In the current data-driven business environment, compliance has become ever-evolving and compulsory. At the same time, regulators, investors, and board members expect the organization to maintain compliance metrics and KPIs to support compliance efforts and illustrate the effectiveness of compliance programs.
The KPIs in compliance management help compliance leaders tell a more holistic story of the strengths and weaknesses of the compliance function. Compliance program KPIs help compliance professionals identify gaps in their programs and have better controls that enable the organization to get greater value from its compliance program.
Why do compliance KPIs matter?
In the simplest terms, measuring the effectiveness of your organization’s compliance is more than checking off tasks in an extensive list of regulatory guidelines: it is more about ensuring that the compliance program is structured to measure what moves the needle.
KPIs in compliance management are essential to protecting your business and helping you expand beyond your current capabilities. Tracking these compliance metrics and adjusting compliance policies and workflows accordingly helps compliance officers manage risk more effectively by leveraging internal audits, policy enforcement, and compliance training at all levels of their organization.
The Benefits of Tracking Compliance Metrics
The benefits of tracking effective compliance metrics and KPIs of your compliance programs are:
- Establish Governance, Risk Management, and Compliance (GRC) standards for operational excellence.
- Financial compliance with internal and external audit management.
- Data storage and management compliance, along with purchase fulfillment.
- Set the right expectations around compliance programs, practices, and employee behaviors.
- Prevent customer churn due to non-compliance.
- Compliance KPIs or also known as key risk indicators (KRIs), can be viewed as early warning systems for potential risks.
Summarizing the benefits of measuring the key metrics in compliance management, equipped with the right compliance program performance metrics, organizations can prevent:
- Reputational damage,
- Protect its bottom line, and
- Potentially avoid hefty non-compliance fines and enforcement actions.
What are the key compliance metrics your leadership wants to see?
Compliance metrics come from culture surveys, risk assessments, and so on. Without knowing which compliance KPIs you need to measure, the raw data loses its effectiveness.
While there are compliance management tools to measure vital data, let’s start by understanding compliance program KPIs and metrics.
Regulation violations and misconduct
Consumer perception is a great deal among an organization’s compliance program KPIs, as any misconduct or regulatory violations can negatively impact a company’s image. Management and the concerned stakeholders must keep a tab on regulations, violations, laws, and misconduct and find effective ways to mitigate the issues as it might tarnish the brand’s reputation and levy huge penalties. Therefore, it is imperative that the organization takes into utmost serious consideration of all the red flags and complaints raised internally or anonymously.
Complaints need to measure the allegation types to identify the misconduct issues properly: harassment, illegal activity, fraud, antitrust, unethical behaviors, discrimination, and so forth.
The right set of questions to ask in this category are:
- How many complaints have been filed?
- What was the allegation all about?
- Did they complain anonymously or through a proper channel via a supervisor or department head?
- Was the allegation substantiated with proof?
Mean time to issue a resolution (MTTR)
Regarded as one of the best compliance program KPIs, MTTR helps you understand how quickly you resolve an issue after the issue is discovered. You can also calculate this metric the same way: add up the total time taken to solve all problems and then divide that number by the total number of problems. The result is the average time to issue the resolution.
MTTR = Total time taken to solve the problems / Total number of problems
MTTR has a strong correlation with customer satisfaction as it defines the time frame it will take to resolve the pressing issues.
Severity gap between expected and actual risks
Understanding the gap between expected and actual risks is crucial for the leadership and board members as it provides a reality check regarding the present circumstances. The reason you need accurate risk prediction is that you cannot afford to misjudge the risk to be low, only to find out later that it should have been taken more seriously.
Why should the leadership care about risk gaps as an important compliance program KPI metric?
Setting up the right KPIs for compliance programs, modeling risks, and creating contingency plans, including contingency accounts or insurance policies, can keep the organization ready for all scenarios due to expected and actual risks.
Being one of the key metrics in compliance management, this metric poses a simple question:
- How many risks has the risk management framework missed?
This compliance KPI is measured at the end of the quarter or year when the company is able to assess any impact caused by updating the expected risks. Any risk that surprises risk and compliance stakeholders is a risk management failure.
Timeframe for risk mitigation
The risk mitigation timeframe metric measures the time between the discovery of a risk and the implementation of the changes required to mitigate the risks. This metric predominantly focuses on an organization’s ability to make the necessary changes within an acceptable time frame.
