Q 514. What is a Tornado Diagram? Elaborate its uses in Sensitivity Analysis and Risk Analysis with examples.

 

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A common tool used to depict the sensitivity of a result to changes in selected variables by a tornado diagram. keeping all the other input variables at their nominal values It shows the effect on the output of varying each input variable at a time. Its commonly used for the decision making.

 

There are special types of bar charts by which Tornado diagram represents are viz., tornado plots, tornado charts or butterfly charts.

Instead of the standard horizontal presentation the data categories are listed vertically, and the largest bar appears at the top of the chart, the second largest appears second and so on. The final chart visually resembles a complete tornado or either one half of it.

By comparing the relative importance of variables for determining sensitivity analysis, Tornado diagrams are used. To estimate for the low, base and high outcomes for each uncertainty considered. With one uncertainty this allows to test the sensitivity risk associated with.

On the tornado, for a factor to be high it must be high in both uncertainty and leverage. Refer to the below image

 

Resolve Conflict and Confusion with Objectivity and Evidence with Tornado Diagram. While making decisions a lot of time is wasted in chasing things that don’t have any impact. even sometimes we get into shouting matches over what’s most important. While unable to move the ball forward to make matters worse, we can get into analysis paralysis. And when we move forward, we are so hung up on risk that we lose sight of the upside and inadvertently destroy the very opportunities we are trying to create.

The Tornado Diagram provides a clear way in identifying the factors whose uncertainty drives the largest impact, so that the focus objective is on what is important. Which helps in saving time, increase efficiency and reduce frustration.

 

The Tornado is a powerful visualization that helps us to move with a strategic decision

1.      clarity towards on what really matters out of the analysis

2.      with both risk and opportunity from an obsession with risk to a holistic engagement

3.      beyond the mathematical sensitivity to a holistic engagement with both

4.      being driven by objectivity and evidence from being mired in conflict and confusion.

 

Tornado Diagram

Tornado diagrams are a special type of bar chart where the data categories are listed vertically instead of the standard horizontal presentation and the categories are ordered so that the largest bar appears at the top of the chart, the second largest appears second from the top, the third largest appears third from the top and so on. They are so named because the final chart visually resembles either one half of or a complete tornado. It is also called tornado plots, tornado charts or butterfly charts.

 

 

Purpose of Tornado diagram

 The purpose of the tornado diagram is to determine the sensitivity analysis; comparing the relative importance of variables. For each variable or uncertainty considered, one needs estimate for what the low, base and high outcome would be. The sensitive variable is modeled as having an uncertain value while all the other variables are at the baseline values which allows testing the sensitivity or risk associated with one uncertainty.

For example- If a decision maker needs to visually compare 100 budgeted items and wishes to identify the 10 items one should focus on then it would be nearly impossible to do using a standard bar graph but in a tornado diagram of the budgeted item, the top 10 bars would represent the items that contribute the most to the variability of the outcome and then what the decision maker should focus on.

 

 

Use of Tornado diagram in Sensitivity Analysis and Risk Analysis

One of the easiest ways to increase the effectiveness of the optimization is to remove decision variables that require a lot of effort to evaluate and analyze but that do not affect the objective very much. If we are unsure how much each of our decision variables affects the objective, we can use the Tornado Chart tool in Crystal Ball.

The Tornado chart/diagram tool shows how sensitive the objective is there for each decision variable as they change over their allowed ranges. The chart or diagram shows all the decision variables in order of their impact on the objective.

Crystal ball Tornado diagram/chart shows a Crystal Ball tornado chart. When we view a tornado chart or diagram, the most important variables are always at the top. This arrangement makes it easier to see the relative importance of all the decision variables. The variables listed at the bottom are always the least important in that they affect the objective the least. If their effect is significantly smaller than those are at the top, we can probably eliminate them as variables and just let them assume a constant value.

