The Importance Of Digital Risk KRIs For Mid-Sized And Community Banks

Key risk indicators are used by risk managers to assess risks and prioritize risk mitigation efforts accordingly. Tracking these indicators allows business to detect developing problems and warning signs of future issues and preemptively mitigate both. Such KRIs have been widely used in larger banks and organizations but they were often not a viable tool for smaller banks and financial institutions. Advancements in risk technology have made it possible for smaller organizations to generate and track KRIs in a way that was simply not possible before.

Obstacles to effective KRIs

There has always been one major obstacle to using key risk indicators – they needed to be manually updated. This means that every metric that the risk managers and the board members want to track will need to be manually measured and all the data will then need to be collected in a report. There are several disadvantages to this approach. It is a labor-intensive approach which limits the number of metrics a business can follow. Each metric may require input from different departments to be collated by the risk manager.

An even bigger problem is the fact that such metrics are not real-time. Collecting all the data, analyzing the data, and then creating a report can take weeks. This means that even if the metrics highlight a problem, there will be a delay in detecting and resolving the issue. Some of the metrics may even be updated once every quarterly when an audit occurs or when a report needs to be submitted.

Another problem that smaller organizations may face when it comes to KRIs is that a lot of their risk and compliance management tools and systems are still manual. People are using general-purpose work processing and spreadsheet software to manage risks and compliance levels. The data required to generate the metrics is spread across multiple documents and spreadsheets. All these problems make smaller banks a bit apprehensive when it comes to KRIs. They understand how useful KRIs can be, but they can also see that generating KRIs will take quite an effort and the KRIs will not be real-time.

Digital KRIs

Businesses that implement risk and compliance management technology can reap another major understated benefit of such systems – all the data is now present in one place. This results in a paradigm shift in how a bank can use KRIs. Some of the advantages of digital KRIs include:

KRI Software

KRI software provides directional guidance for executive decision-makers. Banks pursue growth by looking at risk assessments and evaluations to decide which risks need to be taken for business growth. KRI software can provide real-time data on risks, ensuring that any decision that is being taken is taken while considering accurate and updated information.

Risk and compliance management systems can automatically generate the risk metrics that are required. Instead of requiring an employee to manually go through reports and collect the data that is needed, the risk management system can be told to count a specified activity. For instance, if management wants an updated count of the number of compliance issues within the organization, under a manual system this would require an employee to look at compliance issues across the organization and then create a report on them. A risk and compliance management solution can provide the same answer with a single click.

Unearth undetected issues

Another major advantage of digital KRIs is that they can help an organization discover issues it would have otherwise not discovered. Risk and compliance solutions do not require any human input to continue tracking KRIs across the organization and there is no concern about the task being too labor intensive. This means that banks can track as many KRIs as they want, exponentially increasing their risk awareness and allowing them to discover issues in areas they may have otherwise ignored. When risk is being managed manually the risk manager must use their resources cautiously to ensure that all the important risk domains are covered. In a digital risk management environment there is no such trade-off – the risk manager can track all the metrics they need without worrying about the workload.

Real-time visibility

Digital KRIs also enable real-time visibility for the managers and board members of the bank. Instead of confining data to manually created reports, modern risk and compliance solutions present real-time dashboards that show the most important KRIs and other metrics. This allows the decision-makers within the organization to always have visibility into the important domains of the bank and gives them greater business intelligence for making decisions about the future of the bank.

Digitally generated and tracked bank risk KRIs promise to deliver higher levels of efficiency by immediately highlighting problematic trends and issues. Wondering what these KRIs will look like for your organization? Get in touch with our risk and compliance experts to see a demonstration of how Predict360 and Predictive Risk Intelligence System help organizations unleash the true potential of your risk data.