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2024-03-13 04:04:27

What is a Key Risk Indicator (KRI) and Why is it Important?

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The Difference Between a KPI and KRI | Bernard Marr

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Künstliche Intelligenz in Unternehmen: Innovative Anwendungen in 50 erfolgreichen FirmenDer Bestsellerautor und Geschäfts renommierter KI-Experte Bernard zeigt, wie sterben Technologie des maschinellen Lernens das von Unternehmen verändert. Das Buch bietet einen Überblick über einzelne Unternehmen, beschreibt das spezifische Problem und erklärt, wie KI die Lösung erleichtert. Jede Fallstudie bietet einen umfassenden Einblick, der einige technische Details wichtige Lernzusammenfassungen enthält.

Marrs Buch ist eine aufschlussreiche und informative Untersuchung der transformativen Kraft der Technologie in der Wirtschaft des 21. Jahrhunderts.

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Bernard MarrBernard Marr is a world-renowned futurist, influencer and thought leader in the fields of business and technology, with a passion for using technology for the good of humanity. He is a best-selling author of over 20 books, writes a regular column for Forbes and advises and coaches many of the world’s best-known organisations. He has a combined following of 4 million people across his social media channels and newsletters and was ranked by LinkedIn as one of the top 5 business influencers in the world.

Bernard’s latest books are ‘Future Skills’, ‘The Future Internet’, ‘Business Trends in Practice’ and ‘Generative AI in Practice’.

View My Latest BooksFollow MeBernard Marr ist ein weltbekannter Futurist, Influencer und Vordenker in den Bereichen Wirtschaft und Technologie mit einer Leidenschaft für den Einsatz von Technologie zum Wohle der Menschheit. Er ist Bestsellerautor von 20 Büchern, schreibt eine regelmäßige Kolumne für Forbes und berät und coacht viele der weltweit bekanntesten Organisationen. Er hat über 2 Millionen Social-Media-Follower, 1 Million Newsletter-Abonnenten und wurde von LinkedIn als einer der Top-5-Business-Influencer der Welt und von Xing als Top Mind 2021 ausgezeichnet.

Bernards neueste Bücher sind ‘Künstliche Intelligenz im Unternehmen: Innovative Anwendungen in 50 Erfolgreichen Unternehmen’

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The Difference Between a KPI and KRI2 July 2021

Even though many organisations use the terms Key Performance Indicators (KPIs) and Key Risk Indicators (KRIs) interchangeably, they actually are two different tools with different purposes. Let’s take a look at what they are and how they are different.

Key Performance Indicators (KPI)

Key Performance Indicators (KPIs) are the gauges and measurements an organisation uses to understand how well individuals, business units, projects and companies are performing against their strategic goals.

Once an organisation has identified its strategic goals, KPIs serve as monitoring and decision-making tools that help answer your organisation’s key performance questions.

For more information on KPIs you can:

read ‘What are Key Performance Indicators (KPI)?’,

check out this KPI template and

explore the 10 biggest mistakes companies make with KPIs.

Key Risk Indicators (KRI)

Key Risk Indicators (KRIs), as the name suggests, measure risk. KRIs are used by organisations to determine how much risk they are exposed to or how risky a particular venture or activity is.

KRIs are a way to quantify and monitor the biggest risks an organisation (or activity) is exposed to. By measuring the risks and their potential impact on business performance, organisations are able to create early warning systems that allow them to monitor, manage and mitigate key risks.

Effective KRIs help to:

Identify the biggest risks.

Quantify those risks and their impact.

Put risks into perspective by providing comparisons and benchmarks.

Enable regular risk reporting and risk monitoring.

Alert key people in advance of risks unfolding.

Help people to manage and mitigate risks.

The relationship between KPIs and KRIs

While KPIs help organisations understand how well they are doing in relation to their strategic plans, KRIs help them understand the risks involved and the likelihood of not delivering good outcomes in the future. This means KRIs can be the flipside or KPIs.

Here are three examples that illustrate this relationship:

A company might establish a KPI to measure IT system performance and a complementary KRI to track IT vulnerability to cyberattacks.

Perhaps a company creates a KPI to monitor its market share growth because that’s a key business objective. A KRI linked to the same goal could monitor the risks of losing market share due to customer shifts or new competition.

A company might measure staff engagement or staff satisfaction as important KPIs and monitor the likelihood of losing key staff and the risks to their employer brand as KRIs.

So, in a nutshell:

KPIs and KRIs are not the same. KRIs help to quantify risks, while KPIs help to measure business performance.

Where to go from here:

How Do You Develop Key Risk Indicators (KRIs)? And How Do They Differ From KPIs?

What Is A Leading And A Lagging Indicator? And Why You Need To Understand The Difference

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Sign up to Stay in Touch!Bernard Marr is a world-renowned futurist, influencer and thought leader in the fields of business and technology, with a passion for using technology for the good of humanity.

He is a best-selling author of over 20 books, writes a regular column for Forbes and advises and coaches many of the world’s best-known organisations.

He has a combined following of 4 million people across his social media channels and newsletters and was ranked by LinkedIn as one of the top 5 business influencers in the world.

Bernard’s latest book is ‘Generative AI in Practice’.

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Key Risk Indicator (KRI) - CIO Wiki

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Key Risk Indicator (KRI)

A Key Risk Indicator (KRI) is a metric used to measure and monitor the level of risk associated with a particular process, activity, or system within an organization. KRIs are typically used in risk management to provide early warning signs of potential risks and to help organizations take proactive steps to mitigate those risks.

KRIs are designed to be quantitative and measurable, allowing organizations to track changes in risk levels over time and to identify trends and patterns that may indicate an increased likelihood of risk. Examples of KRIs may include the number of security breaches, the frequency of customer complaints, or the percentage of on-time project completions.

KRIs are often used in conjunction with other risk management tools, such as risk assessments and risk registers, to provide a comprehensive view of the organization's risk profile. They can be customized to the specific needs of an organization and can be used to monitor risks at both a strategic and operational level.

The use of KRIs can help organizations to better understand and manage their risk exposure. By monitoring key risk indicators, organizations can identify potential issues before they become major problems and take proactive steps to mitigate those risks. This can help to improve overall risk management and to minimize the potential impact of risks on the organization.

KRIs are used to answer the question: “How is our risk profile changing, and is it within our desired tolerance levels?” Within the Risk-based performance methodology, KRIs are/should be defined for all Key Risks, included on the risk scorecard, and scored on a 0-3 scale – see previous post on the Risk-based performance scoring methodology.[1]

Key Risk Indicators (KRIs) are useful tools for business line managers, senior management, and Boards to help monitor the level of risk-taking in an activity or an organization. To business lines managers, they may help to signal a change in the level of risk exposure associated with specific processes and activities. To senior management, they reflect the level of risk exposure, use or stretch of resources, and the effectiveness of key controls. To the Board, KRIs can indicate whether the firm operates within the set risk appetite. Finally, for modelers, key risk indicators are a natural way of including the fourth element of AMA (Advanced Measurement Approach), the BEICF (Business Environment and Internal Control Factors), into operational risk capital.[2]

Characteristics of Key Risk Indicators (KRI)[3]

A good KRI should have at least the following characteristics:

KRIs should be based on established Standards

KRIs should be developed using a consistent methodology

KRIs should provide a clear understanding of the risk variables:

Potentiality (Can it occur?)

