Key risk indicator (KRI): A metric that measures the level of risk exposure or the likelihood of a risk event1.
KRI threshold: A predefined value or range that triggers an alert or action when the KRI reaches or exceeds it2.
Loss expectancy: The estimated amount of loss that an organization may incur due to a risk event3.
The most helpful thing in developing KRI thresholds is loss expectancy information. Loss expectancy information provides an estimate of the potential or expected impact of a risk event on the organization’s operations, reputation, or objectives. Loss expectancy information can help an organization to:
Quantify and prioritize the risks that pose the greatest threat to the organization
Determine the acceptable level of risk exposure or tolerance for each risk
Set the appropriate value or range for the KRI threshold that reflects the risk appetite and the risk mitigation strategy
Monitor and measure the performance and effectiveness of the risk management process and controls
Loss expectancy information can be derived from various sources, such as historical data, statistical analysis, expert judgment, or simulation models3.
The other options are not as helpful as loss expectancy information in developing KRI thresholds, because they do not directly address the potential or expected impact of a risk event.Control performance predictions, which are the forecasts or estimates of how well the risk management controls will perform in preventing, detecting, or mitigating risks, may help to evaluate the adequacy and efficiency of the risk management process and controls, but they do not provide a clear and quantifiable measure of the risk impact. IT service level agreements (SLAs), which are the contracts or agreements that define the quality and availability of IT services, may help to establish the standards and expectations for IT service delivery and performance, but they do not provide a comprehensive and current view of the risk exposure or likelihood. Remediation activity progress, which is the status or outcome of the actions taken to address and resolve a risk event, may help to monitor and report the effectiveness and compliance of the risk management process and controls, but it is usually done after the risk event has occurred and resolved, not before.
References = Key Risk Indicators: Definition, Examples, and Best Practices, KRI Framework for Operational Risk Management | Workiva, Loss Expectancy: Definition, Calculation, and Examples
