Rajashree Chaubey

Before your business can begin benefiting from KRIs, you’ll need to do a bit of prep work. We walk through the steps for KRI design below.

A KRI is a metric for tracking the potential occurrence of certain risk events that will have an adverse effect on your company’s objectives.

So before you can begin developing effective KRIs, it’s essential that you understand your company’s most important objectives. For example, one core objective might be to increase profits by increasing revenues and decreasing costs. There are several risks you may map to this core objective, like economic downturns or operational inefficiencies.

The risks that pose the biggest threat to your business objectives— 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 KRIs, set upper and lower tolerance values to track against each risk. Any time a risk moves beyond these thresholds of acceptance, you should alert key stakeholders and assign follow-up tasks to mitigate that risk.

These tolerance values can be changed as data is captured, so don’t spend too much time perfecting them in the beginning. To start, you can use industry norms or internal criteria to set them and ensure they’re approved by your board of directors or other key leadership.

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.

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