Key risk indicators are the heart of monitoring, of performance, of risks and of control effectiveness. This chapter explores these indicators and focuses on preventive risk indicators, which in several instances are the same metrics as performance and controls indicators.
KRIs for operational risk have attracted considerable attention in recent years. The need for predictability and control is a priority in the business world, and many boards of directors now ask their senior managers and risk managers to compile a list of leading KRIs. KRIs were identified as primary information in 68% of the operational risk profile reports of the institutions surveyed by Protiviti and risk.net at the end of 2014.1 The majority of respondents (60%) also use KRIs to assess their control environment and operating effectiveness and to gain confidence in the risk profile of their organization.
Many organizations struggle to gain a clear view of what constitutes an efficient suite of KRIs. We can count on one hand – maybe two – the number of financial firms that are fully satisfied with their KRIs.
KRIs are used for a number of purposes in the management of operational risk and the overall management of an organization. In relation to operational risk, KRIs have the following essential roles: