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Leading vs. Lagging Indicators: What’s the Difference?

Knowing where your business is heading is vital but knowing exactly how to get there is equally as important. It is often easy to outline strategic intentions – what the goals or the key performance indicators (KPIs) are. One of the main challenges businesses have to overcome is how to achieve these.

 

There is a surplus of data available to us, and the trick is to determine which of those metrics will influence or lead primary KPIs. This is where leading and lagging indicators come into play.

 

The use of leading and lagging indicators is always topical in the Health and Safety world. They are crucial metrics in understanding a company’s safety performance, but what are the key differences? Why should we be making the most out of leading data? How can we improve the evaluation of data?

 

What are Leading and Lagging Indicators?

Leading and lagging indicators are two types of measurements used in businesses and organisations when assessing performance. Leading indicators are predictive measurements - the percentage of workforce wearing PPE on a construction site, for example.

 

Whereas a lagging indicator is an output measurement - the total number of accidents on the factory floor, for example. Leading indicators influence the change and lagging indicators record what has happened.

 

How to Use Lagging Indicators

Lagging indicators are the traditional safety metrics used to collect bottom-line statistics, including:

 Injury frequency rates
✔ RIDDOR/OSHA recordable injuries
 Lost workdays
 Claims costs

 

Historic data can help measure safety compliance. They provide us with how many workers were injured last month, but they cannot influence future safety performance. A site manager may see low injury rates and become complacent, when potential risk factors on site remain unflagged and could contribute to future injuries.

 

Lagging indicators are best used in conjunction with leading indicators as this determine trends and if the desired outcomes were met. This is made simple with the right software that has the ability to compare leading and lagging indicators.

 

How to Use Leading Indicators

Whilst lagging data can build us a picture of progress, leading metrics are important in encouraging corrective actions before incidents take place. These indicators are proactive measures focused on prevention, reducing risk and continuous safety improvement. Leading metrics utilises data relating to what workers are doing on a regular basis, including:

 Safety training hours completed
 Safety audits
 Safety observations
 Employee safety surveys

 

There has been a shift in the reliance of data once an incident has occurred, to data that provides predictive red flags, and therefore time to correct. Forecasting values for injury rates for instance, can be evaluated using a combination of factors that can influence the numbers. For example, the frequency of staff safety training and the transaction rate of observations logging.

 

Leading indicators can be difficult to measure compared to lagging indicators as they tend to be more abstract. It is not like looking at revenue; leading metrics offer an insight that is not otherwise obvious. If organisations are contemplating the future growth and success of the business, it is the right time to employ leading indicators.

 

Leading Lagging-1

 

Making the Most Out of Your Leading Data

Interestingly, research conducted by lecturer Dr. Clara Cheung and her team in the Department of Mechanical Aerospace and Civil Engineering at the University of Manchester, have found that while organisations may be extracting leading metrics, these are looked at too individually.

 

“They usually take a fragmented view about how leading indicators affect safety performance,” Dr. Cheung tells us. “Specifically, simple causal relationships between individual leading indicators and safety performance have been explored. Thus, it fails to reflect that safety performance is often the complex conditional interplay among leading indicators.

 

This is further compounded by the prevailing practice whereby many leading indicators are usually measured quantitatively (e.g. number of safety inspections). Consequently, it is unclear how to improve the quality of leading indicators, even if they have significant causal relationships with OSH performance,” Dr. Cheung concludes.

 

Granted, it is challenging to aim for a holistic view of safety performance using leading and lagging metrics. Nevertheless, calculating and managing data can be supported with EHS software in an aim for stronger perspectives. Sophisticated business intelligence tools that work alongside can also offer companies better understandings of how leading indicators interplay through analytics.

 

How Can We Improve the Evaluation of Data?

Gathering bottom-line numbers through lagging indicators is key in identifying progress towards safety compliance. However, the use of leading metrics that can indicate future data trends is imperative in promoting actions so the data stays leading.

 

Emex can assist businesses in deciding what information to collect, how to collect and how to make the most of your leading data. We can advise on the types of leading metrics to use - from operational, behavioural to system based – and how to capture this.

 

Our Data Reporting module can be utilised for the collection of the data. It works in conjunction with Power BI to produce insightful business intelligence, so that the correlations made can be used to steer targets. The ease of data drilldown, the analysis and sharing ability of dashboards has never been easier to evaluate.

 

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Anja Hysi
Posted by Anja Hysi on 22-Feb-2021 14:51:03

Topics: EHS Management, Reporting, Data Collection

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