If you’ve ever sat in any kind of business meeting, I guess you know what key performance indicators (KPIs) are. Companies measure these as a way to establish goals, track progress and understand where they’re falling short or where they’re exceeding expectations. KPIs are an essential part of running a business.
What many people don’t know is that there’s another acronym that should be just as familiar—and that is KRI, or key risk indicator. Why should you care about KRIs? Let me put it this way: You’re less likely to hit your KPIs if you’re not monitoring your KRIs.
So what are they? KRIs, to put it simply, are a quantifiable way to assess how risky a particular business activity is. Every company is different, and thus has to design KRIs differently—but some common examples of KRIs might be employee turnover and number of customer complaints, both of which could indicate that there are some underlying problems that might negatively impact the business.
KRIs apply to multiple LOBs, but they’re especially important for procurement and supply chain. If you have supply chain KPIs, then you better also have supply chain KRIs—because, if not, you’re not going to get the advance notice you need to address risk before it starts to affect these KPIs.