Monday, 4 January 2010

Lead and Lag Indicators

A new year and a new decade herald a new start. New starts of any kind provide an impetus for resolutions to do better – better at work, better at balancing home and work, better at exercising, the list goes on. But resolution alone is not enough. Most new resolutions never get followed through to completion; most get forgotten after the initial euphoria of setting them has worn off. Unless, of course, you are measuring your progress:

Goal + Resolution + Measurement = Decent Chance of Success.

Even then, you are not home and dry. What you choose to measure will make a big difference to your likely success. Let’s take the simple but knotty problem of losing a few pounds after the Christmas holidays. A simple measurement would be to weigh yourself daily or weekly. It is appropriate to the goal, but in fact could have several outcomes. If you have made suitable changes to your diet and exercise programme you might be motivated as you see your weight gradually decrease. However, if you haven’t made appropriate changes to your lifestyle, you might be demotivated as your weight increases or refuses to budge.

And so it is in business. The team’s New Year push to increase sales may have similar positive or negative results.

The key to understanding whether your goal will be accomplished is to have a number of measures – some of which are lead measures, and some of which are lag measures.

My weight, for example, is a lag measure because it is a result of choices I make during the day. The lead measures are the number of calories I take in through eating and the number I burn through exercise. So in addition to tracking my weight I also track how many times I visit the gym in a week, and how many miles I run in a week and how many meals I start with a fresh salad. All these are lead indicators that promote the habits I need to reach my goal.

Sales volume is also a lag indicator because sales are a result of other activities. Whereas the number of promotions sent out, or appointments set are lead indicators which will lead to increased sales.

Lead indicators help us “back up” through the problem so that instead of becoming demotivated, we work through the issues until we find the appropriate behaviours that will help us achieve our goals.

Systems that help you focus on both lead and lag indicators are useful – you keep your eye on the main target as well as tracking the constituent parts that influence the target.

12 comments:

  1. Very simple and nice explanation. Appreciate the time taken to explain

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  2. great, simple and to the point, with a good sense of humour - thanks!

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