Probability (If it can occur, what is the likelihood?)

Timing (When is it most likely to occur? / How much time do we have before it occurs?)

Severity of the Risk (When it occurs, what is the $ / % / # loss?)

KRIs must be quantifiable (number, dollars, or percentages)

KRIs must be easily applied and understood by the end users

KRIs must provide trending analysis of the risk variables

KRIs should validate or invalidate management decisions and actions

KRIs should be timely, provide a simplified but complete view of the risk, and cost-effective

Lifecycle of Key Risk Indicators (KRI) (Figure 1.)[4]

The key steps of a leading KRI program are represented in Figure 1. The cycle starts with the identification of key risks to the organization, the risk that is significant enough to warrant active monitoring. In order to play a role in the prevention of risk, indicators must signal a rise in the level of risk factors rather than counting the number of incidents that have happened. Like a KRI for car accidents is not the number of collisions (but it is rather speed, alcohol, or fog), preventive KRIs capture elevated levels of what causes risks rather than the incidents that have already occurred. Understanding the causes of the risks (step 2) is thus an essential prerequisite to the identification of leading key risk indicators. However, chances are that several existing performance and control metrics already used in the organization can be reused and looked at from the perspective of leading KRIs (step 3). Deficient controls (red KCIs) are, by definition, indicators of elevated levels of risk. Similarly, poor performance (red KPIs) is, more often than not, announcing trouble. Once the existing metrics have to be reviewed to assess whether they qualify also as KRIs, only the missing metrics need to be completed with new KRIs (step 4). KRI Desing (step 5) relates to the structure of this particular form of reporting that are the risk indicators: data source and capture, frequency of reporting and thresholds, stakeholders to the process of collecting, reporting, and acting on possible breaches, and governance rules in case of breaches (step 5). Finally, after some time (1 – 2 years) of using KRIs usage, it is advisable to test their effectiveness: have they helped to prevent any incidents? (step 6).

Figure 1. source: Chapelle Consulting

KRI Processes[5]

KRI Identification

Identify existing metrics.

Assess gaps and improve metrics.

Identify KRIs via risk control self-assessment (RCSA)—interview business units.

Don’t over-rely on them; focus on indicators that track changes in the risk profile or the effectiveness of the control environment.

Concentrate on the significant risks and their causes and consider forward-looking and historical indicators.

Consider absolute values and numbers, ratios, percentages, aging, etc.

Data on KRIs should be collated on a systematic and consistent basis in order to be meaningful, e.g., on a monthly basis.

KRI selection

Select the KRIs that are measurable, meaningful, and predictive (leading indicators).

Gather a good mix of leading and lagging indicators for effective risk management.

Don’t select too many KRIs that:

Are too difficult to manage (track).

Might become unmanageable.

Select only the ones that provide useful information.

Setting thresholds

Determine and validate trigger levels or thresholds.

Based on industry tolerance or internal acceptance.

Board of directors should approve thresholds.

Should coincide with risk appetite statement.

KRI Tracking & Reporting

Periodic tracking of KRIs (monthly, weekly, depending on what the KRI represents).

KRIs should be reported regularly, and escalation procedures should be in place (as part of the KRI framework) to ensure timely reporting to management and the board.

Various KRIs will have different levels of escalation. When in doubt, escalate higher, but don’t dump too much information on management/board because they will get overwhelmed.

Reporting of KRIs to head of business units by KRI owners. The head of business units then reports to risk management. Risk management reports to the risk board and, when applicable, the full board.

This can help improve corporate governance structure.

Risk Mitigation Plans

Risk mitigation plans (RMPs) should be set for high-risk items.

Items with high severity or high frequency of occurrence need to have RMPs to mitigate risk and enhance controls.

Determine what high risk is by assessing control levels.

Track RMPs to ensure that controls are enhanced, and risk is mitigated. Report on RMPs to management/board and set target completion dates.

Methodology of Identification of Key Risk Indicators (KRI)[6]

The approach for operational KRI identification consists of five steps:

Step 1: Definition of the perimeter of risks to manage

For efficient operational risk management, the enterprise should focus on major risks. This risk has a real and/or significant potential impact on a company’s financial statements.

The significance level to decide whether a risk is major or not depends on each company (revenues, results, total assets, degree of sensitivity to risks, etc.). It should be set by the top management. Thus, major risks to be followed are those whose annual impact exceeds thresholds set in fact by management. The operational risk mapping serves as a guide to which managers can refer throughout the process of identifying the company’s major risks.

Step 2: Identification of KRI dashboard recipients

The second step of the KRI definition process consists of the identification of the future receivers of dashboards. Indeed, appropriate indicators should be made available to the recipients according to their functions. Relevant good practices recommend sending to each operational manager key indicators related to risks within his scope of intervention. These indicators must be aggregated on the basis of the hierarchy level. Furthermore, they need to be available for the risk managers, if there is one in the company, for internal controllers and auditors to target their checks.

Step 3: Identification of actors that would participate in indicators’ definition workshop

For a successful exercise of KRI identification, it is important to involve managers who would exploit indicators in the identification workshops. All operational managers are responsible for managing and tracking major risks must be identified and invited to attend training sessions. The main goal of those sessions is to explain the objectives of the KRI system, the methodology for the identification of the indicators, and the threshold setup. The risk manager should also attend this training session in view of the important role he will play in the indicators and threshold definition.

Step 4: Training of actors (designated in step 3) in KRIs identification methodology

Designated actors need to go through a training session dealing with the identification of risk indicators process. This session should focus on the following:

Definition of basic concepts: risk, major risk, key risk indicator, exposure indicator, proven risk indicator, environment indicator, specific indicator;

Presentation of the objectives regarding the set-up of the operational key risk indicators system;

Presentation of the methodology for identification of key risk indicators and their thresholds (see step 5 below);

Identification of people that would exploit these indicators but also those that would set up and control the KRI system;

Presentation of the templates for KRI dashboards to produce.

Once the training session is completed, a plan for holding an indicators identification workshop should be put in place.

Step 5: Holding the KRI identification and thresholds definition workshops in accordance with the predefined planning

As said above, there are two types of indicators, namely, exposure indicators and proven risk indicators, calculated prior to or after risk occurrence. In order to identify exposure indicators, it is recommended to proceed as follows:

Identify potential sources of each selected major risk;

Determine the indicator that would quantify each identified source of risk.

As far as proven risk indicators are concerned, the approach for indicators identification is as follows:

Identify the consequences of each selected major risk;

Define indicators that would quantify each identified consequence of risk.

However, it is possible to combine the two types of indicators for one risk in order to ensure effective monitoring before and after the occurrence of risk.

Mapping Risks to KRI (Figure 2.)[7]

Managing risks is about managing the chain of:

Detecting/predicting threats/opportunities

Estimating the chance that they will happen (their probability)

Controlling the impact/outcomes

Normally, we cannot map all these aspects of the risk in one KRI, so we will normally need 3 indicators:

Indicator that would measure the probability

Indicator that would measure the impact

Indicator that would measure action plan

For example, for such KRI as “Poor mentoring of employees,” we would have:

Time spend on mentoring per week, hours. This indicator estimates risk probability; the fewer hours one spends mentoring others, the more likely the company will face this risk.

