Leading vs Lagging KPIs
KPIs are metrics that you can use in your organization to measure all kinds of operations of your business to understand it properly. The amount of revenue you make in one year or the number of sales or even customer satisfaction is the things you can measure with the help of KPIs.
Organizations use Key performance indicators to find out how their company is doing and where they need improvement.
For different types of business, different KPIs are required, but the goal is the same, making sure the industry is reaching its targets. There are many types of KPIs. Some major types of KPIs are: Quantitative, qualitative, leading, lagging, and many more.
People often do not understand the difference between Leading and lagging, even though they are entirely different. Leading indicators are predictive, so there is always a probability of failure.
On the other hand, lagging indicators record the things that occurred in the past. To understand the relationship and correlation between leading and lagging indicators at first, you must understand both signs.
Understanding Leading Key Performance Indicators
Leading indicators are easier to control but hard to measure. Let us assume you are the marketing manager of a company.
You have to increase the sale of a particular product. The necessary steps you take to influence the sale or the improvements you make to increase the deal are part of leading KPIs. You can take action to improve the sale, but you cannot be sure about the outcome. Because it is based on prediction.
Understanding Lagging Key Performance Indicators
Lagging indicators are the opposite of leading indicators. They are hard to control or improve, but easy to measure. Suppose XYZ is a construction company and use-lagging indicators to find out the number of incidents that happened in the past in their construction site.
They can easily measure it, but they cannot change the result, all they can do is take the necessary steps to reduce the probability of any incident in the future.
How both are Connected
You might think, what is the point of lagging indicator as you cannot change the outcome of the process of influence it. However, most of the time, the lagging indicator is the one that needs attention. Suppose you own a restaurant business, and you are not satisfied with the customer satisfaction number of your got from your customers.
You know it needs improvement. Low customer satisfaction rate indicates you are losing customers. Tracking your customers’ satisfaction level will not help you to help you get back the old customers.
Your past customers are already gone. Insult to injury, they can influence their friends and family to avoid your restaurant too.
Therefore, you need an indicator that will help you satisfy the present customers. Like the quality of the food, delivery period, and service quality of the present should be the things that you need to monitor.
If the customers of the present are happy, they might visit again in the future and influence others, too, and your business will come back on track.
In short, lagging indicators help you to find out the leading indicators you need to improve. None of them can be ignored.