KRI vs. KPI and Balanced Scorecard
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The key risk indicators and key performance indicators can be made to work in direct collaboration with each other to facilitate business growth and excellence as both of them are two different sides of the same coin. The key risk indicators provide an early warning signal to the management regarding the impending risks involved in a particular activity, the key performance indicators provide quantifiable inputs to enhance performance and enumerate the critical success factors vital to success in an organization.
Key Risk Indicators
Businesses have become more and more widespread and diverse and aim their strategies for enhancing the long term growth prospects and success. The utility value of the KRI is proven from the fact that they are instrumental in reducing the losses that are bound to occur without the initial risk management planning and building the framework. Careful analysis of the risk indicators enable the organization to convert the same to performance inputs and link them directly with the business goals and achieve higher business distinction. Although, accurate measurement of such risks is not feasible for any organization; however careful in depth enterprise risk management (ERM) will facilitate better internal control and planning that will prepare the organization for future perils. Further, care must be taken not to rely on such plans as they do not have a proven track record and keep them only as a reference measure.
Key Performance Indicators and Balanced Scorecard
The KPI or key performance indicators can be commonly defined as involving the use of inputs designed by the organization and management to gauge the performance ratings and direct them positively towards achieving the business objectives. Whatever the means are chosen, they must be the stems of the organizational inputs from which fruits of success evolve in due course. Moreover, the KPI must facilitate achievement of organizational goals and described simply to be easily followed and executed by the workforce. Furthermore, the theory of Balanced Scorecard provides metrics to measure the business performance and KPIs are a set of metrics designed to achieve the business goals. The KPI and Balanced Scorecard do not have much difference and differ only by means of metric use; however, since the depiction of the metric is quite abstract, the management must not blindly depend on them.
Overall, the key risk indicators and key performance indicators, both are vital to an organizational planning and objective strategizing along with the critical success of a business and hence, must be accounted for in the designing the long term plans of an organization.
