Quantitative Risk - Tornado diagram

Tornado diagram:

The Tornado diagram is a visual display of the sensitivity of various risks with regards to their positive or negative impact. The Tornado diagram is a useful tool to visually understand the uncertainty of various risks and their potential impact on the project.

Tornado Diagram Analysis Criteria:

• taking the risk will result in either a positive or negative outcome
• the impact of the risk can be estimated
• the outcome is uncertain  

Diagram 1 

In the Tornado diagram below there are positive and negative results for each risk.  Risk A has the potential to save the project $80,000 and a possibility of losing $40,000.  This makes Risk A the most sensitive because the outcome is highly variable.   Implementing Risk D has variability but a much more narrow range of possible outcomes.

What if your project needed to implement a risk in order to bring costs from a position of being well overspent to almost tracking to the original budget?  Look at the risks in the diagram below.  With this sensitivity analysis it makes sense to implement Risk B.  It has the greatest potential positive impact with the lowest negative consequences.

 Diagram 2 













The tornado diagram is a typical display format of the sensitivity analysis. This diagram is useful for sensitivity analysis - comparing the relative importance of variables. Tornado diagram can be used for analyzing sensitivity in other project constraint (cost, time, quality and risk) objectives also. The longer the bar the greater the sensitivity of the project objective to the factor. The factor that have the greatest impact is located at the top, and the bar ends indicate the low and high value of the factor. It assists the project manager in focusing on the most critical variable of the project, sort and prioritize the variable according to their impact on the project objective, realize how much the value of the project is impacted by the uncertainties of the project, and decide where you need to invest any additional efforts



Tornado Diagram’s Benefits & Characteristics in a nutshell:
Characteristics:

• The longer the bar the greater the sensitivity of the project objective to the factor
• The factor that have the greatest impact is located at the top
• The bar ends indicate the low and high value of the factor

Benefits

• Assist the project manager in focusing on the most critical variable of the project
• Sort and prioritize the variable according to their impact on the project objective
• Realize how much the value of the project is impacted by the uncertainties of the project
• Decide where you need to invest any additional efforts