Crystal Ball Tornado Diagram/Chart

 

Before running the Tornado Chart tool, we run an initial optimization so that the base case values of the decision variables are close to the optimal solution for the model. We can use the Tornado Chart tool to measure the impact of our decision variables.

 

 

Tornado Diagram

 

For project managers to evaluate project risks, a tornado diagram is a useful tool. A tornado diagram is a bar chart that graphically shows each risk's relative importance in descending order. This gives it a funnel-like appearance that resembles a tornado. These are helpful project management tools for determining risks and making decisions at various project stages. The risk with the largest spread is indicated at the top of the chart. The risk that requires the most consideration is this one.

 

Tornado diagram in PMP:

 

A bar chart called a tornado diagram aids project managers in performing a sensitivity analysis to ascertain the effects of various risks on a project. The project manager can make judgments on the highest impact items first because they are shown in descending order.

 

Importance:

 

Projects are continually growing in size and complexity. Project complexity keeps rising as firms expand and scale up. There are too many potential dangers for a project manager to be aware of. When used effectively, tools like tornado diagrams may show you where to focus your attention and what choices must be made in order to advance the project while assuming only acceptable levels of risk.

 

How does a tornado diagram work

 

The various project hazards are listed together with their possible benefits in a tornado diagram. Project managers will be able to prioritize tasks based on the severity of the risks thanks to this.

 

How do you read a tornado diagram

 

In a tornado diagram, dangers are listed according to decreasing importance. The size of the risk is shown on the left side of the chart, while the size of the potential profit is shown on the right side.

The risks and rewards are shown on opposite side of a tornado diagram like the one shown above. On the left is a representation of the risk, and on the right is a representation of the payoff. As you can see, it seems like the risks and rewards are roughly equal. The danger and return of Risk 7 are the lowest. The risk outweighs the benefit. This risk is not worthwhile because it carries a greater risk than the potential gain. Even if it is successful, the payoff has little impact in the overall scheme of things. The top 3 or Top 4 options should receive more of your attention because they offer a greater payoff and hence call for more careful consideration. Additionally, they have a far higher amount of reward relative to the possible loss.

 

This is not to argue that chances shouldn't be taken at the top. The chart is just one of the many tools you have at your disposal to evaluate risks. The chart tells you which options are more essential to you and how much time you should spend carefully weighing each alternative. The decisions that need to be made may rely on a number of other factors.

 

Sensitivity Analysis Using Tornado Diagram

 

Project risk management involves the usage of tornado carts. The goal of the study of sensitivity analysis is to comprehend risk in numerical terms. One of the techniques used in sensitivity analysis is the tornado diagram. These concepts are frequently used interchangeably since sensitivity analysis uses tornado diagrams so frequently. Depending on which type of chart suits you the most, the data for sensitivity analysis can be shown on a variety of different types of charts.

 

The greatest risk is displayed at the top of a sensitivity analysis plotted on a tornado diagram. This analysis quantifies the risk's size and potential benefits. On the chart, longer bars denote increased sensitivity.

 

Tornado Diagram Quantitative Risk Analysis

 

Any project on which you work inevitably carries a number of hazards. Until you figure out how to prioritize them, it could be difficult for you to keep track of all these hazards. As a result, you should rate the risks based on their importance and degree of impact. Risks are accompanied by gains as well as losses. You run the risk of not receiving the required level of quality if you choose to work with a new vendor on a project in an effort to cut expenses. Calculating the risk's cost and corresponding reward is necessary. You can prioritize the risks based on their possible impact by placing them on a bar chart.

 

You may manage risks and make quick decisions in the best interests of the project by using a tornado diagram to show the dangers. Risks and benefits are often commensurate in size.

 

Creating a Tornado Diagram Template in MS Excel

 

Tornado diagrams are simple to make in an excel sheet.

 

1. You will require a collection of risks in order to create a tornado diagram. Let's list 10 dangers.

2. Add two sets of values, with risks stated as negative values and rewards as positive values, to each item in the excel sheet.

