Leading and lagging indicators are two types of measurements used when assessing performance in a business or organisation. A leading indicator is a predictive measurement, for example; the percentage of people wearing hard hats on a building site is a leading safety indicator. A lagging indicator is an output measurement, for example; the number of accidents on a building site is a lagging safety indicator. The difference between the two is a leading indicator can influence change and a lagging indicator can only record what has happened.
All too often we concentrate on measuring results, outputs and outcomes. Why? Because they are easy to measure and they are accurate. If we want to know how many sales have been made this month, we simply count them. If we want to know how many accidents have occurred on the factory floor, we consult the accident log. These are lag indicators. They are an after-the-event measurement, essential for charting progress but useless when attempting to influence the future.
A different type of measurement is required to influence the future, one that is predictive rather than a result. For example, if we want to increase sales, a predictive measure could be to make more sales calls or run more marketing campaigns. If we wanted to decrease accidents on the factory floor, we could make safety training mandatory for all employees or force them to wear hard hats at all times. Measuring these activities provides us with a set of lead indicators. They are in-process measures and are predictive.
Lead indicators are always more challenging to determine than lag indicators. They are predictive and, therefore, do not guarantee success. This not only makes it difficult to decide which lead indicators to use, but it also tends to cause heated debate as to the validity of the measure at all. To fuel the debate further, lead indicators frequently require an investment to implement an initiative before a lag indicator sees a result.
What has become clear over years of research is that a combination of indicators results in enhanced business performance overall. To provide a couple of specific examples, “satisfied and motivated employees” is a (well-proven) lead Indicator of “customer satisfaction”. “High-performing processes” (e.g. to 6 Sigma levels) is a good lead indicator for “cost efficiency”. When developing a business performance management strategy, using a combination of lead and lag indicators is always good practice. The reason for this is obvious; a lag indicator without a lead indicator will not indicate how a result will be achieved and provide no early warnings about tracking towards a strategic goal.
Equally important, however, a lead indicator without a lag indicator may make you feel good about keeping busy with many activities. Still, it will not confirm that a business result has been achieved. Similarly, a Balanced Scorecard requires a ‘balance’ of measures across organisational disciplines, so a ‘balance’ of lead and lag indicators is required to ensure the suitable activities are in place to ensure the right outcomes.
There is a cause-and-effect chain between lead and lag indicators; both are important when selecting measures to track toward your business goals. Traditionally, we tend to settle for lag indicators; however, do not underestimate the importance of lead indicators.
Examples of Lead and Lag Indicators
The following table provides some examples of lead and lag indicators used in producing a typical business scorecard.
FAQs
Leading indicators help predict future performance, whereas lagging indicators give insight into past outcomes. It's important to track both because they help identify product and business improvement opportunities.
What is an example of a lagging indicator? ›
Some general examples of lagging indicators include the unemployment rate, corporate profits, and labor cost per unit of output.
What are leading and lagging health indicators? ›
They measure events leading up to injuries, illnesses, and other incidents and reveal potential problems in your safety and health program. In contrast, lagging indicators measure the occurrence and frequency of events that occurred in the past, such as the number or rate of injuries, illnesses, and fatalities.
What are leading and lagging key risk indicators? ›
A lagging indicator is a measurable outcome that informs us about what has already happened, e.g., accident rates. A leading indicator is a predictor of future outcomes – for example, the extent of employee compliance with a company's safety standards may correlate with future accident trends.
What is an example of a lead indicator? ›
To provide a couple of specific examples, “satisfied and motivated employees” is a (well-proven) lead Indicator of “customer satisfaction”. “High-performing processes” (e.g. to 6 Sigma levels) is a good lead indicator for “cost efficiency”.
What are leading and lagging indicators for dummies? ›
The timeliness of economic indicators
- Leading indicators: These indicators generally signal changes before changes actually occur in the economy. ...
- Lagging indicators: Changes in the economy occur before lagging indicators change.
Leading Health Indicators
- Access to Health Services.
- Clinical Preventive Services.
- Environmental Quality.
- Maternal Infant and Child Health.
- Mental Health.
- Nutrition, Physical Activity, and Obesity.
- Oral Health.
- Reproductive and Sexual Health.
For example, employee satisfaction surveys are useful as a leading indicator for employee turnover rates. Lagging indicators are reactive (ex-post) and occur after the fact. They provide information about past events and performance, often used to evaluate the success or failure of a project or a strategy.
What are US leading and lagging indicators? ›
Leading indicators point toward future events. Lagging indicators are used to confirm economic or market shifts already in motion. Coincident indicators occur in real time and clarify the state of the economy.
Should KPIs be leading or lagging? ›
The bottom line is that if you're using lagging indicators without leading indicators, you're only getting half of the KPI picture. Lagging indicators are an important resource for creating leading indicators that can launch your business into growth mode, but they aren't the entire package.
Examples of leading KRIs would be implementation of training, frequency of risk assessments, and roll out of mitigation initiatives. Examples of lagging KRIs would be number of accidents, number of cyber attacks, or near miss events.
What is leading and lagging KPI safety? ›
Leading indicators are proactive measures that generally focus on predicting future incidents by analyzing current data streams, whereas lagging indicators are reactive measures that rely on historical data to determine the success of safety initiatives.
What are leading and lagging stock indicators? ›
Leading indicators point toward future events. Lagging indicators are used to confirm economic or market shifts already in motion. Coincident indicators occur in real time and clarify the state of the economy.
What is the difference between a lead and a lag? ›
What is the difference between leads and lags in project management? Leads are the predicted measurement of how long it will take to do something while lags measure how far behind a task or project phase is after it has started.
What are lead and lag economic indicators? ›
Leading indicators are metrics that predict future conditions. They help you identify and anticipate trends and what might happen to the economy, your industry, your competitors, and your own business or department. Lagging indicators tell you what has already happened.
What are lead and lag indicators for HR? ›
A leading indicator is an input measure of survey responses, real-time data, or ad hoc metrics that point to predictions about potential future outcomes and current trends. A lagging indicator is an output measure of past occurrences, showing what has already happened or was previously reported.
