Lead or Lag KPIs?

Are you responsible for setting KPIs for your team or business? It’s important to measure performance, and KPIs (key performance indicators) are the typical way to do this. Note the word ‘key’. There is so much that can be monitored and measured in an organisation to indicate performance, but too many measures can cause overwhelm. Conversely, too few are not telling you what is going on.

I’ve had some interesting discussions recently in my systems mentoring and ERM training, around the focus of KPIs. Standing on my soapbox, I stated that top management tend to only be interested in what I call ‘lag’ indicators, i.e. the final results. But when our focus is on the ‘lead’ indicators (the activities that deliver the results) we are focusing on how we get there.

Think of this like a sports match. Last week, the Matildas played against France. It was in some ways an underwhelming match with France having several shots at goal, yet the Matildas had only one and it was successful. The result was 1-0 to Australia, but is that all the coach cares about?

No. The coach would be running statistics on possession of the ball, passes that went astray, plays that were executed, etc. The Matildas have the whole WWC in front of them and were playing for more than this one match, so they are interested in the development and execution of skills and teamwork as much as they are the result of each match.

Is there a perfect ratio of lead to lag indicators? There is nothing perfect in this world, so be prepared to try a mix, and then mix it up if that is not giving you the right information.

Lead KPIs tell you about implementation

Your senior management might only want to see lag indicators, but help them understand there is a layer beneath them of lead indicators that make up each lag KPI. Think of it like an organisation chart or work breakdown structure. To illustrate, let’s talk safety.

You can’t not have KPIs for injuries, and many organisations have every variation such as lost time injuries, first aid injuries, medical treatment etc, plus all the associated rates against hours worked. But the layer below this might be a bunch of lead KPIs such as risk assessments completed, hazards identified, training completed, toolbox talk attendance, and inspections done.

For every lag KPI, there are a number of potential lead KPIs to choose from. You might choose to measure all of them, but report on only a few. Be careful not to paint the wrong picture by reporting only the ones that look best. If you are concerned that implementation is weak in one area, that might be the focus for a period.

Whatever your ratio of lead to lag, KPIs can be powerful contributors to the change and growth of an organisation. If you are tasked with setting KPIs, think about the direction you want your team or business to go and how you plan to get there.