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Leading versus lagging indicators of IT performance


Leading Versus Lagging Indicators.jpgRecently, there have been some articles and a lot of blog chatter about IT Key Performance Indicators. This of course is a good thing because improved measurement and management is critical to IT organizations getting a seat at the table. A key element of this discussion has focused around the question of what is a leading indicator versus a lagging indicator per the blog posts by Eric Brown and Jerry Bishop.


But what is leading and what is lagging?

According to one of the authorities on this subject, Wayne Eckerson of The Data Warehousing Institute, leading indicators are about drivers and lagging indicators are about outcomes. Wayne in fact goes on to name them this way when he writes, “Driver KPIs—sometimes known as leading indicators or value drivers—measure activities that have a significant impact on outcome KPIs. These KPIs measure activity in its current state or a future state. On the other hand, Outcome KPIs—sometimes known as lagging indicators—measure the output of past activity. The former is more powerful, since it gives individuals and their managers more time to adjust behavior to influence a desired outcome”.


Leading and lagging can differ by industry and company

Driving IT.jpgThere are many driver KPIs that should be measured by IT organizations and many of these should be relate directly to the drivers of business outcomes. From personal experience, I know these vary significantly from industry to industry. I remember talking to a number of CFOs eight years ago about Business Activity Monitoring.There was no congruence about what really needed to be measured from industry to industry. For a manufacturing company, labor or raw material costs can be driver KPI. For a pharmaceutical company, patent life is a driver KPI. And for a package delivery company, overtime hours represented a driver KPI. Each industry and organization needs to determine its unique business-oriented driver KPIs from its strategic process KPIs. This is essential to both their strategic process and overall business/IT alignment.


Cross-industry driver KPIs matter too

However, it is important to also measure IT organizations against norms for their and other industries. For this reason, I want to suggest here that there is a unique set of cross-industry driver KPIs. To make this a non-academic exercise, I am going to pick seven that fall into this category that already exist within the out-of-the-box implementation of the HP Executive Scorecard.


1>    Change success rate. Change success rate is a driver KPI of IT failure reduction. According to ITIL Version 3.0, change failure is responsible for driving 55% of IT outages. Improve this and you reduce outages, incidents and IT cost.


2>    Percent of incidents resolved with SLA. Initially, one might think of this as being an outcome KPI, but think about it a little more. If I am resolving SLAs within the prescribed time, this means that SLA performance where there are breaks are most likely to be driven to goal and business performance brought into line.


3>    Percent of unauthorized implemented changes. If you can establish a change process and follow it, this number becomes small. If it becomes small, I will reduce incident volume, reduce the number of security incidents, and increase application up time.


4>    Mean time to recover business data or restore operations success rate. I could have picked multiple KPIs here, but IT is the business increasingly and if it goes down, the business stops. Refining performance here will save a business millions. I have heard personally of a major insurance company that could not access data for days after Katrina. There is no question of the fact in disaster this is a driver KPI.


5>    Percent of server and network nodes with compliance issues. Policies and standards are key to reducing incident volume and security incidents in particular. Driving this to a low number means that you are reducing both outcomes.


6>    Percent of projects on time. We all know that the quality of planning process most often determines whether business objectives are met or the cost or ROI for a project delivered. We need this number to be high, but we, also, need to ensure people cannot simply change the date. This makes a data warehouse with a slow changing dimension ability really important.


7>    Percent of automated tests or percent defects captured post production. These are both key driver KPIs. Automated test coverage means that testing is timely and usually more complete. It can, also, over time be a project cost reducer as costs are taken out. Meanwhile, percent defects captured post production needs to be reduced to a very small number to drive project success and incident and cost reduction.


There you have it--seven driver KPIs for business and IT performance. If it is not clear, driver KPIs are a lot more important than outcome KPIs because in most cases they drive performance and value. There is more to share here, but this is a starting point.


Related links:

Feature: Magnificent Seven of KPIs     

Feature:  Peak performance demands precision control

Solution page:  IT performance management

Twitter: @MylesSuer

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About the Author


Mr. Suer is a senior manager for IT Performance Management. Prior to this role, Mr. Suer headed IT Performance Management Analytics Product Management including IT Financial Management and Executive Scorecard.

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