Leading vs Lagging Indicators: What's The Difference?

Introduction

• Indicators: Key statistics used to measure and manage business performance.
• Types of Indicators:
  • Leading Indicators
  • Lagging Indicators
  • Coincident Indicators

Importance of Indicators

• Provide insight and context for critical decisions and planning.
• Essential for managing business finances, IT, and economic conditions.
• Used by financial services organizations to understand vulnerabilities and guide business continuity.

Leading Indicators

• Definition: Metrics predicting future conditions, often referred to as inputs.
• Purpose: Help anticipate trends and aid in achieving business objectives.

Example Questions for Leading Indicators

• What processes can improve goal achievement?
• What skills need enhancement?
• What steps can expedite product development?

Examples of Leading Indicators

• Percentage of customers signing two-year agreements.
• Early renewal of software subscriptions.
• Purchase of software add-ons.
• Increase in user seats.
• Volume of support and service calls.
• Percentage of new business from referrals.

Usage

• Used for predicting future business direction and identifying market trends.
• Crucial for addressing potential problems and staying competitive.

Lagging Indicators

• Definition: Metrics measuring past results and performance, often referred to as outputs.
• Purpose: Reflects what has been achieved, assisting in evaluating past efforts.

Example Questions for Lagging Indicators

• How many people attended an event?
• What was the product output?
• What response did it receive?

Examples of Lagging Indicators

• Profit margins.
• Business expenses.
• Customer participation rates.
• Renewal rates.
• Revenue.
• IT infrastructure uptime and reliability.
• Mean time to resolution for customer issues.

Usage

• Used for understanding past trends and cause-effect relationships.

Coincident Indicators

• Measure current economic and business conditions.
• Examples include GDP, inflation rate, unemployment rate, cash flow, and production levels.

Choosing the Right Indicators

• Combination: Vital to use both leading and lagging indicators for a comprehensive performance view.
• Context: Coincident indicators provide necessary economic and business context.

Conclusion

• Leading indicators offer valuable foresight but are harder to measure.
• A balanced approach with both indicator types ensures a fuller understanding of performance metrics.

Related Topics

• Business of IT
• IT Organization Metrics and KPIs
• Digital Transformation Metrics

Additional Resources

• E-book: Choosing the Right Metrics for Enterprise IT

About BMC

• Facilitates business growth and innovation through connection of people, systems, and data.

For more detailed examples and strategies, consider exploring additional BMC resources or expert consultations.