How to Effectively Visualize Construction Project Financials using Sankey Diagrams?
Whether in the midst of a project or after the end of it, it is vital to understand where the project money went and how different components contributed toward or away from the project’s profitability. As always, there are many ways to visualize such information using all kinds of graphs and charts. However, certain visualization techniques are more effective than the others in conveying such information. In this post, I want to explore the use of Sankey diagrams for such purpose with a simple example.
Sankey diagram is a two-dimensional flow diagram that consists of groups of vertical bars interconnected by flow lines. It was first introduced by the Irish Captain Matthew Henry Phineas Riall Sankey in 1898 to illustrate the flow of steam in a steam-engine. Since then, it has been used to visualize the flow of energy, material, etc. throughout systems. Here, we will illustrate its use to visualize the flow of money in a project.
Let us consider a very simple example of a hypothetical construction project. At the onset, the project was estimated to cost $134M, leaving the construction firm with an estimated gross profit of $26.9M. The cost estimate was based on three components: direct labor, material, and subcontracts. In the end, the project actual costs the firm $141.50M, leaving it with an actual gross profit of $19.4M. Here, we use a Sankey diagram to capture this information.
The use of words to describe these diagrams would defeat their purpose and would not do any justice to them. Therefore, I have chosen not to describe the Sankey diagrams in this post and let the readers glean insights straight from them.
To the readers, it should be evident from the diagram that the subcontracts and labor were over-budget by $12.25M (Gross Deficit) and chipped away the gross profit while material came under budget by $4.75M (Gross Surplus) and helped make up for some of the losses. Furthermore, subcontractors’ contributions accounted for the largest portion of the $12.25M Gross Deficit).
To analyze it better by drilling down, let us visualize how each subcontractor is contributing to the project’s deficit by using another Sankey diagram.
As evident, there are 6 sub-contractors involved in the project. A few of them came under their estimates and contributed to the overall surplus for this group. However, the gross surplus was small ($2.5M) compared to the gross deficit for this group ($12.25M). Contractors E and A contributed the largest proportion to the gross deficit while A, B, and F contributed to the surplus for this category.
The next interesting step would be to try to understand why subcontractor E is over budget by a significant amount. To do so, one may want to analyze how this contractor has generally performed in the past project. One way to do so would be by visualizing all past project data using another Sankey diagram.
This Sankey diagram is drawn much the same way as the two preceding ones but with one exception: we spread Sub’s Estimate bars across the X-axis, from left to right, based on the time when the project was launched. Project 1 was launched the earliest and Project 6, the project being analyzed here, was launched the latest.
It is evident from the diagram that the earlier projects (Project 1 through Project C) used to come slightly under budget while the newer projects have been significantly over budget. This may indicate some problem the subcontractor is experiencing with the newer projects or higher risk nature of the newer project being undertaken.
The purpose of this example is to illustrate how a simple Sankey diagram can be used to provide intuitive visualization of the flow of money in a construction project. Of course, the examples given here are much simpler than they likely are in reality. However, it is precisely for these complex scenarios that this visualization technique can be very useful.