Context diagrams are visual tools that depict the scope of the product showing the business system and how it relates and interacts with the other systems as well. It is a good example of a project management scope model. It shows the inputs to the system, the main players that provide the input as well as the output of the system and the actors receiving them.
Simply put, it shows the name of the product or system in a circle. Outside it is the entities that are involved with the product or system. These include the other business systems, organizations, actors and user classes. Context diagrams also show arrows which indicate the relationship between the system and the external entities.
It helps project managers understand the flow of the project’s system as it depicts the scope in abstraction. Since the project scope is indicated as an abstraction, it does not reveal the functionality and architecture of the system. It also does not identify the features. It simply serves as a tool to aid stakeholders to communicate about the system and what lies outside its boundaries.
This project management term is defined in the 5th edition of the PMBOK.