How to create an early-warning system for your business

The quarter-end scenario

It is the end of the financial quarter. Sales orders are below target and the sales team is rushing around trying to close as many orders as possible.

The development director has just told you that the release date for your new product will have to slip by two months because the coding took longer than expected.

Problems with one major project resulted in the professional services team spending more hours on rescue work which led to a reduction in billable hours this month.

The Customer Services team has just told you this is a record month for customer service contract cancellations.

You are not looking forward to the board meeting.

All these are common situations. Many organisations firefight their way through, spending time and money fixing problems only to face similar situations the following quarter.

An early-warning system

An early-warning system would give teams a chance to fix problems before they get too bad, alert others that help was needed or at least give teams that are dependent on the outcome a chance to take alternative measures.

So how do you implement an early-warning system? Initially, it will appear very complex. It needn’t be. An early-warning system just needs to warn you of a potential problem early enough to investigate and do something about it. One of the common reasons for not having some early-warning measures is just that – these situations are difficult to measure.

Indicators or measures?

An early-warning system does not have to be exact. Just as a blip on a military early warning radar screen tells you something is where it shouldn’t be, you can have indicators in a business system rather than measures. Indicators don’t need to be precise, they don’t need to have a numeric correlation with an outcome, they just need to tell you if something is on track or not. These are referred to as Lead Indicators when they are used to measure likely outcomes in the future.

Some indicators can be numeric, such as a rise in the number of adverse comment in social media indicating a rise in customer dissatisfaction. Others will just be flags, such as a red/amber/green indicator that a project phase is at risk of over-running. Not when, not buy how much, but it is at risk. This will be enough to warn others of an impending problem, and request help if that is appropriate.

How to create an early warning system

This does take some preparation but need not be lengthy or onerous.

  1. Identify the steps, stages or events leading up to the outcome. For example, the phases of a project leading up to completion.
  2. Identify the indicators that can be used to monitor each early stage. For example, in a project this could be a RAG (red/amber/green) status on each phase relating to expected completion on time.
  3. Decide on a reporting frequency that is appropriate to the business cycle. For example, on a key project nearing completing this could be weekly. Important but not urgent indicators such as customer satisfaction monitoring could be monthly or even quarterly.
  4. Agree responsibilities for updating the status information. This has to be a very low administrative overhead or it won’t happen. Self-assessment is very effective, so a team allocating their own progress status is fine.
  5. Have an accessible reporting mechanism, preferably available in real time. This can be as simple as a spreadsheet, or one of the light performance management systems available which will provide the data entry, tracking and reporting features.
  6. Build the use of early warning indicators into the business rhythm of the organisation, so everyone from COO downwards knows the importance and value of the information and how it will be used to drive higher business performance.

This final point is the make-or-break for the effectiveness of the indicators. People will make huge commitments to purposes they believe in and have value. If they feel their effort is not used or valued, then the incentive for updating these indicators will fade away and there will be a decline back to firefighting.

I am convinced that lead indicators are a powerful weapon as we strive for ever increasing levels of business performance. Which leader would not want a reliable indicator of future business results, available in sufficient time to take action if necessary?

Lead Indicators are an integral part of Team Performance. You can find out more by visiting our MyObjectives pages.