In one of my earlier talks I shared the importance of plans as a core part of your strategy and execution (Read more here). And that planning includes setting your goals, objectives and your measures for achieving them.
How do you measure them?
Typically they are done by what’s called key performance indicators or KPIs.
I’d like to share a little bit about leading and lagging KPI’s
The two main types of KPIs that are there.
LAGGING KPIs
It’s common for people to track their sales numbers, costs and so on, that have already happened. These are what we call the ‘lagging’ KPIs, because they measure what’s already passed. They show you how you are progressing towards your goals and objectives that you’re setting up for the future.
But there’s very little that you can do about what’s happened in the past.
And hence the need for what we call leading KPIs.
These are KPI’s or key performance indicators that might help you predict what the sales would be in the future.
LEADING KPIs
What is an example of ‘leading’ KPIs?
It’s possibly the number of enquiries that are coming in, clearly a certain percentage of them will convert into sales, so they are a leading indicator.
THE DIFFERENCE
The difference between a leading indicator and a lagging indicator is the fact that a leading KPI indicates where you’re likely to get to, where as a lagging KPI measures only what you have already achieved.
Having good leading KPI’s means that you can take corrective actions early.
Leading KPI’s are those that you can act upon to make a difference in the outcome.
For Example;
If there are not enough enquiries coming in, you have to do something about it so that you will eventually meet your sales KPI.
When you do your plans and look at setting up your KPI’s, don’t just depend upon lagging KPI’s. Look also at which other one or two leading KPIs you can set to make your business more successful and that give you the competitive advantage to initiate corrective actions if required.
Shankar Meembat, The Alternative Board in Milton Keynes.