Capturing initial information on incident descriptions – such as dates of event and detection, affected business areas, risk taxonomy/causality, and key risk indicators (KRIs) – is used to monitor risk exposures over time in view to give an early warning of possible degradation or potential risk occurrence. Key risk indicator limits and risk capital scenario models help form part of identification analysis and costs reporting data modeling. You need to be aware of the risks you face in order to inform your risk appetite, and key risk indicators support the quantification of risk appetite. According to an embodiment of the present invention, the key risk indicator heat map should be organized by risk classification categories based on the plurality or risk levels.
Key risk indicators are the foundation of any operational risk analysis, providing guidance/leadership in risk identification, KRI identification, and risk mitigation strategies in the domain of technology management. Key performance indications (KPIs), on the other hand, are the foundation of any continuous improvement analysis. To effectively monitor risks, your organization should develop a broad range of metrics to act as early warning signals for any change in the status (increasing or decreasing risk levels) of identified risks.
Performance indicators, often referred to as key performance indicators, provide insight into the status of operational processes, which may in turn provide insight into operational weaknesses, failures, and potential losses. Attributes of a risk management culture include paying appropriate attention to quantifiable and unquantifiable risks, engaging operational risk managers to identify key data-related control indicators, and maintaining effective and efficient continuous control monitoring processes.
Prudent management of risk is imperative to managing the security and stability of your enterprise, and identifying preventative key risk indicators can be especially useful, as these KRIs flag rises in risks before incidents occur. Indicators can even point to a build-up of risks across several economies.
Qualifying risks is a discipline unto itself and the accuracy of your results is commensurate with the techniques you use and your historical experience with risk analysis. Lagging indicators are typically output oriented, easy to measure, and hard to improve or influence, where leading indicators are typically input oriented, hard to measure, and easy to influence. Ultimately, the key performance indicators that you choose to use should help you to understand what your organization is doing, what it is achieving in terms of your business goals, and what more it can do to improve your overall operational performance.
With change occurring in the business and control environment, the board should regularly review the appropriateness of the threshold/limits for specific operational risks and an overall operational risk appetite and tolerance. You key stakeholders are those who most materially impact your strategy or are directly impacted by it. The threats, or risks, you face could stem from a wide variety of sources, from financial uncertainties, legal liability, and strategic management errors to accidents and even natural disasters.
Awareness of risk through performance measurement, risk-adjusted pricing, pay structures, and forecasting can provide you with a comprehensive look at your risk and allows you to make changes to improve scenarios before lagging indicators come into effect. Coincident indicators may provide evidence of emerging risks while those risks are still emerging. In some cases, these indicators may also provide a view of the control performance (e.g. the performance of a risk mitigation control process) as well as a level of risk for each of one or more different business processes. The public needs to know that an effective operational risk regime can reduce the impact of large losses in a firm.
Want to check how your Key Risk Indicator Processes are performing? You don’t know what you don’t know. Find out with our Key Risk Indicator Self Assessment Toolkit: