A Comprehensive Guide to the Risk Breakdown Structure (RBS) in Project Management

The risk breakdown structure (RBS) is an indispensable project management tool that enables project managers to methodically identify and evaluate all potential [[risks]] to a project. This comprehensive guide explains what an RBS is, why it is invaluable for project managers, and how to create and utilize one for your projects. Read on to learn how implementing an RBS can support effective [[risk management]] and increase the likelihood of project success.

What is a Risk Breakdown Structure?

A risk breakdown structure (RBS) is a hierarchical representation of the [[risks]] associated with a project, organized by [[risk]] category. It is similar to the work breakdown structure (WBS), but instead of breaking a project down into discrete work packages, the RBS breaks a project's risks down into categories.

The RBS provides a framework for the systematic [[identification]] of [[risks]] to provide a big-picture perspective of all the risks a project faces. It essentially divides risks into categories like external risks, internal risks, technical risks, project management risks, etc. Going into progressively more detail, it allows [[risks]] to be broken down from large categories into specific [[risk]] events.

The RBS serves as the backbone for the [[risk management]] process. After [[risks]] have been identified via the RBS, they can be assessed and prioritized. Then [[risk]] mitigation plans can be developed to minimize threats to project objectives.

Why Use a Risk Breakdown Structure?

There are several key benefits that a risk breakdown structure provides:

• Comprehensive [[risk]] identification - The RBS provides prompts to help identify all potential [[risks]] to a project instead of just the obvious ones. This minimizes the chance of being blindsided by unexpected risks later on.

• Categorization of [[risk]] - Grouping [[risks]] into standardized categories allows [[risks]] to be more easily compared and sets the stage for qualitative and quantitative analysis.

• Improved [[risk]] assessment - Categorizing risks helps determine root causes and helps establish probability and [[impact]] more accurately.

• Enables [[risk]] ownership - Categorizing [[risks]] by type or project area allows responsibility for managing different [[risks]] to be more easily assigned.

• Prioritization of [[risks]] - Categorizing [[risks]] into types facilitates prioritizing [[risk]] mitigation efforts on the potentially most problematic [[risk]] areas.

• Reporting and tracking - Established [[risk]] categories help make communicating about [[risks]] and [[risk management]] to stakeholders consistent and standardized. Tracking [[risks]] over time is enabled by the structure.

• Planning [[risk]] responses - Since associated [[risks]] are identified together, complementary [[risk]] response strategies can be developed.

In summary, the RBS transforms an unstructured [[risk]] identification process into a more organized, methodical approach that provides many benefits over simply making a [[risk]] register. All project managers should develop an RBS for their projects.

How to Create a Risk Breakdown Structure

Now that we've covered what an RBS is and why it's useful, let's discuss how to go about creating an effective RBS:

Start with High-Level Risk Categories

Top-level [[risk]] categories should identify broad areas of [[risk]] applicable to most projects. According to the Project Management Institute (PMI), five common top-level [[risk]] categories are:

• Technical - Relating to technical or performance [[risks]] like unrealistic requirements, technology limitations, interface issues, etc.

• External - [[Risks]] from the external environment like suppliers, regulation, weather, etc.

• Organizational - [[Risks]] related to resources, priorities, funding, skills, etc.

• Project Management - [[Risks]] from schedule, resources, scope, etc.

• Other - A catch-all for [[risks]] not covered by other categories.

Break Down Into Subcategories

The top-level categories should then be broken down into more specific subcategories that fit each particular project.

For example, the Technical category could include subcategories like requirements, design, testing, technology, security, etc. The Project Management category might include subcategories like schedule, resources, scope creep, estimating, etc.

Work with project stakeholders to identify 5-15 subcategories under each top-level category relevant to your project.

Add Specific Risk Events

Under each subcategory heading, identify 2-5 specific [[risks]] that could occur and [[impact]] project objectives. These should be clearly defined [[risk]] events like "delay in component delivery from Supplier X" or "underestimated effort for development of Feature Y".

