Indicators

Monitoring indicators give companies a sense of what is going on, or what is going to happen.

An indicator is a signal that can be used to understand or predict a behavior of a person or system. A poker player has “tells”. By identifying and monitoring those indicators, his opponents try to predict the player’s behavior.

Another example is a machine that starts to vibrate before it breaks down-an indicator of a future event. And, of course, there are many financial indicators that are commonly used to try to make sense of what the economy is going to do.

Indicators that happen prior to a change-are called leading indicators. Others happen after something has already occurred. These are called lagging indicators.

Indicators can be used as predictors of future events, but are not, in most cases, completely foolproof. Sometimes the expected result doesn’t actually occur.

Keep these steps in mind when using indicators:

1. Identify an indicator and its relationship with an event. This is the pre-work to setting up a monitoring system. You have to know what to monitor before setting up the system.
2. Monitor the indicator to gauge the likelihood of an event happening.
3. Act on the information.

Finding the right indicators can be a challenge. The degree of accuracy and the difficulty of collecting information can vary widely. Worst case, you find a difficult, inaccurate indicator. Best case, there is something easy to collect that gives a very clear picture. Minutes of line stop as a predictor of overtime falls into the second category.

Your team members likely already recognize many indicators from doing the process every day, and might even be informally monitoring those indicators. Ask them for ideas.

You may also have to do some fishing in the form of data mining. Do environmental conditions act as an indicator of future paint failures, or of quality problems? Does a large amount of coughing in an office this week indicate numerous absences the following Monday? In a continuous improvement culture, you should consider it part of your job to identify indicators. Use tools like brainstorming and Cause and Effect / Fishbone Diagrams to help identify the right ones.

Once an indicator is selected, a monitoring plan is necessary. Don’t just check in to see how things are going periodically. Monitoring indicators continually helps you keep on top of any changes that provide an opportunity to act early. This is easy when it is a simple matter, like looking at a gauge, or reviewing an automated data collection system.

But even if an indicator is hard to measure, it should still be looked at regularly. For example, employee job satisfaction is an indicator of turnover, which, in turn, is an indicator of financial success of a company. Morale can be harder to track than something like RPMs. In these cases, the cost of collecting information about the indicator should be balanced against the benefit from having the information.

Finally, you have to be able to act on the information. Seeing an indicator of traffic building when you are late might be nice to know, but unless there is another, wide-open route to use as an alternative, it doesn’t make a difference in your actions.

In many cases, though, you can use indicators to make huge gains. A common application of indicators is in predictive maintenance. Predictive maintenance differs from preventative maintenance in one major way: monitoring indicators.

Preventative maintenance might use a set time or condition as a trigger for taking action (i.e. oil changes at 6 months or 5,000 miles). Predictive maintenance takes a different approach. For example, the U.S. Army uses its Army Oil Analysis Program (AOAP) to test lubricants. Monitoring indicators of component failure in oil samples can frequently prevent extremely costly repairs.

As mentioned earlier, indicators fall into two basic categories. Leading indicators change before an event happens. For example, mortgage rates rising may be an indicator that home sales will change their trends.

The other basic type is a lagging indicator. This form of indicator is present after the fact. For example, uneven wear patterns on tires are an indicator that tires were improperly inflated.

While leading indicators are preferred, lagging indicators are still beneficial. You can take action before a small problem becomes a bigger problem, or even a catastrophic one.

KPIs (discussed in detail under Key Performance Indicators) are a very specific type of indicator that supports continuous improvement and general management efforts. Most KPIs are lagging indicators. They tell us what has already happened.

Some, though, might be both leading and lagging, but of different things. Customer complaints might be a lagging indicator of poor quality, and a leading indicator of a drop in sales.

Monitoring indicators helps prevent adverse events and maintain positive performances.