Risk Breakdown Structure (RBS): Steps, Components, Levels

RBS, also known as Risk Breakdown Structure, is a crucial tool that can come in handy for a project manager. The Project Management Institute (PMI) defines project risk as an uncertain event that can make an impact on at least one objective of the project if it occurs.

While risks are usually seen with a negative perspective, PMI has distinguished that risk might even positively impact the project. Regardless of the outcome, a project Risk Breakdown Structure or RBS can aid project managers in more efficiently identifying every potential risk and even ranking them on a priority basis pertaining to the mitigation strategies for the respective risks. Take PMP Prep course to stay updated on the learnings and understanding.

What is Risk Breakdown Structure?

An RBS, short for Risk Breakdown Structure, is a type of gradable chart that offers a breakdown of the various project risks beginning from higher-level categories to the sub-levels of risk. Similar to a work breakdown structure (WBS), the RBS Risk Breakdown Structure offers a specialized framework that aids in categorizing and ranking risks associated with any project at hand.

Using a Risk Breakdown Structure in project management makes it much easier for project managers to plan ahead efficiently to mitigate the possible impacts of the said risks. Project managers make use of RBS project management software and a bevy of relevant project management tools to keep track of their projects. The following Risk Breakdown Structure PMP tools are widely used in project management: 

• Organization Breakdown Structure (OBS): This represents the structure of an organization and the associations amongst various jobs and positions. 
• Work Breakdown Structure (WBS): Helps break down the project into relatively smaller work components. 
• Resource Breakdown Structure (RBS): Offers a list of the resources available for the project. These may include people, equipment and materials, and are segregated by category and type. 
• Risk Breakdown Structure (RBS or RiBS): Helps organize risks into categories. 

PMP RBS Risk Breakdown Structure is an officially ordered broken-down list of risks involved and may include internal, external, unforeseen or anticipated risks that can have an impact on the schedule, scope and budget of the project. This list is hierarchical and vivid in nature and will enable you to perform the following tasks: 

• Organizing risk data for facilitating understanding. 
• Identifying re-occurring risk themes. 
• Highlighting areas of the project that require specialized attention. 
• Pinpoint areas of the project that have more risks than usual. 
• Define the overall risk exposure of the project, which is a detailed summary of possible losses. 
• Outlining the entire risk management procedure. 

The main Risk Breakdown Structure categories relevant to risk management are: 

• External Risks 
• Internal Risks 
• Technical Risks 
• Project Management Risks

No project is 100% free from risks, no matter how efficiently it is planned. The most important thing is to identify and handle them with utmost efficiency. Therefore, if you are planning to pursue a career in project management, it is highly important to have in-depth knowledge of Risk Breakdown Structure in project management.  

This blog is a beginner’s manual for understanding RBS, Risk Breakdown Structure, and its benefits along with an illustrative Risk Breakdown Structure example.

Why Risk Breakdown Structure in Project Management is Important?

The Risk Breakdown matrix essentially helps project managers comprehend the extent and the manner of risk at hand. RBS PMP is the most important element in project management because it makes it much easier to pinpoint and assess the risks associated with your project. You will be able to see which projects need more attention and determine recurring risks as well as areas of risk concentration. With the help of Risk Breakdown Structure template Excel, Risk Breakdown Structure template Word and other software tools related to PMP RBS, you will learn about the project’s entire risk exposure and even be able to summarize possible losses and outline the process of risk management at the same time. 

A risk Breakdown Structure helps define the risks involved by giving them a more orderly and complete view of the ones that can possibly crop up during the course of a given project. It also helps project managers to assign resources more appropriately and even plan ahead for both the positive or negative effects of the identified risks. 

The best benefit you can reap from using a risk management breakdown structure is that it helps organize resources better. It additionally helps align said resources with the all-inclusive objectives and goals pertaining to the organization. It also offers a fast visual reference regarding the allocation of resources, workload, and assignments.

To know more about the importance of RBS PMBOK, a reliable Project Management certification course will help you out. Taking up this course will also help you attain the necessary skills required from a project manager when it comes to risk management.

How to Use RBS?

