IBM Planning Analytics Tips & Tricks: Waterfall Charts

June 20, 2023

Did you miss our webinar on waterfall charts in IBM Planning Analytics? Here’s our take on best practices and how and why to use waterfall charts.

Waterfall charts, also known as bridge charts, floating column charts, or cascade charts, are a data visualization tool used to represent changes in a value over time. They are particularly useful for showing how a specific value, such as a company’s profit or revenue, has changed from one period to another and the impact of different components on this change.

Waterfall charts are named after their appearance – the bars in the chart resemble a waterfall cascading downward. In a common example, the initial value is displayed as the starting point, and each segment of the waterfall represents the change in value due to certain factors. The length of each bar segment represents the size of the change, with upward bars indicating increases and downward bars representing decreases.

One of the advantages of using a waterfall chart is that it helps users easily identify the contribution of each component to the overall value. For example, a waterfall chart can show the contribution of different revenue streams to a company’s total revenue, thereby highlighting areas of strength and weakness in the company’s income stream.

Another common usage of waterfall charts is to show how an investment or project has affected the financial performance of a company. For instance, a waterfall chart can demonstrate the cost and revenue distribution of a new product development project over time. This can help in identifying areas where costs could be optimized or where revenue could be increased.

In enterprise planning and analytics, waterfall charts are crucial in depicting the impact of different scenarios, period-over-period comparisons, and identifying performance gaps. These charts allow professionals to identify key drivers of revenue or costs and identify areas that require improvement. It is also useful for businesses to use waterfall charts to identify performance trends, forecast trends based on prior data, and determine areas that require resource allocation.

Creating a Waterfall Chart

Creating a waterfall chart is relatively easy. A waterfall chart can include as many segments as required to represent the changes that need to be visualized.

To create a waterfall chart in Excel, start by creating a table that contains the total initial value and the changes in value. The table should represent a timeline that goes from left to right. The first column will contain a description of the different components that make up the initial value. The second column will display the size of the initial value. The subsequent columns will display the changes that occur within each segment. Each column will represent a change in the value of the previous column, either positive or negative. For example, a positive value could represent an increase in sales revenue, while a negative value could represent a rise in production costs.

Once the table has been created in Excel, the next step is to insert a waterfall chart. Select the table contents, including the initial value, then select “Insert” on the top menu bar and choose the “Waterfall Chart” type. The chart will then be created, showing each segment’s component and how it contributes to the overall value.

When using Planning Analytics, the process follows a similar outline. You will first need to create a table that houses the total initial value and the changes in value across time. The processes available with Planning Analytics are more user-friendly and automated than those of Excel, making the analysis of the chart trend even easier.

Waterfall charts are a critical representation tool in enterprise planning and analytics. They play a significant role in identifying the drivers of revenue or performance, identifying gaps in performance, and providing a retrospective review of trends in a business’s performance. Furthermore, the ability to create data-driven visualizations in IBM Planning Analytics and Microsoft Excel (amongst other tools) has allowed businesses to quickly adapt to new data insights. As a result, they are valuable tools in every data-savvy professional’s toolkit.

IBM Planning Analytics, which TM1 is the engine for, is full of new features and functionality. Not sure where to start? Our team here at Revelwood can help. Contact us for more information at info@revelwood.com. And stay tuned for more Planning Analytics Tips & Tricks weekly in our Knowledge Center and in upcoming newsletters!

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