Risk reporting and KRIs

At one point or another, either while in business or considering starting a business, I’m sure you’ve all had friends or advisors nod sagely, take on a serious look, lean in towards you and knowingly quote that advice often attributed to Peter Drucker, the renowned management theorist, though usually passed off as their own: “Remember, what gets measured gets done” or “What gets measured gets managed”.

What they’re really advising is that measuring and reporting on things helps gain or maintain focus on key areas in any business. As painful as reporting can sometimes be, it can equally be exceptionally helpful as a lead indicator to help shape strategy and prepare the business for upcoming challenges and opportunities. These challenges and opportunities often contain or are themselves the manifestation of risks in the environment or the business and so they are particularly useful tools for managing risks in your business.

But what should you measure and how often should you measure it? And once you’ve decided on the things you’re measuring how much effort do you need to keep them within the parameters or appetite you’ve set?

There’s a lot to unpack in those two questions and it would be very easy to slip into another adage often quoted with similar sagely attribution – Parkinson’s law – that the amount of work will continue to expand until it consumes the time available to complete it – that is when is enough measurement and reporting enough?

Generally, my sage advice is to build good frameworks and systems. Think about them and build them when you don’t need them and then trust them to get you through in the tough times. When building those systems, think about what they are trying to protect and what are the key metrics that could indicate something is going wrong. These would not necessarily be financial measures or indicators, but specific metrics that tell you about the health of your business or processes in place. They could be anything from a drop in the volume of customer enquiries, to an increase in the number of customer complaints. From an upward trend in debtors’ turnover or unpaid invoices to an increase in the number of days of stock on hand.

Now the first question is, are you even measuring those things, or tracking them, because if you haven’t heard about these sorts of measures you might want to consider that perhaps you don’t know your business as well as you thought you did – or as well as you should. There’s a difference between managing your business with purpose and reacting to the environment (even if that environment sometimes organically brings you new customers).

Once you’ve decided what the important measures are in your business, then think about how nimble you want to be when it comes to “steering the ship” (there’s another analogy for you) – When you drive your car your dashboard presents information to you in real time so that you can make immediate decisions to adjust your driving behaviour to protect yourself and your vehicle from a catastrophe or from enforcement activity (the regulator). The same is true for a business. The reports might not be long paper narratives, they could themselves be simple dashboards that allow you to make decisions to change behaviour to protect yourself and your business from a catastrophe or regulatory activity.

The urgency with which you need to make adjustments balanced against the effort to produce the report/dashboard might mean that you only want a report monthly, or even quarterly, but this reporting is important. It gives you comfort that the frameworks you’ve put in place are working effectively as intended to protect you and informs you so that you can make important decisions to protect your business to, if not prevent a risk from manifesting in the first place, at least minimise the harm if it does.

Ultimately when it comes to risk you can either manage it or pretend it’s not there. If you don’t measure it, you’ll never know how exposed you are or how serious it is and you may continue blissfully unaware, but you also run the risk of missing opportunities to take corrective action to protect your business until it’s too late and the consequences of that can be catastrophic. “What gets measured gets done (or managed)”.

A good risk advisor can help you build those frameworks and identify the key indicators and measures you need to track to tell you what you want to know about your business and how to use them effectively to make good decisions to manage the risk and to keep your business on track.

Of course, on the other hand, you could always just lock the doors and pull out all the plugs and then you won’t have any risk any more. Of course, you also won’t have any business left either…

Risk Strata specialise in helping businesses understand their risk profile and implementing processes, controls and frameworks to effectively manage those risks so that you can make informed decisions to keep your business safe and healthy. We can tailor a package of services to meet your needs from basic profiling right through to the design and implementation of control frameworks, reporting metrics and appetites and training for yourself and staff. If you want to understand your business better, “let’s talk”.