To make sure a robust RBS is created, use [[risk]] breakdown structure prompts and multiple [[risk]] [[identification]] techniques like brainstorming, interviewing experts, examining lessons learned, etc.

Illustrate in Tree Structure

With the [[risks]] identified, the collated RBS can be illustrated as a hierarchical tree structure with the [[risk]] events as the lowest level. This provides a clear overview of all identified [[risks]] grouped into their respective categories and subcategories.

Project management software often provides [[risk]] breakdown structure templates to easily create [[risk]] tree diagrams.

How to Use a Risk Breakdown Structure

Once an RBS has been created, it becomes a valuable tool for the rest of the [[risk management]] process:

• [[Risk]] analysis - The RBS structure helps determine probability and [[impact]] to analyze [[risk]] priority. Related [[risks]] can be assessed together.

• [[Risk]] response planning - Grouping [[risks]] allows common response strategies to be developed for all [[risks]] in a category.

• [[Risk]] monitoring - Status can be tracked by [[risk]] category to watch for developing issues.

• [[Risk]] reporting - Reporting [[risk]] status by RBS structure provides consistency.

Let's look at each of these uses in more detail:

Risk Analysis

With [[risks]] categorized in the RBS, you can more easily conduct qualitative and quantitative [[risk]] analysis.

• Qualitative analysis evaluates the priority level of identified [[risks]] using a [[risk]] matrix based on probability and [[impact]]. The RBS structure helps determine ratings consistently across [[risk]] categories.

• Quantitative analysis is numerical estimation of overall project [[risk]] exposure based on probabilistic analysis of monetary [[impact]] for cost [[risks]]. Related [[risks]] can be analyzed together.

Both types of analysis are easier with an organized RBS compared to an unstructured [[risk]] register.

Risk Response Planning

The RBS provides insights to develop [[risk]] response strategies for each identified [[risk]] event. Strategies usually fall into one of these categories:

• Avoid - Eliminate the threat by removing its cause.

• Transfer - Shift the risk's [[impact]] by insuring or outsourcing.

• Mitigate - Reduce probability and/or [[impact]] of the [[risk]].

• Accept - No action taken to affect the [[risk]].

Grouping related [[risks]] in the RBS allows you to develop complementary [[risk]] responses. For example, redundant component suppliers could be lined up to mitigate multiple supply chain risks.

Risk Monitoring

As the project progresses, [[risks]] need to be continuously monitored for changes to their probability or [[impact]]. The RBS provides an organized way to track this by [[risk]] category.

[[Risk]] metrics can be developed to identify trends for [[risks]] within each group. Thresholds can trigger [[risk]] response plans or develop new approaches if thresholds are exceeded.

Risk Reporting

Reporting to stakeholders is simplified by the structure of the RBS. Each group of [[risks]] has common characteristics, so the status of each [[risk]] category can be efficiently reported.

Reports might include:

• [[Risk]] category status (Red/Yellow/Green)

• Changed [[risks]]

• Most critical [[risks]]

• [[Risk]] response effectiveness

Providing reports consistently based on the RBS allows stakeholders to be properly informed of [[risk management]] status.

Real-World Example of a Risk Breakdown Structure

To illustrate what an RBS looks like, here is a simplified example for a construction project:

Technical Risks

• Design

  • Incomplete design

  • Defective design

  • Delays in design approval

• Construction

  • Defective work

  • Unsafe working conditions

  • Inadequate quality control

External Risks

• Weather

  • Delays due to storms

  • Delays due to extreme temperatures

• Regulations

  • Permit delays

  • Work stoppages enforced

• Subcontractors

  • Delayed work

  • Poor quality work

Organizational Risks

• Priorities

  • Insufficient attention from project sponsor

  • Conflict with other projects

• Resources

  • Insufficient staff assigned

  • Staff lack required skills

Project Management Risks

• Scope

  • Feature creep

  • Delivered functionality

• Schedule

  • Activity delays

  • Dependency delays

• Cost

  • Budget exceeded

  • Payment delays

Other Risks

• Force majeure

  • Pandemic

  • Strike

• Stakeholders

  • Neighborhood opposition

  • Investor concern

This example RBS provides an organized framework to identify all foreseeable [[risks]] that could [[impact]] the construction project. The project manager can use it to assess [[risks]], plan responses, monitor status, and report to stakeholders.

