What Is Data Visualization and Why Is It Crucial to Mitigate Risk?
The world’s economies live in the age of information. Data about every aspect of life is being generated and recorded at an unprecedented rate. This revolution of information unlocks untold insights into complex mechanisms that animate the modern economy.
The sheer volume of relevant data can be difficult to make sense of. Finding the right interface to make the insights within clearly and quickly accessible is a must for those wishing to compete in the 21st century.
Data visualization is key to bring order to chaos because visualization makes data accessible. For ag finance, data visualization can highlight the most important risk factors and their potential financial impacts more clearly and more quickly than numerical or textual methods.
This article will explore, what data visualization is, how it is useful to ag finance, and why it is essential for those seeking to de-risk their portfolios.
What is Data Visualization?
According to Harvard Business School: “Data visualization is the process of creating graphical representations of information. This process helps the presenter communicate data in a way that’s easy for the viewer to interpret and draw conclusions.”
At the most basic level, data visualization uses imagery to transform hidden information into accessible information.
Indeed, data visualizations are everywhere. They are ubiquitous because communicating information visually can leave a stronger impression faster than a data table or paragraph ever could.
But data visualizations can do far more than fill a PowerPoint slide. When a company is visualizing its own data, the presenter and viewer are one and the same. In effect, data visualization allows those with data to find clarity in complexity and draw meaningful conclusions they can translate into action.
Data visualizations transform the utility of a dataset by allowing finance professionals to process multiple interacting factors simultaneously. Representing different data fields by contrasting location, shape, size, and color, a well-designed visualization can translate a complicated mess of varying data fields into a story read effortlessly by the eyes.
Examples of useful data visualizations include:
Simplicity is powerful. Not every data visualization needs to take up an entire screen. A color-coded flagging system can reveal critical characteristics of a dataset with just a glance. Reading through a data table looking for figures that could indicate elevated risk takes time and attention. Seeing several data points highlighted in red draws focus immediately to areas of greatest concern.
Time Series Graphs
These types of visuals are common, but they are also elegant and effective. By plotting the change of a key indicator over time (e.g. the price of water) analysts can easily identify trends and anomalous behavior. Understanding changes over time can help businesses successfully navigate the dynamic financial landscape.
This example may be more complex, but it also unlocks greater power. Visual indicators can represent a 1-dimensional relationship while time-series expand it to 2-dimensions. Interactive maps can display many, many more. With the potential to manipulate several dynamic layers simultaneously to see how they interact over time and space, complex relationships can become intuitive.
When used in the right contexts, each type of data visualization can enhance business intelligence. Ultimately, they can unlock novel insights and driven smarter decision-making.
How can it be used in ag finance?
Agriculture is set to face both great challenges and great opportunities in the 21st century. As the climate changes and humanity adapts, the ecological and regulatory factors influencing agriculture will be continually shifting. Quickly making sense of these changes in these complex systems will be essential to remain competitive.
For financial institutions specifically, data visualization can play a critical role in risk analysis. As discussed earlier, visuals can help quickly make sense of cumbersome datasets. For banks and Farm Credits with vast, diverse portfolios, the sheer amount of data could inhibit financial professionals from making efficient use of it.
An interactive map, for example, can allow analysts to see macro trends across the entire portfolio while preserving the ability to zoom into a specific state, water district, or parcel to quickly ascertain where and how risk can manifest.
This geospatial approach is particularly well-suited for agricultural finance. The definition of financial risk rapidly is expanding to include water risk and climate risk – both of which are inherently geospatial. Whether considering the depth of groundwater, proximity to wildfire, or ambient temperature, the factors that directly and indirectly impact a harvest must be understood in their local context.
Water and climate risk pose both acute and chronic risks to financial portfolios, particularly in agriculture. As such, data visualizations representing those risks can be highly effective assessment tools. In the words of Deloitte:
“[The] ability to amplify—and clarify—key metrics and other financial and non–financial data is crucial, both for data-driven insights and finance’s ability to partner more effectively across the organization.”
Combining proprietary financial data with 3rd party climate and water data through a data visualization can not only reveal valuable business insights but also be the perfect tool to translate those insights into actionable business intelligence.
Why is it crucial for risk mitigation?
As articulated well by Forbes: “Risk is an unseen, omnipresent player in every project.” The first step on the road to mitigation is making risk seen.
As described above, data visuals empower finance professionals to easily identify points of acute and chronic risk. Moreover, a complex visualization like an interactive map can indicate precisely the types and degrees of risk to which a particular parcel may be exposed. Rather than painstakingly checking values from each indicator with different parcels, a software-generated data visualization can give a near-instant overview of a parcel’s risk portfolio.
Using data visuals to rapidly pinpoint which sources of climate and water risk most impact the future yield and valuation of a parcel, finance professionals can match a grower’s specific risks with specific mitigation strategies.
A portfolio full of targeted risk mitigation plans can better withstand the challenges of climate change. Financial institutions with the most resilient portfolios can become more competitive over time. Ultimately, looking to the future requires visualizing the here and now.
The various dimensions of risk all must be considered together. Therefore, they should be displayed together. Granular datasets covering an entire ag portfolio contain so much information it can be difficult to make sense of. Data visualization can unearth hidden insights that can drive more agile and effective business decisions.
Identifying the unique profile of risk associated with a given parcel is key to identifying the most powerful and cost-effective risk mitigation strategies. Building a climate-resilient portfolio begins by laying the first stone – visualizing the data of here and now.
AQUAOSO’s solutions are purpose-built to help ag finance professionals understand and monitor their water risk, laying the groundwork for successful mitigation.
The GIS Connect platform allows users to integrate third-party data sets with their own data in a secure GIS data management platform. View loan, investment, supplier, and appraisal data in a single geospatial view. Integrate data with best-of-breed land and climate data through secure APIs. Manage board and regulatory requirements with automated geospatial data management, information collection workflows, and reporting.
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