Office conversations often turn to finding the best measure for a particular process.
Opinions abound, there is heated discussion, however agreement is usually reached (only to be informed by IT there is no captured data available and no historical values!).
It is common in our search to try to look for a couple of ideal metrics. We are looking for something that will explain our processes in simple terms, providing guidance on how and where we can improve performance.
Our hope is we can add it to the executive dashboard, freeing us from analysing and interpreting vast amounts of data and provide us time in the day to to focus on something else.
And there are some great measures out there; DSO, OEE, Write off rates, Cures per customer per hour per agent and cost per £$ collected are all good examples.
They are incredibly useful in understanding process performance, reporting and comparing against known standards.
However some caution is required and this is needed in part as each of these are lagged indicators.
Something occurs, it get measured, reported and we analyse the performance to understand why this happened.
Lagged Indicators
Lagged indicators are easy to understand, popular and great at explaining what just happened. The past can also be a predictor of the future, especially in stable systems. This is not always the case however.
Where there is significant process change, new patterns will not be necessarily be picked up straight away. It can take time to see effects in results and if the impacts are negative, this can be vital time lost.
Leading Indicators
In order to solve this, we need to move further up stream and get an earlier warning. It is often useful to find new measures, leading indicators.
Usually with a causal link or significant input to the lagged indicator, they are not a guarantee that something will happen, but are a useful indicator that something significant may occur.
And there are some famous examples
- Some economists closely measures the sale of Titanium dioxide, a key ingredient in paint, as a key indicator of the housing market and economic growth
- The baltic dry index, measuring ocean shipments globally, a leading indicator of economic activity
- Employee satisfaction a leading indicator of customer satisfaction
These measurements lead to the more traditional lagged economic measures, however better reflect what is going on now, rather than having to wait for data to accumulate.
Whilst they help in predicting future trends in lagged indicators, they still measure what is happening today. It does buy some time for strategy adjustment, but often the outcome is already set and yet more time is needed. Introducing the micro-indicator.
Micro-Indicators
Micro-indicators fall in a third category. Small indicators that together point to a much bigger change underway, often before the larger event has even occurred.
An example is an earthquake.
- The lagged indicator is the shaking from the earthquake. The event has happened, the impacts are being measured.
- The leading indicator is the ground starting to move, an earthquake starting. If you live far away from the epicentre there is some time to react. You do need to be quick however.
- Micro-indicators are the subtle changes to bulges in the earth, the micro quakes that take place on surrounding faults, all before the earthquake. In isolation they may not mean much, but taken together and interpreted correctly they can point to a much larger event happening. They give everyone much more time to take action.
The same is true in business processes. Micro-indicators are the small indicators that taken together can inform us early of events underway, allowing us time to react and adjust. They can be invaluable.
The challenge
The challenge with this approach is the earlier you try to predict something the more uncertain the linkage to the final event can become. Ie the probability that the movement in this measure will result in the larger event is reduced.
To manage this and get higher degrees of certainty, it is therefore important to measure multiple micro-indicators. Measuring multiple micro-indicators increases your confidence that something that will occur. It increases the probablity and allows you to buy that crucial time.
So is the search for the perfect indicator a waste of time?
Traditional measures remain incredibility useful. They have formed the backbone of performance measurement for many years and form a big part of any BI suite. It is still important to have a good blend of lagged and leading key indicators.
However identifying a few key micro-indicators can really help supplement these measures and buy yourself crucial time to adjust processes. It can really help in generating the performance you need.
More data!
Yes this is more data and maybe is not the simple world we dream of. But, in the quest to better understanding and control our processes maybe more, not less is better….. (just a little more maybe…!)
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