How to calculate the timeframe for risk migration?
You know the discovery date for each risk and the date you complete mitigation.
Risk mitigation framework formula = Total mitigation times were taken by all the risk factors/total number of risks to be monitored
The timeframe for risk mitigation is important in the role of KPIs in compliance management because it shows how well the compliance metrics are able to implement changes. Time and again, we have seen regulators stress the importance of adapting their compliance program to changing risk circumstances.
With the right risk mitigation timeframe, you can understand precisely where and how you can make the necessary changes.
Here’s how you can make a timeframe for each identified risk.
Short A risk is short-term if it impacts the project within 30 days.
Medium A risk is medium-term if it impacts the project within 30-60 days.
Long A risk is long-term if it impacts the project beyond the next 60 days.
Employee complaints of misconduct
When an employee alleges misconduct (harassment, illegal activity, discrimination, and many more), the consequences can irrevocably damage your organization’s reputation. With the right compliance management KPIs and metrics, leadership and the board can take significant action against the miscredents before it becomes a full-blown disaster.
With so much at stake on this metric, it reflects the significant role of KPIs in compliance management:
- How many employee grievances have been filed?
- What did the staff claim?
- Did they complain directly to their boss or via an anonymous hotline?
- What did HR find out after investigating the allegation?
Compliance investigations or audits
Occasionally an organization will be subject to a compliance or quality assurance (QA) assessment. During this audit, your company will be examined for signs of violations.
The results of these studies should be recorded and stored because:
- The management and the board of directors can study them now and
- New employees and auditors can refer to them in the future.
Your compliance audit report should include as much detail as possible about your compliance investigations, along with answers to the following:
- How many audits have been carried out?
- What process did the quality control auditor use to conduct the audit?
- What were the investigator’s findings and recommendations to the organization?
- Has the company implemented these changes in terms of compliance program KPIs and if so, how?
A comprehensive report of recent audits can help board members and managers make the best decisions for the company.
Key risk indicators (KRIs)
Compliance KRIs form an important part of compliance program reports as they can help organizations identify and assess compliance risks, set priorities, and allocate resources.
Some examples of compliance key risk indicators are:
- The number of external regulatory actions taken against the organization
- The number of times your organization’s code of conduct has been violated
- The number of corrective action plans implemented for non-compliance issues
Risk tolerance statements
These statements are used to establish the outer limits of an organization’s tolerance for a particular risk. First, you need to determine what risks are under the scanner for mitigation. Then you need to ask if there are actual processes in place that provide the compliance team with the relevant data. If these data points don’t exist, you would have to create them.
Finally, set a risk tolerance level with benchmark metrics for KRIs. An example of a risk tolerance statement would be no more than two missed offices of foreign assets control detections (OFAC) in a quarter per line of business.
How does compliance management software improve the reporting of the key compliance program metrics?
Drive your key metrics in compliance management with VComply’s GRC platform for streamlining operational efficiency. Instead of being bogged down by the complexities and redundancies of spreadsheets, use VComply to reduce compliance costs and centralize compliance management with the relevant KPIs for compliance programs.
Understand and manage your organization’s biggest compliance strengths and weaknesses by tracking improvement over time, using valid and specific KPIs for compliance management depending upon the nature, size, and industry of the business.
VComply for compliance task management gives you the ability to:
- Map internal controls as per the compliance program requirements
- Map controls across multiple control frameworks
- Collect evidence of compliance from multiple departments and stakeholders
- Automatically generate compliance reports with a comprehensive view of the compliance posture
Reporting key compliance KPIs to stakeholders: the rise in stakeholder expectations
Regulators, employees, and customers demand more transparency from the companies they interact with.
The key question organizations should answer is: Do you treat your key metrics in compliance management with the respect and attention they deserve?
Measuring the ethical health of your organization needs a multifaceted approach, and KPIs for compliance programs will reveal your biggest strengths and weaknesses by tracking the improvement over time using benchmarks.
GRC and Compliance management software VComply can help you to track, manage, monitor, and communicate the progress with your senior leadership team. All compliance metrics and data are stored over a centralized dashboard. VComply helps you generate an overview of your compliance programs along with internal controls implemented and potential risk management issues.