(Beasley, Branson, and Hancock, 2010, paraphrased)
Srimai, Radford and Wright (2010) report that management needs "arriving from the evolving business ecology and focused on creating and sustaining competitive advantage, drive the destiny of PM systems during their evolutionary progression." (p.662) Management tools that presently exist are reported to be reflective of the "result of prior choices in the search for distinct performance measurement capabilities. Their evolution embodies trends in the development and use of performance measurement systems over long periods, and also points the way for future performance measurement to develop and evolve." (Srimai, Radford and Wright, 2010, p.676)
Gordon, Loeb, and Tseng (2009) write that enterprise risk management (ERM) is a holistic approach to risk management and state that the "relation between ERM and firm performance is contingent upon the appropriate match between ERM and five factors which include those which affect a firm: (1) environmental uncertainty; (2) industry competition; (3) firm size; (4) firm complexity; and (5) monitoring by the board of directors. (p.301) Specific business risk considerations are reported in the work of Kendrick (2004) to include: (1) business risks or risks in the business environment that could place barriers in front of the objectives of the corporation; (2) financial risks or the risks to realization of profit; (3) project nd operational risks which means risks to implementation of corporate strategy; (4) reputation risks; and (5) compliance risks. (p.70) Cultural prototypes in the organization effect how risk is addressed and those prototypes are reported to include: (1) entrepreneur: the market rules; (2) egalitarian: cooperation and equality; (3) bureaucrat: reliant on rules and procedures; (4) atomized/stratified: a belief in hierarchy; and (5) autonomous individuals: risks are acceptable as long as they are not derived from coercion. (Aven and Kristensen, 2004, p. 5) Stated as important lessons are: (1) expected values cannot be the only basis of risk acceptance; (2) uncertainty is poorly assessed by people; (3) various factors serve to influence probability assignments; (4) various factors influence the "perception, acceptance and tolerability of risk"; (5) significant differences exist between individuals and groups in the perception and acceptance of risk; and (6) risk perception and acceptance of risk "are fundamentally related to social judgments of things such as responsibility, blame and trust in risk management and managers. (Aven and Kristensen, 2004, p.5)
Summary and Conclusion
It is clear that the benefits of the development of Key Risk Indicators (KRIs) in the organization are such that serve to benefit the organization and on many levels in avoiding future potential risks. It can be said that the foresight of KRIs are much better than the hindsight views of KPIs. It is not easy to ensure that risk, performance and other factors are aligned in the organization but the approach of the use of KRIs in the organization which are founded on principles that identify risk and ultimately the performance management of the organization is clearly a method that will serve to enable the organization in all aspects of the organizational performance and functioning. Key Risk Indicators (KRIs) serve to assist the organization in many areas of their functioning through pinpointing and predicting the possible problems that can arise in many areas of the organizational operations. This enables the organization in answering to its stakeholders on all levels of the organization.
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