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Things you need to Know about Business Impact Analysis

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Before we venture into the details on this important topic, let’s briefly discuss what business impact analysis is. Business impact analysis, also called BIA, is a vital part of any company’s business continuance plan. Two things make BIA up. They are:

  • The exploratory component. This reveals any vulnerabilities in the system
  • The planning component. This helps to develop various strategies and help minimize the risk.

After BIA, you will get a business impact analysis report. This report describes the potential risks that the company is prone to. It quantifies the importance of various business components and ultimately suggests fitting fund allocation for measures to shield them. A basic assumption behind business impact analysis is that every component of the firm is dependent on the continued functioning of all other components. The assumption also says that some of the components are more crucial and need a larger allocation of funds when disaster strikes.

For instance, if a company’s cafeteria has to be shut down, it can still function normally. However, if the information system of an organization crashes, it will come to a complete halt.

This kind of business analysis identifies the costs linked to failures as well. This is a part of the recovery plan. The costs must be compared with the costs for probable recovery strategies. Some of the common costs related to failure are:

  • Loss of cash flow
  • Replacement of equipment
  • Salaries which have to be paid to catch up on a backlog of work
  • Loss of profits

Possibilities of failures can be gauged in terms of their effect on several factors like:

  • Safety
  • Finances
  • Marketing
  • Legal compliance
  • Quality assurance

Impact is usually expressed monetarily as it helps to compare. For example, a firm can spend four times as much on marketing during disaster in order to regain customer confidence.

Simply put, a business impact analysis predicts the impact of disruption of a function and business process. It helps to collect information required for developing recovery strategies. You must identify possible loss scenarios during a risk assessment. Delayed deliveries or failure of a supplier of products or services can interrupt operations. But the list is not limited to that. There are many scenarios which you should consider.

Recognizing and assessing the impact of disasters on organization provides the basis for investment in recovery strategies, investment in prevention and mitigation strategies.

Reasons to conduct BIA

There are three main reasons why you must conduct a business impact analysis in time of disaster. If you are still convinced regarding when to conduct BIA and about its value, this section will clarify your concern. There are numerous reasons to do a business impact analysis. Preparing a BIA helps not only to prioritize processes but also gain better idea about the resources they depend on. It takes the guesswork out of your decision-making process during a crisis. Below are the three reasons:

  • Helps to avoid guesswork when in times of disaster

In times of crisis, your decision will be arbitrary without a business impact analysis. If you conduct a BIA, you will have the justification needed to take the decisions you or your dedicated management team will make. This decision will be based on solid data and analysis, not guesswork.

  • Helps to allocate your resources during the crisis

If you have a well-designed business impact analysis, you will find out in advance which of the processes are critical to your company’s survival. You will understand the minimum level you should restore the processes to and also get an idea about the timeframes.

  • Helps make compact test criteria for all your plans and suppliers

Business impact analysis identifies the recovery requirements. These will become the criteria which your recovery plans can be tested for. The same can be done for the suppliers.

Impacts considered in BIA

The BIA will identify the financial and operational impacts of the disruption of certain business functions and processes. Some of the impacts you should consider are:

  • Lost sales and income
  • Postponed sales or income
  • Regulatory fines
  • Delay of new business plans
  • Loss of contractual bonuses
  • Customer dissatisfaction
  • Timing and duration of Disruption
  • Increased expenses such as overtime labor and outsourcing

The exact time when a function or process is interrupted can have a major impact on the loss incurred. For example, if a store is damaged a few weeks before December, it might lose a considerable amount of its annual sales. This is because of the holiday shopping season.

Again, interruptions like a power outage for a few minutes cause only minor inconveniences for the businesses. If the power outage lasted hours, it would lead to major business losses. Company can overcome a short duration disruption of production by shipping goods from a warehouse. Disruption of a product which is in high demand can have a huge impact.

Conduct the BIA

You can use a business impact analysis questionnaire to survey the managers and other members of the company. Survey those people who have elaborate knowledge about how the company manufactures its items or provides its services. Ask questions which will help identify the possible impacts if certain business functions or processes that they are accountable for are interrupted.

You can also depend on the BIA to identify critical business processes. Like I mentioned earlier, you will get more information about the resources needed to continue to operate at different levels.

The BIA report is the final outcome. It should document the potential impacts caused by disruption of the specific business functions and processes. Certain scenarios resulting in significant interruption should be judged in terms of the financial impact.

Your BIA report should give importance to the order of events. This is essential for restoration of your business. Remember that you should restore processes with the highest operational and financial effects first.

Image: Olivier Le Moal/Shutterstock.com

//pestleanalysis.com