How does a key risk indicator (KRI) function within an organization?

A key risk indicator (KRI) functions primarily by assessing whether controls are effective within an organization. KRIs are specific metrics used to provide an early warning signal of increasing risk exposure in a specific area of an organization. They help organizations monitor and measure risks that could affect the achievement of objectives. By evaluating the effectiveness of existing controls, KRIs enable organizations to determine if they are managing risks properly and whether additional measures are needed to mitigate those risks.

In practice, KRIs can help inform decision-makers about the potential impact of risks on operations, allowing them to take proactive measures to address issues before they escalate. This function is critical in maintaining an organization’s risk management framework, ensuring that the controls placed to mitigate risks are functioning as intended.

Additional choices relate to performance measurements, financial expectations, and compliance, which, while important in their contexts, do not capture the essence of how KRIs specifically function in relation to risk control effectiveness.