Business Impact Analysis- Why Does it Matter?
Updated: Jan 14, 2021
Business impact analysis (BIA) is a systematic process to determine and evaluate the potential effects of an interruption to critical business operations as a result of a disaster, accident or emergency. It’s a necessary tool that helps plan for the consequences of any particular event, which can range from the effects of a hurricane to an event similar to COVID-19.
While there doesn’t exist a standard for BIA, it is generally a multi-phase process that includes the following steps:
Evaluating the collected information
Preparing a report to document the findings
Presenting the results to senior management.
Business impact analyses seek to anticipate.
The goals of the BIA analysis phase are to determine the most crucial business functions and systems, the staff and technology resources needed for operations to run optimally, and the time frame within which the functions need to be recovered for the organization to restore operations as close as possible to a normal working state. The analysis may be manual or computer-assisted.
Challenges include determining the revenue impact of a business function and quantifying the long-term impact of losses in market share, business image or customers. Impacts to consider include delayed sales or income, increased labor expenses, regulatory fines, contractual penalties and customer dissatisfaction. There’s plentiful software that can significantly improve the conduction of what-if scenario planning.
The business impact analysis report typically includes an executive summary, information on the methodology for data gathering and analysis, detailed findings on the various business units and functional areas, charts and diagrams to illustrate potential losses, and recommendations for recovery.
The report prioritizes the most important business functions, examines the impact of business interruptions, specifies legal and regulatory requirements, details acceptable levels of downtime and losses, and lists the RTOs and RPOs. The report may list the order of activities necessary to restore the business.
Senior management reviews the report to devise a business continuity plan and disaster recovery strategy.
The role of BIA in disaster recovery planning
As part of a disaster recovery plan, a BIA is likely to identify costs linked to failures, such as loss of cash flow, replacement of equipment, salaries paid to catch up with a backlog of work, loss of profits, staff and data, and so on. Underlying the BIA process is the understanding that preparing for negative events can equip an organization to react in the most effective way. Usually, business impact analysis is conducted with an eye toward worst-case scenarios to help a company prepare itself as much as possible. With this knowledge, you can develop systematic, logical recovery plans.
During this first phase of conducting the BIA, you identify the most important aspects of an organization’s operations and look at how they would be affected by the most likely negative events. The BIA team gathers both qualitative and quantitative information. The team must understand how the business runs, so it can properly assess the impact of various events on the operations.
For qualitative data, the two most popular tools are the questionnaire and the in-person interview. Using these tools, the team seeks to identify critical business processes and the relationships between them. The team typically uses the questionnaire, either paper or electronic, with managers.
Quantitative information generally comes from enterprise resource planning systems, finance systems such as DataRails, and databases. The BIA team is looking for concrete measures concerning the company’s business processes — everything from the labor costs to manufacture a product to time to build a product and revenue per day from each model of a product. This data helps the BIA team determine the costs of disruption and identify critical dependencies between business functions.
How BIA relates to Business Continuity Planning
Business continuity planning comprises a business’ efforts to safeguard itself against threats and recover from the effects of unavoidable events. Business impact analysis is one crucial element of business continuity planning, alongside risk assessment. These constitute the initial steps in the business continuity planning process.