Enji.ai

Created: October 31, 2024

AI-Powered Effective Monitoring of Key Risk Indicators

Samat Jukeshov

Delivery Manager at Mad Devs

AI-Powered Effective Monitoring of Key Risk Indicators

Balancing optimism with being prepared for potential challenges is one of the most difficult aspects of running a business. Certain leaders may enjoy creating lists of what could go wrong, while others prefer to avoid thinking of such things. Either way, understanding possible risks that may affect part or all of a business is essential for healthy growth and for demonstrating professionalism and trust to partners and clients. Part of an effective risk mitigation strategy is developing Key Risk Indicators (KRI) to serve as signal fires when difficulties appear.

Why are key risk indicators important?

As mentioned above, KRIs are signals that alert a company's leaders to potential danger within particular parts of a business, such as technology or HR. In a sense, they predict risks before they become a severe issue. They are especially effective within more sensitive departments. With KRIs, a business can:

KPIs vs KRIs

While the terms appear to be similar, they are not. KPIs allow a business to assess the performance of individuals, teams, and departments. The critical difference is that KPIs provide metrics based on past activity. KRIs, on the other hand, look forward and provide conditions that signal risks and challenges. For example, a business may establish a KPI for their software development team to "reduce lead time to under five days by the end of Q4."

This is a goal; at the end of Q4, the business's leaders will check to see if the development team achieved the goal. A KRI in this context would assess potential roadblocks to reducing lead time: "Total logged working time of developers is under 6 hours per day." This could signal to managers that lead time will not be reduced and that action should be taken to determine the cause or to adjust the development workflow.

Defining KRIs

As with any process, the planning stage is one of the most crucial elements and ensures success. KRIs can alert a business to trouble when they are properly defined, and it is clear how to measure them. When creating KRIs, these are the best practices to ensure KRIs are effective:

With these characteristics in mind, follow a structured approach to define and develop the indicators, such as this:

1. Understand your organization

Gain a deep understanding of your organization's goals, operations, and risk landscape. This includes analyzing internal and external factors that could impact the organization's risk exposure.

2. Identify risk categories

Categorize the types of risks your organization faces. Common categories include:

3. Engage stakeholders

Like any process, the more relevant stakeholders are involved, the more likely an organization is to identify key areas of concern. Their insights will help pinpoint critical risks and the necessary information needed to monitor these risks.

4. Define specific risk factors

Identify specific, measurable factors tied to the objectives within each risk category. For instance, financial risk factors might include liquidity ratios or revenue concentration.

5. Set thresholds and triggers

Establish acceptable ranges for each risk factor. When these thresholds are crossed, alerts should be triggered for further investigation or action. Historical data from within your business and industry and acceptable benchmarks can help determine these thresholds.

6. Determine data sources and measurement methods

Identify where the data for each KRI will come from (such as financial reports and operational data) and develop methods for collecting and measuring this data consistently over time.

7. Monitor and review

Once KRIs are established, continuously monitor them to assess their effectiveness. Regularly review and adjust the indicators as necessary to adapt to changing risk environments.

Examples of department KRIs

Each department's KRIs provide insight into risks that could negatively affect a tech company's operations and overall success. Here are some examples of metrics involved for each category:

Cybersecurity

Human resources (HR)

Finance

Operations

Technology

Properly defining KRIs is one challenge, while the other involves the question of monitoring them in a way that allows business leaders to see issues promptly.

AI's role in monitoring KRIs

With a clear understanding of KRIs, let us look at how to track and see them. While it may be tempting to host regular meetings where managers give updates, and everyone can discuss potential risks, there are three reasons to avoid them. Firstly, this is difficult to do when managing hybrid teams, given the different time zones that employees may have. Secondly, too many meetings create problems for a business when personnel are called away from important tasks to give reports. Thirdly, automated alerts and bots make such meetings unnecessary.

AI tools can remove the burden of constant monitoring and control from human personnel. They also reduce the risk of human error when indicators may not be noticed or ignored. As a result, AI ensures the timely identification of risks and constant reporting. AI features that assist businesses in tracking KRIs, include:

Tools such as Enji.ai allow businesses to create customized workflow alerts for their unique KRIs. The indicators listed in the above categories can be monitored by bots that provide automatically generated reports when the business needs them. For example, these could be daily reports, weekly summaries, or even monthly digests. Likewise, the alerts can be programmed to activate only under certain conditions.

Besides the ease of use, other benefits of automated alerts and bots include:

Enji features the following alerts to keep businesses on track and informed:

Along with the benefits of integrating AI into KRI frameworks, organizations must address several challenges and considerations to ensure effective implementation and data quality.

Challenges in integrating AI with existing KRI frameworks

Data quality issues

Complexity of integration

Change management

Stay empowered with data

Adopting a reliable notification system connected with a business's KRIs is crucial for leaders who want to create a strategy for acting on risks promptly. Part of that is developing processes and workflows that minimize risks before they become a problem. Automated alerts and bots are a solution that support discipline, encourage independence, and remove the need for micromanagement. As a result, leaders and employees are free to focus on strategic tasks while AI monitors and provides reports.

Contact the Enji team today to put alerts and bots to work for your business