3. Arrange the things in the manner depicted in the image below, based on the level of danger.

4. Construct a stacked bar graph.

5. Set the axis' formatting such that the labels are on the left.

You should have a chart that looks like this:

What is a Tornado Diagram? 

Tornado diagrams, also called Tornado plots, Tornado charts or butterfly charts, are a special type of Bar charts, where the data orders are listed vertically rather of the horizontally, and the categories are ordered so that the largest bar appears at the top of the map, the second largest appears second from the top, and so on. They're so named because the final map visually resembles either one half of or a complete Tornado.

A Tornado diagrams is a useful tool for Project Managers to assess risks associated with a project A Tornado diagrams is a bar map that visually displays the magnitude of each threat in a descending order. This gives it the shape of a funnel that looks like a Tornado. These are useful design operation tools when making opinions and assessing risks at different stages of the project The biggest threat is shown at the top of the map, and it'll have the biggest spread. This is the threat that deserves the utmost attention.

Purpose

Tornado diagrams are useful for deterministic sensitivity analysis – comparing the relative significance of variables. For each variable/ query considered, one needs estimates for what the low, base, and high outcomes would be. The sensitive variable is modeled as having an uncertain value while all other variables are held at birth values. This allows testing the sensitivity / threat associated with one query/ variable. For illustration, if a decision maker needs to visually compare 100 popular particulars and wishes to identify the ten particulars one should concentrate on, it would be nearly insolvable to do using a standard bar graph. In a Tornado illustration of the budget particulars, the top ten bars would represent the particulars that contribute the most to the variability of the outgrowth, and thus what the decision maker should concentrate on.

 

Why Tornado Maps are important

Projects keep getting larger and more complex. As associations continue to grow and gauge up complexity of systems keep adding. A design director cannot stay on top of all the pitfalls that a design may encounter. Tools like Tornado diagrams make a significant difference by showing you where you should pay attention and what opinions must be taken to benefit the project while taking only manageable situations of threat.

Quantitative Risk Analysis using Tornado Diagram

Any design that you work with is bound to have several Risks associated with it. It could be hard for you to keep track of all these risks still you find a way to prioritize them. thus, you should rank the risks according to their magnitude and inflexibility of impact. risks have prices as well as losses associated with them. However, you also bear the threat of not meeting the anticipated quality, If you decide to use a new seller for a design hoping to save costs. The cost of the threat and the benefit associated with it needs to be calculated. Putting it on a bar map helps you prioritize the risks grounded on their implicit impact.

A representation of the risks in a Tornado Diagram lets you manage risks and take timely opinions in the interest of the design. typically, the bulks of the risks and prices are commensurable.

How to Read a Simple Tornado Diagram?

Tornado Diagram can be used for threat assessment outside of design operation too.

 

How to Use Tornado Diagram

A Tornado Diagrams like the one given above gives the Risks and prices on either side of the map. The threat is represented on the left and the price is shown on the right side. As you can see the Risks and rewards appear to be commensurable to each other. threat 5 has the smallest threat and price. This threat isn't worth taking because it's a bigger threat than the price it promises. Indeed if it succeeds the price doesn't make a significant difference in the bigger picture. You should concentrate further of your time on the top 3 or Top 4 particulars that promise a bigger price and hence are opinions that bear further scrutiny. They also have a significantly advanced position of price when compared to the implicit loss.

 

This isn't to say that Risks at the top must be taken. The map is only one of the numerous tools available for you to assess Risks the opinions to be taken may depend on several other factors, but the map lets you know which opinions are more important to you and how important time should you spend checking each option

 

Sensitivity Analysis Using a Tornado Chart

Sensitivity analysis is a conception in risk operation for systems. It quantifies Risks in terms of how opinions are likely to impact a design and to what degree. This isn't always calculated in terms of financial value; it can also be calculated in terms of time. Especially in cases where design completion or design pretensions are time bound or are sensitive to time.

