One of the key elements of CONTROL within a business is measurement – but what should you measure?

You may think of measuring outputs such as cash flow, profit, production or sales volumes.

While it is good to know if you are on track to deliver, for example, cash flow for the year, if you are only measuring the cash flow, the outcome, it can be difficult to avoid missing your target if you do not have the opportunity to intervene and influence the outcome.

This is where the concept of ‘lead’ and ‘lag’ indicators are introduced

  • a lead indicator measures something that leads to the goal and is something that you can influence
  • a lag indicator measures the goal

In the example above cash flow is a lag indicator whereas the value of overdue payments from clients may be a useful lead indicator.

I would recommend measuring a mix of lead and lag indicators, making sure that the lead indicators are key to you achieving the results you want.

 “The 4 Disciplines of Execution” by Chris McChesney, Sean Covey, Jim Huling  discusses the use of lead indicators.

I love helping people identify what they really need to measure to make the difference – it is great when you see the results. If you want some help then please get in touch.

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Replies

  • Great article Rebecca, cashflow is key to the survival of a business, but business owners need to understand what is affecting their cashflow, especially if it isnt going the way they expected.

     

    If they can identify the key factors affecting their cashflow, and then concentrate on the factors they can directly control or influence, then it makes a big difference to the end result.

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