Sankey diagrams are a powerful visual representation tool that help in understanding the flow of quantities between various entities. Often used in the context of energy, material, or financial systems, these diagrams depict the magnitude of a flowing quantity from one node to another, making it easy to discern how quantities are distributed, transferred, or consumed. They are a valuable asset in financial flow visualization particularly due to their ability to illustrate complex relationships in an easily comprehensible manner. In this article, we will delve into the specifics of how to use Sankey diagrams to enhance clarity and insight when visualizing financial flows.
### Step 1: Identify the Key Entities
The first step in creating a Sankey diagram is to identify the various entities or nodes in your financial flow. These entities could represent different types of financial transactions or categories such as revenue, expenses, investments, assets, and liabilities. Assigning clear labels to these nodes is crucial, as it will determine how the diagram communicates the story of financial interactions.
### Step 2: Define the Flows
Next, you need to map out the specific financial flows or processes between these entities. Flows represent the movement of funds or resource transfers in your system. Carefully examine your financial data to determine the nature and magnitude of these flows. The flows will be represented by the arrows in the Sankey diagram.
### Step 3: Determine the Width and Direction of Flows
The width of each flow in the Sankey diagram represents the magnitude of the flow. Typically, the wider the flow, the larger the financial volume being transferred. The direction — whether an arrow goes from a node to the other or not — must be carefully considered as well. It should clearly denote the flow sequence, whether a transaction results in a transfer to another entity or results in a net change within a given entity.
### Step 4: Choose the Right Layout and Design
Select an appropriate layout for your diagram based on the complexity of your data. If you’re dealing with a large number of flows and entities, consider grouping similar nodes together to reduce clutter and improve readability. The design should be visually appealing while maintaining clarity. This involves choosing appropriate colors for different categories or entities, as well as applying design principles such as color consistency and flow orientation.
### Step 5: Annotate and Include Legends
To ensure that your Sankey diagram is understandable, include clear labels and possibly a legend. Legends not only assist in explaining the different nodes but also the flow direction and the scale of the widths of the flows. Annotating nodes with specific amounts, percentages, or other relevant financial metrics can further enhance the diagram’s explanatory power.
### Step 6: Use Software or Tools for Creation
Creating Sankey diagrams can be complex, especially with large datasets. Utilizing specialized software or online tools can greatly simplify the process. Tools such as Sankeyviz, Gephi, or Tableau offer intuitive interfaces and powerful features to design sophisticated Sankey diagrams. These tools provide customization options for colors, shapes, and node labels to suit your specific requirements.
### Step 7: Review and Iterate
Finally, always review the final Sankey diagram for accuracy and coherence. It’s helpful to get a peer or a colleague to review your diagram, especially for the first time. Getting feedback at this stage can catch errors in data representation or design that you might have overlooked. Make any necessary adjustments to ensure that your Sankey diagram effectively communicates the intended story of your financial flows.
Sankey diagrams offer a unique and insightful way to visualize complex financial systems, making them a valuable asset in financial analysis and reporting. By following these steps, one can create effective and informative Sankey diagrams that not only communicate data accurately but also reveal patterns and insights that might be obscured in textual or tabular formats.
