Discover why sensitivity and reliability stand out as the most important criteria when selecting Key Risk Indicators (KRIs). Learn how these factors contribute to effective risk management.
Table of Contents
Question
Which of the following is the MOST important criteria for selecting key risk indicators (KRIs)?
A. Historical data availability
B. Sensitivity and reliability
C. Ability to display trends
D. Implementation and reporting effort
Answer
B. Sensitivity and reliability
Explanation
The MOST important criteria for selecting Key Risk Indicators (KRIs) is Sensitivity and reliability (Option B). KRIs are vital tools in risk management and they need to be both sensitive and reliable.
Sensitivity refers to the KRI’s ability to accurately reflect changes in the risk level. A sensitive KRI will change in response to variations in the risk it is measuring, providing timely and relevant information to the risk management process.
Reliability, on the other hand, ensures that the KRI consistently measures the risk, regardless of external factors. A reliable KRI provides dependable information over time, contributing to the stability and effectiveness of the risk management process.
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