C5.2 Indicators

BCBS PSMOR [17]; risk-engineering.org [26]

The second component requires that every indicator carry a threshold, that each breach and its escalation be traceable to the person who received it and what they did, and that leading indicators be kept apart from lagging ones in every report. The obligation comes from the operational-risk principles, which hold that an indicator without a threshold is a statistic and a threshold without a traceable escalation is a decoration [17]; the separation of leading from lagging comes from the engineering course, which treats the mixing of the two as a methodological error rather than a presentational one [26].

The component reconciles two things that look alike on a dashboard. A lagging indicator, losses this quarter, complaints this month, says what the controls allowed to happen; a leading indicator, overrides per hundred transactions, payments to beneficiaries created within the day, staff turnover on the desk, says what the controls are about to allow. The first calibrates the register; the second is the only one that can prevent anything. Threshold is the indicator's word, kept distinct in chapter 11 from limit, which a system enforces, and from tolerance, which is variation around an objective, and the component is where the distinction earns its keep: an indicator may cross its threshold without any limit being breached, and the escalation is owed anyway.