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SMRP METRIC GUIDELINE

3.0 Determining Leading and


Lagging Indicators

SMRP METRICS GUIDELINE

3.0 Determining Leading and Lagging Indicators


Guidelines provide additional information or further clarification on component terms used in SMRP Best Practice
Metrics. This guideline is used as an aid for determining whether an indicator is leading or lagging. This guideline is
not intended to be a thorough prescription but rather an explanation on how to determine, define and use leading and
lagging indicators from a SMRP Best Practice Metrics standpoint.

A. DEFINITION
Lagging Indicator
An indicator that measures performance after the business or process result starts to follow a particular pattern or
trend. Lagging indicators confirm long-term trends, but do not predict them.

Leading Indicator
An indicator that measures performance before the business or process result starts to follow a particular pattern or
trend. Leading indicators can sometimes be used to predict changes and trends.

B. PURPOSE
The purpose of leading and lagging indicators is to measure the performance of the maintenance and reliability
process. Leading and lagging indicators provide information so that positive trends can be reinforced and
unfavorable trends can be corrected.

C. DISCUSSION OF LEADING AND LAGGING INDICATORS


The purpose of running a business is to create shareholder value by providing a distinct product or service. Creating
value starts with the needs of the customer and continues through producing a quality product and delivering it on
time at a competitive price. The maintenance function is a key stakeholder in this value stream; however,
maintenance as a function cannot achieve this alone.
The maintenance and reliability process represents the collection of all stakeholder tasks required to support the
manufacturing or service function. The output of a healthy maintenance and reliability process is optimal asset
reliability at optimal cost, which contributes to maximum shareholder value. The maintenance and reliability process
is a supply chain. If a step in the process is skipped or performed at a substandard level, the process fails to
maximize its contribution.
There are three sets of measurable components that make up the maintenance and reliability process (see Figure 2:
Components of the Maintenance and Reliability Process).

Management processes and behaviors (mission and vision, people skills)


Operational execution (operations, design and maintenance)
Manufacturing performance (availability, quality, cost and benefits)

2009 by SMRP

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PUBLICATION DATE: October 3, 2009

Each component is a process on its own which can be measured using both leading and lagging indicators. These
indicators are used to determine the quality of each process. In this context the components of the maintenance and
reliability process can be both leading and lagging indicators, depending on where in the process the indicators are
used. There is a cause and effect relationship between leading and lagging; the action being measured will cause a
resulting action or effect which is also being measured. This means that a given measure could be both a lagging
measure for a previous cause in the chain and a leading measure for a following effect. There are a series of causes
and effects in the chain until the final lagging measures are reached.
Figure 1 (Leading and Lagging Indicator Mapping) illustrates the concept of an indicator being both leading and
lagging depending on the application of the metric. Preventive maintenance (PM) compliance is used to measure
how much PM work was completed as scheduled. In this case, it is a lagging indicator or result of how much PM
work is completed when viewed in the context of work execution. However, when viewed as an indicator of
equipment reliability, PM compliance is a leading indicator of the reliability process. The higher an organizations PM
compliance, the more likely this will lead to improved equipment reliability. Similarly, improved equipment reliability
will lead to reduced maintenance cost, which is a lagging indicator of the overall maintenance process.

Figure 1: Leading and Lagging Indicator Mapping


When considering a leading measure, it is beneficial to express it in terms of what it is a leading measure for, i.e.
what is the lagging measure that will be affected?

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Figure 2 Components of the Maintenance and Reliability Process depicts the relationship between the different
maintenance and reliability processes components and the concept of leading and lagging indicators. The final result
of a behavior and process is a lagging indicator. However, it can be a leading indicator for the operational execution.
In this context, the lagging indicators of one component can also be viewed as the leading indicators of another
dependent component.

Figure 2: Components of the Maintenance and Reliability Process

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PUBLICATION DATE: October 3, 2009

Examples of Leading and Lagging Indicators, and their relationship with the SMRP Best Practice metrics are
provided in Table 2. The metrics are categorized in accordance with the SMRP Body of Knowledge.

Behaviors &
Processess
BoK - Business & Management
Maintenance Margin (COGS)
Maintenance Unit Cost
Maintenance Cost per RAV
BoK - Manufacturing Process Reliability
OEE
Availability
Total Operating Time
BoK - Equipment Reliability
Systems Covered by Criticality Analysis
Scheduled Downtime
Unscheduled Downtime
MTBF
BoK - People Skills
Rework
Maintenance Training - $
Maintenance Training -MHRs
BoK - Work Management
Corrective Maintenance Hours
Preventive Maintenance Hours
Condition Based Maintenance Hours
Planned Work
Reactive Work
Proactive Work
Schedule Compliance Hours
Schedule Compliance Work Orders
Standing Work Orders
Work Order Aging
Planned Backlog

Operational
Execution

Manufactoring
Performance
Lagging
Lagging
Lagging
Lagging
Lagging
Lagging

Lagging

Leading
Lagging
Lagging
Lagging

Leading
Lagging
Lagging
Leading

Lagging
Lagging
Lagging

Leading
Leading
Leading

Leading
Leading
Leading

Lagging
Lagging
Lagging
Leading
Lagging
Lagging
Leading
Leading
Leading
Leading
Leading

Leading
Leading
Leading
Leading
Leading
Leading
Leading
Leading
Leading
Leading
Leading

Lagging
Lagging
Lagging

Lagging
Lagging

Table 1: Leading and Lagging Indicators

D. CONCLUSION
The use of leading and lagging indicators is an important component of the maintenance and reliability process.
Leading indicators measure the process and are used to predict changes and trends. Lagging indicators measure
results and confirm long-term trends. Whether an indicator is a leading or lagging indicator depends on where in the
process the indicator is applied. A lagging indicator of one process component can be a leading indicator of another
process component. Whether leading or lagging, performance indicators should be used confirm process
performance. These indicators help build on successes and can lead to improvement where unfavorable trends exist.

2009 by SMRP

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F. REFERENCES

Olver, Richard Agrium Planner Ratios and Planning and Scheduling Metrics September 2004 rev 5

Mather, Daryl Techniques for Applying Leading or Lagging Metrics Immediately! http://www.reliabilityweb.com

Lagging Indicator http://baystreet.investopedia.com/terms/l/laggingindicator.asp

Murphy, Joseph Perspectives on Measure, http://www.staffing.org/articles/JosephMurphy.arco0016jm.asp

Leading Indicator http://www.investorwords.com/2741/leading.indicator.html

Rostykus, Walt and Egbert, Joshua Key Measures for Successful Improvement
http://curiouscat.com/invest/leadingindicators.cfm

Life Cycle Engineering Me and My Key Performance Indicators Lagging and Leading Maintenance
Excellence News, Issue 8, http://www.lce.com/newsltr/newsltr8.htm

2009 by SMRP

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PUBLICATION DATE: October 3, 2009