Key Risk Indicator
A Key Risk Indicator, also known as a KRI, is a measure used in management to indicate how risky an activity is. 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 event that may harm continuity of the activity/project.
KRIs are a mainstay of operational risk analysis.
- A risk indicator is an indicator that estimates the potential for some form of resource degradation using mathematical formulas or models.
Security risk management
According to Risk IT framework by ISACA, 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
- 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 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.
- Committee of Sponsoring Organizations of the Treadway Commission
- Enterprise risk management
- ISO 31000
- Operational risk
- Performance indicator
- Risk appetite
- Risk IT
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