The most important factor when developing key risk indicators (KRIs) is to properly set thresholds, which are the predefined values or ranges that indicate the acceptable or unacceptable level of risk1. Thresholds can help to:
Trigger alerts or actions when the risk level exceeds or falls below the threshold, and enable timely and appropriate risk responses2.
Measure and monitor the performance and effectiveness of the risk responses, and ensure that the residual risk is within the risk appetite and tolerance3.
Communicate and report the risk status and performance to the stakeholders, and facilitate the decision-making and accountability for the risk management4.
The other factors are not the most important when developing KRIs, because:
Alignment with regulatory requirements is a necessary but not sufficient factor when developing KRIs, as it ensures that the KRIs comply with the applicable laws, rules, or standards that govern the organization’s activities and operations5. However, alignment with regulatory requirements does not guarantee that the KRIs are relevant and useful for the organization’s specific risk profile and objectives.
Availability of qualitative data is a desirable but not essential factor when developing KRIs, as it provides additional information or insights that may not be captured by quantitative data, such as opinions, perceptions, or feedback. However, availability of qualitative data does not ensure that the KRIs are reliable and consistent, as qualitative data may be subjective and difficult to measure and compare.
Alignment with industry benchmarks is a useful but not critical factor when developing KRIs, as it provides a reference or a standard for comparing the organization’s risk level and performance with its peers or competitors. However, alignment with industry benchmarks does not ensure that the KRIs are suitable and feasible for the organization’s specific context and capabilities.
References =
Threshold - CIO Wiki
Risk Thresholds: How to Set Them and When to Use Them - ProjectManager.com
Risk Appetite and Tolerance - CIO Wiki
Risk Reporting - CIO Wiki
Regulatory Compliance - CIO Wiki
[Regulatory Risk - CIO Wiki]
[Qualitative Data - CIO Wiki
