Final answer:
An effective Key Risk Indicator is easily measurable and consistently tracked, ensuring that it is aligned with business activities and aids in decision-making for risk mitigation.
Step-by-step explanation:
An effective Key Risk Indicator (KRI) should be easily measurable and consistently tracked. Such indicators are directly related to business activities and provide actionable insights that can guide decision-makers in mitigating risks. As KRIs are critical for the ongoing assessment of potential risks that could impact a company's operations, they should be clear, relevant, and aligned with the organization's overall risk management framework.
Conversely, KRIs would not be effective if they are:
- Obscure and unrelated to business activities
- Kept confidential within the risk management team
- Ignored by senior management
Therefore, for a KRI to serve its purpose, it must be integral to the organization's risk management strategy and should be taken into consideration across various levels of management.