Risk indicators, commonly known as ‘Key Risk Indicators’ or ‘KRIs’ are an important operational risk management tool. As with any type of risk, operational risk exposures are dynamic and change frequently. Operational risk indicators offer a cost-effective means to keep track of potential changes in exposure.

All organizations use operational risk indicators in some form or another. Management relies on a range of indicators to help them do their jobs and make effective decisions. This includes metrics relating to the performance of people, processes and systems, along with the impact of external events, four elements that define the scope of operational risk. These indicators are monitored by management at different levels within an organization, right up to the executive and board of directors.

The Institute of Operational Risks (IOR) view is that the monitoring of operational risk indicators forms an important part of an operational risk management framework and that the (operational) risk function should play a central role in the design and implementation of risk indicators as a managerial decision tool. A well organized operational risk indicator process can support the assessment, monitoring and control of operational risk exposures. Helping to improve risk awareness and facilitating well-informed operational risk management decisions.