ROI STRATEGIES
Leading indicators deliver better business results
Dan Merriman, Contributor
06.07.2006
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What ultimately matters when assessing the ROI of an initiative are the results. Did revenue increase? Were costs reduced?
The actual bottom-line impact should be determined by measuring the revenue increased, or cost reduced, divided by some number of units that reflect the volume involved (e.g., revenue per sales rep, cost per order, cost per customer). However, these are all examples of "lagging indicators," which measure the ultimate results at the end of the project. While lagging indicators are very important to measure, they are of limited use to those responsible for delivering business results. They indicate what happened after the fact, therefore little if anything can be done to affect them. Information regarding "leading indicators," on the other hand, provides managers with valuable insight needed to take timely action and improve results.
But how does one go about identifying useful leading indicators that provide a clear picture of what is occurring without flooding users with too much information? One technique is to work with management and initiative teams to iden
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tify and prioritize three categories of potential leading indicators:
Implementation indicators: Project managers can measure the progress being made with the deployment of each component of the solution. Examples include:
Drill-down comparisons: These type of indicators provide relative comparisons of the efficiency and effectiveness of different communities using the solution (by region, user population, division, product or service). This helps identify the effective users, as well as those who need more assistance. Examples include drill-downs by geography, user group, product, sales/service territory and individual.
By using a mix of related leading and lagging indicators, IT helps the business understand how it is performing today and, even more importantly, how it can improve on future results.
Dan Merriman is president of Chapin Consulting Group Inc. in Needham, Mass. He helps corporate users and vendors maximize the business value gained from major investments in technology. He can be reached at dmerriman@chapinconsulting.com.
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