One of the
areas of lean that people tend to have difficulty grasping is the relationship
between leading and lagging metrics, and how to identify effective leading
metrics. People spend a lot of time attempting to determine leading indicators
that, in the end, are often disconnected with any of the actions being taken to
improve performance.
Leading and
lagging metrics both have a role to play in improving performance and are not
difficult to identify once you understand the process and how to properly connect
them to the problem-solving.
LAGGING METRICS
A lagging metric measures the result of a process. Barrels of oil produced, total recordable incident rate (TRIR), warranty expenses, and production costs are all examples of lagging indicators because the activities they measure have already occurred. The result lags the activity being measured and, whether you are happy with the result or not, you can't do anything to change it.
Lagging indicators are important because they tend to represent what's important to the area being measured. They measure a result we are ultimately trying to achieve and help us determine if our efforts were successful in meeting targets.
A lagging metric measures the result of a process. Barrels of oil produced, total recordable incident rate (TRIR), warranty expenses, and production costs are all examples of lagging indicators because the activities they measure have already occurred. The result lags the activity being measured and, whether you are happy with the result or not, you can't do anything to change it.
Lagging indicators are important because they tend to represent what's important to the area being measured. They measure a result we are ultimately trying to achieve and help us determine if our efforts were successful in meeting targets.
Other examples
of lagging metrics include on-time delivery, actual capital expenditures,
defect rate, and customer satisfaction. Identifying them requires a clear
understanding of what the business or team is ultimately trying to achieve.
LEADING METRICS
A leading metric is a measure of an activity that influences
a lagging metric. As a measure of an
activity being performed by a team, leading metrics can be influenced by the
team in an effort to improve the results of a lagging metric.
As an example, suppose a team is trying to improve safety
performance as measured by TRIR and, through a breakdown of past incidents,
discovers that hand injuries represent the largest category. After breaking down the problem, the team determines
that incorrect use of tools is the most likely cause and failing to wear gloves
is increasing the severity of the injuries.
As a way to reduce the number and severity of hand injuries, the team
introduces regular training sessions and an audit process to help assure team
members are using proper tools and gloves.
The team can now create a dashboard that measures like TRIR (lagging
metric), injury type (lagging breakdown), hand injuries (lagging metric), training
classes held (leading metric) and audit results (leading metric). By following these leading metrics, the team is
assuring that the activities to improve safety are happening and that they are truly
reducing hand injuries.
In the above example, the effort of identifying the leading
metrics did not consist of an isolated brainstorming session attempting to
identify a specific metric to follow. It
was integrated with the problem-solving process and became nothing more than
identifying a measure of the actions taken to eliminate a root cause of the
problem.
KEEP IT SIMPLE
The problems people have related to identifying leading
metrics often result from failing to connect the effort to
problem-solving. Attempting to determine
the proper leading metrics in isolation from problem-solving often leads to frustration
and wasted effort in creating and maintaining the measures, and a lack of
clarity in understanding how to improve performance of lagging metrics.
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