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Running a business is easier said than done. A business goes through so many ups and downs during its existence, after all. And it is more than one factor that impacts a business, be it internal or external. For instance, changes in leadership, market trends, competitors, and fiscal policies & fluctuations often decide the fate of your business.
However, it’s the threat of business disruption that worries businesses the most. It can make companies run out of business or render their products/services useless. That’s when business impact analysis can come to your rescue.
In this blog, we’ll dive deeper into this concept, along with the steps to conduct the analysis for your organization.
» What is Business Impact Analysis (BIA)?
By definition, business impact analysis, or BIA as it is widely called, is a strategic process to forecast the consequences a potential disruption could bring in to your business operations through data. It is with this data that you can plan strategies for your business to recover from a loss or unforeseen emergencies.
Assume you have a wholesaling business, for instance. Now, in your case, the BIA could be to find out how your business would be affected in terms of revenues and operations if two of your big clients stop purchasing from you overnight. Or measure how things would shape if your products get damaged in transit.
In simple words, BIA helps you recognize the financial and operational impacts that business disruptions could cause. This method includes data collection, which, in turn, helps you prepare to not just face but come out of these potential risks successfully. Think of it as your actionable plan for mitigation and prevention of risks.
To understand BIA better, let’s go through some examples of disruptions as well as impacts:
Business disruption examples
- Natural disasters
- Scheduling delays
- Delay in supplies
- Late or no delivery from suppliers
- Equipment damages or malfunctions
- Breaches of data security or cyberattacks
- Power outages
- Loss of primary vendors or suppliers
- Loss of primary in-house talent
Business impact examples
- Lost customers
- Delayed sales
- Increased operational/non-operational costs
- Added expenses like outsourcing and overtime payment costs
- Contractual penalties
- Loss of revenues
- Missed opportunities
- Poor execution of marketing or merchandising plans
- Regulatory fines
» What is the Importance of Business Impact Analysis?
More often than not, business disruptions happen without any prior warning, causing stalled operations and loss of revenue. In some extreme cases, it can result in businesses closing down. Such disruptions can be man-made or natural. An advent of a new technology, for instance, can lead to no takers for the old offerings.
Remember how once crazily popular Walkmans, Discmans, and iPods vanished from the global market after mobile phones came with built-in mp3 functionality?
All of that can be minimized or completely averted through robust business impact analysis.
With BIA in place, you get the most accurate data you require to strategize effective plans for business process management in times of adversity. It helps you handle business challenges with practical solutions. It’s like preparing for a rainy day in advance since you don’t know when there will be an unforeseen downpour, leaving you stranded.
To be specific, BIA helps you:
- Identify key business processes and resources. That enables you to understand which processes must run no matter the situation for the uninterrupted offerings of your USP products or services.
- Strategize finances more efficiently. The analysis helps you discover the financial impact of disruptions better. As a result, you become proactive in planning for unforeseen disruptions with an optimum allocation of funds and resources.
› Business Impact Analysis vs. Risk Assessment
Many think business impact analysis and risk assessment are one and the same. However, it is far from the truth. While the core concepts of both these processes overlap to some extent, their fundamental use case is different.
BIA stresses on the effects that business disruptions may bring along. Moreover, its focus areas include resource availability as well as business continuity planning and needs.
Risk assessment, on the contrary, has its focus on the prospects of possible business risks and their intensity. With risk assessment, you can identify and prioritize risks, followed by developing strategies & plans to avert and mitigate them.
Read Also: Complete Guide on Enterprise Risk Management
› Business Impact Analysis vs. Business Continuity Planning
BIA makes for an integral part of business continuity planning. With the crucial, insightful data that BIA provides you with, it becomes easier to prepare for unexpected scenarios and disruptions more effectively. It is through this data that you can come up with a robust business continuity plan. A plan that can help you get your business back on track after an unwanted obstacle.
In that way, it won’t be wrong to think of BIA as the first step which is followed by the business continuity plan.
The best thing? There are multiple reliable business continuity software tools out there in the market, making this otherwise complicated process simpler for you and your teams.
» Five Elements of Business Impact Analysis
Let’s briefly take a look at the components of the business impact analysis. It includes
1) Risk Assessment
2) Impact Assessment
3) Resource Prioritization
4) Recovery Time Objectives
5) Business Continuity Planning
» Steps to Conduct Business Impact Analysis (BIA)
› 1) Create a plan
Like every other project or process, BIA needs ample, accurate planning. Thus, it is important to start with a solid roadmap. Define the objectives and scope of your analysis. Select the right stakeholders to handle this complex process. Set clarity on their responsibilities.
With a clearly defined BIA plan, you get the ball rolling from the word go. Everyone on the team knows the ultimate goal they are chasing, letting them set realistic expectations. A solid plan also consolidates all your resources and guidelines before you actually set out on the analysis, keeping confusion at bay.
While you’re at it, don’t forget to structure the entire analysis process in a way that simplifies accessing information for anyone in the team. Doing so would ensure a seamless process.
› 2) Collate information
Before identifying or projecting possible disruptions, you must know how different business processes function. The best way to understand the functionality of each crucial process is to communicate with the people who manage it. That way, you get an accurate picture of how things work on-ground - the actual working, process requirements, the gaps, and potential disruptions, big or small.
All of it helps big time while planning for the most effective solution.
Wondering how you can go about collating information?
You have two ways to go about it:
- Prepare a thorough questionnaire for stakeholders to answer
- Conduct interviews with stakeholders
The questionnaire can help you save time and resources. Since it’s already in written form, it also lessens your workload a bit. The interviews, on the other hand, add a more personal touch despite being a little time-consuming. At the same time, it can facilitate information you may have skipped otherwise.
› 3) Review the data and information collected
Once you have all the information you need, it’s time for the analysis to begin. Understand each business process thoroughly and prioritize all the critical ones. The idea here is to have a priority list ready - the processes you can’t afford to keep stalled for longer and the ones that can wait. So when the disruptions take place, you exactly know which of the processes should restart first.
Furthermore, prepare the list of resources you would require to get those critical processes up and running again. This could include the team, technology, workspaces, and materials, for instance. This list could simplify and make the resource allocation task faster.
Apart from that, the analysis of this data also enables you to draw a precise timeline and efficient budget, making the disaster recovery plan less of a hassle.
The result? You’d be more equipped to tackle the disruption situation when it arises and come out of ASAP with minimal losses.
› 4) Develop the BIA report
The final and most important move is to generate a feasible, detailed BIA report out of your analysis. It is through this report that the senior management can develop recovery strategies and plans backed by solid data. Think of this report as a means to present your findings. It’s a key to getting the business back up and running should the potential disruptions actually take place.
Your BIA report would be incomplete without the following:
- Executive summary - an overview of the report
- Scope and objectives
- Methodologies
- Summary of the findings
- Detailed findings
- Necessary documents that support your findings
- Recovery strategy suggestions
» Conclusion
Business impact analysis is vital to ensure your business has a seamless run. It not only enables you to identify probable business disruptions but also enables you to create strategies to mitigate them. With BIA, you know exactly what you need to do when disruptions strike. It has all the required information in place to get your business back on track as soon as possible.
