Lagging Indicators And Leading Indicators Analysis Essay

“In strategic planning it is important to discuss key performance indicators (KPI). ... The first step to determining your KPI is to understand the difference between lagging and leading indicators. The second step is to define and monitor your business indicators. Lagging and Leading Indicators.”  - May 27, 2014 - Project Times

Both leading and lagging indicators can occur at approximately the same time and there are circumstances where the leading and lagging indicators may not be easily identified. Today we will review definitions, examples and how to recognize the differences. By doing so, we hope to help you improve Key Performance Indicators (KPIs) to make better decisions.

Definitions:

Indicator:

An indicator is anything that can be used to predict future financial or economic trends.

Leading Indicator:

These types of indicators signal future events. Leading indicators are measures that lead to the performance of lag measures; normally measuring intermediate processes and activities. Often you will hear “what drives results?” when talking about leading indicators.

Leading Indicator Examples:

  • Amount of sales in the pipeline at 90%
  • Customer complaints three-month trend
  • Number of leads created
  • Contracts in negotiation for Q3
  • Average handle time
  • Number of leads converted to opportunities
  • Customer cases currently open
  • Team closing ratio
  • Average speed of answer
  • Number of contacts

Leading indicators may prove difficult to identify and capture. With new measures there is no history within the organization. Attention to leading indicators are an advantage since they are predictive in nature and allows an organization to make adjustments based on results.

Lagging Indicator:

A lagging indicator is one that follows an event. Lagging indicators focus on results at the end of a time period, normally characterizing historical performance. Lagging indicators can also be referred to as Key Results Indicator (KRI)

Lagging Indicator Examples:

  • Last month's P&L statement
  • Q2 Revenue review
  • Total problems
  • # of units sold
  • Call center calls completed within two minutes
  • Total incidents
  • # of different products sold
  • Product returns in July
  • Total customer contacts

One of the advantages of lagging indicators is how easy they are to identify and capture. This often has teams focused primarily on these KRIs which are only one piece of the puzzle. Lagging indicators are historical in nature and do not reflect current activities. These measures lack predictive power.

Caution:

Quotas or goals should only be placed on lagging indicators, not on leading indicators. Placing a goal on a leading indicator may result in gaming the system which can generate the wrong results.

Conversations about leading and lagging indicators may get slightly confusing as other terms, phrases and special lingo may be used. For example, when talking about leading indicators, many will refer to “performance indicators” and lagging indicators may be referred to as Key Results Indicators (KRIs).

Goals and Compensation:

It goes without saying that goals and incentives drive behaviors. Consider how you want to influence those desired behaviors. Develop processes, metrics which help to measure success and compensation to keep motivations aligned with goals.

Don’t leave out the support analysis team. Develop a list of behaviors you hope to see from them as well. If you identify and document the desired behavior, it becomes the basis for future behavior.



When choosing the right sales performance analytics to focus on and help their organizations grow, sales managers typically face the dilemma of focusing on lagging or leading indicators.

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 easier to influence.

Sales leaders ask a questions such as: “Which KPIs do I want my team focused on that will best correlate to sales success?”

If you focus primarily on lagging indicators, they may in fact be detrimental to success. Leading indicators can become a secret formula for improving sales productivity. If a sales team works together to discover which indicator(s) are most valuable as a core sales KPI, there is “buy-in”. This will increase the sales team’s ownership of their performance and offer better accountability at all levels. Leading indicators focus on the likelihood of achieving goals and what might occur in the future, serving as a predictor or a warning sign.

The combination of leading and lagging indicators offers a bigger picture view of the operation. It also gives you a comprehensive look at your risk, and allows you to make changes to improve scenarios before lagging indicators come into effect.

While both types of sales metrics are critical for any sales organization to track, the best companies study more leading sales metrics than lagging.



Help and Resources:

Do you need help with identifying leading vs. lagging indicators and analysis? Please reach out to me here. We can talk about your opportunities and what resources are available.

If you are in the process of selecting a CRM software, we have an ebook to help you through the decision process: "The Pros and Cons of Our 5 Favorite CRM Software Systems"

If you are about to update or create a new sales compensation plan, you can refer to our white paper: “Sales Compensation Plans - Examples, Templates and Software Options

Every company we work with says that safety is job one, safety is the most important thing, there’s no work goal that’s worth sacrificing safety, or something like that. And they’re sincere.

To that end, they come to us for help improving their safety training programs, using our 3D-animated online safety training materials, our best-in-class learning management systems for use in industrial and manufacturing companies, or even our mobile safety training and work-support solutions.

