Leading and lagging Indicators

Introduction:

Safety performance has traditionally been monitored by ‘after the loss’ measures to assess?outcomes such as accident and injury rates, incidents, and dollar costs. These are known as lagging indicators. For the last two decades, there has been a growing recognition across various sectors that data from lagging indicators is limited. It comes too late to allow for preventative action to be taken, and all too often offers little insight into how to prevent further losses.

Why measure safety performance?

Safety Management System (SMS) standards and recommended practices promote the development and maintenance of means to verify the safety performance of your organization and to validate the effectiveness of safety risk controls.

The analysis and assessment of how your company ‘functions’ to deliver its activities should form the basis for defining your safety policy, the related safety objectives, and the corresponding safety performance indicators and targets.

SMS requires a systemic approach as with any other element of business management (e.g., quality, finance), and in this respect safety performance measurement provides an element that is essential for management and effective control: 'feedback.'

???????-Feedback will allow management to validate the analysis and assessment of how well your organization functions in terms of safety and to make adjustments as required??????(Plan-Do-Check-Act).

???????-Feedback to your management will guide decision-making and resource allocation.

???????-Feedback to all staff will ensure that everyone is informed on your company’s safety achievements. This will help to create commitment and contribute to fostering your company’s safety culture.

Effective safety performance measurement will support the identification of opportunities for improvement not only related to safety, but also to efficiency and capacity.

The management of safety relies on the capabilities of your organization to systematically anticipate, monitor, and further develop your organizational performance to ensure safe outcomes of your activities. Effective safety management requires a thorough understanding and sound management of your system and processes. This cannot be achieved without some form of measurement. Rather than randomly selecting outcomes that are easy to measure, you should select safety performance indicators that consider the type of feedback needed to ensure your company’s capabilities for safety management can be properly evaluated and improved. This implies that you will need to measure performance at all levels of your organization by adopting a broad set of indicators involving key aspects of your system, and operations and allowing to measure those key aspects in different ways.

Key performance indicators (KPIs)?are values that measure your organization’s success at meeting its objectives. KPIs provide insight into business conditions like:

• Predictability
• Early return on investment (ROI)
• Product quality
• And more

In practice,?KPIs measure how a company will strategically grow.

However, behind every KPI is the implication that current conditions influence trends and inform predictions for future growth. Leading and lagging indicators are qualifiers that assess a business’s current state (lagging indicator) and predict future conditions (leading indicator).

Characteristics of good indicators:

For any performance indicator to be effective, it is important that it is:

a) Objective and easy to measure and collect,

b) Relevant to the organization or workgroup whose performance is being measured,

c) Providing immediate and reliable indications of the level of performance,

d) Cost-efficient in terms of the equipment, personnel, and additional technology required to gather the information,

e) Understood and owned by the workgroup whose performance is being measured.

What is leading & lagging indicators?

Leading and lagging indicators help enterprise leaders understand business conditions and?trends. They are metrics that inform managers that they are on track to meet their enterprise goals and objectives.

Lagging indicator

‘Metrics that measure safety events that have already occurred including those unwanted safety events you are trying to prevent’?

Lagging indicators are typical “output” oriented. They are easy to measure but hard to improve or influence.?A?lagging indicator?is one that usually follows an event. The importance of a lagging indicator is its ability to confirm that a pattern is occurring.

Lagging indicators are measures of safety occurrences, in particular the negative outcomes that the organization is aiming to prevent. Lagging indicators are mainly used for aggregate, long-term trending, either at a high level or for specific occurrence types or locations. Because they measure safety outcomes, they can be used to assess the effectiveness of safety measures, actions, or initiatives and are a way of validating the safety performance of the system. Also, trends in these indicators can be analyzed to determine if latent conditions exist in present systems that should be addressed.

Two types of lagging indicators are generally defined as:

1. Indicators for high severity negative outcomes, such as accidents or serious incidents.
2. The low frequency of high severity negative outcomes means that aggregation (e.g., at industry segment level or regional level) may produce more meaningful analyzes.
3. Indicators for lower-level system failures and safety events that did not manifest themselves in serious incidents or accidents (including system failures and procedural deviations); however, safety analysis indicates there is the potential for them to lead to a serious incident or accident when combined with other safety events or conditions. Such indicators are sometimes referred to as ‘precursor event’ indicators.

Indicators for lower-level system failures and safety events are primarily used to monitor specific safety issues and measure the effectiveness of safety controls or barriers put in place for mitigating the risk associated with these hazards.

Lagging indicators characteristically:

a. identify trends in past performance

b. assess outcomes and occurrences

c. have a long history of use, and so are an accepted standard

d. are relatively easy to identify and analyze

Examples of lagging indicators?

The number or location of OSHA recordable incidents; incident rates, including?Total Recordable Incident Rate?(TRIR),?Days Away, Restricted, or Transferred (DART)?Rate, and Lost Time Incident Rates (LTIR); are all examples of lagging indicators.

While it’s necessary to track lagging indicators, unfortunately, they provide little direction or insight into the behaviors and conditions that precede incidents. That’s why they should not be the only metrics that you examine. Lagging indicators are most useful when they are reviewed together with leading indicators.

