There’s nothing that can delay a project quite like exposure to risk. Unforeseen and unaccounted-for circumstances can result in project delay, failure, or overspending, making the end result less beneficial and worthwhile.
Fortunately, proper project risk management and risk mitigation can aid in preventing project hindrances from occurring. One such example of risk management is implementing the risk breakdown structure (RBS), which analyzes all of the potential hurdles a project might face throughout its lifespan. This tool proves to be a helpful and effective means of minimizing project risk.
In this article, we’ll cover everything you need to know about the risk breakdown structure, including more information about how it is useful, as well as how to create an RBS.
What Is a Risk Breakdown Structure?
A risk breakdown structure is a type of graph or flowchart that attempts to account for all the risk exposure a project faces as it unfolds. Typically, a risk breakdown structure is a hierarchical representation of risk, starting with high levels and broad categories of risk and moving down to more specific, detailed risks.
The point of the risk breakdown structure is help project managers to brainstorm and document a project’s risk exposure — everything that might affect the proper progression of a project. This planning tool can help a company or project team be better prepared for the likeliest to the unlikeliest of risks, so the project deliverables will be as close to the original expectations as possible.
How to Use a Risk Breakdown Structure
There are several components to creating or reading a risk breakdown structure successfully, all of which are outlined below.
Risk Identification Aid
Risk identification is one of the most integral parts of a risk breakdown structure, and involves a project manager making a list of the potential risks a project faces. They will also evaluate the likelihood of each risk actually occurring. Risk identification sits on the upper levels of the hierarchical structure.
Risk Assessment
Project risk assessment involves categorizing the listed items of risk by significance, from minor to major severity. One precise method of risk assessment is assigning each list item a P-I score (probability and impact), where these two separate numerical scores are multiplied to find a specific risk “score” or value.
Risk assessment ultimately examines the type of risk exposure, most significant sources of risk, root causes of risks, the correlation between risks, and potential risk management techniques.
Risk Reporting
Risk reporting entails project managers sharing the risk breakdown structure with senior management and other project stakeholders to alert them of the potential obstacles a project might face. These reports may include:
- Total number of risks
- Total risk scores
- Risk trend analysis presented via graphs
As a result, project managers can be made aware of risk management processes that are already in use by the organization.
