Risk Metrics for Governance Effectiveness

Tracking Your Success with Risk Management Metrics

Since the SEC ruling in February 2010, boards and CEOs (public and private) are depending more and more on risk management metrics. These include key risk indicators (KRIs) at the business process level, which have the proven capability to be escalated as necessary. Internal audit is now required to validate the most timely and significant risks, especially those that impact the achievement of the organization’s strategic objectives and key performance indicators (KPIs).

Completeness Testing and Governance Effectiveness

LogicManager provides multiple reports to help risk managers identify gaps in assessments, mitigation and control activities, and monitoring and testing activities throughout the organization. Moreover, LogicManager enables all of these reports to be filtered by an assessment cut level, so organizations can focus on process improvement.

Our software doesn’t just help risk managers detect gaps across the enterprise; LogicManager provides resources and methodologies that help quantify and measure the value of the ERM program. Key risk management metrics include:

Alignment: Number of systemic risks identified
Systemic risk identification detects areas of upstream and downstream dependencies throughout your organization, such as when one area of the organization is unknowingly causing strain on other areas. Additionally, this method also identifies areas that would benefit from centralized controls, eliminating the extra work of maintaining separate activity level controls and increasing organizational efficiency.

Efficiency: Percentage of process areas involved in risk assessments
ERM is cross-functional in nature and cannot be performed in silos. A business is the sum of its parts. The same is true of risk. A risk event in one functional area also affects other functional areas within the business. Process owners own the risk; risk managers own the completeness, timeliness, and accuracy of the risk information. The more process owners are involved in risk assessments, the more accurate and forward-looking is the information collected.

Forward Looking: Percentage of key risks monitored Most organizations need a greater understanding of how the business metrics they rely on daily are tied to risk. If a risk or activity changes, organizations have no way of knowing how, and if, these changes will affect their metrics. Through risk assessments and linking risks to activities, organizations can start prioritizing what activities need to be monitored. Regular risk assessments enable the detection of increased threat levels emerging risks (before they materialize). This prevents business metrics from being pushed out of tolerance.

Transparency: Percentage of key risks mitigated Having a sense of your overall risk coverage is important; however, it is not nearly as valuable as knowing the coverage of your organization’s key risks. Because all risk assessment should be based on standardized criteria, you can determine a uniform tolerance, or cut level, throughout the organization based on resulting assessment indexes. This will help you to prioritize resources, spending them on risks that need stronger coverage rather than wasting them on low-impact risks. This gap analysis, with a tolerance level, will also help identify emerging risks as they rise out of tolerance and it becomes clear that current mitigation activities are no longer sufficient.

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