Courtesy of the Association for Manufacturing Excellence (AME)
There’s no magic formula or standard set of Leading Indicators that works for every company. Leading Indicator KPIs only become powerful when you find that right lever to pull that impacts the results that are most important to your business. While we can’t tell you which leading indicators are most important in your business, there is a proven process for determining the ones that will work for you:
Step 1: Be clear about the business problem you are trying to solve, or the opportunity you are trying to maximize.
Step 2: Clarify the desired result, and make it SMART by setting success criteria on this result KPI.
Step 3: Dig deeper with questions to determine how you get the results you want. Most people don’t ask enough questions to get to a meaningful underlying Leading Indicator.
Step 4: Drive results by setting clear success criteria and putting your Leading and Results Indicators on a dashboard to status every week.
It is really important you ask the right questions about what you want to achieve with your leading indicator. There are basically three questions:
- What is this about? What is the component, system or outcome you are interested in?
- What is lag event you are interested in predicting (and what is the lag indicator of that event)?
- What aspect of potential performance are you interested in measuring? What leading aspect are you trying to measure?
In summary, what sort of decision, about what, do you want to understand and predict?
If you do not know why you are trying to introduce a leading indicator and what decisions you are going to use it to inform, then you are wasting your own and everyone else’s time. You will just add to the large volume of indicators out there.
When it comes to KPIs, less is more. Don’t overwhelm yourself by tracking more than you really need. For each goal that you set, you should only set a few KPIs, each of which should be directly correlated with that goal.
Determining the right leading indicators can ensure your lagging indicators meet your desired results.
Happy planning and new found accomplishments.