How To Tailor Key Risk Indicators (KRIs) To Your Organization’s Specific Threats

Every organization faces risk each day, but no two organization’s risk landscapes look exactly the same. It’s the job of risk and compliance professionals to sort out which risks are the most pressing for their organization to address and how to make sure they’re staying one step ahead of them.

Getting this right is vitally important to any organization, and it requires a deeply nuanced understanding of potential threats to the business so that the risks we want to avoid can be mitigated and the risks that can lead to strategic advantage can be identified and properly leveraged.

One of the best ways to do this is to develop specific key risk indicators (KRIs) tailored to your organization’s risk landscape. These metrics provide leading measures of and tolerance thresholds for these potential organizational risks, so you can anticipate and then act to mitigate or embrace various risks as they arise.

Here’s a quick primer on how to develop your own KRIs, how they differ from key performance indicators (KPIs), and a few examples of common KRIs in action. To go deeper, download “KRIs for ERM: Developing Metrics for Managing Enterprise Risk.”

What is a Key Risk Indicator (KRI)? 

Key risk indicators are leading metrics designed to provide early warning of potential risk events. Usually, KRIs take their input from external or internal data sources and estimate the overall likelihood that the risk being monitored will occur, how fast that could happen, and the potential impact if it does occur.

Most organizations have multiple ways to flag and block risks, including risk scoring and risk quantification. These controls and processes act as tripwires designed to spot and prevent nefarious activities or internal errors that can lead to risk exposure. KRIs are another method, and they complement the others.

For example, systems that flag and block large file transfers or send notifications if someone plugs a USB into a work computer can protect the business from data breaches. These processes often collect reams of data along the way, which can be used as inputs for building KRIs to continuously monitor for concerning trends.

In short, having the right KRIs in place gives organizations advance warning about what risks they are facing, where they fit within their risk appetite, and when they should activate strategies against them. 

They help organizations plan for potential long-term risks that could harm operations and spot risk trends before they become a problem, which helps improve your risk posture over time. KRIs should be an essential part of any organization’s security plan.

Key Qualities and Benefits of Effective KRIs 

KRIs are powerful metrics, but they’re only useful if the ones you choose to deploy are attuned to the specific risks your organization faces. 

The ultimate goal of tracking KRIs is to take a proactive approach to risk management with a more robust, forward-thinking action plan, so organizations should select KRIs that align with their risk management strategy and overall goals.

The best KRIs are also:

• Measurable: You need to be able to continuously measure your KRI over time to pick up on trends that indicate increased exposure. No available data, no KRI.
• Relevant and specific: Your KRI should be tied to a particular risk and use data sources relevant to that risk.
• Predictive: The whole point here is to get ahead of risk, so your KRIs should ideally be leading indicators that catch things before they occur, not lagging indicators that report what happened afterwards.
• Benchmarkable: It’s difficult to set an accurate threshold for taking action if you don’t have any information on what normal looks like for your KRI. Make sure you have a benchmark to compare your metric against.
• Accessible: For a KRI to make a difference, it needs to be clearly defined. The people who will use your KRI to make important decisions should be able to understand it at a glance.
• Efficient: Developing and maintaining your KRI shouldn’t be an unnecessary time, effort, or resource-intensive task. If you’re going to put significant effort into developing a single metric, make sure it’s associated with your most pressing risks.

And here’s how establishing KRIs that are aligned to your risk strategy can help you improve your GRC processes and mitigate potential risks before they become genuine threats:

• Reduce uncertainty: Don’t let risk events catch you off guard. KRIs help you predict future threats and minimize uncertainty. 
• Increase operational resiliency: KRIs help you avoid being blindsided by sudden changes. They also help risk management teams create effective playbooks for challenging situations, making your organization more resilient. 
• Uncover concerning trends: What are your risk trends? KRIs help you spot concerning trends over a period of time so you can take swift action.
• Inform organizational decision-making: KRIs tell decision-makers what threats are the most likely to cause the greatest damage. This way, you can route resources to the most high-risk areas of your organization first.
• Transition risk culture from reactive to proactive: Your team needs to react to security threats, but that won’t stop future attacks. KRIs help you shift away from simply reacting to threats; they allow organizations to anticipate and protect themselves against threats. 

