When it comes to measuring performance, it is important to distinguish between lagging and leading indicators. Lagging indicators measure past events, while leading indicators provide a forecast of future events.
Lagging Indicators
Lagging indicators are retrospective metrics that measure what has already happened. They are often easier to find within a company's databases and are commonly used in regular monthly reports. Some examples of lagging indicators include:
- Software bugs reported to Support in Release x.x
- Q2 revenue
- Call center calls completed within two minutes
- Product returns in November
The limitation of relying on lagging indicators is that issues can start brewing within a business well before these metrics trigger a warning on the scorecard. Using metrics that measure past events to guide business decisions is akin to driving while only looking in the rear-view mirror. This approach makes it easy to miss an opportunity or a threat on the road ahead until you're right upon it.
Leading Indicators
Leading indicators, on the other hand, provide a forecast of future events. They are often more difficult to find, but they can provide valuable insights into potential problems or opportunities. Some examples of leading indicators include:
- The percentage of identified software bugs fixed in Release x.x
- Contracts currently in negotiation for Q2
- The number of customer cases currently open
- The trend of customer complaints over the last three months
The Importance of Leading Indicators
So, does it really matter which type of indicator is used? The answer is a resounding yes. While lagging indicators offer insights into what has happened, leading indicators provide a forward-looking view that can help organizations to anticipate and prepare for future outcomes. This allows for proactive management and decision-making, helping companies to seize opportunities and mitigate risks before they fully materialize.
The Right Mix of Indicators
Ultimately, a balance of both lagging and leading indicators should be used for a comprehensive view of company performance. By pairing the retrospective insights from lagging indicators with the predictive power of leading indicators, companies can create a more responsive and agile management strategy.
Conclusion
By understanding the difference between lagging and leading indicators, organizations can make better decisions about how to measure and manage their performance. By using a combination of both types of indicators, organizations can gain a more complete picture of their current state and future prospects. This can help them to identify and address potential problems early on, seize opportunities, and mitigate risks.