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

What term describes indicators that provide early warnings about potential risks to business performance?

1. Key performance indicator (KPI)

2. Risk attitude

3. Key risk indicator (KRI)

4. Risk governance

The correct answer is: Key risk indicator (KRI)

The correct term for indicators that provide early warnings about potential risks to business performance is Key Risk Indicator (KRI). KRIs are metrics used to measure the level of risk associated with specific areas of a business. They are designed to signal whether risks are increasing or if they are moving beyond acceptable thresholds. By monitoring these indicators, organizations can proactively identify potential issues before they escalate into significant problems, allowing for timely intervention and risk mitigation strategies. KRIs are essential in risk management frameworks because they align closely with an organization's risk appetite and tolerance levels. They provide valuable insights into the effectiveness of risk management practices and can help in decision-making processes by informing stakeholders of fluctuating risk environments. In contrast, Key Performance Indicators (KPIs) focus more on the performance of specific objectives within the organization and do not specifically address risks. Risk attitude reflects the organization's overall approach to risk management but does not function as an indicator. Risk governance refers to the framework and processes involved in managing risk but is not concerned with specific indicators of risk. Understanding these distinctions helps clarify the role of KRIs within a comprehensive risk management strategy.