Understanding the Risk Breakdown Structure (RBS)
In project management language, risks include anything unplanned and unforeseen that can have a negative impact on the project’s costs, timing or quality. A good project manager should be able to manage the risks effectively and get the project on track. One of the important tools available for managing risk is the Risk Breakdown Structure (RBS).
RBS is an hierarchical representation of risks, starting from higher levels and going down to finer level risks. This is similar to the organization of the Work Breakdown Structure (WBS). For instance, at the top level you could split your risk into technical risk, management risk, scheduling risk and external risks (Level 1), then go on to finer levels such as design risks, funding risk etc (Level 2) and so on. You can keep subdividing the risks into deeper levels as long it makes sense.
Here is an example of a RBS structure taken from Risk Doctor.
An RBS template is typically chosen for the entire organization and it helps making sure all the relevant points are covered. The RBS works like a checklist. During the risk identification stage, the PM works through each of the items and checks those that are applicable for the given project.
Once all the risks are identified, the PM can begin scoring the risks. PMI (Project Management Institute) suggests a P-I scoring method where you multiply the Probability (P) of occurrence of a particular risk with the Impact (I) caused by the risk. This way we can objectively handle risk and prioritize them by the order of their scores.
The scoring will help the PM understand the areas of the project which require more attention. For instance, if the technical risk has a higher risk score, then the PM must make sure he/she has the right personnel and toolsets to handle the process.
The RBS would help identify the concentration of risks in a certain category and dependencies among risks. The PM can also monitor & evaluate the risk mitigation process over the course of the project. Even more broadly, the RBS can help in comparing competing tenders from different vendors as we now have a quantitative way to compare different project proposals.
If you want to get started, here is a generic RBS template that you can download.