Understanding the difference between Key Risk Indicators (KRIs) and Key Performance Indicators (KPIs) is important to know when your responsibilities include improving employee and organizational performance. Both KRIs and KPIs are well-used tools, but they serve different purposes. Knowing how to use them correctly can help you make more informed decisions.
For example, when considering the cost implications of employee turnover, SHRM found that hiring a new employee can cost three to four times the position’s salary. This makes it crucial to monitor both turnover risk (a KRI) and turnover rate (a KPI).
This article breaks down KRIs and KPIs and shows you how to apply them to strengthen your HR strategies.
Contents
What is a KRI?
The benefits of setting KRIs
What is a KPI?
The benefits of setting KPIs
KRIs vs. KPIs: The key differences
The purpose of KRIs in Human Resources
Examples of KRI and KPI metrics in HR
When to use KPIs and KRIs
What is a KRI?
Key Risk Indicators (KRIs) serve as an early warning system that alerts companies to potential threats before they escalate into costly issues. They are measurable metrics that help pinpoint and assess potential risks that can hamper a company’s ability to meet its objectives.
You can use KRIs to support business goals by identifying and addressing vulnerabilities that may jeopardize the company’s long-term stability and viability. Unlike KPIs, which measure performance outcomes, KRIs focus on determining and managing risks before they become significant issues.
KRIs are usually categorized as operational, financial, or people-related. In information security, for example, KRIs can monitor and quantify cyber risks to help companies be proactive and take swift action.
The benefits of setting KRIs
The positive impacts and benefits of setting KRIs include:
- Early risk detection: KRIs’ ability to detect risks early allows HR to recommend and implement changes or proactive measures.
- Compliance: KRIs mitigate non-compliance risks by monitoring adherence to legal and regulatory requirements.
- Informed and data-driven decision-making: KRIs provide critical data by quantifying risks and their potential impact. This helps HR make well-informed, data-driven decisions on business policies and practices.
- Risk management: KPIs support organizational performance and stability, impacting a company’s finances and reputation.
What is a KPI?
Key Performance Indicators (KPIs) are quantifiable metrics that track progress toward specific business objectives. KPIs can help your organization set goals, monitor progress and achievements, and identify areas for improvement.
Unlike KRIs, which focus on determining and managing risks, KPIs measure performance outcomes based on predetermined indicators. KPIs can vary by business, project, department, or industry.
The benefits of setting KPIs
Incorporating KPIs into HR practices and processes offers several advantages, such as:
- Performance tracking: KPIs allow HR to track employee performance and organizational productivity, which can help you recommend changes and improvements.
- Strategic alignment: KPIs help align HR activities with long-term organizational strategy, objectives, and goals.
- Data-driven, informed decisions: KPIs provide insights that assist in making data-driven decisions for improving HR strategies.
- Forecasting and trend analysis: KPIs can also help track trends over time, aiding in strategic decision-making, planning, and adjustments.
KRIs vs. KPIs: The key differences
There are several contrasting differences between Key Risk Indicators and Key Performance Indicators. Below is an overarching summary:
The purpose of KRIs in Human Resources
Key Risk Indicators provide data to help in decision-making in areas such as promotions, internal training, policy changes, resource allocation, and risk mitigation solutions.
KRIs can also help ensure regulatory compliance for the organization and track and enhance the effectiveness of HR strategies. At the same time, they help align workforce management with business objectives, monitoring employee engagement, retention, and productivity.
Learn how to choose the right indicators to measure
Measuring KRIs and KPIs is important for demonstrating the value of your HR initiatives or strategy. But how do you know which metrics you should measure?
In AIHR’s HR Metrics & Dashboarding Certificate Program you will learn how to select and use the right Key Performance Indicators and metrics.
The online, self-paced Certificate Program also covers how to set goals that are clear and will drive action.
How HR can use KRIs
As an HR professional, you can add value to your company by regularly using KRIs in business planning and risk mitigation activities, including:
- Risk assessment: Develop and recommend strategic plans to address identified risks. For example, if excessive absenteeism is detected, you can suggest launching wellness initiatives.
- Policy development: To be proactive and mitigate risks, you can recommend and lead the development or revision of the company’s policies and procedures based on its KRIs.
- Management reporting: Communicate KRI data to senior management and other key players to ensure accountability and highlight areas needing attention or investment. Based on KRI data, you should also communicate what’s working well for the company.
- Trend analysis: Monitor changes over time to refine and develop well-informed HR strategies and policies.
- Effectiveness assessment: Evaluate current HR strategies, training initiatives, policies, and procedures so you can make necessary adjustments.
- Anticipating new risk factors: Identify risk that has not yet affected the company but has the potential to, then take proactive steps to mitigate them. This can include adjusting or adding roles to ensure all employees are prepared to handle new and potential risks.
Examples of KRI and KPI metrics in HR
Examples of HR KRI metrics
Some examples of KRIs you should track include:
- Safety risks: Number of accidents, work-related injuries, or safety violations. An unsafe work environment harms employees and exposes the company to legal risk.
- HR compliance risks: The company’s compliance with local, state, and federal employment laws and regulations. This is important as a high level of compliance gives employees peace of mind and protects business operations and reputation.