Employee engagement index, %. This indicator helps to understand the impact of poor communication. Less mentoring means less engagement on the part of employees.

Action plan: improve mentoring procedures; relevant indicators might be something like “Leadership training passed, hours.” We need to teach managers a proper leadership paradigm that would include mentoring.

Figure 2. source: BSC Designer

Role of Technology in Effectively Measuring and Managing KRIs[8]

Given the advances made by technology today, it is imperative to leverage it to look at different indicators in the context of the risk data being collated for an organization. If the organization is already using a risk management system, then it has its risk and control assessment data and issue data and can combine existing KRIs effectively.

Technology enables the measurement of different risk categories, metrics, and even occurrences. The system is not only for risks; it can also be used for asset classes, objectives, controls, processes, business entities, etc. Once these are established, one can define thresholds (such as green, amber, and red) – which represent rising and dropping indicators, both critical and non-critical. Reporting and dashboards make it easy to see critical areas for analyses, thresholds – breached or otherwise.

Technology can be used to create a comprehensive story when KRI thresholds escalate. Automating KRIs to give them longer lives, tracking remedial action when KRIs are escalated, track follow-ups – are some of the options available when technology is harnessed. Using technology also makes it easier to explain to regulators the actions performed and the situations that mandated them since it leaves an audit trail that reveals these details clearly.

Risk management strategies can also be realized for specific, measurable, relevant, and timely actions and responsibilities. Toward this objective, it is essential to understand KRI standards and measurement specifications. Furthermore, it is essential to determine the organization’s analytics providers and the metrics consumers through various tools and resources.

One of the biggest benefits of leveraging technology to manage KRIs is that it does away with manual efforts, which can be time-consuming and cumbersome. Technology supports manual and automated data collation methods, enables the easy definition of thresholds, and tracks issues and actions for breaches. It provides a single interface to define KRI, KPIs, KCI (Key Control Indicators), and risk appetites. It is possible to track metrics for causes, consequences, and risks, which are easily accessible to personnel studying these within the organization. It is also easy to relate KRIs, KPIs, and KCIs to anything in the organization’s GRC library of content.

Benefits of Key Risk Indicators (KRI)[9]

The constant measure of KRI can bring the following benefits to the organization:

Provide an early warning: a proactive action can take place

Provide a backward-looking view on risk events, so lessons can be learned from the past

Provide an indication that the risk appetite and tolerance are reached

Provide real-time actionable intelligence to decision-makers and risk managers

Management Challenges in the Development of KRI Library[10]

Lack of standards and best practices—For better or for worse, the SMSIs look at the many operating methods and controls used successfully by other institutions. The SMSI often scales for its environment with the more advanced management techniques of larger institutions. Until KRI practices mature and become time-tested, each institution will have to continue experimenting with different risk indicators to determine which are effective and manageable.

Management Awareness—The control measures that get the most attention and support are those that senior management understands and expects. Because the concept of an enterprise-wide KRI library is still very new to the industry, many senior managers are unaware of its value, let alone its design, so they are hesitant to allocate scarce resources to develop such a program.

Speed of change—Technology changes at an extremely rapid pace, so risks that may be embedded or inherent within a given technology today may increase or decrease with successive versions or developments. KRIs that are linked to a specific technology or even a technology-centric process need to be routinely reevaluated any time that the underlying technology goes through a major revision.

Control measures—Before effective KRIs can be designed and implemented, the institution must be able to clearly establish its internal control measures. An organization that is not confident in its control measures cannot build “status” measures around them. Fortunately, many institutions have gone through extensive exercises to document key control measures as a part of their compliance programs, particularly those subject to the Sarbanes-Oxley Act. These controls often serve as the foundation for determining active risk indicators.

Lack of a process “decay” period—Some aspects of technology can be effectively monitored for subtle changes or degradation. Others defy monitoring. They can move very quickly from a stable state where nothing is happening to one of dramatic change. For example, the lack of any computer viruses on the internal network can be routinely monitored, but a virulent computer virus that suddenly penetrates the network’s defenses can’t be measured by a KRI since the environment would go immediately from “stable” to “bad,” completely bypassing “trending toward bad.”

Technology versus risk focus—People charged with implementing and maintaining the bank’s technology are, for the most part, focused on the technology itself and not necessarily the business risk associated with a potential failure of the technology. The development of technology-based KRIs is probably going to require the development of more mature communication channels between the subject matter experts regarding what could go wrong with the technology and what that would mean to the business.

Technology versus process risk—Processes dependent on technology must include the potential failure of the technology as a risk. In failure scenarios, there is a gray area because the failure could be due to the technology itself or how it is used. For instance, if the misconfiguration of an externally facing router exposes the bank’s network to the public Internet, is that a technology risk or a process risk? Many technology-centric KRIs may only make sense within the context of a full KRI library to cover all operational risk areas.

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Operational Continuity Assurance Practices (OCAP)

This article is about the measure used in management. For the Ruby Implementation, see YARV. For other uses, see KRI.

This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed.Find sources: "Key risk indicator" – news · newspapers · books · scholar · JSTOR (February 2018) (Learn how and when to remove this template message)

A key risk indicator (KRI) is a measure used in management to indicate how risky an activity is. Key risk indicators are metrics used by organizations to provide an early signal of increasing risk exposures in various areas of the enterprise. It differs from a key performance indicator (KPI) in that the latter is meant as a measure of how well something is being done while the former is an indicator of the possibility of future adverse impact. KRI give an early warning to identify potential events that may harm continuity of the activity/project.

KRIs are a mainstay of operational risk analysis.

Definitions[edit]

According to OECD[1]

A risk indicator is an indicator that estimates the potential for some form of resource degradation using mathematical formulas or models.

Risk management[edit]

Security risk management[edit]

According to Risk IT framework by ISACA,[2] key risk indicators are metrics capable of showing that the organization is subject or has a high probability of being subject to a risk that exceed the defined risk appetite.

Organizations have different sizes and environment. So every enterprise should choose its own KRI, taking into account the following steps:

Consider the different stakeholders of the organization

Make a balanced selection of risk indicators, covering performance indicators, lead indicators and trends

Ensure that the selected indicators drill down to the root cause of the events

Choose high relevant and high probability of predicting important risks:

High business impact

Easy to measure

With high correlation with the risk

Sensitivity

Determine thresholds and triggers for the set of KRI's

Locate and fold in data sources that contribute or feed data into KRI triggers

Determine notification methods, recipients, and action or response sequences

The constant measure of KRI can bring the following benefits to the organization:

Provide an early warning: a proactive action can take place

Provide a backward looking view on risk events, so lesson can be learned by the past

Provide an indication that the risk appetite and tolerance are reached

Provide real time actionable intelligence to decision makers and risk managers

Advances in hosted cloud data storage, data federation, and data aggregation have enabled data supply chains for real time calculation of key risk indicators across heretofore unlinked or disconnected data sources. Risk level dashboards can be supplemented with real time push notifications of risk. Systems methods and tools addressing triggering of notifications when targets are attained for key risk indicators have been evolving. Calculating and enabling notifications of key risk indicators used to be a unique benefit of enterprise software packages. With the evolution of API's to calculate trigger values for key risk indicators across various data sources, the potential for risk managers to include data external to an enterprise or external to an enterprise database has changed the risk management landscape.

