that, if it occurred, has an effect on at least one project objective.”
While risks are typically associated with negative outcomes, PMI distinguishes that a risk may also produce a positive project impact. Either way, a risk breakdown structure can help project managers more easily identify all potential risks and rank them by priority in order to plan appropriate mitigation strategies.
Read on to learn what a risk breakdown structure is, the benefits of risk breakdown structures, and how you can create your own custom risk breakdown structure template.
What is RBS in project management?
A risk breakdown structure, or RBS for short, is a hierarchical chart that breaks down project risks starting with higher-level categories and continuing down into sub-levels of risk.
Much like a work breakdown structure (or WBS), the risk breakdown structure provides a framework for categorizing and ranking the risks associated with any given project, making it easier for PMs to effectively plan for and mitigate the impacts of those risks.
For example, the risk breakdown structure pictured above organizes the project’s risks into four major categories: technical, external, organizational, and project management. From here, the project manager can begin to list out more specific subcategories; for instance, under technical we see:
- Complexity and references
The project management RBS process would continue from here as the PM would begin to list out the specific risks involved in each subcategory.
RBS project management: scoring the risks
After identifying and categorizing all possible risks, it’s important to prioritize those risks in order to properly allocate resources toward risk mitigation. The PMI suggests a risk scoring method based on probability (P) and impact (I) using the following formulas and rankings:
- Probability (P) of risk occurrence:
- High probability (80% ≤ x ≤ 100%)
- Medium-high probability (60% ≤ x < 80%)
- Medium-low probability (30% ≤ x < 60%)
- Low probability (0% < x < 30%)
- Risk impact:
- High: catastrophic (rating A - 100)
- Medium: critical (rating B - 50)
- Low: marginal (rating C - 10)
Once each individual risk has been analyzed, the risk score is found by multiplying the impact (I) rating with the probability (P), as shown in the following grid:
What are the benefits of a risk breakdown structure?
A risk breakdown structure can help give a more complete and ordered view of the risks involved with a given project, while helping PMs more appropriately assign resources and plan for the positive or negative impacts of identified risks. But why is risk management so important for project managers, anyway?
Why assessing risk is important
The benefits of assessing project risk and proper risk management simply cannot be overstated. A 2002 PMI study found that “there is a strong link between the amount of risk management undertaken in a project, and the level of success of the project; more successful projects use more risk management.”
One tragic example that illustrates the importance of proper risk assessment is the space shuttle Columbia, which was destroyed upon re-entry from orbit in 2003. After investigation, a report stated that it would have been possible for the space shuttle’s crew to either repair the damage sustained to the wing, or to be rescued from the shuttle.
While not every project involves life-or-death level risk, the fact is that failing to properly assess risk can substantially impact final project delivery. It’s also important to remember that not every risk poses a negative potential effect; risks may also have positive impacts, which may actually improve or speed up the project delivery.
How to create a risk breakdown structure template
For simplicity and consistency, many organizations adopt a risk breakdown structure template that is standard for all projects. To get started, first identify the major risk categories that apply to your industry or project. For example, software developers may identify risk categories like product engineering, development environment, and program constraints. Construction projects, on the other hand, may include categories like environment, industry, client, and project. From there, you and your team can begin to break down the specific risks within each major category and begin the risk assessment process.
Of course, with the right tools in place, creating a risk breakdown structure template is much easier. With Wrike’s built-in templates and project matrixes, you’ll be equipped to customize a risk breakdown structure that properly addresses the specific risks involved with your next project. Get started with Wrike today and see how much simpler project management can be with a free two-week trial!