Once an enterprise or a project has a predefined Risk Breakdown Structure that can be used in several ways. Some of these can streamline the entire process of risk management on a specific project as a whole, while others can be relevant for every project. The main ways to use the Risk Breakdown Structure have been carefully outlined below for your reference:

1. RBS to Identify Risks

The higher levels of the Risk Breakdown Structure can be used as a reference list to ensure complete coverage at the risk identification phase. This is essentially accomplished with the help of the RBS for structuring whichever method is being used for risk identification. A risk identification checklist needs to be developed based on the RBS by taking all the lowest RBS levels and identifying the generic risks in every area depending on prior experience. Future projects can further determine if each of the generic risks is applicable by answering “Yes,” “No,” “Do not know,” and “Not applicable.” 

Additionally, an RBS can also be used for structuring the list of risks that are identified using other methods by mapping out identified risks into the lowest or sub-levels of RBS. This can reveal every possible discrepancy or blind spots that appear in risk identification, preventing duplication and even double counting.

It can also determine if the risk identification method has taken every potential source of risk into consideration. The RBS structure used for the task of risk identification task ensures that all the common risk sources pertaining to the project objectives have been covered.

2. RBS to Access Risks

Identified risks are generally categorized according to their source and allocating them to the different elements of the Risk Breakdown Structure. This further allows areas with a high concentration of risk inside the RBS to be pinpointed. This can be easily determined by counting the risks in every RBS area. However, even a simple total count of risks can mislead project managers because it does not consider the risks' severity.

Therefore even if one stipulated RBS area might contain numerous risks with minor severity, another might consist of fewer but major risks. Better measurement of risk concentration inside the Risk Breakdown Structure will result in an accurate “risk score” based on the size or the scale of every individual risk. The most commonly used method is the P-I Score, where the numerical scores connect with the rankings of impact (I) or probability (P) and are then multiplied to result in the combined value that reflects both factors.

Categorizing risks as per the Risk Breakdown Structure offers numerous insights into the evaluation of the exposure and impact of the risk on the project. Lack of efficient risk categorization will lead to risks not being available from even the simplest list of risks, even if it is a list created in a prioritized order. These include the following: - 

• Comprehending the kind of risk exposure and impact on the overall project
• Exposing the most important risk sources to the project
• Identifying and unraveling the root causes of risk with the help of affinity analysis
• Indicating dependency or correlation areas in-between risks
• Focusing on the development of risk response in high-risk areas
• Enabling the development of generic responses for dependent groups of risks or root causes.

3. RBS to Report Risks

The RBS can also be used for rolling up risk information pertaining to an individual project to the higher-level authorities, reporting to the senior management, and delving deep into the details required for reporting on the project team actions. Reports to the senior management need to include the total risk score and the total number of risks. For higher levels of RBS area, the reports need to be illustrated with trend analysis that is illustratively presented or metrics. Project teams also need to be notified of major risks that fall under the part of the project they are handling.

The Risk Breakdown Structure chart will also need to offer multi-project or cross-project reports to the senior management because it offers a consistent language used for risk reporting, reducing or removing.

There should be no room left for any ambiguity or misunderstanding between projects. Risks within the same Risk Breakdown Structure area are usually compared directly across various projects because they have the same meaning throughout all projects. This can be further enhanced by using a numbering scheme exclusively RBS-based to identify risks.

4. RBS for Project Comparison

Risk exposure across various projects or tenders can be compared directly because the Risk Breakdown Structure is presented with a common framework. The RBS enables risks to be identified on every individual project or tender and is to be structured in the same manner. This further permits direct comparison.

When it comes to tender evaluation, risks are usually identified to compete with pre-existing tenders, which will then require proper structuring with the use of a common Risk Breakdown Structure. Therefore, instead of blatantly comparing the unstructured lists of risks for every tender, the total number and categories of risks associated with every available option are offered in a consistent format. This further allows the consideration of the relative risk exposure, especially during the selection of the preferred tender.

In a similar fashion, the risk exposure of every single project that falls inside a relevant portfolio or a program can be compared with the help of a common Risk Breakdown Structure. This allows the prioritization or ranking of risks on the basis of the risk exposure associated with them or also allows the construction of a risk-balanced portfolio.

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Steps to Make Risk Breakdown Structure

The steps to make an efficient Risk Breakdown Structure have been listed below in a step-by-step format: 

1. Identify the Risk Category

The first step in developing an effective Risk Breakdown Structure is identifying the risk categories at the highest level or the top line. As mentioned before, the basic RBS categories include internal, external, financial, schedule, client, contractual, technical and management. Each of these categories depends on the industry related to the project at hand. Identifying the industry will also help fine-tune them.  