Qualities of good key risk indicators[edit]

Some qualities of a good key risk indicator include:[3]

Ability to measure the right thing (e.g., supports the decisions that need to be made)

Quantifiable (e.g., damages in dollars of profit loss)

Capability to be measured precisely and accurately

Ability to be validated against ground truth, and confidence level one has in the assertions made within the framework of the metric

KRI Framework for Operational Risk Management | Workiva

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Operational risk: key risk indicators (KRIs)

Risk Management

Board Reporting

ERM

5 min read

AUTHOR:

Kseniya Strachnyi

Advisory Consultant

Published:

October 29, 2015

Last Updated:

December 14, 2023

IN THIS STORY

Key risk indicators, operational risk, risk mitigation—these terms pop up in most content focused on risk management. But, these terms aren't often used in a way that provides guidance on improving processes. We all need to understand what role KRIs play in risk mitigation, but do we all know how to get started turning concepts into action? This blog by Kate Strachnyi provides a substantive introduction to a realistic KRI framework that any company can use as a foundation for a robust and customized risk management strategy.

Key risk indicators defined

Key risk indicators (KRIs) are an important tool within risk management and are used to enhance the monitoring and mitigation of risks and facilitate risk reporting. Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems, or external events. Operational KRIs are measures that enable risk managers to identify potential losses before they happen. The metrics act as indicators of changes in the risk profile of a firm.

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Effective KRIs should be:

Measurable - metrics should be quantifiable (e.g., number, count, percentage, dollar volume, etc.).

Predictable - provide early warning signals.

Comparable - track over a period of time (trends).

Informational - measure the status of the risk and control.

Leading & lagging KRIs

Leading KRIs are measures that are considered predictive in nature. They are derived from metrics that can help to forecast future occurrences. Lagging KRIs are metrics based on historical measures. These help to identify trends in the firm.

Importance of KRIs

KRIs play an important role in risk management by predicting potential high risk areas and enabling timely action.

KRIs enable firms to:

Identify current risk exposure and emerging risk trends.

Highlight control weaknesses and allow for the strengthening of poor controls.

Facilitate the risk reporting and escalation process.

Operational risk management adds value to the firm.

Regulatory expectations

To qualify to use the Advanced Measurement Approach (AMA) to calculate operational risk capital under Basel II, the Basel Committee on Banking Supervision (BCBS) has specified detailed criteria for the use of forward-looking measures. The choice of each factor needs to be justified as a meaningful driver of risk and whenever possible, and the factors should be translatable into quantitative measures that lend themselves to verification. The sensitivity of a firms risk estimates to changes in the factors and the relative weighting of the various factors need to be well reasoned.

KRI roadmap

Below is a high-level roadmap for establishing a KRI framework:

KRI processes

KRI identification

Identify existing metrics.

Assess gaps and improve metrics.

Identify KRIs via risk control self-assessment (RCSA)—interview business units.

Don’t over rely on them; focus on indicators which track changes in the risk profile or the effectiveness of the control environment.

Concentrate on the significant risks and their causes and consider forward looking and historical indicators.

Consider absolute values and numbers, ratios, percentages, ageing, etc.

Data on KRIs should be collated on a systematic and consistent basis in order to be meaningful, e.g., on a monthly basis.

KRI selection

Select the KRIs that are measurable, meaningful and predictive (leading indicators).

Gather a good mix of leading and lagging indicators for effective risk management.

Don’t select too many KRIs that:

Are too difficult to manage (track).

Might become unmanageable.

Select only the ones that provide useful information.

Setting thresholds

Determine and validate trigger levels or thresholds.

Based on industry tolerance or internal acceptance.

Board of directors should approve thresholds.

Should coincide with risk appetite statement.

KRI tracking & reporting

Periodic tracking of KRIs (monthly, weekly, depends on what the KRI represents).

KRIs should be reported regularly and escalation procedures should be in place (as part of the KRI framework) to ensure timely reporting to management and board.

Various KRIs will have different levels of escalation. When in doubt, escalate higher but don’t dump too much information on management/board because they will get overwhelmed.

Reporting of KRIs to head of business units by KRI owners. Head of business units then reports into risk management. Risk management reports to risk board and when applicable, the full board.

This can help improve corporate governance structure.

Risk mitigation plans

Risk mitigation plans (RMPs) should be set for High risk items.

Items with high severity or high frequency of occurrence need to have RMPs to mitigate risk and enhance controls.

Determine what is high risk by assessing control levels.

Track RMPs to ensure that controls are enhanced and risk is mitigated. Report on RMPs to management/board, and set target completion dates.

Roles & responsibilities

Risk management

Create Framework and provide training

Guidance and challenge KRI selection process

Reporting/Escalation of breaches

Identify Trends

Business units

Identify KRIs

Set thresholds

Monitor positions

Escalate breaches of limits to management

Internal audit

Validation and assurance around KRI process

Incorporate output into audit plan

Assess control effectiveness for KRIs that were breached or yellow

Challenges

The potential challenges of establishing an effective KRI framework include:

Getting business units to buy-in into the need for KRIs

Demonstrating the effect (positive) that it can have on the firm overall and for each business unit

Might result in setting aside more capital

Identification of KRIs can prove to be difficult

Lack of resources to track KRIs

This article is by Kseniya Strachnyi from riskarticles.com.

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About the Author

Kseniya Strachnyi

Advisory Consultant

Kseniya (Kate) Strachnyi is an advisory consultant focused on risk management, governance, and regulatory response solutions for financial services institutions. Areas of expertise include governance frameworks, enterprise risk management programs, ICAAP, compliance risk management, operational risk management, Foreign Enhanced Prudential Standards, Basel II/III, and the Dodd-Frank Act.

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Key Risk Indicators (KRI)

As described in section “Risk Register“, once the Risk Management department of a firm (along with the respective business owners or representatives) assesses all its risks and scores their severity according to probability (or likelihood) and impact, it is possible to extract and isolate the top risks an organisation might be exposed to. These can be defined as the firm’s “key risks”.

It is then possible to define specific data which must be collected regularly to measure the ongoing status of those risks. For each KRI, upper and lower acceptable risk limits (warning thresholds) are defined, allowing management to track evolution and trends for each risk and KRI. This methodology enables the usage of Red, Amber and Green (RAG) limits which are useful since a “soft” amber limit can trigger an action before reaching the “hard” red limit.

A solid KRI process brings advantages for a firm, enabling appropriate and precise escalation levels. It also allows a firm to look at how risks are evolving, anticipate any additional risk mitigating control needs and develop comprehensive management information reports for senior management and the Board of Directors. The challenge of KRI usage is revisiting and eventually adjusting the RAG risk tolerance thresholds over time.

On the other hand, an embedded KRI system can deliver distorted outputs over time if responsible staff start adjusting their management approach to their own KRI’s. Hence the need of revisiting and adjusting KRI’s periodically, involving the Risk Management department.

Below you can see an example table containing risks, the defined KRI’s, their respective owners, thresholds for each KRI, and data capture for each month. Depending on each risk’s particular requirements, the captured data for a given KRI timeframe might be different (e.g. hourly, daily, weekly, etc.). – click on the image to view larger version.