Steps To Develop Your Own KRIs 

Let’s get started developing the right KRIs for your organization. Follow these six steps to choose meaningful risk metrics for your unique context:

1. Understand the strategic priorities of your business 

You can’t build effective KRIs without understanding your strategic business goals. Spending the time and effort to create non-strategy-aligned KRIs can easily deplete resources and may even make it more likely you’ll experience risk events. So, select KRIs that make sense for your organization’s goals. 

For example, a bank might track the KRI value at risk (VaR). VaR is a mission-critical KRI in the finance industry because it tells the bank how much cash it needs to keep in its reserves to meet its liabilities. That directly impacts how the bank operates daily, making it a relevant KRI for the bank’s goals. 

Look no further than recent events surrounding Silicon Valley Bank and other regional banks that failed when they very suddenly found themselves unable to meet liquidity demands for an example of this KRI in action (or of getting it wrong, in this case.)

2. Assess risks and map them to business initiatives 

Once you understand your business’s key goals, you should list the types of risks facing your organization and how they affect your business goals.

For example, if you’re an eCommerce business, malware or DDOS attacks against your site could be a major risk. Align that risk with your goal of improving your business’s online experience. From here, your risk management teams can use risk quantification methods to determine what action they need to take at which risk threshold to mitigate the risk.

Prioritizing risks based on business goals in this way is a great strategy for risk management leaders looking to secure internal buy-in. 

Mapping ensures that each KRI ties into a strategic goal, which can be used in reporting to increase support from executive leadership and the board of directors. Risk management leaders should work with managers across different departments to ensure they cover all potential risks and map them to appropriate business goals. 

The more internal acceptance risk management teams receive now, the more likely they are to achieve their goals and create a strong risk culture. 

3. Identify root causes of risks 

Now that you have your list of the potential risks to your business, you’ll need to reverse engineer each risk to determine the sequence of events that would need to happen for it to occur. That will help you engage relevant stakeholders to manage the issue before it becomes a major problem.

KRIs should track each event from the root cause to the moment it occurs. Doing it this way, you can create risk identification methods that are useful across the entire organization.

For example, the root cause of a cybersecurity data breach might be a phishing attack. You can reduce your cyber risk exposure by acknowledging that human error and email filters are the root cause of the issue and creating plans to address those issues.

4. Connect risk data into a single platform 

At this point, you’ve mapped your goals to potential risks and highlighted the root cause of those risks. From here, your organization should aggregate your risk data into a single platform. Without aggregation, you risk siloing essential risk data that could help your organization avoid future attacks.

A great way to do this is with a GRC platform like LogicGate Risk Cloud. These modern risk management platforms bring risk data together in real time to simplify enterprise risk management, compliance, and internal processes. They can improve communication across organizations, integrate with other business systems, and provide better visibility to non-technical key stakeholders. 

Many GRC platforms also have the ability to track key risk indicators and other critical metrics for your organization at scale, making it easier to respond proactively to risks.

5. Define risk reporting and response structure 

There’s no point in spending the time and resources to stand up KRIs if you don’t put the infrastructure in place to act on the insights they provide.

Make sure you design risk reporting and response processes that ensure you can tackle risks in a timely and appropriate manner. You should: 

• Assign risk owners for each KRI and its associated risk 
• Create operational resiliency and business continuity plans triggered by the thresholds for action you set when developing your KRIs.
• Conduct reviews each month or quarter to continuously improve your KRIs and test the effectiveness of your response plans.

KRIs do the most good with a strategic plan responding to each one. Metrics are helpful, but only if you allow them to shape your risk responses.

6. Iterate and improve your KRIs and risk assessment process 

Operational risk management is an ongoing process. To continue managing your risk profile, you must monitor and change your KRIs as needed. 

This isn’t a “set it and forget it” approach to risk management. Because KRIs won’t be perfect at first, regular testing is vital. 

If risk events occur at a high frequency, reevaluate the associated KRIs and, potentially, the methodology you use for tracking and responding to that risk. 

After all, if KRIs don’t help keep you safe, they aren’t very useful — or worse, building them has become a waste of time. Adjust them as often as needed to make the most of this essential tool.

Examples of KRIs in Various Industries 

Every organization should track KRIs, but no two will track the same set. For example, a strong KRI in finance might not necessarily apply to healthcare.

