Leading indicators

Yesterday’s post mentioned lagging indicators: metrics that measure the past. Their problem is that they can alert us of changes needed only when it is too late. For example, a company that only measures revenue and costs can notice declining sales only after sales declined. It is bound to lose money.

Lagging indicators are reactive. Systems based on lagging indicators alone are guaranteed to suffer from problems before taking action to avoid them.

Conversely, leading indicators are metrics that measure the future. For example, measuring the behaviors displayed by your salespeople or the reliability of your products can alert you of a possible future decline in sales. These are leading indicators. They let you know of the need to change something early enough to get a chance to avoid irreparable damage.

Lagging indicators indicate problems that happened. Leading indicators indicate problems that might happen.

For example, measuring the number of cars crossing with a red light is a way to alert a city of the need to change how a crossroad works before the inevitable fatal car crash happens.

Similarly, drivers use emergency brakings as the signal that they must drive more carefully. This helps them prevent car crashes. A driver that only slows down after he crashes is a dead driver.

Your organization needs to measure both leading and lagging indicators. You need leading indicators to get a chance at avoiding irreparable damage. You need lagging indicators to validate your leading indicators, to keep people accountable to results, and for reporting purposes. One complements the other; either is not enough.

Any questions? Write me an email. I read them all.

You might be interested in my book on operational excellence.