Key Risk Indicators Can Turn Risk Mitigation Concepts Into Action

Emily Affinito | February 25, 2022

Risk management, compliance, and audit professionals face unique sets of challenges daily. They have to identify risks, assess processes, and report on them in a manner that everyone has to understand. There are constant revisions of risk assessments and modifications to risk responses, audit procedures, and dealing with ever-changing and complex circumstances and regulations. GRC professionals need knowledge, grit, efficient processes and practices, and the GRC software that can bring it all together.  

In this blog post, I want to focus on a concept mentioned above — how Key Risk Indicators (KRIs) can help organizations achieve efficient processes and practices. I also plan to address the GRC software part, but we'll get to that later.

What Are KRIs?

KRIs help companies identify, focus, and manage risk and emerging threats and better prepare for the future. A good way to think of it as an indicator is used to predict potential risk and thus a potentially negative consequence on the organization.

How? KRIs measure potential risks in a business that could negatively impact a company's future. They act as a preemptive warning system for early detection of threats, especially for companies with a risk-based culture. Well-thought-out KRIs provide opportunities for better risk quantifying and monitoring.

KRIs provide visibility into the weaknesses and processes within your company’s environments and can provide a lead-off point to develop risk assessment plans. For instance, we typically see the response of a KRI above or below its threshold being used to develop a risk response as opposed to an assessment.

What Do Companies Gain by Using KRIs

KRIs play a significant role in risk management. KRIs enable firms to predict high-risk areas and enable timely action. Especially for those organizations that want to view risk under a new lens, that of a revenue gainer, not a negative loss leader. KRIs also allows companies to:

  • Assess and quantify risks as well as any potential impact
  • Benchmark performance to see where they need to improve
  • Empower a culture of constant risk control and monitoring
  • Communicate potential risks better
  • Develop efficient and effective risk responses strategies 

To Define Good KRIs, Define Clear Goals

Effective KRIs require an understanding of your organization's goals and any related risks that might interfere with achieving those goals. If you want to increase profits by improving revenues and decreasing costs, your organization needs to find a strategy that aligns with its goals. Risk indicators should be linked to strategic objectives. Many companies take this opportunity to develop both KRIs and KPIs. Doing this helps integrate KRIs into your performance management framework by linking them to KPIs so you can measure your risks in an organized way. 

Companies need a strong partnership between the organization's business owners and GRC professionals. In a perfect world, each business unit would be involved in developing their KRIs since they are most familiar with the unit's objectives and risks

Effective KRIs come from the high-quality data gleaned while tracking risks. It is essential to standardize the measures and criteria when collecting data. By using historical, quality data companies can build better KRIs definitions. Another advantage of this approach is that over time a clearer vision of the organization's thresholds/tolerances and would trigger actions comes into focus. If you skip this phase, these different results will make decision-making difficult. Get the data right, and you'll get focused KRIs. A crucial first step is that organizations need to have buy-in on a framework and structure for documenting and revisiting KRIs. KRIs need to be linked to a strategic priority. When designing processes, keep KRIs in mind because they could impact design/setup.

Challenges of Developing KRIs

Some of the most common reasons why KRI monitoring can fail to deliver benefits are as follows:

  • Using a non-quantifiable approach
  • Unsuccessful identification of KRIs for all risks (it’s best practice to start with KRIs for higher-ranked risks)
  • Incorrect or inadequate attention to the causes of the risks
  • Large quantities of KRIs are overwhelming
  • Inability to communicate, execute, and automate KRI solutions
  • Poor mapping of associating actions
  • Inconsistent monitoring
  • Lack of partnership with business owners

Successful KRI Execution Can Be Solved With the Right Technology

The right technology can help you assess the risk data collected from various sources in our technologically driven world. Working with a GRC platform can facilitate identifying and reporting different risk categories, metrics, and occurrences. It eliminates the need for manual work, which is often time-consuming. The right solution can save you time and effort when managing your KRIs, which is why we built Risk Cloud®. We designed Risk Cloud to offer unmatched visibility and accessibility, so you can build your own workflows that map to how work actually gets done. Not sure where to start? Check out our Enterprise Risk Management solution or visit us at logicgate.com and request a demo.

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