SMRP GUIDELINE

3.0 Determining Leading and

Lagging Indicators

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SMRP Guideline 3.0 - Determining Leading and Lagging Indicators

Guidelines provide additional information or further clarification of 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 of 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 (3) sets of measurable components that make up the maintenance and reliability process.

1. Management processes and behaviors (mission and vision, people skills) 2. Operational execution (operations, design and maintenance) 3. Manufacturing performance (availability, quality, cost and benefits)

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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 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 depicts the relationship between the different maintenance and reliability processes components, their alignment with the SMRP Body of Knowledge (BoK) and the concept of leading and lagging indicators. The final result of a Behavior and Process component is a lagging indicator. However, it can be a leading indicator for the Operational Execution component. 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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Examples of Leading and Lagging Indicators, and their relationship with the SMRP Best Practice metrics, are provided in Table 1. The metrics are categorized in accordance with the SMRP Body of Knowledge.

Behaviors & Processess

Operational Execution

Manufactoring Performance

BoK - Business & ManagementMaintenance Margin (COGS) LaggingMaintenance Unit Cost LaggingMaintenance Cost per RAV LaggingBoK - Manufacturing Process ReliabilityOEE LaggingAvailability LaggingTotal Operating Time LaggingBoK - Equipment ReliabilitySystems Covered by Criticality Analysis Lagging Leading LeadingScheduled Downtime Lagging LaggingUnscheduled Downtime Lagging LaggingMTBF Lagging LeadingBoK - People SkillsRework Lagging Leading LeadingMaintenance Training - $ Lagging Leading LeadingMaintenance Training -MHRs Lagging Leading LeadingBoK - Work ManagementCorrective Maintenance Hours Lagging LeadingPreventive Maintenance Hours Lagging LeadingCondition Based Maintenance Hours Lagging LeadingPlanned Work Lagging Leading LeadingReactive Work Lagging Lagging LeadingProactive Work Lagging Lagging LeadingSchedule Compliance Hours Leading LeadingSchedule Compliance Work Orders Leading LeadingStanding Work Orders Leading LeadingWork Order Aging Lagging Leading LeadingPlanned Backlog Lagging Leading Leading

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.

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E. 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

http://www.reliabilityweb.com/http://baystreet.investopedia.com/terms/l/laggingindicator.asphttp://www.staffing.org/articles/JosephMurphy.arco0016jm.asphttp://www.investorwords.com/2741/leading.indicator.htmlhttp://curiouscat.com/invest/leadingindicators.cfmhttp://www.lce.com/newsltr/newsltr8.htmSMRP NGuideline 3.0 CoverSMRP NGuideline 3.0 Determining Leading and Lagging Indicators