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Ever wondered how to effectively use lagging and leading indicators within your nonprofit organization?
On today's episode, Tim and Nathan provide valuable insights and practical tips to help leaders of small to medium-sized nonprofits improve their decision-making process by paying attention to lagging and leading indicators. Discover how these indicators can inform future decisions on budgeting, recruiting, training...and even your health, as well as predict future outcomes and necessary changes.
Resource mentioned in the podcast: The 4 Disciplines of Execution: Achieving your Wildly Important Goals.
The Hosts of The Practice of NonProfit Leadership:
Tim Barnes serves as the Executive Vice President of International Association for Refugees (IAFR) and can be contacted at tim@iafr.org.
Nathan Ruby serves as the Executive Director of Friends of the Children of Haiti (FOTCOH) and can be contacted at nruby@fotcoh.org.
All opinions and views expressed by the hosts are their own and do not necessarily represent those of their respective organizations.
Welcome to episode 90 of the practice of nonprofit leadership. I'm Tim Barnes.
Nathan Ruby:And I'm Nathan Ruby.
Tim Barnes:Nathan I can hardly believe it, but when this episode is released, we will already be in June, and the first five months of 2023 are flying by.
Nathan Ruby:Yeah, it is flying by. And now, Tim, it's going to be even harder for our listeners to focus on our podcast.
Tim Barnes:Well, I'm curious Why is that?
Nathan Ruby:Well, because kids and grandkids and nieces and nephews and neighborhood kids they're all out of school. Tim, That summer chaos is about to begin, Wow.
Tim Barnes:Well, okay, Hopefully those of you who are listening can find a nice quiet place to spend the next half hour as we share together. And I'm kind of excited about the topic we're talking about, Nathan, because I feel like it connects well with the conversation we had last week about financial statements and how to look at financial statements. It's another layer, maybe, But what is it we're talking about?
Nathan Ruby:Well, today we are covering lagging and leading indicators. These are two types of measures used typically to track and analyze economic and financial data. However, they could be very beneficial to any leader, even executive directors, of small to medium-sized organizations. Making decisions without accurate data, or any data at all, is part of everyday life for a small, nonprofit executive director. So anytime we can pull data, or maybe even just a clue, for our decisions, we increase the chances of making good, solid decisions that have lasting impact for our organizations. Now hold on, if you're listening and if you're still listening, hold on with this here. I know economic and financial data and indicators and all that stuff. That may not be the most fun topic for you to listen to, but one of the things that we try to do here at the Practice and Nonprofit Leadership Podcast is to take things that we think will be beneficial to you as executive directors of small to medium-sized organizations and make them applicable, and so this is a perfect example. These indicators, these two type of indicators, can be very helpful in your decision-making process, but they can also be overly cumbersome and incredibly suffocating from a financial perspective. So Tim and I are going to try to make it a little fun and make it applicable to you.
Tim Barnes:So, nathan, let's dive in, and at the end I'll have a resource I'll recommend as well. So jump in, let's go All right, let's hit it.
Nathan Ruby:We're going to start with lagging. So lagging indicator is a measure that reflects the performance after a certain period of time has elapsed. So, in other words, it's looking backwards at something that has already happened. For example, let's say that you just found out that you're having twins. Well, first off, congratulations, you're having twins. How cool is that? All right, we now have our very first lagging indicator, and that lagging indicator is you're pregnant. It's already happened, it's done, it's in the past And it will definitely impact your future. Well, okay, so we have that lagging indicator. We now know that we're pregnant and we know that we're pregnant with twins. So you probably are going to have to work up a new budget. Why? Because your household expenses are just about going to increase. You need a car seat? Nope, now you need two. Wait a minute. You have two cars. You say Well, now you need four car seats. Diapers, yep, you better put a 2x behind that line on the shopping list So you can use through lagging indicators, you can use something that has already happened to give you clues or to give you data to make future decisions. So what are some real-life, small profit, nonprofit examples? Tim First one low attendance at this year's gala could very possibly impact total revenue for the year. So if you have low attendance and typically you have, you know, 200 people that come to your, your big gala and that's a big fundraising event for you, and this year you only had 100 or 125. Well, you know that could. That could be an indicator that the rest of the year fundraising could be a little soft. Another example insurance premiums. An increase in premiums will mean more expenses, which could mean a tighter budget by the time you get to the end of the year. Another one let's say you how many calls have you gotten to your 24-hour hotline last month? Is that trending up or down? Is it staying flat? If your call volume is up 25% two months in a row, okay, that's a lagging indicator. It's already happened. But if your call increases is increased 25% two months in a row, you may want to use that data to start thinking about recruiting and training more volunteers. You've had a 50% increase in two months. If that keeps up, your current volunteer staff is going to be overwhelmed, so that you could use that data as something that's already happened to make a future decision.
