Risk and Insurance Management Society (RIMS) Certified Risk Management Professional (CRMP) Practice Exam

What is the term used to measure deviations from expected outcomes to assess a firm's performance?

1. Risk appetite

2. Key performance indicator (KPI)

3. Risk attitude

4. Organizational resilience

The correct answer is: Key performance indicator (KPI)

The term that measures deviations from expected outcomes to assess a firm's performance is key performance indicator (KPI). KPIs are quantifiable metrics that reflect how effectively a company is achieving its key business objectives. By tracking these indicators, organizations can identify areas of success and areas needing improvement, allowing for more strategic planning and resource allocation. KPIs provide a clear and objective basis for performance evaluation, making it possible for decision-makers to gauge progress against their goals and objectives. For instance, if a company expects to achieve a certain revenue target and actual results fall short, the KPI helps to highlight that deviation, prompting a review of strategies and execution. The other terms, while relevant to risk management and organizational performance, do not specifically address the measurement of deviations from expected outcomes. Risk appetite refers to the amount and type of risk an organization is willing to pursue in order to achieve its goals. Risk attitude reflects the organization's overall approach or disposition towards risk. Organizational resilience pertains to an organization's ability to anticipate, prepare for, respond to, and adapt to significant disruptions, but does not directly focus on performance measurement in the same manner as KPIs.