Our recent articles about KRI

How to Develop Key Risk Indicators (KRIs) to Fortify Your Business | AuditBoard

to Develop Key Risk Indicators (KRIs) to Fortify Your Business | AuditBoardPlatformPlatformThe PlatformIntegrationsProductsSOXHUBRiskOversightOpsAuditCrossComplyTPRMESGITRMSolutionsBy TeamAuditRiskInfoSecESGBy IndustryBusiness ServicesEducation, Government, and Non-ProfitEnergy, Materials, and UtilitiesFinancial ServicesHealthcareInsuranceManufacturingMedia and TelecomReal Estate and ConstructionRetailTechnologyTravel and TransportationBy FrameworkCCPAFedRAMPHITRUSTNYDFSCMMCGDPRISOPCICOBITHIPAANISTSOC 2COSOCustomersCompanyAbout UsLeadershipInvestorsPartnersNewsCareersTechnology & SecurityResourcesBlogResource LibraryEbooksAuditBoard TVEvents & WebinarsOn-Demand WebinarsBusiness Value CalculatorCommunityLoginCONNECT WITH USAuditBoard's LinkedinAuditBoard's FacebookAuditBoard's Youtube1 (877) 769-5444Get StartedHome/Blog/RiskHow to Develop Key Risk Indicators (KRIs) to Fortify Your BusinessVice VicenteMay 8, 2023Risk management, compliance, and internal audit professionals are well versed in finding ways to help organizations manage risk. From employing Enterprise Risk Management or ERM best practices, to responding to real time disruptions, risk professionals have many tools in their proverbial toolbox — and they need them. Risk identification and assessment processes need to be iterative and dynamic. Auditors need to revise risk assessments and modify risk responses and audit procedures throughout fast-changing and complex circumstances.To help your company manage emerging threats and better prepare for the future, it’s vital that you and your team develop Key Risk Indicators (KRIs). This helps to safeguard your organization from the various types of risks that can sidetrack its plans, and even point to early warning signs of major disruptions. Safeguarding activities include:

Developing a thorough understanding of each potential risk exposure.

Documenting each risk, the impact, and likelihood of the risk occurring.

Closely monitoring performance via Key Performance Indicators.

Leveraging technology to assist this process.

Conducting periodic and regular reviews of KRIs as situations change and evolve.

What Is a Key Risk Indicator?Key risk indicators are metrics that predict potential risks that can negatively impact businesses. They provide a way to quantify and monitor each risk. Think of them as change-related metrics that act as an early warning risk detection system to help companies effectively monitor, manage and mitigate risks. KRIs provide visibility into the weaknesses within your company’s risk and control environment and processes — and help to develop a risk assessment plan to fortify your business. Key risk indicators are not limited by function or silo and can be applied to many business processes and risk factors, informing an organization’s overall risk management strategy. The Primary Purpose of Key Risk IndicatorsKRIs add value to overall operational risk management by playing an essential risk management role. KRIs predict potential risk — especially within high-risk areas and sectors. KRIs can help with:

Identifying any risk exposure relating to current or emerging risk trends.

Assessing and quantifying each risk and its potential impact.

Providing perspective through benchmarking.

Enabling timely and ongoing risk control and monitoring.

Enabling leaders and key personnel to receive alerts of potential risks in advance.

Providing time to develop the appropriate and effective risk responses and action plans.

Establishing objectivity within the risk management process.

In short, KRIs provide an early warning system” that allows companies to be prepared for risks.Helping Companies Identify Emerging RisksEmerging risks will continue to impact many audit risk areas. Industries will put an emphasis on developing or bolstering their risk assessment plans to focus on identifying emerging risks within their supply chains and internal controls — as well as looking at fraud or cybersecurity threats due to remote working conditions. Climate change, natural disasters, and geopolitical factors play another role in the emerging risk landscape. As a powerful tool supporting operational risk management (ORM), KRIs help identify and define risks to ensure everyone understands the relationship between each KRI and potential risks. So, how do KRIs help companies identify these emerging risks? KRIs assist companies with:

Comparing business objectives and strategy to actual performance to isolate changes.

Measuring the effectiveness of processes or projects.

Demonstrating changes in the frequency or impact of a specific risk event.

How to Identify Key Risk IndicatorsClearly identifying KRIs involves developing a roadmap — such as the one outlined below — to establish the right set of KRIs for the organization. As with all risk management approaches, KRIs should be tailored to the risk profile of the company and take into account the major risks that face the business. This process will involve your risk management team, each business unit, and those responsible for internal audits. Risk Management ResponsibilitiesBefore identifying KRIs, your risk management team will need to create a framework and provide guidance by ensuring everyone is trained on the KRI selection process. The risk management team can also provide guidance around risk mitigation and action plans, as well as oversight around effective KRIs and similar initiatives.Business Unit ResponsibilitiesEach business unit will be responsible for identifying their respective KRIs, setting the thresholds, monitoring each KRI state, and escalating variances against these to management, including:

Revisiting All Existing Metrics: As things change, all current metrics must be thoroughly reviewed; frequency will depend on the industry, internal and external changes, strategic goals, and other factors, but this should be done at least annually. Conduct an organization-wide SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) to identify, analyze, and document the entire organization’s operational state and risk appetite.

Conducting a Risk Control Self-assessment: Another aspect of assessing risk appetite is revisiting each metric and conducting a full risk assessment. This should be carried out to determine precisely how each potential risk affects strategic plans, the likelihood of it happening, and where the impact may occur, among other things.

Tracking Changes in the Control Environment: It’s necessary to track changes in the control environment. Published by the Committee of Sponsoring Organization (COSO), the Internal Control — Integrated Framework ensures the standards, processes, and structures in organizations are in place to safeguard your organization. Changes to processes and controls may negatively impact the control environment’s effectiveness and increase risk exposure.

Prioritizing Significant Risks and Isolating Their Root Causes: Once risks are identified, they will need to be prioritized — each risk will require a risk response, but they all can’t be a top priority. Conducting a root cause analysis will be essential to determine the importance and action to be taken.

Systematically Collecting All Data on KRIs: To be of value to the organization, data relating to KRIs should be collated methodically. Make sure not to select a large number of KRIs that are too difficult to monitor, manage, or trace. To be effective and deliver strategic value, all KRIs should be measurable, predictable, comparable, and informational.

Another part of identifying KRIs is setting thresholds or tolerances that enable flags to be raised when the situation moves outside of the normal. The thresholds should be based on industry norms or internal acceptance criteria. All thresholds should be carefully vetted by key stakeholders and approved by your company leadership or board of directors. Other tasks that need to be addressed when developing KRIs including determining who is responsible for:

