Six Steps for Preventive KRIs

Ariane Chapelle

Key risk indicators, or KRIs, are major components of the operational risk profile reports for nearly seven out of 10 of the institutions surveyed by OpRisk and Protiviti at the end of 2014. A majority of respondents (60%) also use KRIs as a measure of the operating effectiveness of the control environment. Contrastingly, only 39% of the organisations surveyed declare using 20 KRIs or more, while 15% use fewer than 5 and 14% use none.

This column proposes a six-step method to identify, design and validate preventive KRIs, which are an essential component of any operational risk framework.

Preventive KRIs are metrics of key risk drivers. Identifying the key risks to an organisation, understanding the main drivers of these key risks and finding the proxies of these drivers to turn them into economically efficient and reliable risk reporting, are the essential steps to set up an effective KRI suite. This method can be broken into six steps.

Figure 12.1 shows a classification of operational risks that can support the identification and design of preventive KRIs. In Chapter 5 I list many of the KRIs that can be used to monitor people risk, in close collaboration with the HR

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