I will be speaking at the Pennsylvania Community Providers Association 2011 conference in October on A Roadmap to Financial Health Using Key Performance Indicators and Dashboards. As I am putting together the presentation I am thinking about leading indicators and lagging indicators.
Key Performance Indicators (KPI's) are indicators used to measure performance in strategic area such as financial, quality of care, operational performance, and business development. My focus for this presentation is on financial indicators--days cash remaining, days sales in accounts receivable, cost per unit of service, etc.
Lagging indicators show you what happened in the past. Leading indicators help you see what might be happening in the future. For example, look at days sales in accounts receivable as a leading indicator. If over time, you see this number getting larger it means you are not collecting monies due you as fast as you used to. If this continues though--you are going to start to have cash flow problems. You may also end up having to write off revenue as a bad debt.
Initially you might look at the increasing days sales in accounts receivable and excuse it as a consequence of the economy, your client mix, payor difficulties, etc. However, if you have been tracking this as one of your indicators AND you are cognizant of the detrimental effect it has on other areas, you will pursue the reasons for the increase and seek to remedy the situation.
I have come across a few articles in these areas. While these articles relate to businesses, they have some great applications for nonprofits.
The Power of Leading Indicators - As Important As Ever by Paul Niven
Managing Through The “Rear View Mirror”…a dangerous practice for any business by Robert Champagne
Which is more important? Rearview mirrors or windshield? by Gary Cokins
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