Risk is a condition that can sidetrack a project if a project manager didn’t plan for it. For example, a project team plans that certain work needs to be done by its employees, but it is also possible that someone in the team pulls out unexpectedly. So, when a project is planned on the basis of cost, schedule, or quality, it helps to identify the risks to successfully complete the project. A breakdown structure categorizes all the information regarding a particular event, the same goes on with the Risk Breakdown Structure. A Risk Breakdown Structure is one of the most crucial methods for managing risks in a project.
A Risk Breakdown Structure is the hierarchical tally of all risks that a project can undergo arranged on the basis of risk category. It is the written documentation of all risks in an organized manner. Just like the concept of Work Breakdown Structure, it gives a medium to the risk manager and project manager to organize the risks that are needed to be addressed and tracked.
Different Levels of Risk Breakdown Structure :
There are different levels in RBS such as Level 0, 1, 2, 3, and 4. A Project manager can create an RBS from level 2 up to level 4 based on the requirement. The Risk Breakdown Structure is broken down by Level 0 as the Project Name, Level 1 with the Category of the Risk, Level 2 being the risk, Level 3 being the actual risk, and Level 4 signifying the detailed description of the risk.
Let’s take an example of a car purchase and design an RBS as follows.
Level 0 Level 1 Level 2 Level 3 Level 4 Car Purchase Financial Application Loan Denial Due to low credit score, the loan application could be denied. Mechanical Performance Reliability Purchasing an old car may not be reliable because of needing repairs so soon. Cosmetics Paint Damage Purchasing an old car may have paint damages. External Dealership Low Car Inventory There could be limited dealerships with inventory of a particular car brand with certain features.
P-I Method for Risk Prioritization :
When a project manager is done with the identification and categorization of all the risks using RBS. According to the vulnerability of the risks, it becomes critical to classify them based on their priority to assign the resources. For prioritizing risks, the PMI (Project Management Institute) recommends a method called the P-I risk scoring method where P-I denotes the Probability of occurrence of any risk and the Impact of that risk respectively. By the multiplication of Probability & Impact, the P-I method calculates the risk score.
- Probability(P) –
High Probability (80% ≤ x ≤ 100%) Medium-High Probability (60% ≤ x < 80%) Medium-Low Probability (30% ≤ x < 60%) Low Probability (0% < x < 30%)
- Risk Impact –
Rating A - High (100) Rating B - Medium (50) Rating C - Low (10)
Benefits of using Risk Breakdown Structure (RBS) :
- Leads to the discovery of New Risks –
When a project manager would show such representation of the risks to the project team, it is possible that they may also come up with the risks that they see in the project. In this manner, it would be helpful in the discovery of potential risks in the project.
- Categorizes the Project Risks –
Risk Breakdown Structure plays an important role in listing risks by levels to recognize risk dependencies. By categorizing, it becomes simple to find out the risk dependencies.
- Easier to Understand –
A breakdown structure representation of the risks makes it easier to understand and also makes further detailing of the risks much easier.
Attention reader! Don’t stop learning now. Get hold of all the important CS Theory concepts for SDE interviews with the CS Theory Course at a student-friendly price and become industry ready.