Risk Management Techniques for Complex Projects

The WBS is a Risk Analysis Tool

A work breakdown structure (WBS) is a coded and categorized view of the project as a group of well-understood deliverables. The WBS forms a concrete path toward meeting the high-level product requirements from the project charter. In its simplest form, one team member or a small group of close collaborators will accomplish the work items at the lowest level of abstraction.

Since the WBS forms the basis for scheduling activities required to produce project deliverables, project managers require them to be complete and exhaustive. Due to the complex nature of some projects, work packages that remain composed of multiple deliverables indicate areas of risk. So in addition to isolating potential WBS shortcomings, a seemingly incomplete WBS helps identify potential areas of scope creep. Without being well-defined, others may freely interpret the deliverable as they see fit creating scope creep or scope gap during execution.

Once the project manager verifies that the WBS fully describes the scope of the project end result, the WBS becomes a useful tool for identifying potential risks. The risk-oriented analogue to the WBS is the risk breakdown structure (RBS). Risk breakdown structures mirror the categorizations in the WBS and describe potential risks when creating the work products. If the size of the WBS exceeds the management skills of the project manager, the probability of planning and execution deficiencies and inefficiencies rises. The scope of such a project requires too much attention to control creep risks or to identify gap risks.

The Risk Breakdown Structure

A risk breakdown structure (RBS) forms a charted layout of risks in a more structured way. Rather than discover the categories of risk and drill down each one separately, risk managers construct categories of risk at subsequently lower levels of abstraction. This chart produces groupings and clusters of risks. Greater numbers of risks in various categories help risk managers focus their planning on those areas first.

Probability and Impact

Risk planners enrich an RBS by adding an indication of probability and impact to the lowest subcategories of risk. To determine probability and severity of risk events within a subcategory, planners rely on their experience or corporate tools. Should that be insufficient to address the particular risks of the project, an industry tool such as the Project Experience Risk Information Library (PERIL) provides a basis for analysis.

With sufficient information to form estimates of probability and impact, the planners create a risk matrix. Probability of occurrence and severity of impact form the axes. The risk planners slot the lowest subcategories of risk from the RBS into the appropriate positions along with their codes. What forms is a guide for how the project manager should address the risk. For instance, high probability and catastrophic impact for a risk subcategory would best be avoided altogether.

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