Understanding Leading Indicators: A Guide for Business Owners

Understanding Leading Indicators: A Guide for Business Owners

In the business world, metrics help us understand performance. But how do we measure something like risk and safety? Two key concepts are lagging indicators and leading indicators. In this blog post, we will outline what leading indicators are, how to measure them, and why they are essential.  

Both lagging and leading indicators have distinct roles in safety and risk management. Before we go any further, I want to give you my definitions for both: 

  1. Lagging Indicators: These reflect past performances, giving insight into areas that need attention based on actual incidents. Lagging indicators include metrics such as Total Recordable Incident Rate or Experience Modifier Rate. See our blog post here for a more in-depth discussion of lagging indicators. 

  2. Leading Indicators: These are proactive measures that influence future safety results. Think about training for a marathon – there is more to it than just running; an athlete focuses on diet, exercise, and sleep – the things that lead to better performance. The concept here is the same. What proactive measures can we implement and track that will lead us to a better safety record? 

Tracking lagging indicators is essential but can induce complacency when records are good and hinder positive safety discussions when they are poor. Leading indicators can prevent complacency and foster positive safety conversations even when records are subpar, changing the narrative from the current struggles to celebrating small wins. This method boosts morale and provides encouragement, which is overlooked far too often! Your team, more than anything, needs encouragement. 

Injecting some competition can help, too. It can create energy and excitement around an otherwise dull subject. Have locations or departments compete on who can have the best record. Consider creating incentives around it as well. Again, we are dealing with humans, and humans run on incentives. These incentives don’t have to be financial. It could be recognition, prizes, employee of the month, a day off, or a free lunch. Get creative!

Key Metrics to Include in Your Leading Indicators Program:

  • Training and Education Metrics: Monitor the number of employees trained, the frequency of training sessions, and the feedback scores from those sessions. Track all your training and scores; a drop can indicate potential issues. 

  • Safety Audits: Note the number of audits conducted, the number of potential risks identified, and the corrective actions implemented to address those risks. Taking action on issues uncovered during regular audits will reduce hazards. 

  • Employee Feedback: Measure the number of safety concerns raised by employees, the corrective actions implemented to address those concerns, and feedback on safety measures implemented. This information can act as an early warning system. Often, employees are your greatest resource. They will tell you when something is wrong. Encourage this and take decisive action.  

Near Miss Reporting: Track incidents and hazards that didn’t result in injury but could have and the corrective actions implemented to address those risks. These near misses are a powerful way to prevent accidents. Read our full blog article here.

  • Safety Meetings: Monitor the frequency of safety meetings, the topics covered, and attendance rates. Consistent safety meetings are vital for communication and to keep safety at the forefront of everyone’s mind. 

  • Job Safety Observations: These are hands-on reviews of specific jobs or tasks that employees are performing. Track the number of observations made, findings from these observations, and how quickly any concerns are addressed. 

  • Inspections: Regular facility and equipment inspections can unveil potential risks. Monitor the number of inspections, findings, and corrective actions implemented. 

Setting Up a Program to Track Leading Indicators:

Setting up a program might seem daunting for business owners. Let’s keep it simple: 

Determine Your Leading Indicators: Choose the leading indicators you want to track. Set benchmarks: The easiest way to do this is to create a scorecard and map out the requirements. So, for example, you could require four near-miss reports, four job safety observations, two safety meetings, and one facility inspection per month.  

Require Tracking: Use tools to track these metrics. Depending on your organization’s size and budget, it could be a spreadsheet or an SMS (Safety Management System).  

Report the Data: Report the data consistently (monthly or quarterly). I recommend reporting at least monthly, so the team knows how well they are doing.


Why Are Leading Indicators Important?

In the realm of safety, risk, and insurance, prevention is better (and cheaper) than a cure. By focusing on leading indicators, businesses can: 

  1. Predict Potential Hazards: Before they result in accidents, help to prevent them. Hence, the reason for a near-miss reporting program!

  2. Save on Costs: Accidents can lead to downtime, insurance claims, and potential lawsuits. 

  3. Improve Worker Morale: Leading indicators create a positive way of talking about safety. A safe and positive environment is a productive environment. 

  4. Decrease Insurance Premiums: Insurance companies offer better rates to businesses with strong risk control measures. 

The Ripple Effect of Leading Indicators

By emphasizing leading indicators, businesses can generate momentum, positively influencing safety metrics and improving long-term lagging indicators. This proactive approach reduces accidents and creates a safer, more productive workplace.

In conclusion, organizations can shift the narrative from negative and reactive to proactive and positive by focusing on leading indicators. This approach works. I have seen it, and when you implement this program, you will too. Now, do it.