Don’t forget the risk metrics
Success metrics measure an outcome, while risk metrics monitor unwanted side effects.
Success metrics measure an outcome, while risk metrics monitor unwanted side effects.
Key points
Like the success metrics help us know we are in the right direction, the risk metrics ensure we stay that way without unintended consequences.
To uncover risk metrics consider limitations, the journey, and related KPIs.
Consider having one or two risk metrics for each success metric.
Overview
When we aim for a particular outcome, we use success metrics to know if we have achieved our goals. Without looking at risk metrics, we neglect risk management and possible mitigations that will ensure we are on track to reach our goal.
Example
Let’s take a card ride as an example. Our goal is to reach the final destination, and we want to optimize our arrival time. To do that, we calculated the ideal commute time and, as a result, the average speed we should drive in.
Our main KPI in the example is speed, much like the speedometer we have in our car (with some indicator on where we want to be). We can tell whether we should go faster or slower during our drive based on our KPI. Right?
The risk
After 30 minutes of driving for an average of 60 mph, we reach a traffic jam. By the time we pass it, we need to go 100 mph to cover up for the lost time.
Without risk metrics, we would drive fast enough to risk our lives and probably get caught by law enforcement.
Types of risk
Once we set up our success metric, we need to consider possible risks and ways to measure them. To do that, I ask myself the following questions -
Are there any limitations on the KPI?
What are the other parts of the journey?
Are there other KPIs that should be optimized?
Limitations
For any goal or metric, there could be limitations. They could come from internal factors like performance, scale, or compliance. In our case, the car can’t go past a certain speed since the motor will overheat. Also, the car manufacturer might have instructions regarding proper usage. On top of that, if our fuel runs out, we can’t reach our destination.
For each significant limitation, we can add risk metrics — such as available distance (in terms of fuel) or maximum speed limit.
Journey
The journey refers to actions that happen before or after the specific part we are looking at. What happened before we started the commute? What will happen once we finish it?
For example, driving may happen at night, and we get tired. A possible risk metric would be the level of concentration (which below a certain point requires a rest).
On the other end, the destination might be a movie where arriving too late will cause us to miss our places. In this case, a possible risk metric would be whether we made it to the move on time.
Related KPI
We talked about reaching the destination and the speed at which we were driving. But maybe there are other KPIs to consider. For example, we want to ensure we get no traffic tickets or that the car remains in good shape.
On the other hand, we should still monitor our arrival time — maybe we took a detour, and while driving fast, the longer road impacts our ETA.
The goal here is to identify possible risks to other KPIs and monitor them.
Summary
Intending to reach the destination, we chose the speed KPI as our primary success metric. When exploring possible risks, we added risk metrics such as remaining fuel, ETA, and driver concentration level.
To reach a successful outcome, one must discover possible risks, mitigate them, and set risk metrics in place. Like the success metrics help us know we are in the right direction, the risk metrics ensure we stay that way without unintended consequences.