Making decisions is one of the critical responsibilities of a manager. For any decision, be it a short-term decision for a project or a long-term decision for reaching a company goal, data is essential.
Managers often get into arguments over decisions. In real life, data is often scarce or inefficiently utilized. As a result, decisions may not always be black or white. What sets a good manager apart from others is their ability to organize data and use it to make the optimal decision.
One of the most effective tools for resolving conflicts caused by decisions is the tornado diagram. It is a particular type of bar graph that organizes your data neatly. Using this graph makes it easier to find the optimal decision for any scenario.
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What is a Tornado Diagram?
As we have already mentioned, a tornado diagram is a particular type of bar graph. More accurately, it is an alternate display format for sensitivity analysis.
A tornado diagram is also known as a tornado plot, tornado chart, or butterfly chart. What differentiates a tornado diagram from a typical bar graph is that the data categories are listed vertically. A standard bar graph usually places data categories horizontally.
Moreover, the data categories are arranged in descending order. That means the class with the longest bar goes on the top. The second-longest bar goes right under the first and so on. As a result, the graph takes the shape of half a tornado.
Each category is given a “high” value and a “low” value for sensitivity analysis. Each bar represents the range for the class. Once the bars are plotted in descending order, the graph usually takes the shape of a tornado, hence the name.
When Should You Use a Tornado Diagram?
Tornado Diagrams are handy for sensitivity analysis. Most companies have to deal with a multitude of factors that determine the overall performance of their products.
Not all factors are equally important. Some affect the company more than others. As a result, it is crucial to determine which factor managers prioritize when making decisions. A tornado diagram can separate which factors are the most important. So you will be able to make better decisions by prioritizing these factors.
While tornado analysis works best for decision-making by sensitivity analysis, you can use it for regular comparisons as well. After all, it is a modified bar diagram. It can serve the purpose of a general bar diagram as well.
A great way to ensure conflict does not arise in the workplace is basing your decisions on data. If you can show your data analysis using a tornado diagram to your co-workers, they will be more likely to agree with your choices. So it is a good idea to use tornado analysis for any relevant data-based decisions in the workplace.
Managers can use tornado diagrams in various scenarios. One of the most common use cases is to find your most significant budgetary items.
Let’s say your company has 100 budgetary items. It would not be easy to visually represent the ten most essential items using a standard bar graph. But a tornado diagram would place the items in descending order. As a result, you can work with the ten longest bars.
Again, let’s say you want to determine the most critical factors whose uncertainty determines a product’s value. You can place each factor’s impact in a table and make a tornado diagram.
The diagram shows that market share has the longest bar while one-time launch costs have and COGS per unit have the most miniature bars. So a manager should base their decision on market share and not let COGS and launch cost affect his decision.
Figure: A Tornado Diagram showing the impact of each factor’s uncertainty on value
Let’s take a look at another tornado diagram. This diagram tries to identify which factors to consider when buying new equipment.
Figure: A Tornado Diagram showing the impact of factors when buying a new equipment
From the diagram, we find that useful life has the most extensive bar. So it is the most critical factor in a manager’s decision. So concerns regarding factors like the price of upgrade and utility of upgrade should not affect their decision.
Pros and Cons
There is no doubt regarding the advantages tornado diagrams provide. If you are still not on board, here is a list of the pros of tornado diagrams that can convince you of their usefulness.
- Tornado diagrams are easy to create.
- They require just reasonable guesses for input value ranges.
- They don’t require the absolute minima, maxima, or mean for input parameters.
- They are intuitive and straightforward.
- They quickly focus your attention on parameters you need to prioritize.
Are you sold on tornado diagrams yet? You probably are. But before you start implementing them on your job, we need to talk about a few limitations of tornado diagrams.
- Tornado diagrams do not present probabilistic information.
- The baseline value may not always represent the quantity of interest’s expected value.
- The graph depicts the variability of the quantity of interest in a broad sense.
- The quantity of interest in a probabilistic analysis is evaluated as an uncertain function of the simultaneously distributed uncertain input parameters, or at least all of the essential ones— the ones at the top of the tornado diagram.
How To Create a Tornado Diagram
Microsoft Excel is the standard spreadsheet program in most offices. You can use it to create tornado diagrams quickly. But before you do so, there are a few factors you need to ensure.
