Using Tornado Diagram for PMP Exam

Do you know the number of tasks a Project Manager must manage daily? The typical day of a Project Manager involves: 

a) Managing a project team 

b) Overseeing their work progress 

c) Assigning roles and responsibilities and managing stakeholders 

d) Budget 

e) Schedule and risks, among many other tasks 

Project Managers employ Project Management tools and many more techniques to easily navigate various responsibilities.    

One of the techniques that help Project Managers manage risks and uncertainties in the project is Tornado Diagrams. So, it’s a given that there are high chances that you will find questions about Tornado Diagram in the PMP exam. Tornado Diagram assists the Project team in understanding risks and evaluating their significant impact on the project.    

In this blog, we will look at Tornado Diagram in more detail. This blog will cover the following:  

Table of Contents

1) Understanding Tornado Diagram   

   a) Importance of Tornado Diagram   

   b) Benefits of using Tornado Diagram 

2) How is Tornado Diagram used for Sensitivity Analysis? 

3) How to read a Tornado Diagram? 

4) How to create Tornado Diagram in MS Excel?  

5) Using Tornado Diagram for PMP Wxam  

6) Alternatives to Tornado Diagram –1   

7) Conclusion  

Start your preparation from here – sign up for the Introduction to Project Management course! 

Understanding Tornado Diagram    

A Tornado Diagram, also known as a tornado plot or tornado chart, is primarily used for risk analysis by Project Managers. It is a unique Bar chart in which the data categories are displayed vertically. The categories are arranged so that the largest bar appears at the top of the chart, then the second largest bar, and so on. This order makes the shape of this chart look like a funnel or half of a tornado. Therefore, the name – Tornado Diagram. Project Managers use Tornado Diagram as a risk mapping tool to assess risks associated with a project.   

Importance of Tornado Diagram   

Tornado Diagram assists in sensitivity analysis, which shows the magnitude of each risk and its effects on the project in descending order. This PMP tool is helpful for Project Managers when making decisions and assessing risks throughout the project’s lifecycle. The risk shown at the top of the chart is the most critical risk to the project and needs maximum attention.   

Tornado Diagram helps compare the relative importance of variables in the sensitivity analysis. Projects are continually growing in size and complexity. Project complexity keeps rising as firms expand and scale up. There are too many potential risks for a project manager to be aware of. When used effectively, tools like tornado diagrams show where to focus attention and what choices must be made in order to advance the project while assuming only manageable levels of risk. Tornado Diagram can be used across sectors including banking, construction, software, sales, services, etc.   

Benefits of using Tornado Diagram 

Tornado Diagram analyses sensitivity in project cost, schedule, scope and risks. The topmost bar denotes the significant impact, and the ends of the bars represent a component's low and high impacts. This helps Project Managers in doing a quantitative risk analysis of variables. This allows the Project Manager to prioritise the most crucial project variables and rank them according to how they affect the project's goal.   

Tornado Diagrams aid in understanding how the project is affected by its uncertainties and choosing where to put additional effort. Additionally, Tornado Diagrams help optimise resource utilisation and the relative understanding importance of each variable in projects. It also gives you a quick view into the most impacting variables that may affect the success of a project.   
 

Learn various Project Management approaches. Check out our Project Management courses!    

How is Tornado Diagram used for Sensitivity Analysis?   

A tornado diagram is a sensitivity analysis tool that lets you see how the distribution of input variable uncertainty can affect the output of a mathematical model. You have to understand that the longer the Tornado Diagram, the greater the sensitivity of the project objective to the factor.  

There are numerous factors in a project, and you must understand how each one affects the project's success. Cost, project time, or quality may be affected. You should be aware of the sensitivity of the outcome to each variable and be able to prioritise them based on the magnitude of the risk. One variable should be considered to analyse the impact of risk while keeping other variables at baseline.   

After creating the Tornado Diagram, you can determine which variable significantly influences the result. Economic metrics like Internal Rate of Return (IRR), Net Present Value (NPV), Return on Capital Employed (ROCE), and Net Cash Return (NCR) are some of the results you can study using the Tornado Diagram.   