Tornado diagrams plays a crucial part in prioritizing these Risks and helping you assess which Risks are worth taking for the design and which are the bones that don't earn important attention. However, but it's more likely that you might overlook certain Risks or spend too important time assaying Risks of insignificant bulks, If you're managing the design without using similar tools you may still make the right opinions, but it is more likely that you might overlook certain risks or spend too much time analyzing risks of insignificant magnitudes.

One of the easiest ways to increase the effectiveness of your optimization is to remove decision variables that bear a lot of trouble to estimate and dissect, but that don't affect the ideal veritably much. However, you can use the Tornado Chart tool in Crystal Ball If you're doubtful how important each of your decision variables affects the ideal.

 The Tornado Chart tool shows how sensitive the ideal is to each decision variable as they change over their allowed ranges. The map shows all the decision variables in order of their impact on the ideal.  Below figure Crystal Ball Tornado Chart shows a Demitasse Ball Tornado chart. When you view a Tornado charts, the most important variables are at the top. This arrangement makes it easier to see the relative significance of all the decision variables. The variables listed at the bottom are the least important in that they affect the ideal the least. However, you can presumably exclude them as variables and just let them assume a constant value, If their effect is significantly lower than those at the top.

 

A Tornado Diagram is basically a two-sided bar chart where there are two data bars that are opposite to each other. It is a special type of bar chart where data is sorted vertically from highest to lowest & due to this sorting the shape of the chart resembles a tornado, hence it is named accordingly.

 

It is a useful tool for decision making by comparison as one can compare two different items or a single item for the different periods. Let us see an example below where we are comparing the sales made by two different stores for each product category.

 

 

Tornado chart is commonly leveraged in performing Sensitivity Analysis where it is used to depict the sensitivity of an output as a result of the changes in selected variables. In other words, it shows the effect on the output of varying each input variable at a time while keeping all other input variables at their initial values. Generally a low & a high value for each input is selected & the result is then displayed on a tornado chart, where the bars of each input variable showcases the variation from its nominal or initial value. The bars having the highest variation are placed on the top & rest of the bars are arranged in a descending order of the magnitude of the variation. 

 

Let us understand with the help of an example. Below is a tornado chart displaying the impact of variation of different parameters on the reliability of the material. 

 

 

From the chart, it can be clearly seen that the strength of the material & Coil diameter have the highest variation, thus both the parameters greatly influence the reliability of the material. Hence in order to improve the reliability, one has to focus on reducing variation of these parameters.

 

Tornado chart also has its applications in the field of project management where it is leveraged to perform risk analysis i.e. it is used to display the magnitude of each risk in order to identify those risks that can impact the cost, schedule or both of a project. Here the biggest risk is shown on the top of the chart which is having the biggest spread & this risk requires the most attention.

 

Let us see below, how the tornado diagram is leveraged to perform risk analysis:-

 

 

From the above diagram, it is clear that the Risk 1 will have a significant impact when it comes to the overall project cost, thus appropriate mitigation needs to be put into place.

 

TORNADO DIAGRAM   

 

Mathematical models of an uncertain real-world quantity Y often involve a set of uncertain input parameters X .Analysts are commonly faced with one of two problems in such a situation: (1) it may be costly to study each input x sufficiently to quantify its probability, or (2) each calculation of y may be costly, so it becomes costly to allow all of the inputs x to vary. In the former case, the analyst might want to deeply investigate only the important X values—those that contribute most strongly to uncertainty in Y. In either case, the analyst might want to simplify the model by setting those X values that do not matter much. An X might vary wildly but have little effect on Y. An X might not vary much at all, but Y could be very sensitive to it. We say that the X values whose uncertainty has strong effect on Y are the ones that matter and the others don’t matter. Once an analyst identifies the most important uncertainties, he or she can focus on understanding and quantifying those input X’s and their effect on the output variable Y, and ignore the variability of the others. For achieving this objective a tool called tornado-diagram analysis is used to identify those important uncertainties.