Tracking and reporting KRIs

Establishing risk responses

Establishing or updating controls

Re-evaluating KRIs as circumstances change

Internal Audit ResponsibilitiesInternal audit will need to validate and provide assurances relating to the KRI process as well as build into the audit plan all the required inputs and record auditresults related to KRI audits. Internal audit will also need to identify, document, and report all exceptions or breaches to KRIs. Internal audit teams can play a major role in evaluating the suitability and relevance of KRIs, and it may be worthwhile for organizations to complete periodic KRI audits.What Are Examples of Key Risk Indicators? There are various types of quantitative and qualitative KRIs — for example, some are focused on financial, human resource, operational, technical, or other aspects of the business. Quantitative KRIs These focus on provable facts and numerical data based on findings from mathematical models, system outputs, and analysis methods. Qualitative KRIs These types of KRIs focus on predicting probability-based outcomes to support things like sensitivity analysis.Depending on your business or industry’s nature, the use of quantitative over qualitative KRIs may be more relevant. Some KRIs may also rank higher on the priority list, be of more importance than others, and be subject to change based on internal or external environmental factors. Here are examples of top types of KRIs used across a range of industries and sectors.Financial KRIsQuantitative financial KRIs may be of greater significance to commercial or retail banks, asset management or firms, or Certified Public Accounting (CPA) firms. Some examples of financial KRIs pointing to external environmental factors might include ones that measure an economic downturn or regulatory changes. Internal factors might be changes to strategic goals, budget limitations, or acquisitions. Human Resource KRIsStaffing and recruitment firms and human resource departments are likely to be interested in using quantitative or qualitative people-based KRIs. High staff turnover, low staff satisfaction, labor shortages, or low recruiting conversion rates are some examples of human resource KRIs.Operational KRIsOperational KRIs could measure many things, from failed internal processes to ineffective internal controls. These types of KRIs can be typically developed in all industries. Factors impacting operational KRIs might center around process inefficiencies, leadership changes, or changes to strategic goals.Technological KRIsSystem failures, security breaches, and denial of service incidents are all examples of events measured by technology-based KRIs. These types of KRIs also impact all industries but can be of greater importance to a technology service provider or a firm that relies on online business portals. Technological risk factors might include increased operational complexity, security issues, changes to protocols, or regulations.The Difference Between KRI and KPI: Are They Related?It’s important to understand the difference between KRIs and KPIs. While they are related, they are different. They work together to provide companies and their leaders with the metrics needed to fortify their businesses. Both KPIs and KRIs are needed — they work hand-in-hand to create a complete picture for effective and timely decision-making. KPIs ** ** look backward and focus on how well companies are achieving their goals. KPIs identify and prioritize a company’s key goals as well as monitor performance against those goals.KRIs are predictive. They assess and manage potential risks to goals. They focus on the likelihood of companies achieving their goals based on potential risk factors. KRIs are linked to an organization’s risk posture and strategic priorities, and identify current and emerging risks related to each key goal. KRIs also monitor risks and send an early warning when the business is at risk of not achieving its goals.How to Develop Key Risk Indicators to Fortify Your Business?Gauging performance and ensuring goals and milestones are met is one of the key aspects for which any leadership team is responsible. When looking at their dashboard each day, leaders across the business expect to see the information that tells them the current state of things — and that hopefully, they are on track — and this includes KRIs. When KRIs fall outside of thresholds, they alert management there’s increased potential for risk exposure — but KRIs are only useful when they’re developed using this methodical yet simple approach. Identify Relevant RisksPrior to establishing KRIs, it is essential first to understand your company’s goals and any vulnerabilities that can cause risk points. Effective enterprise risk management relies on identifying the most significant risks — these are the ones that will have the highest impact, the highest chance of occurring — or are the most likely to be outside of your company’s control.Establish Your KRIsIf your company has already established Key Performance Indicators (KPIs), these can create KRIs. Why? The KPIs will already make sense and provide the underlying information — this can reduce the time spent on monitoring and the needed resources. Keep in mind: the KPIs being transferred to KRIs must also be relevant, timely, measurable, and make sense. If the KPIs are out of date or cover a period of time that is no longer applicable, then they shouldn’t be used. Establish a Solid ProcessSince KRIs are developed by each department, a solid process for creating, assessing, monitoring, and reporting them to the appropriate individuals will need to be established. The following best practices can ensure things go smoothly.

When identifying KRIs, involve all relevant stakeholders from the start.

Gain stakeholder buy-in so everyone is on the same page and vested in the success.

Ensure all information about KRIs and the process are accessible to all stakeholders.

Create a central point of contact to whom stakeholders can go to get support.

Keep stakeholders updated in a timely manner as things change.

Following a methodical approach like the one above can help streamline the process of developing Key Risk Indicators. Using automation to aggregate KRIs and present them in a clear dashboard can also be a game-changer.Potential Challenges of Developing Quantifiable, Good KRIsCreating, monitoring, and reporting KRIs sounds pretty straightforward, but it’s a bit more involved than one might think. Many businesses still struggle with common mistakes when establishing KRIs for these reasons:

Risks relating to the actual development of a KRI itself continue to go unaddressed. It requires conscious effort, resources, and executive and stakeholder buy-in.

There are also issues with access to credible and objective data — especially quantitative data.

The available data can often be unnecessarily complex and difficult to decipher and use.

Being aware of these common challenges can help you design a KRI development approach that will anticipate data and process-related issues.How to Use and Monitor KRIs Effectively Key risk indicators should be linked to a KPI and a strategic goal — and they should be prioritized to keep the focus on key risks. It’s also vital for KRIs to be continually monitored and tracked regularly — although the frequency will depend on the type of KRI. Risk management and audit professionals play a pivotal role in ensuring the right metrics are in place to reduce risk exposure. Effectively using KRIs also relies on having the right risk management platform in place. AuditBoard can assist in monitoring your company’s KRIs with integrated risk management software — get started with RiskOversight today.Frequently Asked Questions About Key Risk Indicators (KRIs)What is a Key Risk Indicator?Key risk indicators are metrics that predict potential risks that can negatively impact businesses.What are the different categories of Key Risk Indicators?There are many categories of KRIs, including qualitative, quantitative, financial, operational, and technological KRIs, among others.What’s the difference between KRI and KPI?Key Performance Indicators (KPIs) look to the past to compare and measure current performance while also setting organizational goals. Key risk indicators (KRIs) are forward looking and try to anticipate, prevent, and/or mitigate risk events.What are the potential challenges of developing KRIs?Some challenges involved with developing KRIs is the collaboration and buy-in needed to establish effective KRIs, the complexity of data associated with measuring KRIs, and the lack of usable data within an organization to measure KRIs.Vice Vicente started their career at EY and has spent the past 10 years in the IT compliance, risk management, and cybersecurity space. Vice has served, audited, or consulted for over 120 clients, implementing security and compliance programs and technologies, performing engagements around SOX 404, SOC 1, SOC 2, PCI DSS, and HIPAA, and guiding companies through security and compliance readiness. Connect with Vice on LinkedIn.Related ArticlesNewsAuditBoard and KPMG Announce Strategic AllianceNewsAuditBoard Reveals Powerful AI, Analytics, and Annotation Capabilities for Audit, Risk, and Compliance TeamsInfoSecHow AI Is Transforming Audit, Risk, and ComplianceAbout AuditBoardAuditBoard is the leading cloud-based platform transforming audit, risk, ESG, and compliance management. More than 40% of the Fortune 500 leverage AuditBoard to move their businesses forward with greater clarity and agility.PlatformSOXHUBOpsAuditCrossComplyRiskOversightTPRMITRMESGIntegrationsResourcesCustomersBlogResourcesEventsBusiness Value CalculatorCompanyAbout UsPartnersInvestorsCareersTrust & SecurityPressContact UsAuditBoard's LinkedinAuditBoard's FacebookAuditBoard's YoutubeAuditBoard's phone number1 (877) 769-5444Copyright © 2024 AuditBoard Inc.Privacy NoticeCookie Preferen

