Measuring compliance effectiveness is essential for any business aiming to mitigate risks and maintain ethical standards. Key performance indicators, also referred to as KPIs, offer a clear framework to track progress, identify gaps, and ensure adherence to legal and regulatory requirements. From monitoring policy violations to assessing training completion rates, compliance KPIs provide actionable insights that help businesses stay accountable.
What is a KPI for Compliance?
Key performance indicators also known as KPIs are the data points or metrics that indicate how well your team or business is performing at key initiatives.
Why are Key Performance Indicators Important for Compliance?
There are various reasons why key performance indicators are important for compliance. Here’s a list of reasons:
- Enhance compliance effectiveness: Your goal is complete compliance, but that is too abstract a concept to inform an effective strategy on its own. With KPIs, you break down the route towards this goal into manageable elements and track your progress.
- Identify and address gaps: You can gain insight into the areas in your compliance strategy where you’re lacking. Identifying gaps in your compliance processes allows you to optimise them when needed.
- Keep up with regulatory demands: There are new regulations and directives introduced regularly. This requires businesses to implement specific compliance procedures into their operations.
- Provide evidence of efforts: Tracking KPIs gives you evidence of your efforts to remain compliant with the relevant policies and legislation. In the case of a compliance issue occurring within your organisation, a business that can prove it took steps to reduce the risk of wrongdoing will likely be treated with more leniency.
What Are the Key Performance Indicators for Compliance?
Here are some of the most important compliance key performance indicators that you should track to ensure your compliance policies are pushing the company in the right direction.
Compliance Expense Per Issue
To figure out the average cost of a compliance issue, you look at the total received in fines for contraventions of legislation divided by the number of issues dealt with by the compliance department. You will probably have successfully addressed the most serious misconduct if this number gradually declines. From there, you can address the remaining problems.
Average Cost of Compliance-Related Lawsuits
This KPI can show you if you are successful at tackling the top level of unethical behaviour within the company. You should reconsider your strategy if the figure remains constant or increases.
Total Regulatory Compliance Expense
The total regulatory compliance expense includes the total amount of money spent on fines from compliance issues over a specific period of time. This is obviously a top-line figure and does not take into account extraordinary events to explain the level of expense, but it is still helpful to understand the direction of this KPI.
Risk Severity Gap
This involves examining the discrepancy between the risks that have developed over a certain amount of time and the anticipated compliance hazards that the business will face. You have some leeway to redirect resources that were intended to address dangers that never developed if you discover that you were overly cautious. This helps you identify areas where you need to be more resilient if you haven’t been careful enough.
Composite Risk Index
This is a way of understanding how likely a risk is to occur and the impact that it would have. You give each potential risk a score out of five for the impact it might have and another score out of five for its probability. Your compliance program’s priorities may be influenced by this.
HR Regulatory Compliance Expense
These expenses include the entire amount of money spent by the human resources department on matters of regulatory compliance. You can determine whether or not your compliance processes are successful in preventing misconduct within your business by dividing them by the total income over the same time period.
Compliance Training Expense
In order to figure out the compliance training expense, you can calculate the number of employees in your company divided by the total amount of money spent on compliance training. You must demonstrate that you are making sufficient efforts and raising those investments annually to continue improving your compliance culture.