In performance management we often talk about “lagging” and “leading” indicators. But what do they mean exactly?
Lagging indicators are typically “output” oriented, easy to measure but hard to improve or influence while leading indicators are typically input oriented, hard to measure and easy to influence.
Let me illustrate this with a simple example: For many of us a personal goal is weight loss. A clear lagging indicator that is easy to measure. You step on a scale and you have your answer. But how do you actually reach your goal? For weight loss there are 2 “leading” indicators: 1. Calories taken in and 2. Calories burned. These 2 indicators are easy to influence but very hard to measure. When you order lunch in a restaurant the amount of calories is not listed on the menu. And if you are me, you have no clue how many calories you burn on a given day.
Now lets try to translate this to business. Most financial indicators such as revenue, profit, costs are “lacking indicators”. They are results of the activities of the company.
Now lets imagine you are managing an IT outsourcing company and your goal is to be compliant with the SLA’s (service level agreements) you agreed upon with your customers. For instance the maximum allowed time to resolve high priority incidents is 48 hours.
The output is easy to measure: You either solve your incidents in 48 hours or not. But how do you influence the outcome? What are the activities you must undertake to achieve the desired outcome?
For instance: Make sure staff start working on incidents immediately when they occur. Make sure that incidents are assigned to the right people with the right skillset and that this person isn’t already overloaded with other work.
This could be translated into the following “leading” indicators
- % of incidents not worked on for 2 hours.
- % of open indicents older then 1 day.
- % of incidents dispatched more then 3 times.
- Average backlog of incidents per agent
When you would start measuring these KPIs on a daily basis and focusses on improving these KPIs, I would think it is extremely likely to see an improvement in SLA compliance.
Leading indicators are often related to activities undertaken by employees. Remember our personal example? Losing weight is not an activity, exercise and eating are.
Great article – very useful to show any data analyst that their current set of KPI might not be optimal for decision making (if they are using lagging ones).