Risk Breakdown Structure: Explained with Examples

Every project has its own risks, and when a project manager starts working on different phases of a project management life cycle, they create a hierarchical chart that breaks down all the project risks starting with higher-level categories and coming down into smaller risk factors. This structure is what we call a risk breakdown structure, and it generally comprises deliverables, control accounts, and work packages. In this complete guide to understanding risk breakdown structure (RBS), we will see how it impacts the overall project management and what are the important uses of creating an RBS.

It should be noted here that a risk breakdown structure can be a flowchart or a mind map that illustrates the risk exposure a project face. In this article, we will help you create an RBS using EdrawMind that you can later share among your team members.

When a project undergoes the development cycle, project managers create multiple phases in which they plan to deliver it to their clients or stakeholders. At the same time, they break down the entire project into different risks (higher to lower) that might affect the deliverables or might cause any significant delay in the delivery of the project. This hierarchical system that project managers create is a risk breakdown structure or RBS.

In a risk breakdown structure, a project manager identifies and categorizes all the possible risks that might affect the project's life cycle. It is extremely important to prioritize all those risks in order to properly allocate respective resources so that the project manager will later avoid such issues. As you see, a risk breakdown structure categorizes the project's tasks, which can later further be broken down into multiple levels.

As a project manager, you should understand that some of the key risk categories include:

• External Risk
  We do not consider some of the external factors while working on the project's life cycle. For example, most of us did not include COVID-19 or a similar pandemic when we started working on any project. The pandemic has created unforeseen delays or issues for many companies, which is why it comes under external risk. In simpler words, anything external outside our control falls under this risk category.
• Internal Risk
  Internal risks are those risks that happen inside the business organization. It can do anything, like lack of funding, improper communication from the stakeholders, mistakes in prioritizing the project, etc.
• Technical Risk
  Most IT-related projects face ambiguities in the work scope or technology obsolescence. For example, one might have started working on a mobile application in Native but, in later stages, have found the code to be extremely unstable. This will fall under the technical risk category.
• Project Management Risk
  Project management risks are those risks that impact project planning, project monitoring, and project communication.

As you have seen the four most important risk category factors, let us discuss why creating an RBS is extremely beneficial for project management. It should be noted here that every project is different, but every project has more or less similar risk factors, and that is why it is always considered good practice to create a risk breakdown structure.

At the same time, a risk breakdown structure helps the project managers to list all the risks and later find a suitable solution for them, making it an invaluable tool that understands the potential risk any project might face. Without an RBS, it can be extremely challenging for the project managers to execute the projects efficiently because they will have a hard time tracking down and avoiding otherwise avoidable or manageable risks.

Some of the important reasons behind using RBS in project management are:

• It provides all the potential risks of the project from the highest to the lowest level.
• One can group different risk sources and find a common solution.
• One can easily define the total risk exposure for a particular project.

As we saw in the above section, the risk breakdown structure helps project managers to rank and categorize all the risks that may hinder the overall project management's life cycle. By creating a proper hierarchical system, the project manager ensures that their team is well-prepared to navigate through any or all kinds of risks. At the same time, they can even reduce the impact of those risks during the project's life cycle.

Let us understand the impact of RBS on project management by going through an example. As we illustrated in the above sections, the four categories of risks are external, internal, project management, and technical. Now a project manager will break these categories into multiple subcategories. For instance, the technical category might include requirements, complexity, tech stakes, analysis, and more. In later stages, the project manager will further break these risks into multiple factors and then go on to find the respective solutions for them.

In project management, we prefer methodical, numerical rankings to understand the impact of such risks:

Similar to the probability of risk occurrence, we can create the basic methodical numerical to understand risk impacts:

• High-Risk Impact: Catastrophic or 100
• Medium Risk Impact: Critical or 50
• Low-Risk Impact: Marginal or 10

When you create the hierarchy of all those risks, you can use the above probability and impact factors to categorize them properly. In order to understand the impact, we use the basic formula:

Risk Score = Potential Risk * Risk Impact

For instance, a potential risk that has a 50 percent chance of occurring and is designated catastrophic will have a risk score of 50 out of 100.

Now that we have understood the benefits of having a risk breakdown structure in project management let us see some of the basic steps that a project manager must take in order to create an RBS.

1 Identify Risk Categories

Project risk categories include four different risk factors, Organizational or Internal, External, Project Management, and Technical. The very first stage in creating a risk breakdown structure is to work on identifying all the key risk categories of that particular project. By identifying the primary categories, a project manager can move on to the second stage, where they can create multiple subcategories.

2 Create Subcategories

To understand and find a solution, a project manager must break down the primary risk categories into infinitesimal details. By breaking down the structure into multiple subcategories, a project manager can ensure the team that they have either found a solution or found a way to reduce the impact of that particular risk. For instance, let us suppose that there is a company that exports wheat and rice. So, in their 'External' risk category, they can create subcategories for poor weather or poor quality of goods.

3 Uses of the RBS

Once you have created the categories and subcategories, the last stage that remains is to create a risk breakdown chart. It will allow you to refer to all types of risks easily. You can either create these risk breakdown charts on paper or can go ahead and use EdrawMind Online, which easily lets you have remote collaboration with your team, where you can easily create multiple subcategories and easily brainstorm the solutions.

In project management, risk breakdown structure can be used in several ways, like:

1 Use as a risk identification tool

Since you have already broken down all the risk factors, you understand easily what are the factors that are causing that particular risk. This way, you can easily navigate through the problem and find an appropriate solution. As a project manager, you can use SWOT, the Delphi technique, or create a root-cause analysis to find and solve the risks.

