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A waterfall chart that has variable column width is used to show 2–3 dimensions on a single chart. It is most often shown as a histogram that has multiple information factors.
What it is: A waterfall (or Merimekko) variable width column histogram is used to show the relationship between two different dimensions, often causing a third dimension to be illustrated, such as a chart that shows units sold (x axis), the price per unit (y axis), and the area of the column is then the revenue created.
What it does: It allows multiple factors to be illustrated on the same chart, such as showing which items have the largest volume sales, which items have the highest price, and which items have the largest total revenue all on the same chart.
How is it used: It can be used to demonstrate a number of relationships as well as contrast factors, such as price versus volume or profitability versus revenue.
Where: Some examples that are often displayed on a waterfall include the following:
Product price, volume, and revenue: Display product price on the y axis, volume sold on the x axis, and the area of the column will be the total revenue. This allows you to compare the highest priced, largest volume, and largest revenue items. It also allows you to contrast the differences between high-priced items and high-volume items.
Unit percent profitability, unit volume, total profitability: Display unit profitability on the y axis, unit volume on the x axis, and the total dollars of profitability will be the area of the column. This is valuable because negative profitability will show up as a negative number on the y axis. You can then see which products are losing money and the average area of the columns above or below the zero lines. This will indicate if the entire product mix is profitable or unprofitable.
ROC, capital invested, and total ROC: Return on capital (ROC) on the y axis, capital invested on the x axis, and the area is then the total profit created by the invested capital (product, business or company).
Comparing alternative solutions or investments by comparing forecasted sales, pricing, capital, volume, profits, revenues, etc.
Helping a company compare and contrast their portfolio of products or businesses for future budgeted investments.
Why: The ability to answer multiple questions with one chart is valuable. More importantly, it has the ability to show multiple factors and show that some products provide greater revenue while others have superior profitability and others provide volume to support capacity utilization. Keeping all of the factors on the same chart tends to avoid short-sighted decisions that only consider one factor.
Where it shouldn't be used: It is too powerful and difficult to create for single-factor charts.
Any restrictions: Be careful of drawing conclusions from the area of the column when multiplying the x and y axes does not have a meaningful outcome. An example is revenue on the y axis and total profit on the x axis. Multiplying revenue times profit is not a meaningful outcome, and therefore the area of the column does not add any insight to the chart.
Warnings: None noted
Gathering data
Select which factors you want to analyze on the chart.
Where possible, make the y axis a percentage of the factor charted on the x axis, so the area will be the total dollar value of the y axis factor.
Identify the products, businesses, companies, countries, competitors, etc. that you want the factors to be related to.
Create a spreadsheet where the product (company or other units) has the factors desired in a single row.
Analysis of data
Using one of the methods outlined in the demonstration videos, create multiple width charts.
Make sure to sort the chart on the y axis column so the tallest column is on the left and goes down in order like a histogram.
Interpretation of results
The order of the products from left to right is in order of the y axis factor.
The widest columns have the largest share of the x axis factor.
The largest area of a column means it has the largest factor of the x axis times the y axis.
If the y axis is a percentage profitability, then the factors with negative profitability will be under the zero line on the x axis. So the factors that have a column going down are unprofitable.
Presentation of results
The chart itself is the best form to present the results.
The chart itself is the best form of presentation. The recommendations need to take into account the impact of changes. It is suggested that you create a new chart with the pro forma performance charted after the implementation of the recommendations. As an example, you may recommend that a large-volume product that is slightly unprofitable be eliminated, but because that product is currently covering a number of the fixed costs of the business, if it is eliminated, the entire business may be less profitable, because the remaining products have to cover the fixed costs that used to be covered by the eliminated product. If you check the outcome of the pro forma chart, you can avoid bad recommendations.
This content is provided to you freely by Ensign College.
Access it online or download it at https://ensign.edtechbooks.org/projectbased_internships/waterfall_variable_width_column_chart_merimekko.