One top of that, of course, they’ve got multi-tiered safety efforts at work. They may have a safety management system; they’re using the hierarchy of controls and they’re performing proper job hazard analyses. They hold regular safety meetings, they track safety incidents and near misses, and they perform incident investigations.

So there’s a lot of serious effort going into safety and safety training.

But how do you KNOW that you’ve got a safe workplace? For many, the answer is to look at the incident rate. The goal is always zero incidents; a decreasing incident rate is a good sign, and an increasing incident rate a bad one.

But that’s not enough. There’s more to safety than just your incident rate, right? So a lot of safety people talk about leading and lagging indicators of safety.

What does that mean? Well, let’s take a step back and look at the terms leading and lagging first. Leading indicators are things that occur before an incident could occur, and lagging indicators are things that happened after an event occurred. Leading is before; lagging after. It’s the same use of the terms that you hear when people on the news are discussing economics.

That’s the new, updated, traditional safety logic. But we’re also throwing in some additional thoughts about an even newer concept called Safety Differently, which turns some of this stuff on its head as well (especially the stuff about lagging indicators). So we hope you find this article thought provoking in a safety kind of way.

Lagging Safety Indicators

Traditionally, safety management has focused on lagging indicators, the things that happen after incidents. These include incident rates, workmen’s compensation costs, incident-related days away from work, the OSHA 300 logs, safety-related production stoppages, and more.

You get valuable information from your lagging indicators, because they show you the real effects of your safety program in terms like cost, number of injuries, and severity of injuries.

Leading Safety Indicators

But because focusing on the past isn’t enough, safety professionals also look at leading indicators, things that happen before an incident (and that hopefully can be used to prevent incidents).

Leading indicators including things like safety training, the performance of job hazard analyses (JHAs), employee surveys, safety audits, observation of good housekeeping (or the lack of it), discipline for safety violators, and more. Some people consider near misses a leading indicator, and others a lagging indicator–you’re getting to a fine philosophical point with near misses, I guess. I see them as a leading indicator, but the opposite point has merit too.

For more about this, check out our extensive article on Leading Indicators for Safety Program Performance Evaluation.

Incident Investigations

To make best use of information about leading and lagging incidents, you need a proper safety and health management program (or system) plus some method for investigating incidents.

This article explains safety and health management for you.

The video below, from our online Incident Investigation training course, introduces incident investigations.

Safety Differently

If you attended the recent ASSE Safety 2017 conference, or if you read our overviews of each day of the conference, you may have picked up on the discussion of “safety differently” from speakers such as Ron Gantt, who led his own presentation, or talk of “human and organizational performance, or HOP” from Dr. Todd Conklin, who spoke during the plenary session.

Safety differently puts a different spin on some of this discussion, especially the focus on incidents/injuries/illnesses (which are lagging indicators).

We’re going to be exploring these more closely in the near-term future, and plan on writing about them. We also encourage you to check them out. To that end, here’s the Safety Differently blog, where you can find a lot of intriguing articles on the topic.

Or, if you can spare about 5 minutes, here’s a short video featuring Dr. Sidney Dekker talking about safety differently.

Conclusion: Leading and Lagging Incidents and Safety Measurement

So what’s the takeaway? The best way to evaluate safety at your workplace is to use both lagging and leading indicators, and maybe consider some of the lessons from the “safety differently” and “human and organizational performance” crowds.

Doing so will give you the full, big-picture view. Lagging indicators will tell you the current “cost” of your safety situation, and leading indicators will help you predict safety problems and fix them before they lead to incidents.

Want more about leading indicators for safety? Here’s our own article on leading safety indicators; here’s a nice article we found at the NSC’s Safety & Health online magazine, and here’s an interesting article on leading indicators at the Predictive Solutions blog.

We also think you might benefit from online Incident Management Software, which includes tracking capabilities for near-misses, injuries, illnesses, and other incidents (plus OSHA/MSHA recordkeeping, incident corrections, and more). The video below gives you more information about our IMS.

Acknowledgement: This post originated as a result of two separate but nearly simultaneous discussions on LinkedIn. The first discussion was prompted by a post of my own and a follow-up question from Abdil Kareem of Nippon Jordan Fertilizer Company (NJFC). Shortly after participating in that discussion, I participated in another discussion originated by Shawn Galloway of ProAct Safety, Inc. that addressed similar issues. Thanks to both those gentlemen, and the other participants in those discussions, for their thoughts and contributions. LinkedIn is a good place to learn some stuff and kick around ideas. Since then, the article has grown to include an introduction to safety differently/hops.

 

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