A risk committee complains that a key risk indicator never moves until a loss has already happened, giving them no time to act. Which property must the redesigned indicator have to fix this?
- AIt should be derived from confirmed incident records so that every reported value is fully auditable
- BIt should report the cumulative financial losses already suffered over the past four quarters
- CIt should be reported far more frequently so any change is visible to the committee sooner
- DIt should track a condition that tends to change before the risk materialises, giving advance warning Correct
Why A is wrong: Confirmed incidents are accurate but lagging, so basing the indicator on them keeps it backward-looking and reproduces the exact timing problem the committee raised.
Why B is wrong: Cumulative losses summarise outcomes that have already occurred, so this remains a lagging view and offers no earlier signal than the current indicator does.
Why C is wrong: Higher reporting frequency speeds delivery but a lagging metric still only moves after the event, so refreshing it more often cannot create the advance warning the committee needs.
Why D is correct: An effective key risk indicator is leading, measuring a precursor that shifts ahead of the loss event, which is what gives the committee time to respond before exposure crystallises.