Understanding Risk Breakdown Structure in Project Management

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by StarAgile

April 28, 2022
Category Project Management


A Risk Breakdown Structure is among the most powerful tools for managing risks in a business assignment. A risk involved in a project is defined as "an uncertain event and when this event occurs, it causes a major impact on at least one of the project objectives."

While mostly these risks are associated with negative results, sometimes they might also lead to positive project influence. Either way, the risk breakdown structure can be useful for professionals managing different types of projects. It can help such individuals easily identify potential risks and rank their priority for further mitigation plans.

Risk Breakdown Structure in Managing an Assignment

The risk breakdown structure breaks down the risks in a hierarchical graph, starting at a higher level and then moving down to the risks at the finer level. Some professionals create this structure at the beginning of an assignment to see whether it is viable or not. But it is best to address the structure during the planning stage when assigning roles and responsibilities to the members of a team working on a project.

RBS helps such professionals by serving as a tool for managing risks or events that they might not have expected or planned for. The risks involved can negatively impact an assignment's quality, timeline, and budget. Nevertheless, there are even certain positive risks considered beneficial for a project.

This is crucial because leaving the risks unattended or unprepared can disturb the project objectives. Project managers can take up our PMP certification training, where they get to learn about the risk breakdown structure.

Risks Involved in a Project: Understanding the Four Categories

There are four categories of risks involved in a business assignment. They are:

  1. External Risks: These risks you cannot control, like regulatory, environmental, competitors, and suppliers.
  2. Technical: Requirements, scope, and other technical problems fall in this category of business project risks.
  3. Internal: These are the risks occurring within your company, like prioritization mistakes, lack of resources, and funding delays.
  4. Management: These are the risks associated with communication, control, and planning.

Reasons to Use Risk Breakdown Structure in the Management of an Assignment

The right risk breakdown structure will help you understand the risks involved in an assignment. The structure makes it very easy to identify and examine the risks, thus giving you an idea of the assignments that require special attention.

The structure will also help you in identifying risk concentration and recurring risks. You can also use different tools to understand the risks that a project is exposed to and summarize the potential risks when outlining the entire risk management procedure.

Creating a Risk Breakdown Structure for an Assignment

First, you must know that a Risk Breakdown Structure is nothing but a simple graph or grid with the definition of risk right on top. You will find more specific definitions while moving down this grid.

You can also set up a risk breakdown structure in the form of a spreadsheet with the risks getting detailed definitions while moving from left to right. You need to follow three essential steps when creating a risk breakdown structure:

  • Understand the Risk Categories 

The first step is to identify the top-of-the-line risk categories. Fundamental categories for the risk breakdown structure include internal, external, management, and technical. The categories can be a bit more fine-tuned based on the industry you are working in.

For instance, software development involves program constraints, product engineering, and a development environment. Generally speaking, these risk breakdown categories consist of:

  • Financial
  • Schedule
  • Management
  • Technical
  • Client
  • Weather
  • Contractual
  • Environmental
  • Political

The risk identification procedure can be a little brainstorming with the entire team, interviews, and workshops to review historical data, weaknesses and strengths, threats and opportunities, and more.

  • Itemize Specific Risks in the Risk Breakdown Structure

The next step is breaking down level-one categories into level-two categories. You need to start broad and refine the topic into smaller pieces. For instance, you can break down smaller pieces under the client category like client team, project team, tactics, funding, and targets.

Next, under the project team category, you might note that you do not have sufficient resources to complete the task. Your team does not possess good experience and needs more training to execute the different tasks successfully.

  • Score Risk and Influence

Now that all the risks are broken down, it is time for you to core them to determine the ones that have the greatest influence on your assignment. So, that's the beginning of risk analysis. You prioritize all your risks and immediately know those that require instant attention and can wait and even be avoided.

You can do this by scoring the different risks for their probability impact and, if they at all cause this, the possible impact they will have on your assignment. It is the task of the project manager to rate the different factors, but the rule of thumb to follow is to break them into four levels:

  • High: 80% to 100%
  • Medium-High: 60% to 80%
  • Medium-Low: 30% to 60%
  • Low Probability: 0% to 30%

Your findings will be included in risk reporting, and the team members can be assigned the task of looking out for the different risks and their ratings. Once you are all set with the risk scores, add them to the risk register, probably if they come up as problems in the assignment.

Conclusion

Creating a risk breakdown structure will get easier with the right tools in place. You just get started with this job instantly, so the management of an assignment will not just get easier for you but even more convenient. To learn in detail about risks, risk breakdown and other important project management concepts, do enroll in our PMP certification training and become a certified project management professional.

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