Key risk indicator
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A measure which quantifies an important risk to which the organisation is exposed.
Example
A Inc operates in the capital goods sector and regularly makes tenders in foreign markets. The tenders are based on foreign exchange rates prevailing at the time of bid but there is risk in the tenders which is difficult to hedge because there is uncertainty over whether the tenders will be accepted.
A Inc's key risk indicators for this risk measure the following:
- number of bids outstanding
- size of exposure in bids outstanding
- length of tender and
- volatility of currency pairs involved in tender
to produce an overall measure of risk for tenders.
The risk in tenders is then given a budget for overall risk, which is managed by the tendering team and their treasury colleagues.
