We know we are supposed to track leading indicators on our weekly Scorecard, but our P&L statements are what actually tell us if we are profitable. How do we take a lagging financial number like gross margin and break it down into weekly leading indicators we can actually action?

Question

Tyler Smith · Accepted Answer

Lagging indicators like gross margin, net profit, and monthly revenue are historical reports. They tell you where you have been, not where you are going. By the time you see a bad gross margin on your monthly financial statement, the damage was done weeks ago. To run a proactive business, you must trace that lagging financial result back to the daily and weekly actions that create it.

To convert gross margin into leading indicators, look at the activities that directly impact your costs and delivery efficiency. Gross margin is typically ruined by three things: scope creep, underutilized staff, and material waste. You must find the weekly activity that predicts these issues.

Instead of tracking gross margin directly on your weekly Scorecard, track the preceding activities. First, track weekly billable utilization rates to ensure your team is active. Second, track weekly project milestone completions against estimated hours to catch scope creep early. Third, track material waste or rework hours as a weekly number.

If your weekly utilization is high, your project milestones are on time, and your rework hours are low, your monthly gross margin will take care of itself. By tracking these active metrics, you give your team the ability to make course corrections in real time during your weekly Level 10 Meeting™ rather than waiting for the accountant to hand you a historical report at the end of the month.