Some of the most important questions to ask yourself in order to identify the risk are:

• What could go wrong when the project is in its execution or planning stage?
• What similar risks have we faced in previous projects?

Now that you must have answered such questions, you can start identifying potential risks by creating RBS. An important tip to keep in mind is:

Finalize a risk identification method: There are several risk identification methods that you go ahead with in order to find the potential risk. Some of the important tools can be:

• Brainstorming ideas and finding the risks.
• Multiple revisions of the project's scope of work.
• Doing either a SWOT Analysis or Root-Cause Analysis.

2 Use to analyze risks

With the help of a risk breakdown structure, you can analyze the impact of all the risks on the project's objective. As a project manager, you can do qualitative vs. quantitative risk analysis and simultaneously work towards updating your project documents that depict different strategies that you intend to follow in later stages.

Most project managers use the risk's probability of occurrence and project impact using quantitative and qualitative risk analysis to find the hidden risks and prioritize them as per their risk scores. In addition to this, once you have completed the risk assessment, you should carefully update the project document, where you will note down all the factors you considered while creating the risk score. Carefully note down everything to ensure that everyone on the team remains on the same page.

3 Reporting all risks

The project Manager can create RBS to create and share risk reports properly. By doing this, they ensure that a proper communication channel is established between the deciding individuals. By creating RBS, one can help the stakeholders understand the current risks and trade-offs and even prevent any unpleasant surprises.

The primary goal of risk reporting is:

• Help understand everyone on the team about the risks.
• Help the stakeholders take risk-informed decisions based on the reports you have submitted to them.

As a project manager, you should understand that a project risk report is not always similar to the project risk register. In simpler words, the risk register will register all the identified risks, but the risk report is for the company's senior management and only points out significant risks that will hinder the project's delivery.

4 Post-Project Review

It is often seen that project managers do not go back to study past projects. In order to identify all the potential risks, it is always advisable to go back and do a proper dissection of your previous projects. This way, you can review and analyze all the risks that you learned in that project and create post-project reports pertaining to all the risks for future projects.

There are some important key factors that you need to consider when you work on your post-project reports:

• Always include an evaluation of the risk management process and its role in the success and failure of any or future projects.
• Always look for recurring risks in projects. This way, you can easily find the solution for those risks that are often every time you work on that project. For instance, suppose you work on a remote team where your development team always creates buggy codes. This is a potential risk that impacts the overall project. Now, if this happens on every project, then you can do a proper post-project review and find the correct solution for this problem.

5 Project Comparisons

One can create a particular RBS for a project and then create a different structure for a different project. Later, the project manager can compare these two projects and use RBS as a risk assessment tool.

The best practice to do a project comparison is:

• Always ensure that you follow the same framework to compare different projects. Otherwise, if Project-A followed a particular strategy and Project-B followed another framework, it would be difficult for you to identify risk factors.
• It is recommended to use a risk matrix to have a detailed understanding of any project's risk exposure.

Let us understand the Risk Breakdown Structure by going through three different examples. Here you will find how we have found different risk categories and how we broke them down into subcategories.

1. Construction Project
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   Construction Project

   

   

   As we all know, a construction project has very complex parts that include multiple stakeholders, multiple project partners, multiple builders with different skill sets, and multiple project managers assigned different construction-related assignments. The primary categories of the construction project are:

   • Environmental, which can later be categorized into poor weather conditions, and inadequate lands.
   • Government, which can later be categorized into difficult regulations, failed inspections, and so on.
   • Team & Approach risks can be categorized into poor communication among the team, low quality, failing to meet schedule, etc.
   • Competitors' risk can later be categorized into cheaper prices and increased competition.
2. Software Development
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   Software Development

   

   

   Software development is yet another important vertical where the need to create an RBS is very important. There can be multiple levels of project risks involved in the software development life cycle (SDLC), which can be categorized as:

   • Level 1: Product Engineering, Development Environment, Program Constraints.
   • Level 2: Requirements, Design, Integration Test, Development Process, Management Process, Management Methods, Work Environment, Code & Unit Test.
   • Level 3: Stability, Completeness, Feasibility, Process Control, Capacity.
3. Generic
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   Generic

   

   

   A general risk breakdown structure is a great way to learn about potential risk factors. Please note that a general risk breakdown structure will have the usual risk factors that are then subcategorized into different levels. The primary categories can be:

   • Technical Risks
   • Management Risks
   • Internal Risks
   • Commercial Risks
   • External Risks

Creating a risk breakdown structure is not only necessary for the completion of a project life cycle, but it also ensures that the entire project management runs smoothly. If any problem or risk occurs, a project manager can easily check their risk breakdown structure or RBS and find a suitable solution. In most cases, the project manager will create the RBS before they start working on any project. Once they have identified the potential risks, they can either find the solution or mitigate it to such a level that it reduces its overall impact.

As you saw from the above risk breakdown structure examples, you can easily create different RBS diagrams using EdrawMind. This 2D mind mapping tool lets you create subtopics with a click of a button. In addition to this, EdrawMind comes with different templates and themes that let you easily create RBS illustrations that you can easily share in different file formats. Another brilliant feature of EdrawMind is its online version that lets you have remote collaboration. From advanced import and export options to having a template gallery, EdrawMind is a powerful tool that lets you create different structure diagrams with utter ease. Head to the download option and start making a risk breakdown structure for your different projects.

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