Murphy’s Law states, “Anything that can go wrong will go wrong.” Problems, disruptions, and setbacks are inevitable. While we can’t prevent problems from occurring, we can take steps to mitigate the effects of a disaster or other troublesome events. Businesses need this approach as well—in fact, even more so. A disrupted or crippled business potentially affects hundreds if not thousands of people and can cause significant disruptions in supply chains and economies.

That’s why every company needs a business impact analysis in the interest of contingencies and continuities. This article will explain what it is, why it’s needed, how it’s conducted, and what skills or tools you need to carry out a business impact analysis.

What is Business Impact Analysis | Business Impact Analysis Definition

Business impact analysis (BIA), sometimes called business impact assessment, identifies critical and time-sensitive business operations and predicts or evaluates the effects of disruption or interruption on those operations, resulting from man-made or natural disasters. Team members use the information to create business recovery strategies, as we’ll see in the next section. For now, more about business impact analysis. There are two types of BIAs:

1. Basic Business Impact Analysis

The Basic BIA is a shortened version of a Comprehensive BIA. It is done for less critical systems and applications, meaning it can be restored later than 24 hours after the disaster hit.

2. Comprehensive Business Impact Analysis

The Comprehensive BIA is the full business impact analysis conducted for all critical systems or applications, meaning they must be restored within 24 hours after the disaster.

Business impact analysis is like risk assessment; the two are often discussed together. While it’s easy to confuse the two, remember that a BIA emphasizes business continuity requirements, resource dependencies, and justifying the identified business requirements by showing how downtime will impact the organization. On the other hand, risk assessment identifies potential disasters and setbacks (cyber-attacks, fires, IT/network failure, natural disasters, supplier failure, utility outage, etc.) and identifies areas of vulnerability.

Business analysts typically conduct a BIA before a risk assessment. Once the responsible team concludes the BIA, the findings are made available through a business impact analysis report.

Business Impact Analysis Purpose

The key business impact analysis purposes include:

  • Identify what steps and resources are needed for a company to deliver its most essential services and products
  • Identify the company’s contractual, legal, and regulatory obligations
  • Estimate the extent of impacts as they relate to downtime
  • Focus business analysts’ efforts in collecting data to create business continuity plans

Furthermore, the BIA shows how the different parts of the business depend on each other to perform operations. The analysis helps grade each part’s importance, thereby helping determine resource allocation priorities.

A properly conducted BIA helps organizations develop a sound continuance plan, helping businesses deal with and lessen whatever setback-related impacts may result from a crisis.

Use of Business Impact Analysis Across Industries

Business impact analysis or business impact assessment is used in the following industries:

  • Retail: to identify the impact of disruptions to supply chains and inventory levels
  • Manufacturing: to identify the impact of disruptions to production lines and equipment
  • Technology: to identify the impact of disruptions to IT systems and networks
  • Transportation: to identify the impact of disruptions to transportation networks and infrastructure

Most Common Business Impacts and Pitfalls

Although the average business faces its share of pitfalls, the most common impacts include:

  • Contractual penalties or loss of bonuses associated with contracts
  • Customer dissatisfaction or loss
  • Delays in the implementation of new business plans
  • Expense increases (e.g., overtime, outsourcing, expediting costs, etc.)
  • Lost sales and income
  • Regulatory fines

Many of these impacts are associated with a handful of likely business disruption scenarios. The most common problems include:

  • Physical damage to the company’s building
  • Equipment, machinery, or systems breakdown or damage
  • Restricted access to a necessary site or building
  • Supply chain interruption, including supplier failure and disruption of goods delivery from the supplier
  • Utility outages, especially power
  • Corruption, damage, or loss of information technology (IT) assets, including applications, computers, data, networks, operating systems, servers, and voice and data communications systems
  • Essential employee absenteeism

Common Obstacles While Conducting a Business Impact Analysis

Anything worth doing invariably brings challenges with it. Here are the problems associated with holding a BIA.

1. It Takes up Too Much Time

The workweek is busy enough with having to dedicate additional hours to gathering the relevant data and distilling it into a shareable, actionable report.

2. Unreasonable or Outright Wrong Recovery Time Objectives

Business leadership often has vastly different notions of what’s doable and what time frame those things get done. Recovery objectives must jibe with reality.

3. The Business Grows and Evolves, but the BIA Doesn’t

Business impact analyses aren’t one-shot endeavors. As the business changes and grows (or shrinks), so must the BIA.

4. There’s Too Much BIA-Related Data to Analyze

Rather than focusing on the organization’s relevant products and services, the analysts cast too wide a net, resulting in a data glut.

5. The Data is Irrelevant or Useless

If the analysts gather data from the wrong sources, the information won’t help the BIA.

6. Uninvolved Management

Without engaged executives, there is no strategic direction or the ability to make needed organizational changes.

Business Impact Analysis Process

Many organizations outsource their work to a third-party consulting provider that specializes in business impact analysis. Businesses that prefer conducting their BIA in-house should employ a business continuity manager and/or representatives from IT or related groups, such as a business analyst. Business analysts are particularly valuable since they have many useful business analysis techniques at their disposal.

