What are Lagging Indicators?
Lagging indicators are a type of KPI, or key performance indicator, which helps a company, organization, or department track how it is performing. Lagging indicators are measurable factors that change only after a particular pattern or trend has already begun. These indicators are useful for confirming long-term trends, but they have little value for prediction. To effectively use lagging indicators, companies need the right tracking and analytics software. Here are some ways you can use industry-agnostic lagging indicators to inform and improve your enterprise management goals.
Lagging vs. Leading Indicators
When comparing lagging and leading indicators, it is essential to remember that both are key performance indicators that help an organization measure anything of their choice. Some possible measurements could be sales and revenue, customer or employment satisfaction, or inventory. Typically leading indicators focus on future performance but are difficult to determine since it is challenging to decide on the right indicators to predict the desired outcome. For example, suppose you want to choose the indicators of the number of “leases signed” in a property management company. In that case, some possible leading indicators are the number of applications received, the number of showings conducted, and comparing leases signed to applications received.
On the other hand, lagging indicators would focus on previous data and trends that have already happened in the past, offering a single unchanging metric. Using the same property management property example, a lagging indicator could be the tour-to-lease ratio number in the first month. This ratio number is an excellent lagging indicator to determine long-term performance goals, but does not help to increase the number of leases in the present moment if the ratio number is low or can improve.
It is important to note that lagging indicators and leading indicators work together to make the most significant changes to maintain and increase sales before the outcomes become unfavorable.
The Relationship Between Leading and Lagging Indicators
To use lagging indicators effectively, you first need to understand how both relate to each other strategically. For example, on a building site the number of accidents would be a lagging indicator. Leading indicators would include the number of employees following safety guidelines such as wearing a hard hat. Another example, would be the relationship of staff absenteeism (the lag indicator) and staff retention (the lead indicator). There is usually a causal relationship between leading and lagging indicators, which will become clear if you measure both types of indicators over a period of time and use analytics software to look for correlations between them.
Why Measure Lagging Indicators?
Many businesses measure lagging indicators because they are often much easier than leading indicators to accurately measure. Measuring lagging indicators is a good idea because they give a clear picture of the current state of the business. However, it is important to also measure leading indicators as well. Without both indicators, you will not be able to make predictions about the future of the business.
A good example that illustrates why measuring lagging and leading indicators are significant is looking at the restaurant business. A lagging indicator would be measuring customer satisfaction over 12 weeks. Let’s say that customer satisfaction is ranked above eight out 10, with ten as the highest satisfaction score, for eight weeks. However, after the 8th week, customer satisfaction decreases significantly. As a business manager, it is difficult to determine what caused customers to no longer purchase food. It also became difficult to change since customers have already concluded they disliked coming to the restaurant.
Customer satisfaction is an excellent lagging indicator because it determines the current state of the restaurant business. Still, it is not a good indicator to help change customers’ dissatisfaction since it is too late. Therefore, it is essential to have a leading indicator to help prevent customer satisfaction to decrease. An example of a leading indicator could be the food order wait time. If there is an upward trend in the food order wait time, then the business can make the right decision earlier to prevent losing customers in the future.
How to Use Lagging Indicators?
Recall that lagging indicators are a metric that helps provide the current state of a department, company, or organization. Typically these are useful to provide long-term goal analysis and quickly gather quick data. Again, some examples could be injuries or incidents reported on-site, workdays lost, or the number of chemical particles released at a chemical plant. Often lagging indicators do have drawbacks in not providing preventative measurements but are still useful if the right leading indicators are included to maintain overall company performance or change it.Tracking and analytics software can help you measure lagging and leading indicators and find relationships between them. You can use these relationships to make predictions about the future of your business. Without adequate analytics software, it can be very difficult to identify these relationships.
How to Use Prodsmart to Measure and Analyze Lagging Indicators
Prodmart technologies can help you to measure and analyze lagging indicators. It is a very easy tool to use. All you need to do is sign up for a free trial, download the Prodsmart app, and start tracking your production. Try it today and find out how you can take control of your lagging indicators and use them to improve your productivity.