7 KPIs You Can Use for Risk Management

Key performance indicators, or KPIs, are used to create or define a way to measure process performance. For safety and risk, that means processes related to the number of safety or risk incidents, which could be over a certain period of time or project. The goal of the KPI in safety and risk is to help managers and employees track process improvements related to safety. The challenge is coming up with metrics that are specific to the needs of your organization.

Sharon Barstow started her career in investment banking and then crossed over to the world of corporate finance as a financial analyst. She specializes in banking and corporate finance topics to include treasury management, financial analysis, financial statement analysis, corporate finance and FP&A. In addition to writing, she is the co-owner of a small dog bakery in rural Ohio.

7 Key KPIs For Effective Risk Management
  • Identified risks. The identified risks are those you are aware of and which you know will occur during the project. …
  • Actual risks. …
  • Unidentified & unanticipated risks. …
  • Frequency of risks. …
  • Severity of risks. …
  • Costs incurred due to risks. …
  • Speed & effectiveness of solutions.

Risk Management KPIs

What is risk management?

Risk management is the identifying, examining and controlling of threats to an organization before they occur or when they happen. Threats can be natural disasters and weather-related, financial or legal issues or errors with strategic management. Businesses often classify risk into three categories:

What are KPIs for risk management?

KPIs, or key performance indicators, for risk management are metrics for assessing risks for a business. KPIs evaluate the critical parts of a business that it needs for it to be successful in meeting its objectives. Their primary function is to monitor business strategies and operations and measure their performance so you can determine effectiveness and efficiency. A business can set key performance indicators to gauge success, improve performance and guide decision-making. KPIs can be:

7 KPIs to use for risk management

Heres a list of seven KPIs you can use for risk management:

1. Risks you identify ahead of time

Identified risks are those risks that you already are aware of or expect to occur and create a plan to manage. These risks dont always happen or, having identified them, you can take action to prevent a problem before the risks emerge. Identifying risk as early as possible can help a business create procedures to avoid that risk in the future or minimize the impact of the risk on the organization should it occur. With a risk reduction plan, you may see fewer identified risks over the long term.

2. Actual risks that take place

Actual risks are your identified risks that happen. For example, an actual risk for a coffee shop might be the vendor that supplies their cups is late with their delivery. Your risk reduction plan for actual risks that occur may have an alternative plan in place. A coffee shop that doesnt get its cup delivery on time, for instance, may already know where it can get supplemental cups quickly, or have a secondary vendor it might contact.

3. Unidentified and unexpected risks

These types of risks are the ones you arent aware of or expect, however, you can plan for them to occur and prepare accordingly. Sometimes, you cant identify a risk because it depends on time or progress, or it occurs because of your response to another risk. An example of an unidentified risk might be a change in technology, which can affect how a manufacturer builds its product. To manage these risks, also called known unknowns, you can establish a procedure to handle any risk ahead of time.

4. How often the risk may happen

This is how often a risk or risks may occur. You might design your risk reduction plan to prevent risks from happening, but they can still happen. Having an effective plan can help you prevent the risk from occurring more frequently. For example, a coffee shop that experiences delayed vendor deliveries may decide to buy its supplies directly from the manufacturer instead of through a third party to ensure it has fewer issues.

5. How severe the risk is to your business

This is how severe or damaging the risks that occur are to your business. Your plan for managing a risk often includes the resources you might need to handle it and the people you may need. The more severe the risk, the more time or people you may need to use. An effective risk reduction plan can help you allocate the appropriate amount of resources, depending on the risk.

6. Costs to your business because of a risk

These are costs to your business because of the risk that happens. When a risk occurs, its helpful to have a risk management procedure or solution thats cost-effective. Costs to a business because of risk can include:

7. How fast and effective your solutions are

This is how fast and effective your solutions to actual risks are. Your risk reduction or mitigation plans can show how prepared you and your business are to handle a particular risk. If your solution to risk functions correctly, then you know your risk management is effective.

Why is it important to use KPIs in risk management?

Using KPIs in risk management is important to businesses concerned with ensuring risks dont happen, or if they happen, they either dont affect their goals or have little effect. Identifying and measuring the frequency and severity of risk can help your company achieve and maintain its overall health because you can create an efficient plan for managing risk.

FAQ

What are the 5 key performance indicators?

5 Key risk management metrics to track
  1. Number of risks identified. It’s important to track the number of risks identified in different areas within your organization. …
  2. Number of risks that occurred. …
  3. Percentage of risks monitored. …
  4. Percentage of risks mitigated. …
  5. Cost of risk management programs.

What are 7 risk management measures?

What Are the 5 Key Performance Indicators?
  • Revenue growth.
  • Revenue per client.
  • Profit margin.
  • Client retention rate.
  • Customer satisfaction.

How do you measure risk management performance?

RISK MANAGEMENT PRINCIPLES
  • Ensure risks are identified early. …
  • Factor in organisational goals and objectives. …
  • Manage risk within context. …
  • Involve stakeholders. …
  • Ensure responsibilities and roles are clear. …
  • Create a cycle of risk review. …
  • Strive for continuous improvement.

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