Key Takeaways

To recap, here are some key things to remember about using a [[risk]] breakdown structure:

• Creates a comprehensive listing of project [[risks]] sorted into logical categories and subcategories

• Provides a structured approach to identifying [[risks]] you may have overlooked

• Allows [[risks]] to be analyzed, prioritized, and managed by group

• Enables development of [[risk]] response strategies for related [[risks]]

• Provides consistent tracking and reporting of [[risks]] by category

• Helps obtain a clear big-picture view of the [[risks]] faced by a project

• Works in tandem with the [[risk]] register for quantitative analysis

• Should be reviewed regularly for changes in project [[risks]]

Implementing an RBS provides tremendous value for managing project [[risk]]. All project managers should incorporate this effective tool into their overall project [[risk]] methodology to help minimize threats. Careful application of the RBS will lead to fewer surprises and a higher likelihood of project success.

The Risk Breakdown Structure Identification Process

The first step in developing an effective RBS is identifying all the potential risks that could impact the project. This risk identification process should be thorough, structured, and inclusive of diverse viewpoints. Here are some best practices to follow:

• Use brainstorming sessions - Gather the project team and key stakeholders for open brainstorming discussions to identify risks. Different perspectives typically reveal different risks.

• Interview subject matter experts - Consult experts like senior technical staff and experienced project managers to uncover risks based on their expertise.

• Review historical records - Look at past project documentation like risk registers, issues logs, and lessons learned for risks experienced on similar past projects.

• Perform a SWOT analysis - Identify strengths, weaknesses, opportunities and threats to determine internal and external risks facing the project.

• Use risk prompt lists - Reference prompt lists organized by category like the RBS template to stimulate thinking about risks.

• Identify through systems analysis - Break down project elements like requirements, systems, and processes to identify associated risks.

• Consult risk databases - Many organizations maintain databases of risks from past projects that can reveal additional risks.

Cast a wide net with multiple techniques to make sure all significant risks are identified and captured in the RBS.

Creating Risk Breakdown Structures for Different Project Types

While all projects can benefit from an RBS, the specific risk categories and subcategories will vary based on the type of project. Here are some examples of specialized RBS frameworks for different project types:

Construction Projects

For construction projects, top-level risk categories might include:

• Environment - Weather, geography, sustainability

• Financial - Costs, economic factors

• Quality - Materials, workmanship, safety

• Resources - Labor, equipment, facilities

• Technical - Complexity, techniques, coordination

IT Projects

IT projects may structure an RBS around these areas:

• Scope - Requirements, functionality, interfaces 

• Schedule - Timeline, dependencies, resources

• Development - Tools, infrastructure, systems

• Organizational - Priorities, capacity, capabilities

• External - Vendors, regulations, technologies

New Product Development Projects

Product development RBS categories could include:

• Market - Customers, competition, pricing

• Technical - Invention, prototyping, testing

• Capability - Expertise, intellectual property, facilities 

• Partners - Suppliers, vendors, licensing

• Timing - Schedule, milestones, launch dates

The specific risks under each area would be tailored to the project. Establishing a framework of relevant categories is the key to an effective project-specific RBS.

Using an RBS Template

Developing an RBS from scratch for each new project is an unnecessary effort. Organizations should create generalized RBS templates that incorporate common risks from past projects.

Project managers can start with the standard template containing typical risk categories, subcategories, and examples. This can be tailored and customized for each specific project through brainstorming, SWOT analysis, and other identification techniques.

Standard RBS templates provide a head start on risk identification. Over time, the organization will refine their template based on evolving experience with risk. Project managers should still thoroughly analyze each new project for risks not already captured in the template.

