Business impact assessment is a tool used to evaluate the effects of an unexpected event on a business, such as natural disasters.
There are dozens of business analysis tools out there, and they all serve slightly different purposes. While frameworks such as PESTLE, SWOT, and Porter's Five Forces allow you to analyze the overall standings of a business, there are very few tools that guide you on the day-to-day operations of your business.
Thankfully, business impact assessment is a tool specially designed to help businesses following unexpected events, such as natural disasters. In this article, we'll dive into the what, why, and how of business impact assessment so you can employ this framework next time a new set of unfortunate circumstances unfold.
What Is a Business Impact Assessment?
Business impact assessment, more commonly known as business impact analysis, is a tool used to evaluate the impact of some unexpected events on a business' core operations. It's almost always used in response to negative events such as accidents, legal issues, or natural disasters.
Like most other types of business analysis, business impact assessment usually takes the form of a short report. The report is created by an individual knowledgeable on the matter and is designed to be consumed by others who will ultimately make the decision. This allows decision-makers to tap into the specialist knowledge of those who understand how the business has been affected by the event.
Why Use It?
A business impact assessment is designed to quickly and easily inform upper management about the best courses of action in response to the event. This is because, in many cases, responding to an unexpected event costs both time and money, and those who are most knowledgeable on the matter are not those responsible for making the decision.
Business impact assessment is usually the precursor to a business continuity plan. Business continuity plans are specially designed to guide decision-makers through responding to unfortunate circumstances, whereas business impact assessment typically focuses on informing the decision-makers about these circumstances. It is possible to have one of the two without the other, but they are most effective when used in a pair.
Who Creates It?
A business impact assessment should be created by an individual (or multiple individuals) who are familiar with the core operations of the business that have been affected by the event. While those in upper management are usually responsible for making the final decision on how to respond to the event, they often lack hands-on operational knowledge which is essential in understanding how the event affects the business and how best to respond.
How to Create a Business Impact Assessment
Like other types of business analysis, the overhead view on creating a business impact assessment is very simple: simply collect information about the event, evaluate and analyze that information, and present the findings in a report. However, in practice, each of these steps can be a lot more difficult than they sound.
For starters, you need to know what kind of information to gather. A well-conducted business impact assessment should clearly describe the event itself: what exactly happened that has lead to these unfortunate circumstances? Following this, the report should consider the different business operations that may be affected by the event. Any other information that seems relevant should also be gathered; it can be discarded later if unused in the final report.
The next step is most important: reviewing the information. This is where the individual knowledgeable on the matter can use their expert insight to understand how the consequences of the event may impact those business operations, relying on predictions, mathematical models, or even patterns from past experience. It's important to also make note of how the analysis is being conducted; for example, what tools are being logic or what assumptions are used.
Finally, the raw and analyzed data should be compiled in a short business impact assessment report. There are no set rules for this kind of report, but it's generally accepted that any kind of business analysis report should include a few basic elements. These are:
- Summary: A good business impact assessment should start with an executive summary. This short summary contains key information from the entirety of the report, including what has happened, what is expected, and what recommendations the author provides.
- Introduction: An introduction should follow the summary, detailing why the report is being created and introducing the reader to the event that has transpired.
- Methods: In reports that rely on more advanced analytical techniques, it may be helpful to include a methods section that describes what processes were used to collect and process data.
- Findings: The meat of the report is the findings section, which details the author's thoughts on how the event will impact the core business operations based on the research that has been done.
- Analysis: Following the findings, the author should offer some kind of analysis that focuses on providing quantitative estimates of how the business will be affected following the event.
- Recommendations: While this is also the role of a business continuity plan, a complete business impact assessment should also include recommendations for responding to the event that has taken place.
Do I Need a Business Continuity Plan?
You may be wondering whether it's always necessary to create a business continuity plan in addition to a business impact assessment. This depends on the nature of the event, which is why business impact assessment should always be conducted first.
Business impact assessment focuses on understanding how an event will impact a business, if at all. Usually, a well-conducted business impact assessment report can provide accurate insight on whether the consequences of the event are serious or not.
While it's advisable to do a business continuity plan whenever resources allow for it, it's only really necessary if the business impact assessment reveals that the event will have a serious impact on the business, and needs to be managed with a change in operational strategy.
Business Impact Assessment: Final Thoughts
Business impact assessment is a tool used to evaluate the effects of an unexpected event on a business. It's usually used in response to negative events such as natural disasters, and informs the business on whether it is necessary to create a business continuity plan. The report for a business impact assessment has no structure, but should at least include a summary, findings, and some analysis. Importantly, the report should be created by an individual knowledgeable on the operations of the business.
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