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How to Develop Effective Key Risk Indicators + Best Practices for 2023

to Develop Effective Key Risk Indicators + Best Practices for 2023ProductsWhy SecureframePowerful compliance solutions backed by world-class expertsLearn moreProductsThe automated compliance platform built by compliance experts.Grow customer confidence and credibility.Product Updates Explore new featuresFeaturesSecureframe AIIntegrationsSecureframe APIFrameworksControlsEvidence CollectionRisk ManagementVendor ManagementSecurity TrainingTrust CenterQuestionnaire AutomationPersonnel ManagementPricingSolutionsSolutionsSmall businessBoost your business with security complianceLearn moreEnterpriseGive your team time back with compliance automationLearn moreTop FrameworksSOC 2Monitor all five SOC 2 trust services criteriaISO 27001Manage ISO 27001 certification and surveillance auditsHIPAACreate and monitor a healthcare compliance programPCI DSSStreamline PCI compliance across the RoC and SAQsCCPAMaintain compliance with California data privacy laws GDPRMaintain compliance with EU data privacy lawsSee All FrameworksPartnersPartner ProgramTrusted partner programFind out how Secureframe can help you streamline your audit practiceBecome a partnerExpand your business and join our growing list of partners todayAudit PartnersAuditorsFind out how Secureframe can help you streamline your audit practiceChannel PartnersService providersLearn about our service provider programs, including MSPs and vCISOsResourcesResourcesBlogGet expert advice on security, privacy and complianceHelp centerFind answers to product questions and get the most out of Secureframe Compliance hubsLearn the fundamentals of achieving and maintaining compliance with major security frameworksCompliance resourcesBrowse our library of free ebooks, policy templates, compliance checklists, and moreGlossaryUnderstand security, privacy and compliance terms and acronyms Frameworks GlossaryDiscover common security, privacy, and compliance frameworks and standardsFeaturedCompliance resourceThe SOC 2

Compliance KitRead onHubThe Governance, Risk, and Compliance (GRC) HubRead onBlogWhat Is a PCI Attestation of Compliance (AoC)?Read onCompanyCompanyAboutOur mission is to empower businesses to build trustCareersLet’s build together — learn about our team and view open positions SecuritySecurity is rooted in our culture — read our commitment to securityNewsroomRead the latest news, media mentions, and stories about Secureframe CustomersSign inRequest a demoMenu blogHow to Develop Effective Key Risk Indicators + Best Practices for 2023Table of ContentsWhat are key risk indicators?Key performance indicators vs key risk indicatorsChallenges of developing key risk indicatorsHow to develop KRIsKey risk indicator examplesKRI templateHelping your company better prepare for the future with KRIsHow to Develop Effective Key Risk Indicators + Best Practices for 2023April 20, 2023AuthorAnna FitzgeraldSenior Content Marketing Manager at SecureframeReviewerCavan LeungSenior Compliance Manager at Secureframe41% of organizations have experienced three or more critical risk events in the last 12 months, according to Forrester’s State of Risk Management 2022 report.With enterprise risk on the rise, enterprise risk management (ERM) is more important than ever. Developing key risk indicators, or KRIs, can strengthen ERM.KRIs track the potential occurrence of certain risk events. When triggered, they can alert management and other stakeholders to a potential threat that would have a significant impact on business operations, such as falling out of compliance with security frameworks like SOC 2.® Ready to learn more? Below we dig into the basics of KRIs, how to establish them, and tips for maintaining KRIs over time.What are key risk indicators?Key risk indicators (KRIs) are a way to proactively measure risks that a business may face. They serve as early warning signs of upcoming crises, which can provide an organization’s management team time to create an action plan to mitigate that risk’s potential impact or prevent it from occurring. KRIs are also tied to risk appetite, which sets a threshold for the level of risk exposure that a business will take on to achieve its objectives. KRIs can alert leadership of any upcoming threats that might exceed that threshold.KRIs aren’t meant to track every specific risk that your company may face. Instead, they’re meant to track the most important types of risks that could put your business’s primary objectives and priorities in jeopardy. Key performance indicators vs key risk indicatorsBoth key risk indicators and key performance indicators (KPIs) are metrics that help businesses make informed decisions and accurately plan for the future. However, KRIs and KPIs differ in what they measure. Let’s take a closer look at these two metrics below.Key performance indicatorsKPIs are used to measure the company’s performance against a goal or objective over a period of time. They can be used to look toward the future or back on the past, depending on the type.Leading KPIs evaluate outcomes of certain actions and processes to indicate a company’s progress toward achieving its business goals. Examples include customer satisfaction and percent growth in new markets.Lagging KPIs evaluate outputs of past actions and processes, like product launches and events, to determine whether the company achieved its goals. Examples include annual revenue and growth in annual sales.Key risk indicatorsKRIs are used to indicate potential risks that may affect the company’s ability to achieve its core objectives. KRIs can help a company meet its KPIs by reducing significant risks that can jeopardize business operations and growth initiatives.For example, if a company establishes a KPI to measure IT system performance, then a complementary KRI might measure the number of system backup failures or critical incidents. If either of these KRIs exceeded its threshold, then stakeholders could be alerted and have time to mitigate the risk before the IT system performance was impacted. Challenges of developing key risk indicatorsWhile KRIs boast a wide range of benefits that include the ability to proactively address an organization's risks, businesses also face a range of challenges when it comes to setting and tracking KRIs. In a recent poll conducted during a webinar by the CEOs of Nymro Clinical Consulting Services and Cyntegrity, 22% of business leaders said that finding the right method to calculate KRIs is their top challenge. Other common challenges businesses face when utilizing KRIs include:A failure to incorporate KPIs with KRIsInefficient tracking of KRIs due to lack of resources or tools such as automationTrouble accessing objective qualitative data to identify risk trendsNot associating actions with risk thresholdsHow to develop KRIsBefore your business can begin benefiting from KRIs, you’ll need to do a bit of prep work. We walk through the steps for KRI design below. 1. Understand your key objectivesA KRI is a metric for tracking the potential occurrence of certain risk events that will have an adverse effect on your company’s objectives.So before you can begin developing effective KRIs, it’s essential that you understand your company’s most important objectives. For example, one core objective might be to increase profits by increasing revenues and decreasing costs. There are several risks you may map to this core objective, like economic downturns or operational inefficiencies.2. Identify priority risksThe risks that pose the biggest threat to your business objectives— with a high probability of occurring and a potentially damaging outcome — are the kind you’re looking to include when you establish KRIs.Here are a few ways to identify relevant risks:Conduct a risk assessment to identify the risks that will cause the biggest impacts to your overall objectives and goals. Review your risk register to tip you off to certain risks that are subject to swift changes in risk level, indicating that they could benefit from the early warning of a KRI.Keep your core business objectives at the forefront as you design your KRIs, which will help you prioritize the most important risks.Consider risks that fall above or below your risk appetite threshold, as they will likely need additional oversight. Conduct an internal audit to assess your internal controls against a framework as you prepare towards audit readiness.3. Select KRIsThere are two primary methods for choosing KRIs: top-down and bottom-up approaches. Top-down approach: Senior leadership selects KRIs for the entire organization. This approach can be helpful in aligning with strategic KPIs and can help the organization’s understanding of risk impact and how it can affect business objectives. Bottom-up approach: Business units across the organization select and monitor KRIs that map to their operational processes. The bottom-up approach ensures risks are tracked on a more granular level and fosters buy-in from departments. Whether you opt for a top-down or a bottom-up approach, after top-priority risks have been identified you can begin to design KRIs. For initial KRIs, it can be helpful to start small with two or three indicators for your top risks. When setting up KRIs, keep things simple by focusing on your priority risks. Include relevant subject matter experts from your organization to help identify a few key indicators that will help you properly track risks. Remember that key traits of a good KRI are:Measurable: KRIs are quantifiable by percentages, numbers, etc. Predictive: KRIs can be used as an early warning system.Informative: KRIs are used to shape decision-making. Comparable: KRIs can be benchmarked internally and to industry standards. 4. Set thresholds for KRIs Once you’ve identified KRIs, set upper and lower tolerance values to track against each risk. Any time a risk moves beyond these thresholds of acceptance, you should alert key stakeholders and assign follow-up tasks to mitigate that risk. These tolerance values can be changed as data is captured, so don’t spend too much time perfecting them in the beginning. To start, you can use industry norms or internal criteria to set them and ensure they’re approved by your board of directors or other key leadership. When you’re confident in the data being collected from your initial indicators, you can expand the KRI program into different business departments.5. Maintain KRIs over timeOnce KRIs are in place, they need to be monitored and tracked regularly, whether in real time or with a quarterly check-in.Automation can help simplify this process, but you may also want to consider appointing key individuals to manually track certain indicators that make sense for your organization. Additionally, you can use the first few data-gathering periods as a way to check if your risk threshold settings are correct. This will help ensure that future alerts are configured correctly and prevent false alarms.It’s important to document and report all risk occurrences related to your KRIs. This should include a formal process for alerting key leadership when indicator tolerance levels are high.Key risk indicator examplesWhile you can map KRIs to any aspect of your business, common KRI types include operational, financial, technological, and people-related indicators. Operational KRIsOperational KRIs are closely related to operational risk. Examples include: Process inefficienciesInternal failuresLeadership changesFinancial KRIsFinancial KRIs are commonly used by banks and CPA firms. Examples include:Economic downturnRegulatory changesAcquisitionsBudget changesTechnological KRIsTechnological KRIs are used by businesses across industries. Examples include:System failuresData breach incidentsRegulatory changesPeople KRIsThese KRIs are often used by human resource departments or companies that handle staffing and recruitment. Examples include:High turnoverLow employee satisfactionLow recruiting conversionCybersecurity KRIsCybersecurity key risk indicators can be used by any company to measure, monitor, and manage their cybersecurity risk. Cybersecurity risk relates to the loss of confidentiality, integrity, or availability of information, data, or information (or control) systems as a result of digital attacks. Examples include:Number of cyber incidentsNumber of exposed data recordsCyber incident response timesInformation security KRIsInformation security KRIs can be used by any company to measure, monitor, and manage their InfoSec risk. InfoSec risk is the risk to organizational operations, organizational assets, and individuals due to the potential for unauthorized access, use, disclosure, disruption, modification, or destruction of information and/or information systems. Examples include:Failed login requestsPercentage of systems in use that are no longer supportedIncrease in attacks on firewall AML KRIsAnti-money laundering key risk indicators are commonly used by financial and other regulated institutions to help them comply with AML and anti terrorist financing legislation.Examples include:Size of the businessNumber of transactionsLocationTypes of products and services sold to customersCustomer typeKey risk indicator templateKRIs are an important operational risk management tool for risk identification and risk mitigation. Now that you understand how to develop key risk indicators, it’s time to map out your own set of KRIs. We created this simple KRI template to help you think through your company’s risks. FAQsWhat is a KRI?A KRI stands for key risk indicator. These indicators are used to measure an organization's performance against their defined risk appetite and risk tolerance. For example, they can validate that the organization is operating within its defined risk appetite or demonstrate where risk tolerances have been exceeded so that organizations can proactively address risks. What are key risk indicators examples?Examples of key risk indicators are number of data breach incidents, cyber incident response times, percentage of systems in use that are no longer supported, network traffic surges, or statistical deviations from normal user behavior.What is difference between KPI and KRI?A key performance indicator (KPI) is used to measure a company’s performance against a goal or objective over a period of time, whereas a key risk indicator (KRI) is used to indicate potential risks that may affect the company’s ability to achieve its core objectives.What are key risk indicators for employees?Key risk indicators for employees are often used by human resource departments or companies that handle staffing and recruitment. Examples include total turnover rate, retention rate per manager, employee satisfaction (could be an NPS score), number of applicants per job, and offer acceptance rate.Helping your company better prepare for the future with KRIsEstablishing KRIs is an important aspect of any enterprise risk management strategy. Key risk indicators are an invaluable tool for forward-thinking businesses to manage upcoming threats and act swiftly to mitigate potential harm. They can also be easily mapped to security standards and regulatory requirements to help your business stay in compliance with frameworks like SOC 2 and HIPAA.KRI implementation is just one of the approaches for baking risk prevention into your business. We’ve created a visual guide to inspire your business to adopt a more risk-minded cybersecurity approach.

