4 Steps for Creating a Risk Breakdown Structure
Blog: Monday Project Management Blog
No risk, no reward.
In business, most projects you take on involve a degree of risk, however, we’re always hopeful it’s worth the payoff. Sometimes though, when risks evolve into roadblocks, they can derail a project.
While it may not be possible to avoid risks entirely, being aware of them ahead of time can spell the difference between project failure and success.
When it comes to project management, one of the most important tools you can use is a risk breakdown structure. In this post, we’ll go over what a risk breakdown structure is and how you can create one for your next project.
What is a risk breakdown structure?
A risk breakdown structure, abbreviated as RBS, is a type of graph or chart used by project managers to identify risks and potential causes of risks associated with a project. It’s a hierarchical decomposition of the overall project risks, starting with the highest-level risks and breaking them down into increasingly specific sub-risks.
What are the benefits of using a risk breakdown structure for your project?
The purpose of the risk breakdown structure is to help project managers plan for and respond to risks throughout the life of the project. By charting the different levels of risk, all members involved in a project can easily communicate on tasks such as risk management planning, identification, analysis, response planning, and monitoring and control.
Additionally, knowing a project’s different risk factors helps break it down into smaller, more manageable goals that are easier to plan for.
Some benefits of using a risk breakdown structure for your project include:
- Organizing and categorizing risks so that they can be prioritized and resources can be allocated accordingly
- Identifying risks early on in the project lifecycle and risks that may be related to each other
- Helping to create a project risk management plan by identifying potential risks and their causes
- Providing a framework for monitoring and updating risks throughout the project lifecycle
- Communicating risks to project stakeholders in a clear and concise way
- Finding potential areas of improvement for future projects
Create a risk breakdown structure for your business in 4 steps
The best way to create a risk breakdown structure for your business will vary depending on the specific industry. Each business is unique in the type of risks they face. Still, though the end result might differ, there are a few specific steps you can follow to put together an RBS that fits your needs.
1. Identify potential risks
When you begin to identify risk categories, it’s important to understand where risks can come from. There are a number of risks that are outside an organization’s control that are more difficult to prevent but still require awareness and preparation.
In order to identify risks present in your project, it’s important to narrow down the risk categories, which can include:
- External: risks outside an organization’s control like the economy, natural disasters, and political instability
- Internal: within the organization’s control like financial mismanagement, poor decision-making, and employee turnover
- Operational: production problems, supply chain disruptions, and IT outages
- Strategic: new product failures, market share losses, and competitive pressures
- Financial: revenue of an organization, credit, the cost of goods and services, profitability, and solvency of the organization
- Technological: data breaches, cyber-attacks, system failures, and incompatible or outdated technology
- Compliance: failing to comply with laws, regulations, contracts, or ethical standards
2. Assign subcategories to each risk
With risk breakdown structures, you want to get as specific as possible in order to be well-prepared. Selecting risk categories that correspond to your business isn’t enough, you also need to break them down further into subcategories.
Subcategories can be created by breaking down the main categories into more specific risks. For example, if you have a category for “Technology Risks,” you could create subcategories for “Hardware Risks,” “Software Risks,” and “Network Risks.”
3. Score each of the risks
After assigning categories and subcategories to all relevant risks, you should analyze and score them. By conducting a risk analysis and scoring the risks, you can prioritize which need immediate attention. A common way project managers use to categorize risk is by measuring Probability (P) and Impact (I). You can choose how you rate each one of these factors, but it’s standard to have three to five options for probability and then three for impact.
Here’s how the axis might look like according to the Project Management Institute:
4. Build your structure
Once you’ve gathered all your categories and subcategories and assigned risks a score determining likelihood and priority levels, the next step is to add all the data into a chart so that all stakeholders can access the information.
When putting together an RBS flowchart, it’s important to keep a few things in mind:
- Organize the chart in a way that makes sense for the specific project, such as grouping risks by type or by project phase
- Use labels and colors to differentiate between different types of risks so that the chart is easy to understand
- Include all relevant information for each risk, such as the name, description, and potential impact
- Regularly review and update your RBS since risks can change, become irrelevant, and new ones can arise
Of course, it’s possible to create a risk breakdown structure in programs like Microsoft Excel, but for detailed charts, maintaining this data in an Excel sheet can be cumbersome and time-consuming. Instead, turn to project management software.
How monday.com can help you create a risk breakdown structure
Software such as monday.com allows you to organize your RBS chart with features that are customizable and collaborative. Using templates for risk management, you can quickly and painlessly get projects off the ground.
A monday.com board allows you to create categories and subcategories, assign scores, project owners, due dates, and list a risk’s probability level all in one concentrated place. All stakeholders involved in a project have the ability to access a board so that they can see which risks are prioritized, tasks they need to action, and view real-time project updates.
Additionally, monday.com integrates with many popular project management, CRM, and communication tools, such as Asana, Trello, Basecamp, Jira, GitHub, and others, making it a simple tool to consolidate all parts of a project in one place.
Does a work breakdown structure outline project risk?
Work breakdown structures can also vary by industry and company, so while some might include project risk, many work breakdown structures focus on the work process instead.
How can you create a risk breakdown structure in Microsoft Word?
You can use different Microsoft Word features such as adding shapes and charts to create a risk breakdown structure, but creating it instead in a tool like monday.com gives you a lot more flexibility and the ability to collaborate.
When is a risk breakdown structure created?
An RBS is created during the risk identification process, which comes before a project begins or while it’s still in the planning phase.
Don’t run the risk of running into risks
Risks are an inherent part of project management. By preparing your team with a risk structure breakdown, you’ll avoid going into a project blind. Using software like monday.com to create your RBS gives you additional flexibility and visibility into your projects so that you can at least be sure the risks stay at the project level and don’t impact your team’s communication and collaboration.