KPIs - Leading and Lagging Indicators

Enterprise leaders can better understand business conditions and trends by using leading and lagging indicators. They are metrics that tell managers if they are on track to meet their organization's goals and objectives.

Key Performance Indicators (KPIs)

Key performance indicators (KPIs) are a set of quantifiable measurements that are used to assess a company's overall long-term performance. KPIs, in particular, assist in determining a company's strategic, financial, and operational achievements.

Leading Indicators

Leading indicators define the activities required to achieve your objectives with measurable results. They "lead" to the successful achievement of overall business objectives, which is why they are referred to as "leading." Typically, leading indicators are more difficult to estimate, when dealing with a question that requires you to consider future growth and success, it is appropriate to apply a leading indicator. They use lagging indicators to develop metrics that serve as key performance indicators for future growth. You can still make adjustments to the plan if your leading indicators aren't matched the way you need them to be, or if you're not on schedule to meet your objectives. They are a key component of your performance monitoring system since they represent what is expected to occur in the future. Unfortunately, they aren't always correct.

Lagging indicators should be included in a well-balanced performance-monitoring system.

Lagging Indicators

Lagging indicators tell you about what has already happened, with common examples being revenue, profit and revenue growth. For instance, a lagging indicator measures the past production and performance, whereas a leading indicator advises company leaders on how to achieve desired objectives. A lagging indication is easy to measure but difficult to change, whereas a leading indicator is dynamic but difficult to monitor. Because they are two completely different things, a lagging indication is frequently compared to an output measure. Because lagging indicators emphasize a focus on outputs (a statistical measure of what happened) rather than outcomes (the desired outcome). Having a combination of leading and lagging indicators allows your team to better understand performance and, more importantly, find ways to improve performance in the future.

By VSHR Digital Media

Source: Forbes, 2020

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