Here’s a list of how KRIs are commonly used across a variety of industries:

Banking and Finance 

Banking and finance are two of the most heavily regulated industries, and organizations that operate within them must comply with a complex web of requirements.

For this reason, it’s essential for banking and finance organizations to have effective KRIs. Value at risk, which represents the financial impact of asset losses over time, is one such metric. VaR tracking helps organizations make wiser investment decisions, so they always have enough cash to cover their liabilities.

Tracking fraud incidents, whether internally or externally, is another source of data for KRIs that can highlight troubling trends over time. Tracking national loan defaults as a KRI can warn you of potential increases in defaults in your own organization so that you can plan accordingly. It’s also a helpful indicator of economic downturns.

Cybersecurity 

Using KRIs to manage cybersecurity risk can help organizations better understand the potential damage of a security breach.

For example, you can track the number of devices you have under management and the percentage of those devices that enable multi-factor authentication (MFA). The fewer devices you have and the greater number of MFAs enabled, the lower your security risk.

Cybersecurity KRIs also measure failed phishing attempt simulations, which can measure the efficacy of your cybersecurity training efforts by tracking both how many employees fall for the simulated attempts and how many report them. More reporting means better cybersecurity awareness, while many failed attempts means it’s time to revisit your cybersecurity training programs.

Energy and Utilities 

Cities and towns across the globe rely on utility companies to power their homes, ensure the water they consume is safe, and keep us all connected. It’s no surprise that these providers of critical infrastructure are contending with an increasing number of risks. 

Energy, internet, and other utilities track KRIs like system demand in real-time so they can take measures to ensure their services stay online when it matters most. 

The weather can greatly impact utilities, so many utility companies use weather forecasting data to plan for potential severe weather incidents. And, many have begun building KRIs around government alerts to stay on top of potential security threats. 

Product 

Risk can have a tremendous financial impact on businesses that produce goods and products. Supply chains can go dark, an unseen bug can cause such frustration that users abandon the product altogether, and poor work cultures can leave these orgs with no one to build or improve what they offer. 

Employee sentiment surveys can feed KRIs that indicate if there’s an issue with employee engagement, which could affect your talent retention efforts, while data from customer satisfaction surveys and online reviews can clue you into whether customers are happy or dissatisfied with your product.

A market downturn, rising fuel costs, or an uptick in localized political unrest or armed conflicts in regions that your supply chain depends on can mean supply chain disruptions down the line. 

Creating KRIs around these risks can go a long way to help you plan contingencies and responses.

KRIs or KPIs: Know the Differences 

Most of us are familiar with key performance indicators, or KPIs. These metrics tell us how successful our programs and initiatives have been. Organizations should track both KRIs and KPIs to run a successful, compliant business that gets results, and they’re similar in some regards. But they differ in important ways. 

Key performance indicators (KPIs) are performance metrics that typically measure a company’s progress on its goals by quantifying performance over time as a way to know whether a business is successful or not. They give businesses something to aim for, whether that’s higher customer lifetime value or better customer ratings. They tend to be lagging metrics.

KRIs, on the other hand, are metrics explicitly designed for monitoring and blocking an organization's potential financial, legal, or cybersecurity risks. For this reason, they’re intended to be leading metrics.

Both KRIs and KPIs can help an organization stay on track and achieve its goals. However, KRIs are more specific to risk management, while KPIs address organization-wide performance. 

Streamline & Track Your KRIs with Enterprise Risk Management Software 

Ongoing risk monitoring allows organizations to gain a strategic advantage. With more helpful information at hand, you can take advantage of new opportunities and prioritize business functions.

Key risk indicators (KRIs) are one of the best methods for spotting and intercepting high-risk events before they cause problems for your organization. Every organization can become more resilient, reduce uncertainty, and make better decisions by taking a more proactive approach to risk management through effective use of KRIs.

To get started building and using your own KRIs, download “KRIs for ERM: Developing Metrics for Managing Enterprise Risk,” our guide to implementing these important metrics.

Monitoring KRIs at scale in large enterprises isn’t always easy, though. Modern GRC technology can fix this by simplifying the way you track and optimize KRIs. These platforms take your risk data out of spreadsheets and streamline communication to cut out process inefficiencies and remove silos.

Request a demo now to see how LogicGate Risk Cloud can help you build the perfect set of KRIs for your organization.