Here are some tips for creating effective RBS templates:

• Include a full spectrum of risk categories applicable to your projects

• Structure categories from general to more specific

• Provide subcategories that are comprehensive but not overlapping

• Give examples of risk events under each subcategory

• Create templates tailored for different project types or areas

• Develop templates at both high-level and very granular views

• Store templates in a central repository for universal access

• Update templates periodically based on lessons learned

By using standardized RBS templates across all projects, risk identification will continuously improve.

Qualitative and Quantitative Risk Analysis with an RBS

Once project risks have been identified via the RBS, the next step is to assess the risks to determine priority for mitigation. This risk analysis process evaluates both the probability and impact for each risk.

Qualitative Risk Analysis

Qualitative analysis subjectively assesses each risk based on its likelihood of occurring and the severity of its impact if it did occur.

• Probability is evaluated as high, medium or low.

• Impact is rated as severe, moderate or low.

By categorizing risks in this way, a risk matrix can be developed with color coding like red/yellow/green to denote risk priority. Related risks grouped together via the RBS can be consistently and efficiently assessed.

Quantitative Risk Analysis

Quantitative analysis is numerical, allowing the total project risk exposure from all identified risks to be calculated. Statistical modeling techniques are used.

Each risk's probability distribution is determined, indicating the assessed likelihood across different probabilities. Then the risk's impact distribution models the range of possible monetary impacts and associated probabilities.

Cost and schedule impacts can be simulated using Monte Carlo analysis based on the probability and impact distributions. The total risk exposure is the aggregation of all modeled risks. Grouping related risks in the RBS allows their distributions to be more easily assessed.

Both qualitative and quantitative analysis provide data to determine risk priorities and plan responses. The RBS structure makes the analysis process significantly more effective.

Developing Risk Responses with an RBS

After the analysis process, action needs to be taken to address unacceptable project risks. The RBS provides a guide for developing risk responses in a structured manner.

For each risk category or subcategory, you can determine risk tolerance and define a consistent strategy:

• Avoid - Eliminate high severity risks

• Transfer - Mitigate external risks through contracts

• Mitigate - Reduce the most likely or impactful risks

• Accept - Monitor low probability and impact risks

Related risks can be efficiently addressed through complementary responses. For example, safety risks may require both mitigation through training and transfer through insurance.

Both contingency plans and proactive responses can be created by category. Using the RBS structure, optimized risk responses can be defined for the overall project instead of handling risks individually.

Tracking and Reporting Risks Using the RBS

Once risk response plans are established, the status of risks needs to be monitored throughout the project lifecycle. Ongoing tracking against the RBS provides several benefits:

• Allows risks status to be quickly checked within each category

• Highlights escalating risks based on defined thresholds

• Maintains visibility on planned risk responses

• Captures new risks under each category as they arise

• Provides data to analyze risk response effectiveness

Reporting risk status is also streamlined by leveraging the RBS structure for consistent presentations to stakeholders. Dashboards can be created to highlight:

• Highest priority risks by category

• Risk response progress

• Risk triggers or warnings

• Trends in risk levels by category

In summary, the structured nature of the RBS allows for efficient risk tracking and reporting, which helps keep stakeholders informed.

Best Practices for Maintaining an RBS

To maximize the value provided by a risk breakdown structure, project managers should follow these proven practices:

• Review and update the RBS at least monthly and with every major project change.

• Align RBS categories with how your organization classifies risks. 

• Use a risk management software tool to create the RBS structure and maintain risk data.

• Develop standard templates for different project types or business units.

• Provide training on how to create and maintain an effective RBS.

• Involve project stakeholders in creating and reviewing the RBS.

• Maintain an organizational risk database that feeds into RBS updates.

• Perform an RBS post-mortem after project completion to improve templates.

• Embed RBS best practices into the project management methodology.

• Use RBS data to calculate key risk metrics for the project portfolio.

• Foster a risk-aware culture that embraces RBS as a useful tool rather than a bureaucratic exercise.

Applying these best practices will maximize the effectiveness of the risk breakdown structure and provide long-term improvements to risk management capabilities. The RBS is a proven, high-value tool that should be a core element of the project management process.