Decomposing change from opening to closing value
A waterfall diagram starts with an opening balance on the left. Each subsequent bar represents a contribution (positive or negative) that adds to or subtracts from the running total. The bar's height shows the magnitude; its color or position (above or below the previous cumulative level) shows direction. The final bar on the right shows the closing balance. The net of all contributions bridges from opening to closing, which is why it is also called a bridge diagram.
Financial and operational uses
Waterfall diagrams are ubiquitous in financial reporting: starting revenue, subtracting costs, taxes, and debt service, arriving at net income. They are equally useful for operational metrics: starting headcount, adding hires, subtracting attrition, ending with closing headcount. The visual journey from start to end makes variance explanations concrete. The ordering of contributions also carries meaning: a well-ordered waterfall groups related items (e.g., all revenue sources first, then all costs) to tell the story of the change.