Enterprise Risk Management Key Risk Indicators Development
Enterprise Risk Management (ERM) Key Risk Indicators (KRIs) are measurable metrics that provide early warning signs of potential risks that could impact an organisation’s ability to achieve its objectives. KRIs are used as a tool to monitor and assess risks, and to trigger proactive risk management actions to minimise or mitigate their impact.
Some examples of KRIs that could be used in ERM include:
Financial KRIs: These can include metrics such as cash flow, revenue, profits, and liquidity ratios.
Operational KRIs: These can include metrics such as production efficiency, delivery performance, and customer satisfaction.
Regulatory KRIs: These can include metrics such as compliance with regulations, penalties, fines, and legal actions.
Reputation KRIs: These can include metrics such as social media sentiment, customer reviews, and media coverage.
Cybersecurity KRIs: These can include metrics such as number of cybersecurity incidents, severity of incidents, and response times.
Environmental KRIs: These can include metrics such as energy consumption, carbon emissions, and waste reduction.
The selection of KRIs will depend on the organisation’s industry, objectives, and risk appetite. It’s important to regularly review and update the KRIs to ensure they remain relevant and effective in monitoring the organisation’s risks.
ERM Key Risk Indicators are measurable metrics that help organisations monitor and assess risks, and trigger proactive risk management actions to minimise their impact. By using KRIs, organisations can identify potential risks early and take action to mitigate them, which can ultimately help them achieve their objectives and protect their reputation.
How do you identify a key man risk? How do you manage key person risk? What is key person risk? Key person risk examples.
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Examples of failures to protect business from loss of key persons
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Key person risk, also known as key man risk, refers to the potential threat to an organisation’s operations or financial stability that arises when a key individual or individuals (often top executives or key employees) are unable to perform their roles due to unexpected events such as illness, resignation, or death. This risk can have significant negative impacts on a company’s performance and value.
Here’s how to identify and manage key person risk:
Identifying Key Person Risk:
Dependency: Identify individuals who are crucial to the functioning of your organisation. These may include founders, top executives, or employees with specialised skills that are difficult to replace.
Impact Assessment: Consider the potential impact if a key person were to become unavailable. Would it disrupt operations, affect client relationships, or harm financial performance?
Concentration: Assess if too much authority or responsibility is concentrated in the hands of a few individuals.
Managing Key Person Risk:
Succession Planning: Develop and implement a robust succession plan. Identify and groom potential replacements for key individuals.
Cross-Training: Encourage cross-training and knowledge sharing among employees to reduce dependence on specific individuals.
Insurance: Consider key person insurance policies that can provide financial protection to the company in case of a key person’s incapacity or death.
Contractual Safeguards: Use employment contracts, non-compete agreements, and non-disclosure agreements to protect critical information and relationships.
Diversification: Aim to diversify leadership and responsibilities so that no single individual is irreplaceable.
Monitoring and Review: Regularly reassess and update your risk management strategies as the organization evolves.
Examples of Key Person Risk:
Small Business Owner: In a family-owned business, the owner may hold critical relationships with key clients. If they become incapacitated, it could lead to client loss and financial instability.
Star CEO: A tech company’s success might be highly dependent on a visionary CEO who is responsible for product development and strategy. If this CEO leaves suddenly, it could disrupt the company’s direction.
Expert Consultant: A consulting firm relies heavily on an expert consultant with unique industry knowledge. If that consultant becomes unavailable, the firm might struggle to deliver services effectively.
Portfolio Manager: In a financial institution, a portfolio manager who handles a significant portion of client investments may pose key person risk. If they leave, it could lead to client withdrawals and financial losses.
Managing key person risk is essential for business continuity and long-term success, as it helps mitigate the vulnerabilities associated with the reliance on specific individuals.
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It’s important to be aware of the potential risks that could impact your company’s survival and success.
Here are the top 10 business risks you should be aware of in 2023:
Economic uncertainty: As the global economy continues to recover from the effects of the COVID-19 pandemic, over-printing of pandemic relief money and economic impact of Russian invasion of Ukraine there is still a great deal of uncertainty about the future. This can make it difficult for businesses to plan and operate effectively.
Increased competition: As more companies enter the market and existing competitors become more aggressive, it can be difficult for businesses to maintain their market share and profitability.
Changes in consumer behaviour: Consumer preferences and habits are constantly evolving, and businesses need to stay on top of these changes in order to remain relevant and competitive.