2. Specify Risk Under RBS

The next step to making a high-functioning Risk Breakdown Structure is breaking down the categories in level one into level-two categories. This refers to starting broad and fine-tuning the topic relevant to the project into smaller bits and pieces. It is important to remember while breaking down to limit to only three-levels to ensure risks can be adequately managed. 

3. Measure Risk Impact and Score

Once the risks have been effectively broken down, they will need to be scored to determine which risk can potentially make the highest impact on the project. This is the starting point of the risk analysis. 

Prioritizing risk will enable you to know which risk requires immediate attention and which can be left for late or be avoided entirely. This is carried out by scoring every single risk for the probability impact of its occurrence. Each probability is generally broken down into the following four categories: 

• High (80 to 100%) 
• Medium to high (60 to 80%) 
• Medium to low (30 to 60%) 
• Low probability (0 to 30%) 

Example of Risk Breakdown Structure Template

Source

As per Risk Breakdown Structure sample illustrated above, it is clear that risks depend on multiple factors and can be further broken down into categories pertaining to said factors. The categories of risks relevant to risk management have been listed below: - 

• External Risks: These risks are out of your hands, and you cannot control them. It Includes risks pertaining to regulations and the Government, environment, suppliers as well as competitors. 
• Internal Risks: These risks can happen in-house and can be the result of a lack of resources, funding and poor management. They involve risks pertaining to resources, prioritization and funding. 
• Technical Risks: These risks are ambiguous and mainly pertain to scope or requirements, technology, constraints or assumptions. 
• Project Management Risks: These risks can impact on planning, scheduling, communication and overall project control. 
• Other Risks: There are various categories of risks involved which mainly stem from environmental factors and can be associated with other project attributes such as finance, schedule, contracts, management and operating environments.

Benefits of Risk Breakdown Structure

The benefits of evaluating a project risk with the help of proper risk management are unimaginable. Studies have shown a strong bond between the level of implemented risk management and the level of success after the project outcome. This is why more successful projects have been seen to use more and more risk management strategies to ensure faster, quicker and more efficient delivery.

Let us take the tragic example of the space shuttle Columbia, which was first destroyed as it commenced re-entry in 2003 from orbit. After proper investigation, the report said that either the crew would need to be rescued from the shuttle or if possible, the space shuttle’s crew would have to repair the sustained damage to the wing.

In a corporate project, no risk can potentially result in a life-or-death situation. As a matter of fact, the highest impact an improper evaluation of risk can have on a project is to cause a heavy loss and potentially negatively impact the ultimate project delivery. It is also worth noting that not every risk might have the same negative effect and can even have a positive impact on the project as a whole.

Positive risks can enhance and speed up the overall project delivery time. Some of the other main advantages of developing an efficient Risk Breakdown Structure have been listed below: 

• Discovering New Risks: When a project manager shows the representation of potential risks to the entire project team and stakeholders, the possibility of individual perspectives and opinions from the members can lead to the discovery of new risks. 
• Categorization of Project Risks: The Risk Breakdown Structure in project management plays one of the most crucial roles in listing the risks pertaining to the levels to recognize the risk dependencies. Categorizing the said risks make it easier and simpler for the project managers to pinpoint the risk dependencies. 
• Easier to Comprehend: A breakdown structure is more like a detailed representation of potential risks or risks at hand. It is presented in an easily comprehensible format. Since it is so easy to understand, it also makes detailing the risks further much easier.

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Conclusion

With all things considered, we can finally conclude that a Risk Breakdown Structure is a crucial part of the entire project planning and management process. Not only does it help project managers evaluate the positive potential of a risk, but it also helps mitigate the risk, if it might have a negative impact on the overall delivery of the project. As critical as it is, it is a process that most project managers fall back on when it comes to reviewing the history of previous projects during the process of planning a newly acquired project. The risk metrics help stakeholders also make decisions based on the risks should they occur or plan diagnostic measures if one occurs.

As a project manager, it is imperative to know the in-depth nitty gritty of risk management. Knowing your way around the Risk Management Structure is a mandate to consider if you want to pursue your career as a project manager. If you want to kickstart your career in this field, you can take a reliable Project Management course that will not only upskill you with the necessary skills required of a project manager. One great certification to start with is the KnowledgeHut PMP Prep course.