Ideally, the process should include the business owner or a representative, the technical application manager, and individuals with the relevant system or application expertise, presented from a business or technical perspective. These analysis team members are referred to as subject matter experts (SME).

Business Impact Analysis Steps

All business impact analyses follow a set series of steps. Most BIA steps follow the same flow, although there is room for variation, depending on the business staff or the third-party consultants performing the BIA. In general, though, here’s how a business impact analysis usually unfolds.

Step #1. Meet With the Management or Their Representatives

Many executives are skeptical of things like BIAs, so you need to get their support. Inform them of what the BIA will do, why it’s needed, and what your team will be doing.

Step #2. Identify the BIA’s Scope and the MFEs

Determine which units or elements of your business will be focused on. Identify the experts you will be interviewing.

Step #3. Recruit an IT Representative to Sit in at Each Interview

Information technology is a big part of any successful business impact analysis effort.

Step #4. Establish the BIA’s Operating Parameters

What kind of data will you be collecting? What financial and non-financial categories are to be assessed, and what are their weighing factors?

Step #5. Schedule the BIA Interviews

You need to allocate between two and two-and-a-half hours to talk to each participant regarding the processes they perform and how it would impact the company if the operations were interrupted. Set up the interviews.

Step #6. Research the Business Units Beforehand and Prepare Your Questions

Collect data on each business unit’s processes and systems, department overviews, and hours of operation. Use the information to frame your questions better.

Step #7. Conduct the Interviews

Use the questions you came up with to understand better each unit’s required systems and applications, critical processes, and critical and non-critical requirements and dependencies.

Step #8. Send Each Participant the Complete Analysis

Ask each interviewee to review the BIA, prompting them for updates, comments, and revisions. Assign a deadline of one week.

Step #9. Bring All the Data Together and Analyze It

Bring all the information together, determine what’s essential from a business unit and a process perspective. Look for anomalies and resolve them.

Step #10. Generate Your Management Report, Send It to Senior Management

The report should include a general BIA process overview, business process critical ranking, an action plan, additional findings, supporting information (e.g., interviewees, information tables), and a conclusion.

Step #11. Create Recovery Strategies

Work on designing recovery strategies and solutions for your company’s most critical systems. Base these plans on recovery point objectives and recovery time objectives.

Business Impact Analysis Sample

Business Impact Analysis (BIA) is a critical component of business continuity planning. It helps organizations identify and prioritize their most important business functions and processes, assess the potential impact of disruptions, and develop strategies to mitigate these impacts. Here's an example of a simplified BIA for a fictional company:

Company: ABC Electronics, a manufacturer of consumer electronics

Key Business Functions:

  • Product Manufacturing: The assembly and production of electronic devices.
  • Supply Chain Management: Procuring raw materials and components for manufacturing.
  • Sales and Distribution: Selling products to distributors and retailers.
  • Customer Support: Providing customer assistance and technical support.
  • Financial Operations: Managing financial transactions, payroll, and accounts.

BIA Process:

1. Identifying Critical Functions: ABC Electronics conducted interviews with department heads and stakeholders to identify critical business functions. After discussion, they determined that Product Manufacturing, Supply Chain Management, and Sales and Distribution were mission-critical functions.

2. Impact Assessment: ABC Electronics assessed the potential impact of disruptions on these critical functions.

  • Product Manufacturing: An interruption in manufacturing could lead to delayed product launches and revenue loss. A significant disruption could halt production for several weeks.
  • Supply Chain Management: Disruptions in the supply chain could lead to delays in raw material delivery, affecting manufacturing timelines and increasing costs.
  • Sales and Distribution: An interruption in sales and distribution could result in lost sales, damage to customer relationships, and financial losses.

3. Recovery Time Objectives (RTO): ABC Electronics established RTOs for each critical function:

  • Product Manufacturing: Aimed to resume operations within 72 hours.
  • Supply Chain Management: Aimed to resume normal operations within 48 hours.
  • Sales and Distribution: Aimed to resume sales and distribution within 24 hours.

4. Dependencies: ABC Electronics identified dependencies between critical functions. For instance, Sales and Distribution relies on the availability of products from Product Manufacturing and timely supply chain management.

5. Mitigation Strategies:

  • Product Manufacturing: Implemented redundant production facilities in different locations to mitigate disruptions.
  • Supply Chain Management: Diversified suppliers and established emergency procurement protocols.
  • Sales and Distribution: Developed a contingency plan for alternate distribution channels.

6. Testing and Maintenance: ABC Electronics regularly tests its business continuity plan, updates contact information, and revises strategies based on lessons learned from drills and real-world incidents.

By conducting a BIA, ABC Electronics was able to identify its most critical functions, assess the potential impacts of disruptions, and implement strategies to ensure the continuity of its business operations in the face of unforeseen events. This preparedness helps mitigate financial losses and maintain customer trust.

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