A key risk indicator (KRI) is a measure that provides early warning of potential risks and helps organizations monitor and manage risk more effectively. To create a KRI, you should follow these steps:
Identify the risks: The first step in creating a KRI is to identify the risks that your organization faces. This can be done through a risk assessment process that considers both internal and external factors. You can use a variety of tools and techniques, such as a SWOT analysis or a scenario analysis, to identify the risks that are most relevant to your organization.
Determine the impact of the risks: Once you have identified the risks, you should determine the impact that each risk would have on your organization if it were to materialize. Consider both the likelihood of the risk occurring and the potential consequences, and rank the risks according to their overall impact.
Select the most critical risks: From the list of risks, select the risks that are most critical to your organization, based on the impact and likelihood of each risk. These are the risks that you will focus on for the purpose of creating your KRIs.
Choose relevant measures: For each critical risk, choose a relevant measure that can be used to monitor the risk over time. The measure should be specific, objective, and easily quantifiable, and should provide an early warning of the risk materializing. Examples of measures include changes in sales or market share, or changes in the number of customer complaints.
Develop the KRI: Based on the measure you have chosen, develop a KRI that provides an early warning of the risk materializing. The KRI should be a numerical or quantitative value that can be easily monitored and compared to a predetermined threshold.
Implement a monitoring system: Once you have developed your KRIs, implement a system for monitoring the KRIs and tracking changes over time. This may involve setting up automated reports or dashboards, or conducting regular risk assessments.
Review and adjust: Regularly review your KRIs and make any necessary adjustments to ensure that they continue to provide an accurate early warning of the risks. You may need to adjust the KRIs if the risks or the measures you are using change over time.
Creating a KRI requires careful consideration of the risks facing your organization and the measures that can be used to monitor those risks. By using KRIs, you can stay ahead of potential risks and take proactive steps to mitigate them before they have a significant impact on your organization.
