Even though many organisations use the terms Key Performance Indicators (KPIs) and Key Risk Indicators (KRIs) interchangeably, they actually are two different tools with different purposes. Let’s take a look at what they are and how they are different.
Key Performance Indicators (KPI)
Key Performance Indicators (KPIs) are the gauges and measurements an organisation uses to understand how well individuals, business units, projects and companies are performing against their strategic goals.
Once an organisation has identified its strategic goals, KPIs serve as monitoring and decision-making tools that help answer your organisation’s key performance questions.
For more information on KPIs you can:
Key Risk Indicators (KRI)
Key Risk Indicators (KRIs), as the name suggests, measure risk. KRIs are used by organisations 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 organisation (or activity) is exposed to. By measuring the risks and their potential impact on business performance, organisations are able to create early warning 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.
- Put risks into perspective by providing comparisons and benchmarks.
- Enable regular risk reporting and risk monitoring.
- Alert key people in advance of risks unfolding.
- Help people to manage and mitigate risks.
The relationship between KPIs and KRIs
While KPIs help organisations 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.
Here are three examples that illustrate this relationship:
- A company might establish a KPI to measure IT system performance and a complementary KRI to track IT vulnerability to cyberattacks.
- Perhaps a company creates a KPI to monitor its market share growth because that’s a key business objective. A KRI linked to the same goal could monitor the risks of losing market share due to customer shifts or new competition.
- A company might measure staff engagement or staff satisfaction as important KPIs and monitor the likelihood of losing key staff and the risks to their employer brand as KRIs.
So, in a nutshell:
KPIs and KRIs are not the same. KRIs help to quantify risks, while KPIs help to measure business performance.
Where to go from here:
How Do You Develop Key Risk Indicators (KRIs)? And How Do They Differ From KPIs?
What Is A Leading And A Lagging Indicator? And Why You Need To Understand The Difference