How to Build Preventive Key Risk Indicators

Ariane Chapelle

Key Risk Indicators (KRIs) for operational risk have attracted considerable attention over the recent years. The need for predictability and reassurance in a business world becoming increasingly threatening is definitely a factor. Many boards of directors have asked their senior managers and risk managers to come up with a list a leading KRIs, a request usually followed by a spark of anxiety, activity and often puzzles in the risk management team.

This article addresses some of these puzzles, by proposing a three step approach aimed at simplifying the practice of selecting and designing leading KRIs:

• • Recycle what exists: many of your leading KRIs exist already in your organisation,however under other names: find them and use them
• • Understand the causes: take time to reflect and identify the drivers of your different operational risks, at different levels: not only the direct causes, but the root causes of incidents, including the two risk dimensions: drivers of likelihood and drivers of impact
• • Validate the benefits: put your risk indicators to the test: do they ever prevent incidents? Do they influence business decisions? Rules of reporting