Cybersecurity threats: The increasing reliance on technology and the rise of digital transactions have made businesses more vulnerable to cybersecurity threats. These threats can have a major impact on a company’s operations and reputation.
Regulatory changes: Governments around the world are constantly implementing new regulations, and businesses need to be aware of these changes and ensure that they are in compliance.
Talent shortages: The availability of skilled labour can be a major factor in a company’s success. As the global population ages and more people retire, it can be difficult for businesses to find and retain top talent.
Supply chain disruptions: The global supply chain has become increasingly complex, and disruptions can have a major impact on a company’s operations and bottom line.
Natural disasters: Natural disasters such as hurricanes, earthquakes, and floods can cause significant damage to a company’s facilities and operations, and can disrupt supply chains.
Political instability: Unstable political environments can make it difficult for businesses to operate effectively, and can lead to changes in trade policies and other regulations.
Climate change: The effects of climate change, such as rising sea levels and extreme weather events, can have negative impact on business activity.
Your business decision-making process and management of risk will dictate your business success or failure of business in 2023.
The decision-making process is a critical aspect of successful business management. It allows business leaders to identify and assess potential risks and make informed decisions that can minimise the likelihood of failure and maximise the chances of success. Here are some key points to consider when it comes to the importance of the decision-making process in risk management:
The decision-making process helps business leaders to identify and assess potential risks. By carefully considering the possible consequences of their actions, business leaders can make informed decisions that minimise the likelihood of negative outcomes and maximise the chances of success.
The decision-making process allows business leaders to develop strategies for managing risks. Once potential risks have been identified and assessed, business leaders can develop strategies for dealing with them. This might involve implementing new policies and procedures, providing additional training to employees, or investing in new technologies or equipment.
The decision-making process enables business leaders to prioritise risks and allocate resources accordingly. Not all risks are created equal, and business leaders must be able to prioritize the most significant risks and allocate resources accordingly. By carefully considering the potential impact of different risks, business leaders can ensure that they are addressing the most important ones first.
The decision-making process can help businesses to avoid costly mistakes. By carefully considering the potential risks and making informed decisions, business leaders can avoid costly mistakes that could damage the business. This can help to save money, protect the company’s reputation, and maintain customer trust.
The decision-making process can improve communication and collaboration within the organization. By involving multiple stakeholders in the decision-making process, business leaders can foster collaboration and improve communication within the organization. This can help to ensure that all team members are on the same page and working towards a common goal.
The decision-making process is a critical component of successful business management. By identifying and assessing potential risks, developing strategies for managing them, and involving multiple stakeholders in the process, business leaders can minimiSe the likelihood of failure and maximise the chances of success.
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What is risk diversification? Diversification is for idiots explored. What are the dangers of over diversification in business? Concentration of effort on key risks builds better business protection and can grow a business faster with less uncertainty. Diversification is not good or bad – horses for courses! There are benefits of diversification, but not at expense of liquifying your business success.
If you do not know how to manage business risks you need to diversify your risk management strategy more to protect your business from your incompetence.
Of course you should hedge your bets in business decision making if you do not know what you are doing! Do you know your key business threats and opportunity’s ? Are you sure you know? If so go ahead full steam. If you do not know then maybe you should understand your business risks better before managing your business risks to maximise your business performance?
Benefits Of Enterprise Risk Management ERM
If you know how to analysis your business risks and truly value your business assets, then maybe you should invest most of your time and money in what you know rather than uncertainty! If you want your business to perform averagely maybe you should spread your risk decisions, or alternatively, if you want maximum performance from your existing resources you should focus on what’s best for your business? Spread your business investment wider if you feel more comfortable with that but do that knowing you do not truly understand your key business risks.
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Risk Diversification Is A Protection Against Ignorance
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Tips advice and support for better decision making in financial services industry. Improve conduct risk. Change the way your business relates to your customers. Upgrade your risk management and conduct risk governance framework to ensure everyone knows who does what and when. This should embrace accountability for the consequences of not managing conduct risks in accordance with clear risk management principles risk appetite of the business.
Develop new financial conduct risk compliant products to boost business performance and sustainable business growth
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The whole business needs to report on conduct risk performance. The risk function should help monitor conduct risks within the risk management plan but everyone in the business should be accountable for good customer outcomes. Internal Audit should check the documentation for conduct risk management challenging the whole business and the risk function to improve conduct risk effectively.
