A waterfall chart or a bridge chart is used to graphically show the cumulative effect of several variables onto the primary metric of interest. For example, let’s say that your primary metric of interest is revenue generated by the company (measured in USD). Last year in the year 2015, the revenue generated by the company was $100K and this year the revenue generated was $96K. We are interested in understanding what caused the change in revenue between the two years.
A waterfall chart can be used to study the impact of several variables on the primary metric. Can you determine which areas of the company have gotten worse and need additional focus to improve profitability? The bars shown in green show an improvement in performance for that element compared to last year and the bars shown in red shows a worsening of performance compared to last year. A waterfall chart makes the changes clear so that you can focus on the most important elements to address the changes.
Lets look at another example - this time we are interested in which region contributed to the change in revenues (North, South, East, or West). The revenue for each of the 4 regions for 2015 and 2016 is shown in the table below.
One way to show this data visually is to plot a bar chart of this data comparing the two years 2015 and 2016 with respect to the region, the resulting graph is as shown in the figure below.
A second way to show the same information is using a waterfall or a bridge chart. In this chart, we start with the revenue generated in 2015 and then show the incremental revenue generated by each region. The reformulated table looks as follows:
The resulting waterfall chart is shown below. Regions that add to the revenue (compared to last year) are shown in green while the regions that have performed worse (compared to last year) are shown in red. The starting bar shows the 2015 revenue and the ending bar shows the 2016 revenue.
The benefit of using a waterfall chart is that it can clearly highlight the areas that have done well and areas that need focused improvement.
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