Key risk indicators (KRIs) are a crucial component of treasury risk management. The first article in this series provides a high-level overview of the role KRIs can play in treasury risk management and the process for developing them. This article will provide further details for building successful KRIs and their associated limits.
One element of an effective key risk indicator that is frequently overlooked in practice is tying the metric tightly to the corporate risk appetite. That is not the only important factor. Additionally, KRIs should be quantitative, relevant, forward-looking, timely, consistent, and efficient.
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