External factors like social media have raised an emergence of risk management programs among the organizations. The investors and regulatory bodies are now scrutinizing the organizations for their risk-management policies. The organizations are expected to identify and manage the risks that may affect the capital of an organization. It is where the Enterprise Risk Management programs play an important role. The purpose of such programs is to plan, organize, lead and control the activities of the organizations. The organizations have to review and report the effectiveness of risk management programs so as to ensure proper functioning.
In order to measure the potential risks, meaningful metrics are required. The methods used by the risk managers to measure and assess metrics are Key Risk Indicators and Key Performance Indicators.
Key Risk Indicators (KRIs) are used to monitor and mitigate risks that may impact an organization. This tool is used to measure the metrics and predict the consequences of any potential risk.
Key Performance Indicators (KPIs) are used to monitor the success of an organization against its objectives. It helps to track and evaluate the factors that are crucial in achieving the set objectives.
The above-mentioned methods demonstrate the efficiency of risk management programs by identifying the upsides or downsides of the potential risks. Both of these methods are quantifiable, measurable, comparable and reportable.
The process of risk management and assessment goes beyond these two methods. A good risk management program should be able to identify the gaps that may be transverse within an organization. It should also be able to measure the value of Enterprise Risk Management program by including strategies and methodologies. There are four major risk management metrics:
Systematic Risk Identification: Focuses on the systematic identification of risks in order to estimate the exact number of risks that can harm an organization. This help to detect, identify and eliminate the factors that may result in inefficiency.
Risk Assessment Percentage: This helps to identify the business processes and areas that are dependent on each other. An unfavourable event in one area can adversely impact the other. The risk managers are responsible for objectives, risks, and compliance.
Monitored Risks Percentage: Focuses on linking potential risks to activities so as to prioritize them according to the degree of threat. This helps to eliminate and monitor the activities that pose a higher degree of risk.
Mitigated Risks Percentage: Focuses on coverage of an organization’s risk areas by following standardized criteria. This will help to identify and prioritize the key risks that need to be covered immediately. This allows taking corrective measures without further delay.
These metrics allow an organization to function more effectively. However, collecting metrics is not an easy task. Sometimes the risk managers fail to gather correct metrics. Incorrect data can result in inefficiency. Therefore, it is important to collect correct data and analyze it without any inadequacy. Choose a company that designs compliance management software in India.
Moreover, organizations can improve their ERM programs by shifting to a compliance management system. Compliance management software allows the risk managers to track the workflow without wasting any energy. A compliance management system is designed to keep a systematic record of unfulfilled objectives. It gives to real-time monitoring and is cost effective. All you need to do is to upload the documents on a compliance management software.