I am currently studying for the Isaca CISM certification and Key Performance Indicators and Key Risk Indicators kept throwing me off. I continued to confuse them so I decided to write this post as a method to retain the knowledge and hopefully make the concepts finally stick.
Key Performance Indicators (KPI)
Key Performance Indicators (KPIs) are the gauges and measurements an organization uses to understand how well individuals, business units, projects and companies are performing against their strategic goals.
Once an organization has identified its strategic goals, KPIs serve as monitoring and decision-making tools that help answer your organization’s key performance questions.
Key Risk Indicators (KRIs)
As the name suggests, measure risk. KRIs are used by organizations to determine how much risk they are exposed to or how risky a particular venture or activity is.
KRIs are a way to quantify and monitor the biggest risks an organization (or activity) is exposed to. By measuring the risks and their potential impact on business performance, organizations are able to create early detection systems that allow them to monitor, manage and mitigate key risks.
Effective KRIs help to:
- Identify the biggest risks.
- Quantify those risks and their impact to the business/enterprise.
- Put risks into perspective by providing comparisons and benchmarks.
- Enable regular risk reporting and risk monitoring.
- Alert key people in advance.
- Help people to manage and mitigate risks.
The relationship between KPIs and KRIs
While KPIs help organizations understand how well they are doing in relation to their strategic plans, KRIs help them understand the risks involved and the likelihood of not delivering good outcomes in the future. This means KRIs can be the flipside or KPIs.
Wrapping up, In a nutshell:
KPIs and KRIs are not the same. KRIs help to quantify risks, while KPIs help to measure business performance.