Lagging vs. Leading Indicators in the Balanced Scorecard

??????????????????????????????????????????????????????????????????????????????????????????????????????????????In Paul Niven’s book, Balanced Scorecard Evolution, Niven discusses the importance and difference between leading and lagging indicators when developing an effective organizational balanced scorecard. He says lagging indicators, are “performance measures that represent the consequences of actions previously taken…They frequently focus on results at the end of a time period and characterize historical performance.” Leading Indicators, on the other hand, are considered the drivers of lagging indicators. He says “There is an assumed relationship between the two, which suggests that improved performance in a leading indicator will drive better performance in the lagging indicator.”

Niven gives the example of two different, but related measures – employee satisfaction and absenteeism. He labels employee satisfaction as a lagging indicator, being a result from activity already passed. Absenteeism, however, is proposed to be at the opposite end of the same spectrum. This is a leading indicator, estimated to drive employee satisfaction in one direction or another. If absenteeism is reduced, it can be hypothesized that employee satisfaction will go up.

Niven states that an effective balance scorecard should have a mixed bag of the two because combined, they essentially deliver a more potent message of what a particular result actually means. In other words, you can see the path an action took in order to produce a particular outcome.

How can you see this working in your district? Can you think of some underperforming results, or lagging indicators, that can be turned around by other driving forces, measured by leading indicators? These are the tough questions, but proper thought, preparation, tracking, and action can reverse the trend back towards a positive outcome – be it financial or non-financial.

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