Tim Barnes:So a lagging indicator as I understand what you're saying, nathan, is something that we're looking at past data. So it could be like we talked about financial statements. Financial statements are basically a lagging indicator. They show what's already happened and when we look at that, then we have to one begin to guess, okay, because of that, what's ahead for us. We can kind of surmise maybe from that What's ahead And, secondly, what we need to focus on. What are we going to have to do to change the outcome? the potential outcome Is it. Am I hearing you right when you're talking about that?
Nathan Ruby:Yeah, and as you look at these, both lagging and we'll get to leading here in a second. I think one of the big things here, tim, on this stuff, is it is one thing to collect this data, and what we hope by doing this episode is, now that you are aware of these things, that you will start identifying them throughout your day. As you're working, as you're looking at financials, as you're looking at fundraising returns, as you're reviewing your programs, you start to think about these things and you will start to say, oh, there's a lagging indicator, oh, there's a leading indicator. But where the rubber meets the road, tim, in an executive director, is your ability to take that data and then connect the dots and to use it to make decisions. In and of itself, this information, this data, is not going to say it's worthless, because that's not exactly true, but the real power in doing this, tim, is taking this information and using it to make better decisions in the future. So, yeah, things that have taken place in the past are a clue about what could happen in the future, and that's how you use it.
Tim Barnes:Okay, i got to jump in and throw in my resource instead of waiting until the end. Okay, all right, because I think this is a great place. You know, there's a book written a while back called The Four Disciplines of Execution The Four Disciplines of Execution. Chris McChesney was one of the key authors of the book And I just have to say what I appreciate. What you're saying, nathan, is because execution you have to do something. Part of the Four Disciplines of Execution is understanding and responding to lagging indicators and leading indicators, and again, i'll put the link in the show notes to the book. But I think, if you're thinking about What do I do with this information, it's a great book to help you understand that.
Nathan Ruby:All right, tim, let's head on to the next one, and that's leading indicators. And a leading indicator is a measurable factor or statistic that is used to predict and forecast future trends. So, for example, if over the next four or five, six months you spend more each month than you have coming in, then your organization is going to be headed for financial troubles. I mean, as you're looking out and you're forecasting revenue that's coming in and your expenses, and if you're upside down, well you can pretty much guess by the end of the quarter or the end of the year you're going to be having some financial trouble. So you need to be out in front of that. Looking at that. Another example if you don't change the oil in your car ever, you're going to be buying a new car sooner than you would have had to if you change the oil. So if you are not doing preventative maintenance as you look forward, and you're trying to save a dime or save a dollar by not doing that, you can pretty much assure yourself that you're going to have an undue expense, an expense that you wouldn't have to have had if you had done that preventative maintenance.
Tim Barnes:So what are some? how do we do that in real life, in real small nonprofit?
Nathan Ruby:OK, here we go. So some real small nonprofit examples. If you don't intentionally recruit new board members with the fact that they are expected to fundraise, they are, and I, tim, i will step out and say 99.98% guaranteed. And 99.98% is that's a pretty strong guarantee, tim, that your board members are not going to fundraise for you if they were not recruited that way. So if you're not recruiting them and onboarding them specifically to be fundraisers and that that's part of the responsibility of the board member if you look forward three months, six months, 12 months, 18 months in the future, i guarantee you they're not going to be fundraising for you. So that is a that is a leading indicator. Don't recruit them to fundraise, they won't do it. Second example if your organization does not prioritize good financial systems and hiring good, competent financial staff, you will run into financial problems some point in the future. It is and this is an area and this is more into Tim's area than mine but a lot of smaller organizations will skimp by on having good financial support, good financial staffing, whether it's a volunteer or a contractor or part-time or full-time staff person And that is that's a leading indicator for problems in the future If you don't have good financial support to help you. I'm right back up there, tim, with that 99. What did I say? 99.8 or 99.9%? you're going to have some financial crisis in the future if you're not getting good financial staff to help you now.
