Updated: May 5, 2020
Counting near misses, incidents, defects, violations, and other non-conformance is of value and necessary as part of prescriptive: regulation, industry standards, and internal policies. However, when it comes to complying with performance and outcome-based specifications where the goal is to achieve zero fatalities, zero explosions, zero violations, and zero defects then you need a risk-based process that uses proactive actions informed by both lagging and leading indicators.
While many companies are rich in lagging indicators they are poor in leading indicators. To address this, many try to turn lagging indicators into leading indicators which is not possible no matter how hard you try. Although, with proactive oversight you can turn lagging indicators into leading actions (more on this later).
Many organizations try to use measures of compliance, for example, counting non-conformance to predict and possibly prevent future occurrences. However, lagging indicators of this kind can never distinguish between whether your risk controls are effective or you were just "lucky". They are also too late to prevent what has already occurred and for those looking to improve safety, quality, environmental, or regulatory outcomes this is a big deal.
Lagging indicators can be used to strengthen risk and control processes to prevent re-occurrence of an unwanted event. This is a preventive action and leading with respect to future risk. However, it is still a lagging action from the perspective that the action follows past events. This is often a source of confusion for those looking to establish effective indicators and signals.
Lagging indicators are still beneficial as they help to identify failure modes or vulnerabilities albeit after the fact. This data can in turn be used to initiate actions to mitigate the effects of the adverse event, which is considered as a corrective and lagging action.
Leading indicators, on the other hand, come from the measures (i.e. control processes) that are in place to prevent unwanted events before they happen. They include measures of effectiveness of the preventive controls which are predictive in terms of the likelihood of a given risk event. The level of control effectiveness directly determines the probability of occurrence of the risk event. Leading indicators must have predictive power to be considered effective.
Leading actions are steps taken to improve the effectiveness of both preventive and recovery (or mitigative) controls to improve the level of protection to achieve an acceptable level of risk which is the purpose of risk management and the standard for ensuring compliance obligations are met.