The other sensitivity analysis tools you can use as a substitute for Tornado Diagrams include spider diagrams, correlations, critical indexes, probability Gantt charts, and schedule impact indicators.    

How to read a Tornado Diagram? 
 

Tornado diagrams are not only used by PMPs but even outside Project Management for risk analysis. As you can see above, a Tornado Diagram shows the risks' positive and negative impacts. The left of the diagram represents the risk of the variable, and the right side represents the rewards of the variable to the project. Risks and rewards will be proportional to each other in the diagram, as shown here.   

The bottommost bar in the diagram has the least of both risk and reward, but the risk is higher than the reward. Therefore, this risk is not worth ignoring. Because even if this risk occurs, the reward will not significantly impact the bigger picture of the project’s success.   

You should prioritise giving attention to the risks in the order of the chart from top to bottom. The top risks on the chart also have the maximum rewards. However, there may be other metrics to evaluate where to focus, as the Tornado chart is only one of the many tools available to assess risks and their impacts on the project. This chart only gives an insight into which risks are the most crucial and how much time you should devote to resolving each of the risks.   

Gain a certification that demonstrates your management skills and experience. Sign up for PMP Certification Training!    

How to create Tornado Diagram in MS Excel?  

Tornado Diagram can be easily created in an excel sheet. To create a Tornado Diagram in an excel sheet, let's consider ten risks that may impact a project.   

Next, you will have to put two sets of values to each item in the sheet. Here, risks will be negative, and rewards will be positive in the excel sheet. After this, filter the values based on the magnitude of the impact of the risks. This is shown in the image below.   
 

Next, you will have to create a stacked bar chart and format the axis so that the labels appear on the left. And You will have the Tornado Diagram look like this: 

Using Tornado Diagram for PMP Exam  

Tornado diagrams are a crucial tool in risk management, and the associated ideas can be critical to understanding if you're prepping for the PMP exam or other project management certifications. Because these examinations can thoroughly assess your project management abilities, being knowledgeable in these areas will be helpful not only for passing exams but also for managing projects that involve several complicated hazards.  

You can receive enough practice questions and PMP exam sample questions if you register for a course like The Knowledge Academy's PMP certification training. These PMP study materials will help you for the exam, particularly when it comes to ideas like tornado diagrams. 

Alternatives to Tornado Diagram –1   

Even though it's crucial to comprehend the tornado diagram, there can be circumstances where you need a different approach. In addition to using a tornado diagram, there are various alternatives you can use to resolve problems:  

1) Butterfly Chart - Tornado charts are slightly different from butterfly charts. Tornado charts are a form of butterfly charts. The values are not ordered in a butterfly chart; therefore, the only thing that sets it apart is that they are organised in descending order. It still fulfils the function if you prefer the butterfly chart to see all the dangers or if you need to prioritise something other than magnitude.  

2) Decision Tree - Using a decision tree, you may make decisions and visualise the results on a chart. More options expand the decision tree's horizontal tree structure, giving it more branches. When you must consider multiple outcomes, it is helpful.  

3) Scatter Diagram - Items can be marked on a chart indicating the risk and benefit for each using a scatter diagram. Focus on implementing the items with the lowest risks and most significant returns for your project by selecting them from this presentation.  

4) Influence Diagrams - With an influence diagram, you can incorporate the likelihood of dangers and the interdependence of various elements and results.  

5) Spider Charts - Spider charts display different characteristics of a single variable compared to predetermined parameters. The name comes from the way the resulting chart resembles a spider web.    

Conclusion 

If you have come all the way here, we wish you understood everything about the Tornado Diagram. Questions related to Tornado Diagrams are expected in the PMP exam. Let us know in the comments below if you have any doubts or questions about preparing Tornado Diagrams for the PMP exam.   

Register for PMI-authorised PMP training to clear PMP Exam with ease!