KPIs (Key Performance Indicators) and KRIs (Key Risk Indicators) are important metrics used to measure an organization's performance and risks. Both play an important role in strategic planning to help organizations achieve their goals and manage risks. Although they are often used interchangeably, there are important differences between them.
What is KPI?
KPI is the abbreviation of Key Performance Indicator. A KPI is a metric used to measure an organization's performance to achieve its goals. KPIs are generally quantitative and should be measurable, trackable and achievable. KPI enables organizations to measure according to specific targets or benchmarks;
- Measuring performance and monitoring progress,
- Road map to achieve goals,
- Performance comparison and gaining competitive advantage,
- Supporting decision making and risk management
It provides benefits such as: KPIs can be divided into types according to the benefits that organizations can obtain from KPIs.
- Financial KPIs: They are KPIs that measure financial performance. It is used in matters such as income, profit, cash flow and cost.
- Operational KPIs: It measures the operational performance of an organization. Customer satisfaction, delivery time and product quality measurements can be made.
- Strategic KPIs: Measures progress towards achieving strategic goals. Market share, new product development and customer acquisition are examples of strategic KPIs.
What is KRI?
KRI, which is an abbreviation for Key Risk Indicator, provides a framework for early detection of risks that may affect an organization and taking precautions against them. With the framework provided, organizations;
- Identifying potential risks early,
- Reducing risk tolerance,
- Supporting the risk management process,
- Supporting the decision making process
They provide benefits such as: According to the benefits that can be provided, KRIs can be divided into types, just like KPIs.
- Financial KRIs: They are used to measure financial risks. They help make measurements such as liquidity risk, credit risk and market risk.
- Operational KRIs: They are used to measure operational risks. They measure risks such as business continuity risk, information security risk and supply chain risks.
- Strategic KRIs: They measure strategic risks. They are used in measurements such as competitive risk, technology risk and market risk.
Relationship Between KPI and KRI
KPI and KRI can be considered as complementary elements. While organizations use KPIs to evaluate their performance, they should also focus on KRIs to measure potential risks. For example, if an organization wants to increase customer satisfaction (KPI), it must also monitor customer complaints and feedback (KRI) and prevent possible reputational losses in advance.
Some Similarities and Differences Between KPIs and KRIs
Similarities:
- It is usually expressed in percentages, rates, or currency units.
- They are quantitative, measurable, trackable and attainable values.
Differences:
- KPIs measure positive things, KRIs measure negative things.
- KPIs measure the extent to which a business is achieving its goals, while KRIs measure risks that may affect an organization's ability to achieve its goals.
- KPIs are generally more specific than KRIs.
KPI and KRI are vital for the healthy growth and sustainability of an organization. By choosing the right KPIs and using them effectively, businesses can take important steps towards achieving their strategic goals. At the same time, KRIs to identify and manage potential risks also play a critical role for the future success of the organization. A well-designed KPI and KRI strategy can increase businesses' competitive advantage and help them adapt more effectively to changing market conditions.
SOURCE
What Are Your KPIs Really Measuring? (Harvard Business Review)
https://hbr.org/2020/09/what-are-your-kpis-really-measuring
Integrating KRIs and KPIs for Effective Technology Risk Management (ISACA)