- Select your output variables or results that you want to use for your tornado diagram.
- Select the inputs that are likely to affect the results.
- Select the high and low values for each input variable.
A familiar trouble managers face is determining how to set the high and low values. There are several ways to set these values. For example:
- Select the same absolute low and high levels for each input. This method can be used when dealing with homogeneous or identical inputs.
- Select absolute low and high levels for each input individually.
- Vary all inputs by the same relative amount. For example – keeping the low as 80% of the nominal and high as 120% of the nominal.
- Vary all inputs within a set fractile. Using this only makes sense when input values are uncertain.
Now that we have made the necessary preparations, it is time to start making our tornado diagram. We are going to learn three different methods for making a tornado diagram in Excel.
Method 1: Using the Bar Chart Option
Since there is no default option for directly making a tornado diagram in Excel, we can use the Bar Chart option. Here is a step-by-step guide on what you have to do.
- Convert your low inputs into negative numbers. You can do this by multiplying all of them with -1.
- Then select your data and go to Insert > Charts > Bar Charts. Doing this will give you a bar graph with two sides. The left side will be negative, and the right side will be positive.
- Next, go to the Axis label on the graph and open formatting options. Here we have to go to Axis Options > Labels > Label Position. Then change the label position to Low.
- For the next step, you have to go to Axis Options > Axis Position. Here put a tick on “Categories in reverse order.”
- Now you have to fix the gap between the series. For that, you have to go to Series Options. Here you will change the series overlap to 100% and gap width to 10%.
- Next, you have to fix the number formatting of the horizontal axis. To do this, you have to go to Axis Options > Number > Select Custom. In the Type section as well as Format Code section type in ###0;###0. Then click on Add.
- The final step is to remove the negative signs from the labels for your low inputs. To do this, go to Label Options > Number. Select Custom and then paste the same format (###0;###0).
Figure: A Tornado Diagram created using Bar Charts
And that’s it! You have your tornado diagram.
Method 2: Using Conditional Formatting
The previous method can get a bit technical. So you can use this alternate method instead.
- Plot your data into three columns. The first column will act as a label. So put the product name or whichever variable you are using in it. The second and third columns will consist of your low and high values, respectively.
- Align your low values to the right and high values to the left.
- Next, you have to apply conditional formatting. But make sure you use it to both of the columns one by one.
- To do this, select your low values and then go to Home > Styles > Conditional Formatting > Data Bars > More Rules.
- A dialogue box will appear. Here you will change the color to whatever you want. You can change the border to solid if you prefer. But make sure the direction is set as Right to Left. Click Ok to apply your settings.
- Next, you will repeat the same process for your high inputs. But this time, make sure you select a different color and direction from Left to Right.
Figure: A Tornado Diagram created using Conditional Formatting
And done! You have made a tornado diagram using Conditional Formatting.
Method 3: Using REPT Function
You can use the REPT function to create an aesthetically pleasing tornado diagram. But this method does require a bit of work. We only recommend using this method if you have some extra time on your hand or need to stand out from others.
- Set up your date into five columns. The first column will be your label. The next one will contain your lower values. You will keep the next column empty and name it “Low Input Data Bar.” The fourth column will also be empty. It will be called “High Input Data Bar’. The last column will consist of your high inputs. Make sure all your values are sorted in descending order.
- Now we will insert the REPT function of the Low Data Bar column. There, type the formula=REPT(“|”, First cell of Low Inputs /10). Drag it down to the last cell.
- Then select the entire column. We will change the font to “PlayBill” and change the width of the column to that of the most extensive data bar or more. We will also change the font color to our desired color for our bar. Finally, we will revise the text alignment to the right.
- We will repeat the same process in the High Input Data Bar using the High Input values. But this time, we will change the font color to a different color, and the text alignment will be Left.
Figure: A Tornado Diagram created using REPT Function
And that’s it! You have now made a tornado diagram using the REPT function.
Tornado diagrams are great tools that make decision-making a more straightforward job. This results in fewer disagreements in the workplace and, thus, less conflict. Moreover, it makes you stand out as a competent manager.
We hope our article helped you learn something useful. Why not try using a tornado chart for your next big decision?