Why is a key risk indicator important, and what does it mean?

KRIs are canary-in-the-coalmine metrics that can notify you of situations that are changing. They serve as your first warning sign of a surge or fall in risk exposure across the company.

KRIs may be used by businesses of all sizes to manage risks proactively as opposed to reactively. Although KRIs have the potential to significantly enhance executive-level involvement and your ERM program, there is disagreement about what should be monitored and how KRIs should be applied.

Qualities of an Effective KRI
Particular KRIs will differ depending on the risk profile, industry, and firm. Strong critical risk indicators have the following qualities:

Relevant: A good KRI will have demonstrated predictive value and a clear connection to the company. You should be certain that a shift in that risk is indicated if the KRI rises.
Measurable: KRIs have to be exact and quantifiable. Your metrics should be simple to measure without having to sift through a lot of outside noise.
Comparable: To assess if circumstances have changed, a good KRI may be compared to other KRIs, industry benchmarks, and other metrics.
Actionable: Effective KRIs give you information that you can utilize to prioritize your resources and make decisions.

Accessible: The data should be readily available, whether it comes from an external source, something you are currently measuring, or something that would be easy to begin measuring.
Consistent: You can monitor changes over time with a solid KRI since it is dependable.

Comparing Key Performance and Key Risk Indicators
Key performance indicators and key risk indicators are both crucial criteria for tracking advancement. However, they are not interchangeable and have distinct roles in risk management.

KPIs are measurements that assess an organization’s performance, typically in relation to its goals or performance initiatives. They are measurable indicators of success that are closely related to the business. To gauge success against sales targets, a business can, for instance, track quarterly revenues or the total number of concluded agreements.

KRIs, however, are only leading indications. The goal is to assist in forecasting whether a KPI will be met. You can determine your likelihood of achieving your objectives by looking at key risk indicators.

However, keep in mind that due to the cascade effect of risk, a KPI for one area may turn into a KRI for another. For example, a frequent KPI is a technological failure. It may be a KRI for those regions due to the subsequent impacts of that technological failure on reputation, staff engagement, productivity, and so forth.