#32 What's So Special About Lead Indicators?

Most performance measures or KPIs tell you what happened. But if we're really going to manager company or organisational performance, we need to know something about what's going to happen.
And that's what lead indicators do. They are a special breed of performance measure or KPI because they have predictive power.

They always have a relationship to a lag indicator, which is your typical performance measure or KPI that tells you what has happened already. Lag indicators track performance outcomes or end results that your business or organisational goals are based on.

When a lead indicator starts to improve, your lag indicator will likely improve too. And if your lead indicator starts to show poor performance, you can expect your lag indicator will follow suit.

Now this relationship is not quite the same as any other cause-effect relationship. There's usually a time lag, so when your lead indicator behaves differently, the lag indicator won't start changing until some time in the future. And that's where the power of the lead indicator lies!

You can use your lead indicators to give you advance warning of likely future performance, so you can do something about it before your lag indicators - your performance outcomes or end results - are affected.
So an increase in building permits now could be a lead indicator of a boost in the economy in the future. Or an increase in the number of other websites linking to your website now could be a lead indicator of increased traffic to your site in the future. Or higher than average rainfall could be a lead indicator of bigger sugar harvests and thus demand on sugar mill processing rate in the future.

The stronger the correlation - or quantitative relationship - between a lead indicator and lag indicator, the better the predictive power of the lead indicator. So a great way to find good lead indicators for the lag measures of your performance outcomes is to first consider some potential lead indicators, and then to gather some historic data to measure the correlation.

Finding really fabulous lead indicators takes time and practice, so the sooner you get started, the sooner you'll have more control over performance!

TAKING ACTION:
Choose one of your company's or organisation's KPIs, and spend some time discussing and thinking about potential lead indicators, that could have some useful predictive power for that KPI. Gather some historic data and check the correlation of each potential lead indicator, and if you find a good one, start tracking it!

#31 Milestones Do Not Make Meaningful Performance Measures

"Complete business process review by June 2010" and "Implement customer relationship management system by December 2009" and "New workplace safety policy in place" are NOT performance measures, despite how often they appear as such in business and strategic plans and despite what many performance measure practitioners and experts might say.

They're not performance measures because they fail a few essential tests of what makes a meaningful performance measure.

1. Milestones are about action, but measures are about results.

Meaningful performance measures track business results, because achievement of business results is what defines performance. Completing a task or activity, such as reaching a milestone, doesn't define performance. Just think of all the examples in your own business or organisation where projects or initiatives or actions have actually worsened performance! That's why milestones aren't meaningful measures.

2. Milestones are hypotheses, not proof.

A milestone is a point in time when a particular project has reached an important stage that indicates it's progressing as planned. Projects, and their milestones, are our best guesses (hopefully informed guesses) about what's going to improve business performance. Not all projects succeed in this quest, and that's because we don't know what's going to work until we try it out and learn from it. Milestones need measures to test if they're working or not. That's why milestones can't themselves be meaningful measures.

3. Milestones are too little, too late.

You reach a milestone or you don't. It's that simple. If you use milestones as measures, then you're really saying if we don't meet it, we've failed. But that's too trivial, and it also drives the wrong behaviour (people fiddling with the project schedule or scope, rather than making sure the project is making the improvements in business performance it was designed to). With continuous feedback that meaningful measures can give us over time, we can easily adjust our projects and activities as and when we learn what works and what doesn't. That's why milestones aren't meaningful measures.

Are you convinced that milestones aren't measures?

Where ever you have milestones in place of measures, you very likely need to go back to your intended results. What improvement are you trying to achieve? What difference are you trying to make? Why does reaching this milestone matter? Then focus on finding measures to track those results, through time, as feedback on how well your projects (and their milestones) are working in bringing those results into reality.

TAKING ACTION:
Look over your own business or strategic plan and check if you're using milestones where measures need to be. If you are, a great way to find a meaningful measure is to ask "What result do we want from successfully reaching this milestone?" And then develop a measure for that result.