Like counting on one’s fingers, data visualization is neither new nor (necessarily) complicated. The computer-based forms most commonly used in business today — the executive “dashboard,” or scorecards of various sorts — can trace their roots back at least 20 years. In 1786, Scottish economist William Playfair noted that mercantile transactions in money … (are) easily represented in drawing” and in fact he believed his time-series and bar charts would aid comprehension and retention.
But if data visualization isn’t new, it certainly has yet to reach full flower. For most companies, “data” means numbers, and analysis is a matter of sifting through and manipulating many numbers to get to one that’s meaningful. No one wants the bottom line expressed as a three-dimensional pie chart when a simple dollar value will do.
But companies constantly lament that they collect far more data than they can analyze, and designers of visualization systems welcome that challenge. “Our goal,” says Andrew Cardno, CEO and founder of Compudigm International Ltd., “is to present 10,000 data points in a form that people can comprehend in three seconds or less.”
In fact, visualization not only aids analysis, it can, at times, replace it. “If you roll data from several sources into a line graph and it’s pointing sharply down,” says Jim Bell, director of corporate finance at Huntsman, “you know things are bad. You see that there’s trouble without having to analyze anything.”
That gets at the heart of the argument for greater use of visualization: It taps the brain’s hard-wired ability to respond to visual stimuli. “If the goal is survival,” says Andrew Lo, director of the Laboratory for Financial Engineering (LFE) at the Massachusetts Institute of Technology, “then what is more essential than being able to tell if the thing you see on the horizon is friend or foe, something to pursue or to flee? Evolution has made us all very visually attuned.”
Even a spreadsheet-loving analyst, Lo says, may find the data pertaining to a given phenomenon too overwhelming to comprehend. And for employees in sales, marketing, and many other functions, a quick pictorial read of key data may be all they need. Companies that have invested in data visualization say that one key selling point is that it requires little or no training.
Every Picture Tells a Story
While the most elaborate uses of data visualization are typically found in life sciences and engineering environments, the technology may soon provide useful new ways to confront financial data as well.
At the LFE, researchers have built a visualization tool that aids risk analysis by representing the mean, variance, and liquidity of various global investments as a three-dimensional world that, according to Lo, resembles the Sydney Opera House.
An analyst can fly through this visual representation and see “hot spots” of unacceptable risk, which would stand out as areas of intense red, say, in a generally blue landscape. As with most visual representations of data, the user could then pause and drill down, assessing just what makes a particular investment so risky.