- Diversity, Equity, Inclusion, and Belonging (DEIB) risk: The company’s DEIB initiatives (or lack thereof), which affect representation in the areas of nationality, race, gender, sex, ethnicity, sexual orientation, age, and educational background (among others).
- Exit interview data: The rate at which employees leave a company and whether these departures are more often voluntary or involuntary. A high volume of resignations can signal issues with management and culture, while many terminations may signal poor recruiting practices (i.e., not hiring the best fit for open positions).
- Low workforce morale risk: Pay attention to metrics like employee feedback, turnover intentions, and overall morale indicators. A decline in these areas can suggest a risk of widespread dissatisfaction, which can impact performance and retention.
- Succession planning risk: Track the readiness of your succession plan, particularly for critical roles. If key positions don’t have a clear successor or if the identified successors are not adequately prepared, this poses a risk to organizational stability.
HR tip
Combine data from both KRIs and KPIs to get a broader understanding of HR performance and risks. You can maintain and share this data via an HR dashboard.
Examples of HR KPI metrics
When it comes to KPIs, here are some important metrics to track:
- Time to hire: The amount of time your organization takes to fill job vacancies, from posting a job listing to having a new hire sign an employment contract. Excessively long times may indicate an overly complicated recruitment process that discourages candidates from joining the company.
- Employee turnover rate: The rate at which employees leave a company within a specified timeframe. High turnover may point to organizational shortcomings and recurring problems within the company culture.
- Cost of turnover per employee: The financial costs incurred when an employee leaves and needs to be replaced. High turnover can be a substantial drain on a company’s resources, including time, training, finances, and productivity.
- Absenteeism rates: The amount of time or number of days employees are absent from work. A high absenteeism rate could indicate issues with employee motivation, morale, engagement, workplace dynamics, or company culture
- Employee engagement: High employee engagement is tied to increased productivity and engagement, higher morale, job satisfaction, and retention rates.
- Internal promotion rate: Assess the efficiency and timeliness of internal promotional opportunities.
- Employe Net Promoter Score (eNPS): How many employees would recommend the organization to friends/family as a good place to work.
- Training and development programs: The effectiveness, impact, scope, and reach of the company’s training and development initiatives.
When to use KPIs and KRIs
KRIs and KPIs should be used at different stages of your strategic planning and operational processes, depending on the specific goals you are trying to achieve – but you can also combine using both types of indicators to get a more comprehensive view. Here is a checklist to help you decide when to use each:
When to Use KRIs (Key Risk Indicators):
Risk assessment and mitigation:
☐ Identifying potential risks during the planning of new projects or organizational changes.
☐ Monitoring ongoing risks (e.g., compliance, turnover, safety) to prevent issues from escalating.
Strategic planning:
☐ Assessing risks that could impact long-term HR strategies.
☐ Tracking risks related to expansion, talent shortages, or workforce demographics.
Performance monitoring:
☐ Regularly reviewing KRIs to identify emerging risks that may affect business objectives.
☐ Using KRIs to predict and address potential declines in employee engagement or morale.
Crisis management:
☐ Focusing on critical risks during crises (e.g., economic downturns, public relations issues).
☐ Allocating resources to mitigate the most pressing risks identified by KRIs.
When to Use KPIs (Key Performance Indicators):
Setting and measuring goals:
☐ Defining HR SMART goals (e.g., reducing turnover, improving time-to-fill).
☐ Tracking progress toward these goals with relevant KPIs.
Operational management:
☐ Monitoring the effectiveness of HR functions (e.g., recruitment, training, development).
☐ Ensuring efficiency in processes like hiring and onboarding by tracking relevant KPIs.
Continuous improvement:
☐ Identifying areas for improvement (e.g., low engagement scores) using KPIs.
☐ Implementing initiatives and tracking their impact over time with KPIs.
Reporting to leadership:
☐ Providing clear, quantifiable data to senior leadership using KPIs.
☐ Demonstrating the impact of HR initiatives on organizational success through KPI tracking.
HR tip
Communicate results and share insights from measuring and tracking KPIs and KRIs with key stakeholders. This will help you cultivate a collaborative approach to performance improvement and risk management.
Integrating KRIs and KPIs
☐ Using KPIs to measure performance while leveraging KRIs to anticipate and manage risks.
☐ Using KRIs for proactive risk identification and management.
☐ Applying KPIs for reactive performance measurement and strategy adjustment.
To sum up
Understanding and effectively using both KPIs and KRIs is essential for HR to help drive organizational success. To establish the necessary metrics, you must understand the business and align both internal and external factors with organizational objectives and goals. You can further support the business by teaching stakeholders the differences between KRIs vs. KPIs.
While KPIs can help you understand how well the company is doing in relation to its strategic plans, KRIs can help you pinpoint and prepare for potential risks to minimize the chances of unfavorable outcomes.
Integrating both into your organization’s strategy can improve decision-making, ensure compliance, and align HR activities with broader business goals. But remember that while data is integral, inaction can present more challenges. You can add value to your organization by planning and proposing initiatives to improve its business outcomes.
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