FRM Part II · FRM Exam Part II · Risk Identification
A bank's operational risk team is selecting indicators to monitor its payments processing unit. Which of the following best describes a key risk indicator (KRI) that is forward-looking rather than backward-looking?
Unfilled staff vacancies over 60 days is the forward-looking KRI because it reflects a condition that raises the likelihood of future errors and control failures. Booked losses, insurance recoveries and fines paid are outcomes of past events, so they are lagging measures rather than early warnings.
- ATotal operational losses booked in the previous quarter
- BNumber of payment staff vacancies that have been unfilled for more than 60 daysCorrect
- CAmount recovered through insurance after last year's fraud event
- DCount of regulatory fines paid during the past year
Explanation
Forward-looking KRIs signal conditions that make future loss events more likely, such as prolonged staffing gaps that raise error and control-failure probability. The other options measure losses, recoveries or fines that have already occurred, so they are lagging.
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