The Importance of Preventive KRIs

Ariane Chapelle

Useful risk indicators help identify rises in probabilities of occurrence of incidents early enough to prevent them. In Paris, taxi meters are limited to eleven hours per day, preventing cab drivers overworking, since tiredness is a well-documented contributor to car accidents. Generally speaking, knowing the risk drivers of incidents is a requirement for their prevention. It is also a requirement for selecting effective KRIs, or key risk indicators.

Risk drivers are well known in many areas. Transport safety, IT security or telecoms are industries that have been long and well observed to the point that specialists know what to monitor and when to intervene. In banking, credit risk and fraud risk have been scrutinised for decades; their drivers are common knowledge, especially in retail. Credit analysts know which financial ratios, management behaviours and economic conditions will trigger a rise in credit risk. Most retail bankers will recognise suspicious behaviours in fraudulent loan applications. Similarly, since the rogue trading incidents at Société Générale in 2008 and UBS in 2011, many banks have identified and developed the monitoring of specific KRIs for rogue trading.