Uncertainty is a certainty in projects. Risks will arise and threaten the successful delivery of your project. Using a risk breakdown structure (RBS) is how you prepare for the unexpected.
A risk breakdown structure is great for identifying and prioritizing risks so you know which will be more or less impactful. That’s the first step in planning, managing and mitigating risk in your projects.
What Is a Risk Breakdown Structure in Project Management?
A risk breakdown structure is a tool for managing risks, which are any events that you have not planned for or expected. Risk is usually thought of as a negative impact on the project’s budget, timeline or quality. However, there are also positive risks that can benefit a project.
Either way, project managers have to prepare for risk, either good or bad—it can interfere with project objectives. A risk breakdown structure breaks down risks in a hierarchical graph, beginning at the higher level and moving down to the finer level risks.
Sometimes, project managers create a risk breakdown structure during project initiation to see if the work is even viable. More often, you’ll address it during the planning phase when you assign roles and responsibilities to your team members.
The Four Categories of Risk in a Project
There are four categories of risk. They can be broken down further, but most risk breakdown structures divide risk into these four categories:
- External: Risks outside your control, such as environmental, regulatory, suppliers, competitors, etc.
- Internal: Risks that occur inside your organization, including a lack of resources, funding delays or mistakes in prioritization.
- Technical: Scope, requirements and other technical issues call into this category.
- Management: Risks related to your planning, communication, control and so forth.
For example, on the top-level risk, you can start with a broad topic such as technical, management, external or scheduling risks. The next level could further define those categories as design, funding or resource risks. You can keep getting finer and finer in your risk, reaching a granular level or as fine into the risk as feels right for the project. You could never stop, of course, but that would prove counterproductive.
Why Use a Risk Breakdown Structure in Project Management?
The risk breakdown structure helps you understand risk. It makes it easier to identify and assess risk in your project. You can see which projects require special attention and identify recurring risks and concentration of risk. You can even use the tool to know the project’s total risk exposure and summarize potential losses while outlining the risk management process.
To manage risk correctly, you need to use project management software. ProjectManager is cloud-based software that monitors your work in real time so you can catch an issue when it shows up, not after the damage has already been done.
ProjectManager’s live dashboard is set up and ready to go, automatically collecting and calculating project data that is then displayed in easy-to-read charts and graphs. Track metrics on time, cost, variance and more and capture anomalies fast so you can mitigate their impact. Get started with ProjectManager for free.
How to Make a Risk Breakdown Structure for a Project
A risk breakdown structure is a simple grid, with a broad definition of the risk at the top, with more specific definitions as you move down the grid. It can also be set up as a spreadsheet with the risk becoming more defined as you move from left to right.
When building a risk breakdown structure you want to follow the following three steps.
1. Identify Risk Categories for the RBS
The first step is to identify the top-line risk categories. As noted, the basic categories for the risk breakdown structure are external, internal, technical and management. Depending on the industry in which you’re working these categories can be a bit more fine-tuned.
For example, software development might have product engineering, development environment and program constraints. In general, these top-line risk identification categories include:
The risk identification method for finding risk can be brainstorming with your team, workshops and interviews to review historic data, doing strengths, weaknesses, opportunities and threats (SWOT) analysis and more. It’s also good to make a RACI chart (responsible, accountable, consulted and informed) to help determine your stakeholder management regarding risk.
2. Breakdown Specific Risks in the RBS
Next, you want to break down the level-one categories into level-two categories: This means starting broad and refining that topic into smaller and smaller pieces.
For example, under the client category, you might break it down into smaller topics, such as the client team, the project team, targets, funding and tactics.
Then, under the project team, you might note that there are not enough resources to complete the tasks or your team is not experienced enough and requires more training in order to successfully execute their tasks.
Three levels of risk are probably enough. More than that, and you can end up getting bogged down in minutiae without much of a return for the effort.
3. Score the Risk and Impact
Once you have broken down the risks, you’ll want to score them to determine which might have the greatest impact on the project. This is the start of your risk analysis. By prioritizing risk, you know which one deserves immediate attention, and which can wait or even be avoided.
This is done by scoring each risk for the probability impact of it occurring and, if it does, the possible impact to the project. How you rate each of these factors is up to the project manager, but a good rule of thumb is for probability to break it up into four:
- High (80-100 percent)
- Medium-high (60-80 percent)
- Medium-low (30-60 percent)
- Low probability (0-30 percent)
For impact, traditionally that’s broken into three: high (critical), medium (moderate) and low (minimal). Your findings will be part of your risk reporting, and you can assign team members to be on the lookout for these risks. Once you have a risk score, add all of them to a risk register if they appear as issues in the project.
Benefits of Using a Risk Breakdown Structure
Risks are unknowns, but that doesn’t mean you can’t manage them. A risk breakdown structure is a tool that helps you identify and order risks in your project. It’s the first step in risk mitigation. Your risk management plan allows you to determine what resources will be necessary to address issues that show up in your project.
Being able to accurately assess risk leads to a greater probability of project success. Not all risk is bad, but not having a plan in place to address risk is never good. Without preparing for risk, you can’t take advantage of the positive and mitigate the negative.
Using a risk breakdown structure manages risk and sets up your risk management plan. Having an idea of what might happen over the course of the project, and then knowing which potential problem (or opportunity) is worth responding to, is how you manage risk and turn what could be a disaster into a minor bump on the road.
Related: Free Project Management Templates
Risk Breakdown Structure Examples
While we’ve already mentioned that there are a lot of risk breakdown structure examples, they differ depending on what industry they are for. The actual tiered structure of the RBS is basically the same.
The Project Management Institute has an informative conference paper on RSB on its website. The paper, Use a Risk Breakdown Structure (RBS) to Understand Your Risks is helpful if you’re trying to wrap your mind around what a risk breakdown structure is and how to use one.
There are some examples to give you an idea of what one for certain industries would look like. Examples of a risk breakdown structure include the following.
Generic Risk Breakdown Structure Example
Construction Risk Breakdown Structure Example
Software Development Risk Breakdown Structure Example
How to Create an RBS With ProjectManager
You can find risk breakdown structure templates to help you identify and plan for risk in your project online, but a template is a static document and not helpful when issues do arise and have to be assigned and tracked. Best to upload that RBS template into ProjectManager, cloud-based software that can help you plan, track and report on risk.
Execute Risk Resolution on Gantt Charts
Risk management is about identifying risk and creating plans to resolve or take advantage of the issue if it shows up in your project. ProjectManager’s interactive Gantt charts let you create risk tasks that can be assigned, prioritized and more. You can link dependencies and filter for the critical path without complicated and time-consuming calculations. Then, set a baseline to track actual progress compared to your plan and make sure you stay on track.
Create Workflows on Kanban Boards
Because ProjectManager has multiple project views to suit however you prefer to work, just toggle from the Gantt to the kanban view. Now you can define the production cycle of the risk by creating customized columns for identifying, working on and resolving. Teams can manage their backlog and plan sprints to resolve the risks, while managers can visibility into their work and can reallocate resources as needed to keep them working at capacity.
Create Progress Reports in Seconds
Use ProjectManager’s one-click reports to track the resolution of the risk and keep stakeholders informed on the progress in mitigating the risk. There are broad reports on the status of a project or portfolio, but more detailed ones on time, cost and workload. All are helpful when managing risk. Every report can be filtered to show just what you want to see and shared easily with stakeholders so they can stay updated.
ProjectManager is award-winning software that helps hybrid teams work how they work, when they want and wherever they are. Get a tool that gives you one source of truth and is flexible enough to work traditionally or in a more agile environment. Get started with ProjectManager today for free!