Practical ideas: Include risk management KPIs into individual performance reviews

Once risk management roles and responsibilities have been documented in job descriptions and committee charters then appropriate and measurable KPIs should be developed. Just like anything else, risk management KPIs need to be integrated into the overall performance management system.

Risk management is everyone’s responsibility. Yet, our research shows that managing risks is not natural for people, it may even be against human nature. Without proper motivation or with inadequate motivation, employees are often reluctant to fulfil their risk management duties. This message was reinforced during our interviews. Companies that have implemented and monitored risk management KPIs for key employees have demonstrated significantly higher risk management culture maturity.

KPIs should be specific for each role within the overall risk governance model.

For example, KPIs for the CEO may include:

  • an improvement in the risk management culture rating;
  • regularity and quality of risk disclosure to shareholders;
  • achieving risk-adjusted profitability measures.

For CFO or COO risk management KPIs may include:

  • improvement in risk management culture maturity;
  • RAROC (risk adjusted return on capital);
  • the number of critical operational events and so on.

For the employees, a risk management KPI may include timely and accurate risk analysis during core business processes or significant decisions.

 

USE THE CHECKLIST PROVIDED BELOW TO TURN THIS SECTION INTO ACTIONS

Review existing remuneration policy and individual performance KPIs for key decision makers

Develop a set of KPIs for executives, risk managers, business unit heads and employees in high risk activities

Together with HR and internal audit develop measurement / audit criteria for each KPI

Pilot test on one business unit before a full roll-out

 

USEFUL VIDEOS

Key performance indicators for risk managers – Alex Sidorenko from RISK-ACADEMY talks about various key performance indicators for risk managers https://www.youtube.com/watch?v=4N3_eyaljbE
Omission bias: Alex Sidorenko talks about significant cognitive biases that affect how people in the workplace make decisions https://www.youtube.com/watch?v=kh-bWQcF2RQ
Normalcy bias: Alex Sidorenko talks about significant cognitive biases that affect how people in the workplace make decisions https://www.youtube.com/watch?v=rIU4JGZjfxU
Neglect of probability bias: Alex Sidorenko talks about significant cognitive biases that affect how people in the workplace make decisions https://www.youtube.com/watch?v=xhZ8HID4An4
Professional deformation bias: Alex Sidorenko talks about significant cognitive biases that affect how people in the workplace make decisions https://www.youtube.com/watch?v=WfsP4stQtiU
Semmelweis bias: Alex Sidorenko talks about significant cognitive biases that affect how people in the workplace make decisions https://www.youtube.com/watch?v=kDbPMd4efOc
Confirmation bias: Alex Sidorenko talks about significant cognitive biases that affect how people in the workplace make decisions https://www.youtube.com/watch?v=P3GfC2mOgZI
Framing bias: Alex Sidorenko talks about significant cognitive biases that affect how people in the workplace make decisions https://www.youtube.com/watch?v=bx3Or_cHHo8

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