Benefits of lagging indicators

• A clear indicator of success:?In many cases, the metric that best assesses the impact of your efforts is going to be a lagging indicator because it takes time for your changes to take effect.

Weaknesses of lagging indicators

• They take time to measure:?By definition, lagging indicators measure long-term trends, so they take weeks or months (or even longer) to change.
• You can’t see why:?Lagging indicators show an outcome, but it can be unclear what variables impacted that outcome. You may know that your churn rate is high—your lagging indicator—but you don’t know which of the actions you took as a company impacted that rate.
• Difficult to change:?Because lagging indicators are often high-level metrics like revenue, impacted by a lot of different departments within the company, small projects may not make a measurable impact. It can sometimes be difficult to tell whether minor changes in the metric are because of your actions or if they are just chance.

Leading indicator:

‘Metrics that provide information on the current situation that may affect future performance.

These indicators are easier to influence but hard(er) to measure. I say harder because you have to put processes and tools in place in order to measure them.?When you start building a product, a lot of what you will understand and build will emerge over time. You don’t know exactly what the level of effort is until you finish. And if you are like me, given shifting priorities and dependencies, your lagging indicator is a moving target.?If you use leading indicators, you can see if you’re tracking in the right direction. You can use the leading indicators to make changes to your behavior or environment while there is still time.

Leading indicators give early indications of performance. These indicators “lead” to results by showing the progress you’re making toward your goal. Typically, leading indicators are metrics that will help keep you on track so that you hit your strategic objectives.

Leading indicators, which are particularly relevant from a management perspective, may be used to influence safety management priorities and the determination of actions for safety improvement. You may use this type of indicator to proactively develop (‘drive’) your company’s safety management capabilities, in particular during the initial implementation of SMS. This may entail the setting of performance targets

Example:?The percentage of changes to Standard Operating Procedures that have been subject to hazard identification and safety risk management

Safety performance measurement should ideally consider a combination of leading and lagging indicators. The main focus should be to measure and act upon the presence of those systemic and operational attributes that enable effective safety management within your company and meanwhile, use lagging indicators to ensure that this safety management is effective. Lagging indicators, particularly indicators for lower-level system failures, are useful to validate the effectiveness of specific safety actions and risk barriers or to support the analysis of information derived from your leading indicators.

Leading indicators can:

• reveal areas of weakness in advance of adverse events
• be associated with proactive activities that identify hazards
• aid risk assessment and management
• complement the use of lagging indicators by compensating for their shortcomings

For leading indicators to play an effective role in the improvement process, there must be an association between the inputs that the leading indicators are measuring and the desired lagging output, and leading indicators should indicate the direction of future lagging results. Examples of metrics that could be leading indicators are the size of the safety budget,

What are some examples of leading indicators?

The?root causes of near misses, the percent of inspections or behavior-based safety observations completed at a location, and training attendance and pass rates are all examples of leading indicators. By analyzing these metrics, you can get an idea of what is working, and what might be in danger of causing an incident.

Characteristics of Effective Leading Indicators:

Good leading indicators are based on SMART principles, meaning they are Specific, Measurable, Accountable, Reasonable, and Timely:

Specific:?Does your leading indicator provide specifics for the action that you will take to minimize risk from a hazard or improve a program area?

Measurable:?Is your leading indicator presented as a number, rate, or percentage that allows you to track and evaluate clear trends over time?

Accountable:?Does your leading indicator track an item that is relevant to your goal?

Reasonable:?Can you reasonably achieve the goal that you set for your leading indicator?

Timely:?Are you tracking your leading indicator regularly enough to spot meaningful trends from your data within your desired timeframe?

Benefits of using leading indicators

• Faster feedback:?By tracking leading indicators, your team can get feedback on their efforts more quickly and determine what actions they might need to take to achieve their overarching objectives.
• Team involvement:?Because there are often many facets to broad goals, there are typically many leading indicators to track. Different team members and departments can own different metrics, so everyone contributes to meeting the company’s larger objectives.

Weaknesses of leading indicators

• Just a proxy:?If you’re using a leading indicator as a proxy for a lagging indicator, keep in mind that while the leading metric?should?affect the lagging indicator, it might not have the impact you expect. It’s important to track both so you can monitor ongoing progress as well as the actual outcome of your changes.

Characteristics of good indicators:

For any performance indicator to be effective, it is important that it is:

a) Objective and easy to measure and collect,

b) Relevant to the organization or workgroup whose performance is being measured,

c) Providing immediate and reliable indications of the level of performance,

d) Cost-efficient in terms of the equipment, personnel, and additional technology required to gather the information,

e) Understood and owned by the workgroup whose performance is being measured.

In addition to these general requirements, the examples?used in the introduction demonstrate some additional characteristics that leading performance indicators must have if they are to be useful:

• There must be a connection between the leading information and the outcomes that are of interest.
• The reasons behind the indicators and their benefit must be understood by line management and the workforce affected.
• The indicators must provide information that can guide future actions to either improve desired outcomes or provide a warning of potential weaknesses and allow action to avoid undesirable outcomes.

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