Leading Indicators In Your BSC - Why A P&L Isn't Good Enough
As owners and leaders of our cleaning companies, we often measure the health and performance of our organization using lagging indicators. Lagging indicators are basically metrics that look back on how you performed over the last few weeks, months, or years. They are numbers that show where we are now as a result of things we’ve done in the past. The most common lagging indicator is our monthly profit and loss statement. After the month has closed and the financials are complete, we can look back and see how we did financially in the previous month. However, there is a problem.
Because lagging indicators tell you how you did in the past, they have almost no value in telling you how you will do in the future. Now don’t get me wrong, we need to know how we performed in the past. Employee turnover, inspection scores, income statements, contract renewal rates, etc. are all important metrics to track. However, if we want to know how we are going to perform in the future and make modifications to meet goals, we need leading indicators.
Leading indicators are measures of things happening now that will predict how we will do in the future. For instance, if you want to improve employee turnover, what activities are critical to keep turnover low? Find out what these are then track them. Applicants per job posting, employee engagement, and other activities may predict your future turnover.
One more example of leading indicators that is important has to do with profit. Instead of letting your monthly P&L be the way you track performance, let daily hours reports be the mechanism with which you “predict” the future profit for that period.
Let me encourage you to assess your company and find some leading indicators that will help you achieve the lagging results you want. Here are a few categories of lagging indicators and some corresponding leading indicators.
Lagging Indicator: Monthly P&L
Leading Indicator: Daily hours budget
Lagging Indicator: Cash flow
Leading Indicator: Invoice aging
Lagging Indicator: Employee Turnover
Leading Indicator: Applicants per job opening
Leading Indicator: Percent of employees onboarded properly
Leading Indicator: Employee engagement
Lagging Indicator: Customer Retention
Leading Indicator: Net promoter scores
Leading Indicator: Proactive meetings