Which of the following is the MOST important use of KRIs? 

Answer options:

A. Providing a backward-looking view on risk events that have occurred
B. Providing an early warning signal
C. Providing an indication of the enterprise`s risk appetite and tolerance
D. Enabling the documentation and analysis of trends

B

Key Risk Indicators are the prime monitoring indicators of the enterprise. KRIs are highly relevant and possess a high probability of predicting or indicating important risk. KRIs help in avoiding excessively large number of risk indicators to manage and report that a large enterprise may have. As KRIs are the indicators of risk, hence its most important function is to effectively give an early warning signal that a high risk is emerging to enable management to take proactive action before the risk actually becomes a loss. Incorrect Answers: A: This is one of the important functions of KRIs which can help management to improve but is not as important as giving early warning. C: KRIs provide an indication of the enterprise`s risk appetite and tolerance through metric setting, but this is not as important as giving early warning. D: This is not as important as giving early warning.