You have a service level agreement (SLA) with a vendor that there will be a 99.999% uptime guarantee. That’s a downtime of fewer than 5 minutes and 15 seconds in a year.
If you go back on this promise, it doesn’t look good for your business. You might incur penalties too. No business wants this. This is where Key Risk Indicators (KRI) are beneficial.
Key risk indicators are predictors of unfavorable events that can negatively affect organizations. Businesses get an opportunity to quantify and proactively monitor the level of risk by establishing KRIs. It provides visibility into the organization’s risk and control environment and processes.
There is no right or wrong answer to how many KRIs an organization should have. Consider the number and nature of the key risks identified, the data availability needed for the KRIs, the cost of extracting the data, and the intended audience.
Understanding KRIs and how they can affect your organization’s day-to-day operations is an aspect that leaders should be mindful of.
KRIs could be quantitative that focus on numerical data and provable facts based on results from mathematical models and methods of analysis or qualitative that focus on facilitating things like sensitivity analysis by predicting probability-based outcomes.
KRIs can be divided into four categories based on the types of risk:
These metrics help quantify market risk, regulatory changes, or competitive risk. Banking KRIs are common: they include budget changes, acquisitions, or changes in strategic goals.
They look at risks that will arise on a day-to-day basis because of a security breach or a malfunction. The operational KRIs could range from poor internal controls to process inefficiencies, leadership changes, and internal failures.
These KRIs measure employee retention rates, customer churn, labor shortages, customer satisfaction, etc. They are most commonly used by HR departments or companies that deal with recruitment or staffing.
Most industries have tech-related KRIs. They measure data breaches, system failures, or regulatory changes.
KRIs play an influential role in risk management. If there are no KRIs, the possibility of the organization being subject to events that could cause huge damages is highly likely.
KRIs ensure that the risks are identified, monitored, and remediated before they become a mess.
If an organization provides email marketing automation solutions, an important KRI should be high deliverability. An increase in emails being returned to the sender is an indication that there are problems that need to be immediately addressed.
Choosing the KRIs for your organization is a task that many find difficult. The internal acceptance of the KRIs is also a key factor.
Everyone in the organization should be informed about the importance of the KRIs, their significance, and how to respond if there are alerts.
Defining and monitoring KRIs gives you a deep insight into the critical threats to the organization. When you understand the risk dynamics, you can apply accurate methods to assess and minimize the risks.
You can set a risk tolerance threshold and trigger reactions if it is crossed. Organizations that regularly monitor the KRIs get an accurate view of the risk trends.
You’ll understand which business lines are vulnerable and which ones need increased monitoring.
Let us look at what else KRIs can help with:
When developing KRIs, you must have a detailed understanding of the organization, the industry in which it operates, and the potential risks it may face.
The characteristics of good KRIs include the following:
Let us look at 10 examples of Key Risk Indicators.
|Risk||Measurable KRI||Why track this risk?|
|ISP Failure||Number of ISP outages||If there are a high number of outages, it means that you should change the vendor. Your business can come to a full stop because of outages|
|Data loss||Number of system backup failures||Upgraded software can result in backup failure|
|Unaddressed critical incidents||Time taken to resolve an incident/ Number of critical incidents||If the time taken to resolve critical incidents are high, then the organization’s critical incident procedure needs to change|
|Anonymous data leak||Number of active database administrator accounts||Default admin accounts means if an event occurs, it isn’t possible to point back to the individual|
|Improper security arrangements||Number of users with similar roles but dissimilar security arrangements||Employees may be accessing customer data files that they shouldn’t|
|Malware||Number of employees who click on phishing emails||Test employees with fake phishing emails. Use the results to identify employees who require extra security training|
|Vendor service interruption||Number of applications in the organization without a Service Level Agreement (SLA)||You may be engaging with a high-risk vendor if there is no SLA. They aren’t obligated to adhere to your regulations, thereby interrupting your business.|
|Breach of GDPR compliance||Time to respond to requests for personal data||It can result in serious financial and reputational damage|
|Shared login credentials||Number of concurrent systems using the same login ID||It shows that the employee has shared their login credentials with unauthorized individuals|
|Non-compliance and data breaches||Frequency of review of privileged permissions on IT systems||These accounts are likely to be targeted by cyber attackers to gain access to sensitive data|
Before developing KRIs, you need to understand the company’s goals and vulnerabilities that cause risk. Key risk management is all about identifying the most significant risks. Such risks are the ones that have the highest likelihood of occurring, the ones that will have the most significant impact, or those that are outside your company’s control.
If you have already identified Key Performance Indicators (KPIs), it is easy to create KRIs. The KPIs indicate what matters the most to your organization. It will reduce the time spent on identifying pivotal aspects of the business. The KRIs you choose should also be relevant, measurable, and timely.
The organization should adhere to the following best practices when developing the KRIs:
Many organizations encounter challenges when developing KRIs because they don’t address the risks associated with their development.
Let us look at some of the challenges in developing KRIs:
Majority of us think that KRI and KPI are the same. Although they are related, they are not the same. They work together to provide firms and their leaders with the measurements they require to strengthen their operations.
|Look forward to the future||Consider past performance|
|Assess and manage risks||Measure performance|
|Focus on probability that an organization will achieve goals against the potential risks||Prioritize key goals and monitor anticipated performance|
To keep the focus on the critical risks, KRIs should be tied to a KPI and a business goal, and they should be prioritized.
Designing and setting up KRIs for your organization is as pivotal as anything else. Creating an efficient set of KRIs will show you the potential risks that your organization carries. Using KRIs effectively also necessitates having the correct risk management framework in place.
You stand to benefit when you examine the KPIs regularly. Leverage technology to enhance your organization’s risk management approach to complement the existing risk identification methods to get the maximum benefits.
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