The proactive monitoring of risk exposure is top of mind for Boards and Senior Management. Risk indicators can play a major role in this process. Despite this heightened focus, many indicators are in fact lagging incident reports rather than leading measures.
As a result, companies that have invested significant resources in developing indicators are often monitoring historical data rather than early warning signals. This can also result in a misleading profile of risk exposure.
Genuine indicators are early warning signals of the root causes of the risk in question.
The reason why many so called Risk Indicators track incidents rather than early warning signals is because cause and effect are often confused with a positive relationship.
Two factors may be positively related without one of these factors causing the other.
Our Causal Analysis Model distinguishes between root-cause drivers of risk (i.e. sources) and correlation events related to risks (i.e. related or necessary factors for the risk to occur, but not causes).
This ensures we monitor early warning signals of changing risk exposure with the ability to intervene in the causal triggers of risk events.
Our Causal Analysis Model for indicators enables our clients to:
Identify the full range of root causes for each risk so that the correct impact and likelihood exposures are captured.
Enhance the effective prioritisation of key risks in terms of management attention and reporting.
Enable the proactive monitoring of each key risk with the opportunity to intervene at the causal stages of the risk process.