Tim Barnes:So 10 to 15 years ago, financial while I still one was still working full term and the voulaisifa. Well, i'm going to recap a little bit, but then you can jump in and correct me. So lagging is we're looking back at what's already happened and trying to guess what may take place ahead of us. Leading indicators are it hasn't happened yet, but there are things that we need to focus on if we want to accomplish our goals, if we want to get to the place where we are effective and successful. Is that right?
Nathan Ruby:Yep, Yeah, lagging is looking back, leading is looking forward. And again, our goal here is to not overcomplicate this for you or to make it more difficult for you. I think there's some very simple, easy places where this comes into play And again, like we talked about a few minutes ago, it is that the real power in this is recognizing that these indicators are out there and then using them to help you make better decisions. So here's a couple of other examples for you. So let's take fundraising, for example. If you are following your fundraising plan and if you don't have a fundraising plan, you should go back and check out our episode number 23. We talk about how to put in a fundraising plan. So if you have your plan and you're working your plan and you're repeating some similar strategies from the past with the same tactics, then if you've been doing that for two, three, four years, then you can use that lagging indicator to predict what revenue will be for this year. So let's say that you are, that you're going to do a mailing and that you do a direct mailing every fall, and you've done it for three, four, five years in a row and basically your list has grown a little bit, but for the most part you're sending it to the same people as you have in the last three or four years, then you can pretty much assume that if nothing dramatic has happened, there hasn't been a global financial meltdown or something to that effect that your appeal will do about what it's done in the past. So that is a way to use a lagging indicator to make a future decision on. So that one's a pretty easy one. Let's do an example out of program development, Tim. Let's say that your organization is operating a summer day camp for grade school kids and you're evaluating your program. You're sitting there at your desk, you're kind of looking at what you've done the last few years and you want to make it better. You want to make it more fun. Obviously you probably want to have more kids come, you want to grow. And you've got the radio on and you just hear an announcement that the local school district is considering moving to a year round schedule. Well, you just received a potential leading indicator that the needs of your families that you serve, they could possibly change, And so you had better start factoring that potential change into the plans for your summer camp, because the needs of those families have changed And if you're not out in front making those changes with your families in mind, of what their need is going to be, your program is going to get left behind because it won't meet their needs anymore.
Tim Barnes:That's really good. And I think back to the things that have happened the financial meltdown, the pandemic. There were some organizations that actually handled that fairly well because they were trying to get out ahead of that, thinking about what does this mean? Where can I go to find this information? Let me work at it, let's think about it, rather than just kind of, oh, this is going to work itself out. But you could see some organizations really leaned in and got through it better than others because they were taking the time to ask those kind of questions and adjust to what was happening.
Nathan Ruby:Yeah, and Tim, another thing that has popped up relatively recently that, i think, Is AI is artificial intelligence. And if you're a executive director of a small to medium nonprofit and you are not researching that and you're not researching how that can help you and your organization, you should, you should be looking at that and you know, and if it's not up your, you're up your alley and Find a volunteer or, you know, find somebody to do the research for you and and to help you put those pieces together, because That's that that is a huge leading it. Well, i guess it's both and you know that's another key point, tim is sometimes these things are They? they could be both lagging and leading at the same time. You know, take AI, for instance. It's a lagging indicator that, okay, it's happened, it's here, we know about it, it's happened in the past, so that makes it lagging. But it's also a leading indicator because we don't really know where it's gonna go, we don't really know the the total impact that it's gonna have. So it's kind of both. But, like I said, i think it's screaming at you Look at me, research me, figure out how you can benefit from me.
Tim Barnes:Nathan, i really like this next example that you're you're bringing on. We're gonna talk more about this down the road, but I know you and I have have really committed this year 2023 to improve our health And we've taken some steps that we'll share again another time. But this is. This is really interesting, how you use lagging and leading in this kind of a context. Why don't you talk about that?