SOC 1®, SOC 2® and SOC 3® are registered trademarks of the American Institute of Certified Public Accountants in the United States. The AICPA® Trust Services Criteria for Security, Availability, Processing Integrity, Confidentiality, and Privacy is copyrighted by the Association of International Certified Professional Accountants. All rights reserved.Explore how Secureframe's automation and AI can help you streamline and simplify compliance.ProductsSecureframe ComplySecureframe TrustWhy Secureframe?Product UpdatesPricingSolutionsSmall BusinessEnterpriseFrameworksSOC 2ISO 27001HIPAAPCI DSSCCPAGDPRView AllFrameworksSOC 2ISO 27001HIPAAPCI DSSCCPAGDPRView AllPartnersTrusted PartnersAuditorsService ProvidersBecome a PartnerExplore PartnersAWS Partner NetworkCompanyAboutCareersWe’re hiringNewsroomCustomersTrust CenterNEWCompanyAboutCareersWe’re hiringNewsroomCustomersTrust CenterNEWResourcesBlogCompliance HubsCompliance ResourcesGuidesGlossaryKnowledge Base ExtensionAPI ReferenceSupportHelpContact usSchedule a demoStatus99.99%Your privacy choices© 2023 Secureframe. All Rights Reserved.Terms of ServicePrivacy PolicyWebsite TermsCookie Mana

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What is a Key Risk Indicator (KRI) and Why is it Important?

The Difference Between a KPI and KRI | Bernard Marr

Key Risk Indicator (KRI) - CIO Wiki

Key risk indicator - Wikipedia

KRI Framework for Operational Risk Management | Workiva

Key Risk Indicators (KRI) - Risk Management Guru

How to Develop Key Risk Indicators (KRIs) to Fortify Your Business | AuditBoard

How to Select, Monitor and Manage Useful KRIs

How to Develop Effective Key Risk Indicators + Best Practices for 2023

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What is a Key Risk Indicator (KRI) and Why is it Important?

The Difference Between a KPI and KRI | Bernard Marr

Key Risk Indicator (KRI) - CIO Wiki

Key risk indicator - Wikipedia

KRI Framework for Operational Risk Management | Workiva

Key Risk Indicators (KRI) - Risk Management Guru

How to Develop Key Risk Indicators (KRIs) to Fortify Your Business | AuditBoard

How to Select, Monitor and Manage Useful KRIs

How to Develop Effective Key Risk Indicators + Best Practices for 2023

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