Data Visualization on the BEC Exam
Data visualization is the process of taking data sets and turning them into graphic representations. Data visualization allows you to bring data to life and allows you to “see” trends and patterns that otherwise would be very difficult to identify in data sets. Just like pictures are easier for humans to process than text, the same can be said for looking at a graphic or chart versus an excel file with rows and columns of data.
What are the benefits of data visualization?
Data visualization has become increasingly important as companies have accumulated massive collections of data (i.e., big data!) Without data visualization tools, it can be extremely difficult to extract patters, trends, and insights from large data sets. Some of the benefits of data visualization include:
What are the different types of data visualization?
For the CPA exam, it is important to know the different types of charts and graphs. You should understand why the chart/graph would be used and what they visually look like. Below is a list of the different types you should be familiar with:
Waterfall chart (bridge chart)
Waterfall chart is used to illustrate changes between two periods. For example, if you want to understand why a company’s EBITDA increased from $100 in Year 1 to $300 in Year 2, a waterfall chart would be the perfect data visualization chart for this.
As you can see, we would calculate the change in each line item of the comparative income statement. Revenue increased $500, cost of goods sold increased $200, and operating expense increased $100. The waterfall chart allows us to visualize the positive and negative contributions to EBITDA and “bridge” the activity between the two periods.
Scatter Plot A scatter plot displays two variables for a set of data. A scatter plot allows you to plot data for the two variables and see if there is a trend. For example, let’s say you wanted to see if there is a relationship between an individual’s salary and house price. You would gather the salary and house price for a large quantity of individuals and plot. The scatter plot below helps us visually see that as an individual’s salary goes up, so does the price of their house.
A bubble chart is similar to a scatter plot, but it allows you to add a 3rd variable. For example, in a traditional scatter plot, you could plot revenue and consumer rating by product. However, in a bubble chart you could add a 3rd variable like gross margin. The size of the bubble would illustrate what products have a higher gross margin vs products that have a lower gross margin.
A pareto chart is similar to a bar chart, but it also includes a line that accumulates up to 100%. The bars descend from left to right and the line on to represents the relative portion out of 100% and accumulates up to 100%. For example, in this chart we would plot the reason for candidates passing on the x-axis and the frequency or count on the y-axis. If “hard work” had the highest frequency, it would be displayed first, and then we would descend from left to right. Eventually, 100% of the count or frequency would be displayed.
An area chart allows a user to plot volume or quantity for specific items over a period of time. This allows the reader to visually see the size and change in volume/quantity over time.
A gantt chart is a chart that is used for project management. A gantt chart visually represents each task and the timing and duration of that task. As you can see in the visual, the company would assign the start date and end date for each task. With data visualization, the start and end date for each task would then plot appropriately in the gantt chart.
A treemap chart is used to show relative size out of 100%. For example, if you wanted to compare the revenue or market capitalization of 5 different companies, you could use a treemap. You can easily see that Company A is the largest and that company E is the smallest.
A pie chart is a circular graphic that divides data into slices and illustrates the numerical portion out of 100%. For example, if a company had 3 products and they wanted to understand what percent each product makes up of total revenue, a pie chart would be used. As you can see, product A represents 45% of total revenue, product B represents 45% of total revenue, and product C makes up the remaining 10% of total revenue.
Geography Chart (Map Chart)
A geography chart is a way to geographically illustrate where a company has activity. For example, you could use a geography chart to show that a company has operations in the United States, Australia, and other parts of the world. This type is a way to easily visualize qualitative or quantitative data.
A column chart uses vertically arranged bars and allows you to compare quantity across different products or activities. For example, if a company had multiple product types, they could compare revenue for each product type in a column chart.
A bar chart is similar to a column chart, however, a bar chart displays the data horizontally. On the y-axis, you would have the product type and the x-axis would have the quantity or volume. For example, a company could illustrate the amount of revenue by product type in a bar chart.
A line chart is a series of data points that are connected by a line. The line makes it easy to visually see the data points. The line can either be a flat or curved line. A line chart is one of the most basic charts and often used to plot data over a timeline. For example, a company could plot their annually or monthly data with a line chart.
A pyramid chart displays hierarchy by stacking the horizontal sections from smallest to largest (top to bottom). For example, if you wanted to compare revenue across products, you could use a pyramid chart. In the example below, product A would have the smallest amount of revenue while product C has the largest amount of revenue.
A funnel chart is a way to illustrate various stages in a process. For example, a company may want to use a funnel chart to illustrate their sales funnel. At the stop of the funnel would be leads or potential customers. The company would then push leads through the funnel by having a sales call and then have them start a trial period. Eventually, the customer would either purchase or not purchase. A funnel chart makes it easy to see what customers advance to the next stage and what customers fall out of the sales funnel.
What are the golden rules of data visualization?
Data visualization can be very helpful if the analysis is properly prepared. In order to ensure that the benefits of data visualization are achieved, there are a several golden rules that must be followed, otherwise, data visualization can lead to more confusion. The golden rules are as follows:
1) Build for your audience – You must always think about who your audience is and what question you are trying to answer for them.
2) Choose the right method – Choosing the right data visualization chart or graph is critical to building for your audience.
3) Use proper labels and colors – Including labels on the various axis and having colors that provide clarity will improve the audience’s ability to process the data visualization.
4) Keep it simple – Data visualization is meant to make it “simple” to understand trends and charts. If your data visualization isn’t “simple” to understand, then the benefits of data visualization will not be achieved.
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