Which of the following is the MOST important use of KRIs?
Providing a backward-looking view on risk events that have occurred
Providing an early warning signal
Providing an indication of the enterprise’s risk appetite and tolerance
Enabling the documentation and analysis of trends
Key Risk Indicators are the prime monitoring indicators of the enterprise. KRIs are highly relevant
and possess a high probability of predicting or indicating important risk. KRIs help in avoiding
excessively large number of risk indicators to manage and report that a large enterprise may have.
As KRIs are the indicators of risk, hence its most important function is to effectively give an early
warning signal that a high risk is emerging to enable management to take proactive action before
the risk actually becomes a loss.
Answer D is incorrect. This is not as important as giving early warning.
Answer A is incorrect. This is one of the important functions of KRIs which can help management
to improve but is not as important as giving early warning.
Answer C is incorrect. KRIs provide an indication of the enterprise’s risk appetite and tolerance
through metric setting, but this is not as important as giving early warning.