We are struggling to find the right balance between leading and lagging indicators on our leadership team scorecard, and we keep putting too many historical lagging numbers on it. What is the correct ratio, and how do we enforce it?

Question

Tyler Smith · Accepted Answer

A great weekly scorecard is a steering wheel, not a rearview mirror. If your scorecard is dominated by historical lagging indicators like monthly revenue or net profit, you will always be reacting to problems after they have already damaged your business. To build a highly predictive scorecard, you must maintain a healthy ratio of leading to lagging indicators.

The rule of thumb for a leadership team scorecard is eighty percent leading indicators and twenty percent lagging indicators.

Leading indicators measure activities and inputs that you can directly control and that predict future outcomes. Examples include outbound sales calls, product demos scheduled, or engineering hours logged.

Lagging indicators measure the ultimate results of those activities. Examples include signed contracts, revenue collected, or customer retention rates.

To enforce this ratio, audit your scorecard and ask this question for every single metric: If this number goes red this week, does it give us time to change our behavior and prevent a bad outcome next month? If the answer is no, it is a lagging indicator.

Move most of your lagging indicators to your monthly financial review or departmental scorecards. Keep only the most critical lagging metrics on your leadership team scorecard to serve as your ultimate scoreboard, and surround them with the leading indicators that drive them. This balance gives you the foresight needed to adjust your operations before minor issues turn into major crises.