Tornado diagrams, also called tornado plots, tornado charts or butterfly charts, are a special type of Bar Chart, where the data categories are listed vertically instead of horizontal representation, and the categories are ordered in such a sequential manner that the largest bar appears at the top of the diagram followed by the second largest and so on. They are so named because the final chart resembles either one half of or a complete Tornado.

The Tornado Chart tool shows how sensitive the objective is to each decision variable as they change over their allowed range. The chart shows all the decision variables in order of their impact on the objective.
SENSITIVITY & RISK ANALYSIS USING TORNADO
Tornado diagrams are useful for determining sensitivity analysis of final objective - comparing the relative importance of variables. For each variable/uncertainty considered (X variable), one needs an exact estimate for what the low, base, and high outcomes (Y variable) would be. The sensitive variable is modeled as having an uncertain value while all other variables are held constant. This allows testing the sensitivity/risk associated with one uncertainty/variable (X). For example, if a Business owner (say Nike Company) needs to visually compare 100 separate items, and wishes to identify the top ten items with maximum sales his business should focus upon, it would be nearly impossible to do using a standard bar graph. In a tornado diagram through visual representation of the budget items, the top ten bars would depict the items that contribute the most to the variability of the outcome, and therefore what the decision maker should focus on. In simple language, the critical X’s are identified using the Tornado Diagram. A tornado diagram can be a good risk tool because it shows the importance of different variables and it demonstrates uncertainty of more downside or upside risk.
SENSITIVITY DIAGRAM
The sensitivity chart ranks the sensitivity of the input variables from the most important down to the least important in a model. If an independent input variable and a dependent forecast have a high correlation coefficient, it means that the input variable has a significant impact on the forecast .
CREATING TORNADO DIAGRAM IN EXCEL
 

1. Firstly we need to convert data of (Store1) into the negative value. It will help to show data bars in different directions and distinguish between the input variables. For this, simply multiply it with -1.
   
    
2. After that, insert a bar chart using this data. Go to Insert Tab ➜ Charts ➜ Bar Chart .the outcome of this step would be one side for positive values and other for negative ones.
   
    
3. From here, select the axis label and open formatting options and in the formatting options, go to axis options ➜ Labels ➜ Label Position. Change label position to “Low”.
   
   Next, change the axis position in reverse order. It will adjust bars from both the sides positive and negative representing two separate set of input variables in a model and for this, go to Axis options ➜ Axis position ➜ tick mark “Category in reverse order”. This will change the diagram from highest to lowest values in decreasing order helping in identifying the critical factors among myriads of input variables.
   
    
4. Change the series gap and gap width. This will help to streamline data bars with each other and increase their bandwidth. For this go to series options -> Change series overlap to 100% and gap width to 10%.
   
    
5. Change the number formatting of the horizontal axis so that the axis numerical appear at the top. For this , go to the Axis Options ➜ Number ➜ select custom ➜ paste following format and click add.
   
    
6. In the end, change the format for data labels for Store-1 so that it doesn’t show the negative signs and for this go to label options ➜ Number ➜ select custom ➜ paste following format as above and click add.

7.  

   Congratulations, now we have our first tornado chart in excel worksheet, just like below.
   

Sensitivity Analysis

Sensitivity analysis is a powerful tool that can be used to predict how changes in the values of independent variables may impact a dependent variable. Sensitivity analysis can be utilised across different case uses, from biology, geography, and engineering to economics and financial modelling.

Tornado Chart

A tornado chart is a graphical tool used to visualize the sensitivity of an outcome to changes in identified input (test) variables. Note that, a tornado chart is typically used to understand the impact of an individual input variable/ assumption (keeping everything else constant) at a time, and test how sensitive the output is to the change in this input variable.

