Risk Breakdown Structure (RBS) for Projects – A Complete Guide

A Risk Breakdown Structure (RBS) is a flowchart businesses use to manage risks and develop more efficient ways to prevent them. Understanding RBS for software projects helps project managers with project risk identification more effectively to ensure the success of their initiatives.

Project planning in custom software development is considered a major priority by nearly half of worldwide enterprises. Even the most meticulously planned and well-executed projects are prone to risks. However, with an RBS framework, these risks can be managed without derailing the project.

So, let’s get deep into what a risk breakdown structure is, how to design one, and more.

Risk Breakdown Structure (RBS) - Definition

A risk breakdown structure (RBS) is a chart for software project risk analysis that ranks them in terms of severity and likelihood. Depending on the type of risks, a custom software development company classifies them into various groups. Organizing risks into categories (risk categorization) can help you cover all possible scenarios. Once you've identified the key categories, consider subcategories to assist you better prepare for each. Here are some typical risk categories:

Organizational Risks: Internal risks occur within the company, such as prioritizing errors, financing delays, and resource scarcity.
External Risks: External risks are those that cannot be controlled, such as competitors, suppliers, legislative changes, or environmental risks.
Project Management Risks: Project management risks can have an impact on communication, planning, and project control.
Technical Risks: Technical risks may include technological obsolescence or ambiguity in the scope definition.

Benefits of Risk Breakdown Structure (RBS)

A risk breakdown structure hierarchically organizes project uncertainties, allowing you to understand better risk distribution within the project.

When you hire developers, RBS becomes one of the most popular tools because it helps you to:

• Present risks in a systematic manner that is easy to grasp.
• Summarize the risk management process
• Identify aspects of the project with the highest risk potential.
• Detect regions that require extra attention.
• Investigate whether there are reoccurring risk themes.
• Determine the overall risk exposure of your project.

If you're a project manager, you'll profit from understanding which aspects of your projects need greater attention. When you understand your project's risk exposure, you can plan and prepare for the potential consequences of recognized risks. This ensures that you finish your project on schedule and under budget.

How to Design a Risk Breakdown Structure?

These are the steps you can follow to develop an RBS for a project.

1. Understand Risk Categories

Start by determining which risk categories are most relevant to your project or business. Depending on the industry in which you operate, your categories may change from the four main ones. A development environment, product engineering, and program restrictions are all possible components of software development. These top-line risk identification categories might include:

There are numerous ways to assess risks, including strengths, weaknesses, opportunities, and threats (SWOT) analysis, interviews, workshops, and brainstorming sessions. You may also create a responsible, accountable, consulted, and informed (RACI) chart (also known as a responsibility assignment matrix) to assist stakeholder management with risk.

2. Establish Subcategories
Next, develop subcategories for the threats you identified. The majority of your risks may fall into your primary categories, however, in certain projects, subcategories may be required. For example, a construction business that identifies "environmental hazards" as a risk category may add subcategories for severe weather and intense heat to assist in developing different strategies for each.

3. Determine the Precise Risks Associated with Each Classification
To describe the precise risks associated with each class, begin broad and then narrow your focus to smaller areas. For example, you may break down the client category into smaller issues like the project team, the client team, money, goals, and techniques. Then, under the project team, you might write that the resources are insufficient to fulfill the tasks, or that your team requires further training to complete their jobs successfully.

4. Evaluate the Risk and Impact
After you've divided the risks, you may give ratings to them to determine which ones may have the largest influence on the project. This is where you may begin doing a risk assessment. Prioritizing a project's risks allows you to evaluate which ones can wait and which require immediate action. You can base your score on two factors: impact (I) and probability (P). It is up to you to rank each of these elements, although most project managers choose three to five for likelihood and three for effect. Here's how you could classify it:

Probability of risk occurrence:

• High probability: 80% to 100%.
• Medium-high probability: 60% to 79%.
• Medium-low probability: 30% to 59%.
• Low probability: less than 30%.
  
  Risk impact:
• High: Catastrophic (rating A or 100).
• Medium: Critical (Rating B or 50)
• Low: Marginal (Rating C or 10)

5. Make a Chart
Your final step is to develop a risk breakdown chart for each category and subcategory. This helps you to arrange risks and gain a thorough understanding of all project risks. It can also help you and your team grasp things more clearly.

Wrapping Up

Considering all the factors above, we can conclude that a Risk Breakdown Structure is an essential component of the project planning and management process. It not only assists project managers in determining the positive potential of a risk, but it also aids in mitigating the risk if it may have a detrimental influence on the overall execution of the project. As important as it is, most project managers rely on this procedure while studying the history of past projects when preparing a newly acquired project. Risk metrics assist stakeholders in making decisions based on risks that may arise, as well as planning diagnostic steps if one happens. A partnership with a seasoned custom software development company is essential for you to achieve this.