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Wouldn’t it be nice to be able to peer into a crystal ball and see the threats to your business looming on the horizon?
Enter: key risk indicators, or KRIs.
While they’re a bit more scientific than fortune telling or palm reading, key risk indicators offer a glimpse into the future by tracking the potential occurrence of certain risk events.
When triggered, KRIs can alert management to a potential threat that would have a significant impact on business operations, such as falling out of compliance with security frameworks like SOC 2.
Ready to learn more? We dig into the basics of KRIs, how to establish them, and tips for maintaining KRIs over time.
Key risk indicators (KRIs) are a way to proactively measure risks that a business may face.
KRIs are similar to a meteorologist tracking weather patterns and alerting residents of a potential storm so they can adequately prepare. KRIs serve as an early warning system to alert business leadership of upcoming crises, allowing them time to create an action plan to mitigate that risk or prevent it from occurring.
KRIs are also tied to risk appetite, which sets a threshold for the level of risk that a business will take on to achieve its objectives. KRIs can alert leadership of any upcoming threats that might exceed that threshold.
KRIs aren’t meant to track every risk that your company may face. Instead, they’re meant to track the most important risks that could put your business’s primary objectives and priorities in jeopardy.
Both key risk indicators and key performance indicators are metrics that help businesses make informed decisions and accurately plan for the future.
However, KRIs and KPIs differ in what they measure:
KRIs help a company meet its KPIs by reducing significant risks that can jeopardize business operations.
While KRIs boast a wide range of benefits that include the ability to proactively address potential threats, businesses also face a range of challenges when it comes to setting and tracking KRIs.
In a recent poll conducted during a webinar by the CEOs of Nymro Clinical Consulting Services and Cyntegrity, 22% of business leaders said that finding the right method to calculate KRIs is their top challenge.
Other common challenges businesses face when utilizing KRIs include:
Before your business can begin benefiting from KRIs, you’ll need to do a bit of prep work. We walk through the three steps of KRI design below.
The risks that pose the biggest threat — with a high probability of occurring and a potentially damaging outcome — are the kind you’re looking to include when you establish KRIs.
Here are a few ways to identify relevant risks:
There are two primary methods for choosing KRIs: top-down and bottom-up approaches.
Whether you opt for a top-down or a bottom-up approach, after top-priority risks have been identified you can begin to design KRIs. For initial KRIs, it can be helpful to start small with two or three indicators for your top risks.
When setting up KRIs, keep things simple by focusing on your priority risks. Include relevant subject matter experts from your organization to help identify a few key indicators that will help you properly track risks.
Remember that key traits of a good KRI are:
Once you’ve identified an indicator, you will set the upper and lower tolerance values to track against your risk. These values can be changed as data is captured, so don’t spend too much time perfecting them in the beginning.
When you’re confident in the data being collected from your initial indicators, you can expand the KRI program into different business departments.
Once KRIs are in place, they need to be monitored and tracked regularly, whether in real time or with a quarterly check-in.
Automation can help simplify this process, but you may also want to consider appointing key individuals to manually track certain indicators that make sense for your organization.
Additionally, you can use the first few data-gathering periods as a way to check if your risk threshold settings are correct. This will help ensure that future alerts are configured correctly and prevent false alarms.
It’s important to document and report all risk occurrences related to your KRIs. This should include a formal process for alerting key leadership when indicator tolerance levels are high.
While you can map KRIs to any aspect of your business, common KRI types include operational, financial, technological, and people-related indicators.
Operational KRIs are closely related to operational risk.
Financial KRIs are commonly used by banks and CPA firms.
Technological KRIs are used by businesses across industries.
These KRIs are often used by human resource departments or companies that handle staffing and recruitment.
Now that you understand how to develop key risk indicators, it’s time to map out your own set of KRIs. We created this simple KRI template to help you think through your business’s top risks.
Establishing KRIs is an important aspect of any risk management strategy.
Key risk indicators are an invaluable tool for forward-thinking businesses to manage upcoming threats and act swiftly to mitigate potential harm.
KRI implementation is just one of the approaches for baking risk prevention into your business. We’ve created a visual guide to inspire your business to adopt a more risk-minded cybersecurity approach.