For instance, sensitivity analysis can be used in a tornado chart to study the effect of a change in share price if the revenues were to increase or decrease by 5%.  The chart below illustrates the range of impact created on the share price (outcome) with an increase (+5%) / decrease (-5%) in different input variables.

Tornado charts are created using a stacked bar chart where input variable categories are displayed vertically (instead of the commonly used - horizontal way). Each bar in the chart below illustrates the range of effects on the output (share price) by changing individual input variable (+5% to -5%), keeping all the other input variables at their initial (base level) values.

 

 

 

Sorting the output of impact in order of most impactful to least impactful creates a final chart with a shape that resembles either a half or a complete tornado cone, hence, commonly called the ‘Tornado Chart’.

The top bars would hence represent the variables that contribute the most to the variability of the outcome (with highest upside to downside range impact on the outcome), and thereby indicating what matters the most, where is the upside and where are the risks.

Chart source: corporatefinanceinstitute.com

 

About Tornado Diagram:

A tornado diagram, which is a type of bar chart, aids project managers in performing a sensitivity analysis to ascertain the effects of various risks on a project. In order for the project manager to make decisions first on the high impact items, this information is arranged in descending order.

 

Why Tornado diagram can be used in Quantitative Risk Analysis?

Any project on which you work inevitably carries a number of risks. Until you figure out how to prioritise them, it might be difficult for you to keep track of all these risks. As a result, you should rank the risks based on their importance and degree of impact. Risks are accompanied by gains as well as losses. You run the risk of not receiving the expected level of quality if you choose to work with a new vendor on a project in an effort to cut costs. Calculating the risk's cost and associated benefit is necessary. You can prioritise the risks based on their potential impact by placing them on a bar chart.

 

You can manage risks and make quick decisions in the best interests of the project by using a tornado diagram to represent the risks. Risks and rewards are typically proportional in size.

 

Example:

People frequently look for tornado pmp and tornado diagram pmp when looking for examples of tornado diagrams, but these diagrams are not just for pmp. Outside of project management, they can also be used for risk assessment.

The risks and rewards are shown on either side of a tornado diagram like the one shown above. On the left is a representation of the risk, and on the right is a representation of the reward. As you can see, it seems like the risks and rewards are roughly equal. The risk and reward of Risk V are the lowest. The risk outweighs the benefit. This risk is not worthwhile because it carries a greater risk than the potential reward. Even if it is successful, the reward has little impact in the overall scheme of things. The top 3 or Top 4 options should receive more of your attention because they offer a greater reward and therefore call for more careful consideration. Additionally, they have a much higher level of reward compared to the possible loss.

This is not to say that risks shouldn't be taken at the top. The chart is just one of the many tools you have at your disposal to evaluate risks. The chart tells you which decisions are more important to you and how much time you should spend carefully weighing each option. The decisions that need to be made may depend on a number of other factors.

 

 

 

Analysis of Sensitivity Using a Tornado Diagram

Sensitivity analysis is a notion in project risk management. In terms of how and to what extent decisions are likely to affect a project, it quantifies risks. This can also be calculated in terms of time rather than just in terms of monetary value. Particularly when a project's completion or goals are constrained by a deadline or are otherwise time-sensitive.

The tornado diagram is crucial in helping you prioritise these risks and determine which ones are worth taking for the project and which ones are not worth much consideration. While it is still possible to manage the project successfully without these tools, it is more likely that you will overlook some risks or spend excessive time analysing risks of minor importance.

 

Tornado Diagram 

 

 

Tornado diagram was used to understand the sensitivity factor which contributes to the target value and compare the relative importance of variables. The category is ordered as the large bar appears at top of the chart and the second largest appears second from the top, and so on.   In the tornado chart, the big bar needs attention, based on the bar size we estimate how this factor is critical for the set target value,  

 

In other words, It shows the effect on the output or set target of varying each factor variable at a time, keeping all. Generally, you have to choose a “low” and a “high” value for each factors. The result is then displayed as a unique type of bar graph, with bars for each factor variable displaying the variation from the nominal value. It is normal practice to plot the bars horizontally, arranged so that the widest bar is placed at the top. When drawn in this way, the diagram takes on the appearance of a tornado, hence its name. The below figure shows a typical tornado diagram

In the chart, variables are positioned are indicated in such a way, considering baseline factors when behaving relatively low or high.

