TO UNDERSTAND LAGGING AND LEADING INDICATOR - BALANCED SCORE CARD BASED PERFORMANCE MANAGEMENT SYSTEM
In Balanced Score Card based performance
management we talk a lot about “lagging” and “leading” indicators. But what do
they specify accurately?
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 demonstrate this with a simple example:
For many of us an individual aspiration is losing our weight. A clear lagging
indicator that is easy to measure. You step on a scale and you have your
answer. But how do you truly arrive at 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 let’s 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 let’s 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 starts working on incidents
immediately when they occur. Make sure that incidents are assigned to the right
people with the right skill set and that this person isn’t already overloaded
with other work. This could be translated into the following “leading”
indicatorsNow let’s 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 let’s 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.
- % of incidents not worked on for 2 hours.
- % of open incidents older than 1 day.
- % of incidents dispatched more than 3 times.
- Average backlog of incidents per agent
when you would start measuring these KPIs on a daily basis and focuses on improving these KPIs, I would think it is really 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
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