The Board executives and senior managers need to develop and embed the right risk management culture for the business risk tolerance and risk appetite. However all staff should be held to account by ensuring that all remuneration and incentives are linked to good risk management practices.
If people are to be held to account the business the board and senior managers must provide the tools to ensure that all staff are capable of delivering conduct risk management principles and practices. This includes training staff developing good risk management systems and early risk warning indicators to enable rapid corrective action to prevent severe impact on business objectives and major personal failure.
What is your financial services business appetite for risk?
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Cut through the management information overload to focus on the conduct risks that matter to your business success and key customer outcomes. Do not procrastinate. Act to remedy deteriorating conduct risks and monitor the effectiveness of your risk management action plan.
Identify the best Key Risk Indicators KRIs and Key Control Indicators KCI for your financial services buisness.
Change your technological solutions to deliver better conduct risk management
Improve organisational behaviour and your risk culture to boost business performance more sustainably
Senior managers and executives will increasingly become accountable for conduct risk in UK. Protect yourself better and find new ways to comply with regulatory obligations whilst increasing your business growth.
Embed a positive risk management culture. Assess from clients point of view whether good customer outcomes are achieved consistently. Analyse trends to identify areas which may need further more in depth investigation and conduct risk assessment. The conduct risk assessment should not just focus on known risks but encompass emerging risks from external and internal risk factors.
Improve customer outcomes from financial services and products. Embed conduct risk in your holistic risk management framework.
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Take steps to make it more likely that your financial products and services meet your customers needs. Deliver better outcomes for your customers with better conduct risk management framework principles and risk assessment process.
What is your risk management capability? How does it address conduct risk. All financial services industry businesses need to develop the right skillset. Organisations need to gather the right management information at the right time and disseminate risk controls have appropriate risk assessment. Does your risk management information system RMIS help you make the right decisions at the right time?
Mitigate the disadvantages of conduct risk and maximise the opportunities from conduct risk management with
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Are you personally accountable? Do you want more comfort that you are doing the right things at the right time? Improve you overview of regulatory compliance and supervisory expectations of conduct risk management.
Effectively empower your colleagues to manage conduct risk better. Treat your customers fairly and protect them and your business from poor conduct risk management.
The Financial Conduct Authority FCA in UK expects your financial services business to embed conduct risk management into your enterprise risk management framework. You need to use risk based management information to make better conduct risk management decisions.
Upgrade your governance risk and compliance GRC in a more holistic integrated way to achieve more with less uncertainty in UK.
Review your risk management framework principles and risk assessment process to boost business performance. Do not just comply with regulations. Prosper with more certainty.
Understand emerging conduct risks. Manage known existing risks better. Allocate existing resources for better return in conduct risk management. Improve customer outcomes. Know what customers want and need. Gain a competitive advantage within financial services industry.
Treat customers fairly do not just look at process improvement. Be reasonable as a minimum and look to build upon existing conduct risk management. Make sure when you develop financial products and services you meet the objectives and interests of your target market.
Does your risk appetite statement cover conducts risks? Proactively identify conduct risks. Tackle possible unfair customer outcomes before they occur. React more positively when adverse customer outcomes arise.
Develop the best strategic risk management plan for your business to
Improve a weak compliance system
Improve poor risk management culture
Build a more sustainable business model
Provide better financial advice
Avoid mis selling scandals
Protect customers interests
Create the conduct risk management plan that works for your business. Understand conduct risk better. Know what you can get out of conduct risk management.
Drive your business forward more confidently without impinging on good customer outcomes.
Identify key conduct risks
Take meaningful action to manage risks better
Audit and report against your business conduct risk appetite
Produce evidence of good customer outcomes as well as negative outcomes
Make first line business units responsible for conduct risk management supported by good risk management guidance and oversight
Make your management information systems and technology support business objectives
Do you own or manage a financial services business?
Yes you can get your wrists slapped with non compliance fines and destruction of your brand reputation but you could be missing the opportunity to win new market share in the financial services industry.
Overcome weaknesses
Build on existing strengths
Seize new business development opportunities
Mitigate the threats to your business objectives
Develop open transparent communication across the organisation on conduct risk management. Stop paying lip service to the principles of good conduct risk management. Keep conduct risk management simple. Measure and report on conduct risk in accordance with the level of risk to corporate objectives. Involve the whole organisation in the management of conduct risks.
Improve your governance risk culture and risk management capability