Nathan Ruby:Yeah, so, except executive directors and leaders of small nonprofits carry a tremendous load of stress. It's it's just part of the, it's part of the job and and I'm not sure there's a lot that we can Do to avoid it. But often we don't even realize it because it's just everyday life. But over time, chronic stress is a Toxic to your body and can cause massive health issues. But the good news is there are some leading indicators that scream I'm carrying too much stress, and some of these include headaches and fatigue and depression and change in appetite, change in sleeping patterns. But we have to be tuned into our body to realize that this is happening and Then, yeah, we have to have the courage to actually do something about it. You know, one of the things that I use this for in this category, two things that I have to really look out for myself, and this is with my spouse. One, when my stress load is getting more, more than typical or more than I than what I normally carry. Well, actually, there's three things. One is In my neck and down into my, into my upper back aches constantly and that is a, and I've learned over time to Understand that that is a. Something's going on, and typically it's. It's something external stress, whatever, and and that's a, that's a little bit of an eye-opener for me and the other the other two are with my wife. One is We tend to argue more When I am carrying extra stress. I get mad quicker, i get angry quicker, i stay mad and angry longer and it mean it leads to more conflict And and that is and and again. Over time and as I've learned about this stuff, i've used that as a Okay, you know, there's something going on. The other thing with my spouse, the other way that it comes out is I withdraw. And so the two, the two extremes either I'm more argumentive or I withdraw and I just I, i Don't talk, i don't have, as you know, there's not as many conversations and and she's been attuned to that for years, i've been attuned to that just recently. But those are, those are some indicators that I use, that that things are not right and that I got a pay, i got to pay attention to something and it would seem to me that then the leading indicators would be what are you going to do about it?
Tim Barnes:so I need to start measuring am I exercising? am I eating right? am I doing, you know? am I? how am I managing my time? so those begin to those become things that I'm looking at and planning for to try to reduce the stress that's there behind me.
Nathan Ruby:Yeah, exactly, and again and I think we brought this up twice already this will be the third time that we brought it up, but it's not. The real power is taking this stuff, taking these indicators and then doing something about it, or using it to make decisions so that you make better decisions.
Tim Barnes:Well, ultimately, executive directors need to use both leading and lagging indicators to make decisions. Lagging indicators can be used to evaluate past performance and you know, we know, every time we do financial stuff, past performance doesn't necessarily guarantee right future returns right, but it does give you some patterns. It gives you something to To get a general sense of how things are going. But maybe the first direct mail campaign of the years a little soft okay, it's early in the year, we're not gonna panic or we're gonna jump to conclusions, but now it's on our radar And we can begin to pay attention to it. so this is happened, what do we think the results may be and what might we need to do to To go forward in that? what do we need to change or add or do or do whatever? leading indicators can be used to anticipate future trends and to make proactive decisions and to identify. You know, what are the things that I need to focus on Personally, or is organization to help us go forward in a positive way? so it's a few months later now and the annual online fundraising appeal came in 10% behind last year, which is a lagging indicator, and now our major fundraising event of the year are summer gala is behind on ticket sales. So we have now have two lagging indicators direct mail in the online appeal, combined with the fact that the tickets are down, so that's somewhat of a lagging indicator. Still, the tickets being down might be enough for you to start looking at what 10 or 15% decrease in revenue would do to your organization For the remainder of the year. So something we need to focus on. How are we going to respond to this? which becomes our, which becomes our lead indicator out of that? It's a really good topic, as executive leaders, for us to be focused on and something for you to spend more time considering and looking at it. But, nathan, what are your thoughts as we kind of wrap up our discussion?
Nathan Ruby:by using a combination of both leading and lagging indicators, executive directors can gain a more comprehensive understanding of their organization and make informed decisions that drive long term success. However, like any type of data, it is not foolproof. these indicators give a clue, it'll give you context, it'll give you a flavor of what is happening in the past and foreshadow, or in the future, so you can make better decisions. But your work as an executive director doesn't take place in a static environment. the variables continue dynamically changing all the time. What is true today may not be true tomorrow or the day after. your job as an executive director is to take all of the indicators everything that's happened in the past, and all of the indicators of what may happen in the future, and to put those all together to make the best decision you can today. Then you move forward, you move forward.
Tim Barnes:Well, thanks for listening today and if you're benefiting from what's being shared on this podcast, we would like to ask you to share a review on the platform in which you're listening. We'd love to know how the podcast is benefiting you and be sure to tell someone else about the podcast. You'd like to get in touch with us? our contact information are in the show notes. That's all for today. Until next time.
