The “waterfall model” was introduced by Dr. Winston W. Royce 1970, and the waterfall model is a software development process. The waterfall model emphasizes that a logical progression of steps be taken throughout the software development life cycle (SDLC), much like the cascading steps down an incremental waterfall.
Other industries have adopted “the waterfall model” to describe revenue and commission structure. I think this is not entirely accurate, and it may not add transparency to the model. The only similarity between the financial model and the original model proposed by Dr. Royce is the incremental and progression of steps from beginning to end.
A waterfall financial model like Dr. Royce’s model allows you to present your projections over a period of time and, at the end of every period, compare your actuals to your predictions then revise your estimates for the periods moving forward based on what you’ve learned.
A financial waterfall model doesn’t provide you with all the answers, and it gives you a good idea of how you’re doing with respect to your original so that you can revise as a result. The model helps you figure out what additional questions you need to ask yourself to understand the “why.” It’s a powerful tool, given its relative simplicity.
Be cautious, a disadvantage of a waterfall model is its inherent lack of adaptability from one beginning to end (i.e., step a to step z). For example, a failure at step m, reveals a fundamental flaw allocation of the revenue model, not only requires a going backward in the process but, in some cases, can be often lead to a devastating realization regarding the viability of the entire model. While most experienced teams and developers would argue that such revelations shouldn’t occur if the system were designed correctly in the first place, not every possibility can be accounted for.