Analyze risks associated with the specific characteristics of a particular meeting or business event
What is a key risk indictor (KRI)?A key risk indicator (KRI) is a metric for measuring the likelihood that the combined probability of an event and its consequences will exceed the organization's risk appetite and have a profoundly negative impact on an organization's ability to be successful. Show
Key risk indicators play an important role in enterprise risk management programs. Benefits of KRIs include the following:
Characteristics of good KRIsWhen developing a KRI, knowledge of the organization and how it operates -- plus knowledge of the potential risks, threats and vulnerabilities it faces -- are the essential starting points. Without an understanding of the company, it is difficult to identify where it may be at risk. Internal and external risks are then mapped to key operational aspects of the firm to identify how those key attributes could be disrupted. Thus, characteristics of a good -- and measurable -- KRI include the following:
Examples of KRIsKRIs are developed in relation to an organization's people, processes, technology, facilities and other elements critical to its operations. KRIs also provide the measurement points that, if exceeded, could disrupt the business. Table 1 provides examples of KRIs for different aspects of a business and sample measurement points.
Why are KRIs important?Without KRIs, an organization increases the likelihood of its being subject to events or situations that could significantly damage its business. KRIs are the red flags that ensure these risks are identified in advance and mitigated. Let's take a closer look. If an organization specializes in retail sales, for example, a key risk indicator might be the number of customer complaints. An increase in this KRI could be an early indication that an operational problem needs to be addressed. The challenge for an organization is not only to identify which risk indicators should be identified as being key -- i.e., most important -- but also to ensure internal acceptance of its KRIs. Organizations must communicate the risk warning in such a way that everyone in the organization clearly understands its significance and can respond accordingly.
KRIs and KPIs: What's the difference?Key risk indicators are often confused with key performance indicators (KPIs), which are metrics that help an organization assess progress toward declared goals. The two terms are functionally the inverse of each other. While they may be separate and distinct for some issues, the creation of one often results in the creation of the other as its complement. As stated above, KRIs provide metrics regarding risks and their potential impact on business performance. They function as an early warning capability for monitoring, analyzing, managing and mitigating key risks. By contrast, KPIs demonstrate how well the organization is performing against its goals and objectives -- e.g., sales, revenues and customer satisfaction. Like KRIs, key performance indicators can be applied to the people, processes and technologies that are critical to an organization's success. Table 2 provides examples of key performance indicators and their corresponding KRIs.
Challenges of creating and measuring new KRIsIt is not enough to simply create KRIs and walk away. They must be regularly monitored and reviewed to both identify any situational changes that indicate a possible change in the business, as well as risk/threat levels, and identify and initiate remedial action that may be needed. Challenges associated with developing KRIs typically stem from an organization's inability to do the following:
This was last updated in October 2021 Continue Reading About key risk indicator (KRI)
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