Question

What is a key risk indicator and why are they important?

Answer 1

Key risk indicator - key risk indicator is a metric that is used for measuring the likelihood that the possibility of a event or transaction and its consequences will exceed organisation risk ability and will have an negative impact on an organisation ability to be successful.
                   It is obstacle towards the success of an organisation. It has a very bad impact on the growth and prosperity of an organisation.
For example- if a organisation is in retail business, the key risk indicator in this organisation may be increased in customer complaints or customer is no longer satisfied with the product or service of the organisation. These key risk factor is an indication towards the operational problem that need to be addressed by the organisation.
                        The organisation have to identify the key risk indicator and focus towards handling the key risk indicator in a way that it does not hamper the success or growth of the organisation.

Importance of key risk factor:-
                            Key risk factor is an powerful and widely used tool used by manager to tackle risk in the organisation in a systematic way.

1) key risk indicator act as early warning signal for an organisation. It warn organisation toward the emerging risk that will hamper the organisation success. Thus, organisation can accordingly make strategy to cope up with this risk.

2)key risk indicator is very important for monitoring the potential or emerging risk that will create impact on organisation. Thus, organisation will know in advance which risks will impact its organisation and will accordingly prepare itself to cope up with these risk in a systematic way.

3) key risk factor indicate the organisation risk position in an industry.

4)key risk indicator help in better insight into risk and control. Key risk indicator give organisation more enhanced detail about the risk which will impact the organisation.

5) key risk indicator is very usefull tool for creating an effective enterprise risk management system in an organisation.