Friday, September 04, 2015

PMP, RMP Exam: Influence Diagram in Risk Management

I received this comment from one of my readers.
Hi Satya, 
Greetings !
I am a professional project management trainer. I have read a lot about you and read a lot of white papers written by you. 
I am a bit confused in understanding the following : 
1. Influence diagram (used in Risk Management) 
2. Matrix diagrams (used in Quality Management)
3. PDPC (used in Quality Management) 
4. Prioritization Matrices (used in Quality Management) 
I would appreciate if you could help me understand the above with an example. 
Thanks ..   
With Warm Regards,  
Nitinn Gokhle, PMP, PRINCE2

The list mentioned is long and one blog cannot do justice to this query. So, I am taking one – the first one – influence diagram and its use in risk management. This is the promise I made to Nitinn, and hence this post. 

What is Influence Diagram?
Influence diagram, as noted in PMI's PMBOK Guide is define as:
“A graphical representation of situations showing causal influences, time ordering of events and other relationship among variables and outcome.”

Let me elaborate on it. It is a graphical representation of situations (or events or activities) and hence a diagramming technique.  It will show:
  • Causal influences, i.e., influence of one situation or event or condition on another based on a cause. In plain words, the events or activities in the influence diagram influence each other.
  • Time ordering of events – how the events are ordered based on their occurrences 
  • Any other relationship among variables and outcomes

Why Use Influence Diagram?
Influence diagram is mentioned as one of the tools and techniques in “Identify Risks” process of risk management knowledge area. So, it will be used to identify all possible risks in the project. But how?

Risks, as we know, are uncertain events or conditions. Projects have its decisions from scope, time, cost and other perspectives. Within the existing project decision, influence diagram helps in:
  • Finding out the uncertainties that exists with various potential scenarios
  • Analyzing a particular situation and determining how a decision would be arrived. In this respect it is similar to Decision Tree.
  • To find out the uncertainties within the potential paths of the diagram and hence identifying potential risks. 

Basics of Influence Diagram
To understand influence diagram, you need to understand its elements, which are drawn in various shapes. These are 4 nodes you need to know. 
  • Uncertainty Node – It corresponds to each uncertainty, i.e., event or condition and it is drawn in an oval shape.
    • Deterministic Node – It is a variant of uncertainty node. This one corresponds to special kind of uncertainty whose outcome is deterministically known and is drawn as a double oval.
  • Decision Node – It corresponds to each decision to be made. It is represented as a rectangle.
  • Value or Objective Node – It corresponds to the measure of your satisfaction with possible outcomes. This is represented with an octagon or a diamond.
  • Function Node – It corresponds to a deterministic function of the quantities it depends on. It is represented as a rounded rectangle.
Various Nodes/Shapes in Influence Diagram
Also you need connectors (also called arcs) in the diagram. I am not going into the details of the connectors, as you need not know them for the exam. Rather few points of the connectors:
  • It can be straight or angled lines and used to connect the shapes
  • The arrowhead of the connector will show influence, e.g., it is shown as Shape 1 ---> Shape 2, it means Shape 1 is influencing Shape 2.
  • Each shape in the influence diagram should be connected to at least one line.
First you draw the decision node (rectangle shape). Then you add on other shapes, such as oval (for uncertainties) or double ovals (for deterministic uncertainties). It can be lead to a function (rounded rectangle) or to a value (represented with a diamond or an octagon). Then you draw the connectors and show the influences among the nodes.

A Simple Example
I’ll take the diagram from PMBOK Guide 5th Edition. The guide has not elaborated it, but I’ll explain it here. It is a simple one and easy to understand. 

Image Credit - PMI PMBOK Guide 5th Edition
There are 4 nodes in the above diagram.
  • Project Activity – It is a decision node. After all, you decide to work on activity, before executing the activity. 
  • Project Estimates and Risk Condition – These two are uncertain nodes. Risk condition, of course, is uncertain. Estimates are also uncertain and hence the name “estimate”!
  • Deliverables – It is a function node. It is a function of project activity and risk condition. It is a function of the risk condition and project activity
There are also connectors drawn among the shapes as shown above. What do they mean?
  • “Project Estimate” is influenced by “Risk Conditions” and. Based on risk condition, the estimate for a work will vary. As the estimates vary, the project activity will also be influenced. Hence project estimates is influencing project activity.
  • "Deliverables” is influenced by both “Risk Condition” and “Project Activity”. Hence, it is a function of the condition and also the activity. In other words, deliverables can be quantified if you know the risk condition and the project activity.
What the uncertainties here, which will help us?

If you look at the connector between "Project Estimates" and "Project Activity", it indicates that you will only know the estimates (the decision represented by decision node), not risk condition (oval one), when making your choice. Hence, actual risk will be known after you make your choice, not before. That is not what we want, rather we want to know the risk condition before executing the project activity

Modifying the above diagram a bit, I can draw a connector between “Risk Condition” and “Project Activity”. Now, the diagram will be like:

Adding a Link between Risk Condition and Project Activity
This is the best possible scenario from the influence diagram. Why? Because you are now taking a decision to have this project activity based on the risk condition.  There is no longer any uncertainty when you are making your decision to take this activity and finally producing the deliverables. In this, you identified the risk and then proceeded with an informed decision. 

In the beginning of the article, I said influence diagram is used to analyze scenarios and to determine how decisions are arrived. It also helps in finding out uncertainties within the potential paths of the diagram and hence helps us to identify potential risks. We now saw that with an example. That is why this diagram is used in "Identify Risks" process.

There are other possible scenarios that can be inference from the diagram. But I intended keep it simple and leave it with this, which should help you from the PMP or RMP exam perspective. 

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