What Is a Waterfall Chart?

A waterfall chart is a type of visualization that illustrates how a metric changes over time, such as the total of a bank account or the amount of inventory in a warehouse. Waterfall charts are useful in situations where you want to track sequential data and have even been adapted to different types of financial analysis and project management methodology. 

Explore different kinds of waterfall charts, when you use one, and how waterfall charts benefit professionals like financial analysts, project managers, and business strategists. 

What is a waterfall chart? 

A waterfall chart is a tool for data visualization that demonstrates how a number or figure changes over time. Often displayed as a bar graph, waterfall charts can illustrate how positive and negative numbers add up to a whole and are commonly used in financial analysis. 

For example, you might imagine a waterfall chart that displays your checking account transactions. Each individual transaction will change the total balance of your account, some to the negative and some to the positive. You could create a waterfall chart to visualize this data with the horizontal axis representing different transactions and the vertical axis representing the value of each individual transaction. 

In addition to financial applications, waterfall charts are useful anytime you need to track sequential data. This might include tracking inventory when items are shipping out and in on a regular basis, or how participants of a medical trial respond to medication. The concept of a waterfall chart is also adapted to project management to illustrate how the tasks of a project will be organized into sequential phases. A waterfall chart is a simple way to display how a number changes visually, but you can increase its complexity by using different types such as the nested waterfall chart.

Pros and cons of using a waterfall chart

The main advantage of a waterfall chart is that it can give you a visualization of how data changes over time. This can be useful in a variety of situations, such as when you want to track your progress toward a goal or if you want to create a monthly budget. A waterfall chart can help you look for trends and identify areas for improvement or the factors that make you more successful. Essentially, a waterfall chart visually tells a story that can assist you in understanding what is contributing to your business and what is not.

Since a waterfall chart can help you understand why numbers change over time, you might also utilize it to track personal goals. For example, if you want to chart weight loss to meet a goal, you could create a waterfall chart that illustrates how your weight fluctuates each day. You can jot notes about significant events of each day to look back over time at the reasons why some days you made more or less progress toward your goal. 

The main challenge of a waterfall chart is that it has limited functionality and takes time to compile. For this reason, you may be limited in demonstrating real-time numbers, for example. 

Types of waterfall charts

You have a few different options for the kind of waterfall chart you use depending on the type of information you want to display and the application of the waterfall chart. Some of the most common uses of a waterfall chart include for financial applications, inventory analysis, and adapted to project management. 

Financial performance waterfall charts

Financial performance waterfall charts are helpful to demonstrate how the running total of an account or budget changes over time, for profit and loss statements, or how any key performance indicators change over time. 

A similar concept is waterfall analysis, a financial process that demonstrates to investors how much money they will receive from their investment in different strategies of selling the asset. The people who primarily use this type of waterfall analysis are investors in a company such as its founders, venture capitalist firms, bank institutions, and angel investors.

Inventory analysis charts

Another common use of waterfall charts is for inventory analysis. In this use case, waterfall charts can track the total stock of items in an inventory. This could include tracking inventory, price changes, or a mixture of both. The insight that you gain by visualizing your inventory on a waterfall chart can help you plan better to save costs on storage, keep track of items that are selling well or struggling, and manage your inventory more efficiently to avoid backorders or running out of needed products. 

Project scheduling waterfall charts

Waterfall charts are also effective tools for project management because you can use them to monitor the progress of the project and compare that to predetermined milestones. By doing this, you can make adjustments if necessary and have a better chance of completing the project on time.

Additionally, some project managers use waterfall methodology, a method of organizing tasks and phases of a project using a gantt chart. A gantt chart is similar to a waterfall chart but adapted for project management, demonstrating how the projects will pass through phases and change with time. Waterfall methodology is so named because, like the waterfall chart, it presents a visualization of how your project will follow a linear, sequential plan.

Waterfall chart formats

You can customize a waterfall chart to add more or less information, depending on your needs. A few different waterfall chart formats include: 

• Simple waterfall chart: In its most basic form, you could call a waterfall chart a simple waterfall chart. In this model, the horizontal axis would designate a period of time, such as months or quarters. The vertical axis would demonstrate a change from the total, positive or negative. Often a final vertical column will designate the total value. 

• Nested waterfall chart: You can offer more detail by nesting hierarchies of values within a simple waterfall chart. Instead of one bar that designates total income per month, for example, you could include additional bars to demonstrate how that month’s total breaks out into other categories. If 25 percent of your income came from one market and 75 percent came from another, you could designate that in one continuous graph. 

• Variance waterfall chart: You can use a variance waterfall chart to display how the productivity in each period of time varies from the output in the one before it. This format of a waterfall chart also allows other variables on the x axis such as region or product. If you were tracking your income by month, this type of graph would help you visualize how each month’s total income varies from your standard or goal amount. 

• Stacked waterfall chart: A stacked waterfall chart is similar to a nested waterfall chart, but instead of demonstrating how each value breaks down in separate bars, you would stack that information within the same bar. This is a helpful strategy for demonstrating the same amount of information you can achieve with a nested waterfall chart, but in a smaller amount of space. 

Who uses a waterfall chart?

You could use a waterfall chart as a professional in a few different industries, such as a financial analyst, project manager, or as a business strategist. Explore these careers, including average salary in the US and projected job growth through 2033. 

Financial Analysts

Median annual base salary in the US (Glassdoor): $79,487 [1] 

Job outlook (projected growth from 2023 to 2033): 9 percent [2]

As a financial analyst, you will evaluate financial data and make recommendations to clients about investments such as stocks and bonds. You may work on the buy-side, helping clients or the company you work for make decisions about which investments to purchase. Conversely, you may work sell-side for a company that offers investment products for sale. 

Project Managers

Median annual base salary in the US (Glassdoor): $89,318 [3]

Job outlook (projected growth from 2023 to 2033): 7 percent [4] 

As a project manager, you will develop project plans keeping in mind the scope, budget, schedules, and other variables that complicate a project's timeline. As the project progresses, you will help manage challenges that arise and keep the project within the limitations of the contract. In this role, you will work with the client to ensure the project delivers their requests. 

Business Strategists

Median annual base salary in the US (Glassdoor): $114,006 [5]

Job outlook (projected growth from 2023 to 2033): 11 percent [6]

As a business strategist, you will be responsible for developing long-term strategies for your company, monitoring how the company performs in those strategies, and making strategic changes to help your company reach its goals. In this role, you will conduct market analysis to gain insight into how your company can take advantage of trends and position its brand for success. 

How to create a waterfall chart

To create your own waterfall chart, you can use any program that will help you visually organize information, such as Excel, PowerPoint, Tableau, or any program with similar functionality. To learn more, consider a course like Advanced Data Visualization with Tableau on Coursera.

Learn more about waterfall charts and data visualization on Coursera

A waterfall chart is a way to organize how data changes over time to provide insight into why changes happen and patterns that influence your data. If you want to discover more about using waterfall charts for visualization, consider a course on Coursera to help you explore the basics. Three options to choose from include Data Visualization in Excel offered by MacQuarie University, Advanced Data Visualization with Tableau, and Data Analysis and Visualization Foundations Specialization offered by IBM.