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FRM Part II · FRM Exam Part II · Risk Measurement and Assessment

A bank monitors a KRI: staff turnover in its payments operations unit. Thresholds are green below 10%, amber 10% to 15%, and red above 15%. Turnover has been 9%, 11%, 13% and 14% over four consecutive quarters, with no breach of red. What is the most appropriate interpretation?

The KRI is currently amber and trending toward red, so management should investigate and act now. KRIs exist to prompt early intervention on adverse trends, so waiting for a red breach or averaging past quarters would defeat their early-warning purpose.

  1. AThe KRI is in amber and the rising trend warrants investigation and action before it reaches redCorrect
  2. BNo action is needed because red has never been breached
  3. CThe KRI is green because the average of the four quarters is below 15%
  4. DThe KRI should be removed because it never breached red

Explanation

The latest reading of 14% is in amber and the trend is steadily upward toward red. KRIs are meant to prompt action on trends before limits are breached, so waiting for red defeats the purpose. The average is irrelevant to the current status.

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