FRM Part II · FRM Exam Part II · Risk Identification
A bank wants to improve the usefulness of its KRIs. Which design feature is most consistent with good practice?
Good practice links each KRI to a specific risk or control, sets defined thresholds, and assigns an owner who must escalate breaches. Excessive indicators, convenience-driven selection or one uniform threshold weaken the early-warning function.
- ASelecting as many indicators as possible so that no risk is left uncovered
- BLinking each KRI to a specific risk or control, with defined thresholds and an owner responsible for escalationCorrect
- CUsing only indicators that are easy to collect, regardless of their relevance to risk drivers
- DSetting a single enterprise-wide threshold for all business lines
Explanation
Effective KRIs are relevant to identified risks or controls, measurable, and have thresholds and accountable owners so breaches trigger action. Too many indicators dilute focus, convenience over relevance reduces value, and one threshold ignores differing risk profiles across business lines.
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