What is a significant limitation of solely relying on lagging indicators like revenue or profit margins for proactive monitoring?

A significant limitation of solely relying on lagging indicators like revenue or profit margins for proactive monitoring is that they only reflect past performance and provide no advance warning of potential future problems. Lagging indicators are metrics that show the results of past actions. By the time a decline in revenue or profit margin is detected, the underlying issues causing the decline have already been in effect for some time, making it more difficult and costly to correct them. Proactive monitoring requires identifying potential problems *beforethey negatively impact financial results. Solely relying on lagging indicators is like driving a car by only looking in the rearview mirror; you can see where you've been, but you can't anticipate obstacles ahead. For example, a drop in revenue might be caused by declining customer satisfaction, increased competition, or a shift in market trends. However, if a company only monitors revenue, they won't be aware of these underlying problems until the financial damage is already done. Proactive monitoring requires a combination of leading indicators, which are predictive metrics that provide insights into future performance, such as customer satisfaction scores, website traffic, or the number of new leads generated. Using both leading and lagging indicators provides a more complete and timely view of business performance, allowing for proactive intervention to prevent problems before they escalate.