 

Example: studying Material -3 Reliability

 

 

 

 

 

Here in the diagram coil diameter is the most sensitive factor for the reliability of material3 and 2^nd most factor is coil diameter.

In the above graph, the bar coloured by parameter range blue represent higher range and orange represent lower range.

 

Based on the above graph our target reliability is 1.16, but we can improve further reliability if increasing the coil diameter by keeping other factors at base level.

But in Case of Wire diameter, when increasing the wire diameter reliability decreases.

 

Tornado diagram also give an overview how output of the process correlated with input variable.

 

 

A Tornado Diagram is a one of the many charts to depict the relationships and sensitivities of the input variables (X’s) on the output (Y). It is a ‘T’ (some also call ‘V’) shaped chart in which the input variables are displayed in the descending order of their impact on the output.

 

The chart also shows the direction of relationship i.e., positive or negative co-relation of the input variable (X) to the output (Y). It also displays the ranges of values for all the input variables (X’s) and the range of the possible values of the output (Y). Since, the input variables are displayed in descending order, the chart takes the shape of a ‘tornado’. The chart is very intuitive and easy to understand visually.

 

This chart is very useful in sensitivity as well risk analysis as it sorts & depicts the input variables in descending order of their sensitivity on the final output, bringing the most important variables at the top. The chart also highlights the extreme values for the output (Y) based on the extreme values of the input variables (X’s) which becomes very helpful is sensitivity and risk assessment.

 

For example, an engineering design specification may be dependent on multiple components. The simulation output presented in a tornado chart helps to identify the most important components to which the final specification is most sensitive. As the components are displayed in the descending order, it becomes very easy to identify the most important components and their impacts.

 

Similarly for risk analysis this chart displays the risk (could be any sort of risks like project risks, financial risks) in the descending order of their magnitude and hence helps the management to devise the appropriate risk management strategy for the top risks to which the final output is most sensitive.

When your data is arranged vertically and represented using bars with the largest bar stacked at the top and the smallest bar at the bottom, the output shape resembles a tornado and you have just generated your tornado chart. Tornado chart is used to perform quantitative risk analysis using the sensitivity data the chart offers as output as part of the project risk planning process in project management. The tornado diagram shows the variables that govern an output in the order of their impact (ie)., so the variable that is stacked at the top of the chart, becomes the one that is most sensitive to influence the output.

 

A classic example in project management is to find the risk that could have the maximum impact on project schedule. In the example shown in the image, lets assume that a company has used subject matter experts and available data to arrive at the following risks such as head count, free cash, shop floor, suppliers, etc that could impact the end delivery of a product to a customer. As a PM, if I have to find the top three risks that could have a huge impact to the delivery or the top risk that has maximum sensitivity towards a change in the output, this can easily be inferred using the above tornado diagram. From the figure, Head count has the highest sensitivity, implying that any issues in having the right head count and ensuring its availability can have a drastic impact on the delivery of the project. This serves as an useful mechanism to identify risks proactively and also provides clarity on the area that need attention rather than boiling the entire ocean with the limited available resources. In the above example, considering that license, material, etc are stacked at the bottom, implies that they  have the least impact on project delivery and hence, can safely be removed from further analysis. A simulation tool when used with tornado charts, can come handy to dynamically vary the decision variables to understand how the output is impacted to make better informed decisions.

 

 

 

 

There are 2 winners for this question - Dimple Tiwari and Priyanka Bose. Congratulations to both!

 

In case you are an Excel fan and want to create a Tornado chart in Excel, do check out the answer from Gulshan