What is a KPI? Lead and Lag Indicators

this is Ziggler Toro the founder of KPI fire and today we're going to learn about KPIs now KPIs are one of my favorite subjects what does it stand for key performance indicators and what is a key performance indicator well it's just a metric it's anything that you have in your business that you want to measure so it might be things like sales and revenue it might be your inventory levels it might be your throughput or your customer satisfaction and the key thing you need to know about KPIs is that there's two types there's what we call leading indicators and lagging indicators so what's the relationship well that's the trick you need to understand what the correlation and the relationship is between a leading and lagging indicator because often the metric you want to drive is the lagging indicator not the leading indicator one of my best examples of this is let's say you own a restaurant and you have a customer satisfaction score that you know needs to be high so that your customers will keep coming back to eat your food so customer satisfaction is something you're tracking but what happens when customer satisfaction starts to drop off well by the time your customers are unhappy it's too late they've already had a bad experience and they're never coming back worst of all they're probably going to go tell all of their friends and they're never going to come to your restaurant either so what do you need you need a leading indicator a leading indicator might be something like time from when they order until their food comes so if the time from the order to food is down around four to five minutes we're good our customers are getting their food on time they're not getting impatient and they're happy and when those customers are happy our customer satisfaction scores come back happy but there's a delay you can have a delay from a few minutes from a leading and lagging indicator to as much as months so if our customer has a bad experience this week they're not coming back next week and my scores aren't going to come in this is what's happening in this example I have my time from order to food and you can see it's green for a while but then about week five we start to have long times for food to get delivered and then it gets worse and worse all the way from week five to week nine now as the manager if I'm not measuring this leading indicator all I'm seeing is customer satisfaction and look at that it looks fantastic it's green I'm in week five and I'm green week six weeks seven week eight on green I don't even know there's a problem I don't know that I'm about to lose half of my customers by the time that these order the food times show up on my customer satisfaction chart it's week nine and then week nine ten eleven and twelve it is downhill and my restaurant is out of business so what do you need to do in your company understand what you're lagging indicators are the things that you really want to drive and then drive those back to your leading indicators if you can understand what the cause and effect relationship is you can drive your business to higher levels and make changes before the impact actually hits your bottom line and this works in a positive sense as well if you know what those leading indicators are you can take your order to food time and drive it down to zero which is like what McDonald's did and then your customer satisfaction scores will follow suit and go up into the right this is a territorial and now we know more about leading and lagging indicators and KPIs we're going to work together and help you execute your strategy [Music]

Channel: KPI Fire

Views: 29,865

Keywords: KPI, KPIFire, business managment, leading and lagging indicators, kpi's

Id: ztn1XBsYUAI

Length: 3min 47sec (227 seconds)

Published: Tue Aug 15 2017