Enterprise Risk Management, 2nd Edition

CHAPTER 10Key Risk Indicators

 

DMITRIY BOROVIK

Managing Director, Deloitte & Touche LLP

 

MATT SOLOMON

Manager, Deloitte & Touche LLP

 

CHRIS KOZLER

Consultant, Deloitte & Touche LLP

 

INTRODUCTION

When picturing the world today, there are endless interconnected pieces of our environment that function in our society—many of which occur simultaneously, sometimes intentionally and sometimes not. The question is, how do people and organizations anticipate and prepare for shifts in their environment, including both external (e.g., regulations, changes in consumer behavior and expectations) and internal (e.g., changes in an operating model/control environment, inefficiencies/ineffectiveness of mitigating strategies)? Or, how do organizations track changes in controls or mitigation efforts? The use of key risk indicators (KRIs) is one of the methods that can help.

Throughout history, forecasting, anticipating, and planning have been part of effective empires. For example, according to Schwartz (1996), life in ancient Egypt depended on the flooding of the Nile River to grow food; however, the duration, timing, and amount of flooding varied and directly impacted how prosperous Egyptians could be each year. As it turns out, the pharaohs depended on predictions from priests, who used the color of the Nile to anticipate if flooding might be early or late or if the flooding could possibly be heavy or weak. Regardless of whether the priests understood the “why,” they were still predicting—using ...