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October 5, 2009

Leading / Lagging Indicators

I generally refrain from writing "how to" posts because there are so many of them out there. But every now and then I get the urge to write about tactical delivery of consulting services.

Understanding metrics is, I think, an essential element for any consulting professional. THey assist in a number of ways.

1) They help establish your credibility as someone who is willing to take some risk and put their own credentials on the line. If you are first to suggest metrics then it shows a degree of honesty, a level of "Yes, I really can deliver this stuff."

2) They allow you to correct for bad strategies. Developing and implementing good metrics, not just generic ones, are vital to making sure the project is a failure or success before it finishes. (Not just in the wash up 6 months later)

3) They forecast, and ultimately report on - the value you have really created for your clients.

The last one is where the rubber meets the road. Where those who have been fluffing around talking about efficiencies and process improvements, and those who can deliver real cashable value.

Leading / Lagging Indicators

There are many classes of metrics, and it is all too easy to allow yourself to fall into the study of measurement rather than getting any real and achievable metrics out there. Some of these include; opposing metrics, direct performance metrics, indices and aggregates, operational / cost and so on. The range is pretty long as you could imagine.

However, one of the most useful is the range of Leading and Lagging indicators. When deployed well these are undeniably powerful in reporting and monitoring progress, but they are rarely deployed well sadly...

Lagging Indicators

Most people are inherently familiar with lagging indicators. They see them every day and use them in their day to day works.

Lagging indicators are generally used to indicate performance after the event. Most financial and direct performance metrics are lagging indicators. For example, Availability of assets, utilization of staff, cost / unit of production and so on. All of these tell you what has happened after the event - hence Lagging Indicators.

Very powerful for monitoring results and prompting interventions. BUT (by definition) not the best for trying to ensure the undesirable situation never occurs in the first place. For this, you need Leading Indicators.

Leading Indicators

Leading indicators give us an idea of things that could be going wrong by measuring the processes and other influencing factorts.

For example, health and safety practitioners claim statistics that show a direct relationship between near misses, (almost accidents) and fatalities. Therefore a measurement of near misses can give you an indication of how likely you are to have a fatality.

Scheduling variance can highlight the possibility of profit loss prior to its occurrence, as can indicators of time inventory is on hand and so on.

For projects, schedule compliance and S curve monitoring is the obvious tools, but there are others such as training completed, pilots achieving over whatever the hurdle rate is and so on.

It is a little difficult to get into this deeply in a generic fashion, but if you leave a comment with specific issues and questions I am more than happy to try to work through them with you.

Good luck...!

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