Key risk indicators help companies to identify emerging risks through various approaches. Firstly, the key risk indicators help the company’s management to clearly understand the increasing risks in different areas of the company. However, they also provide information about new emerging risks ( Beasley, Branson, & Hancock, 2010). The key risk indicators signal potential risks from the internal operations of the company and can even signal potential opportunities that are bound and take the necessary action (Chisambara, 2012).
On the other hand, the key performance indicators help companies to manage existing risks by implementing different elements in the organization. Firstly, it allows companies to manager existing risks by giving substance to high-level aspirations as outlined in the organizations strategic documents ( Walczak, 2014). As such, the key performance indicators can also be used to set targets throughout the business to deliver strategic goals. Lastly, the key performance indicators can also help a business to concentrate on a common goal and make certain that it is aligned with the company’s objectives, hence, controlling internal risks.
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There are various effects on the overall quality of the ERM program for lacking the performance measurement component. Firstly, the performance measurement component increases the range of opportunities and enables the management to identify challenges. Consequently, the lack of performance measurement would inhibit companies’ ability to identify risks and establish appropriate responses and reducing related costs or losses ( COSO, 2015). Also, it could reduce performance variability since it does not allow organizations to anticipate any inherent risks.
The board can be confident in the information that is reported on management progress in responding to significant risks by adopting some aspects. Firstly, the board should ensure that it is fully involved in the approval of the strategy and financial plan. By supporting the strategy, the board is viewed as a significant part of the company regarding risks, hence, results in proper oversight of the management. The board should review the risk management program and budget to enable it to understand any critical assumptions (COSO, 2015). The review also ensures the board is informed of the risk that can prevent the organization from achieving its goal.
References
Beasley, M., Branson, B., & Hancock, B. (2010, December). Developing key risk indicators to strengthen enterprise risk management. Retrieved from https://www.coso.org/Documents/COSO-KRI-Paper-Full-FINAL-for-Web-Posting- Dec110-000.pdf
Chisambara, P. (2012, October 1). 6 Characteristics of effective key risk indicators. ERPM Insights . Retrieved from https://erpminsights.com/developing-effective-key-risk-indicators/
COSO. (2015, June). Enterprise risk management integrating with strategy and performance . Retrieved from https://www.coso.org/Documents/2017-COSO-ERM-Integrating-with-Strategy-and-Performance-Executive-Summary.pdf
Walczak, M. (2014, August 25). What are key performance indicators (KPIs)? EInsights . Retrieved from https://einsights.com/key-performance-indicators-kpi/
