Business Impact Analysis: Steps & Why It’s Important

Business impact analysis is used to predict the results of a disruption to a business and to develop mitigation and recovery plans. Business impact analysis involves risk assessment, scenario planning, and analysis of investment in prevention relative to cost of disruption. In this article, we’ll define business impact analysis a bit further, run through a business impact analysis example, and discuss the benefits of business impact analysis.

Business Impact Analysis

What Is Business Impact Analysis?

What is business impact analysis? To keep it simple, business impact analysis helps companies plan for the future. But unlike strategic or operational planning, the idea is to develop plans for things a business doesn’t expect to occur, not things it does. Business impact analysis enables us to think about the disruption brought upon by natural disasters, crime, economic disasters (ex: recession or stock market decline), etc.

One important distinction to make is between a business impact analysis and a risk analysis. The former concerns itself with impact on business processes and potential solutions. The latter is focused on probability of occurrence. To use a simple example, imagine your company sells expensive luxury goods. A business impact analysis would address how to stay afloat in the case of a severe recession. A risk assessment would be focused on how likely such a recession would be to occur.

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Business Impact Analysis Steps

A business impact analysis should be structured to cover all bases and consider all solutions.

In general, a business impact analysis has five steps:

  1. Preparation

Build a team of people with relevant insight into key processes, define your objectives, and clarify the scope of the business impact analysis to be completed.

  1. Information Gathering

Gather historical data that covers previous situations and gather business impact analysis surveys from anyone who manages or takes part in key processes you are trying to analyze. What will happen, and what needs to happen, to allow X function to continue operating in the face of Y disaster?

  1. Information Review and Analysis

In this step, the team looks at each process impacted by the disaster being analyzed. It should answer questions such as:

    • What functions are most important?
    • Which functions will be most impacted?
    • What is the minimum level of resources needed to keep the function and/or process operating?
    • Assuming a disruption, how long until a partial recovery can take place, assuming expedited financial or other support? How long until a full recovery can take place?
  1. BIA Report Creation

This is the most crucial step in any business impact analysis. A BIA report communicates your findings and recommendations to leaders and stakeholders inside the business. Done well, it carries the power to enable a successful recovery process. Prepared poorly, it can leave a business blindsided and potentially ruined in the event of a crisis.

  1. Business Impact Analysis Recommendation and Implementation

A team involved in a business impact analysis can only do so much. Once a report is made, the company’s leadership must act to implement the recommendations made in the BIA report.

Business Impact Analysis Example

One useful business impact analysis example we can use relates to the Covid-19 pandemic. When the first reports of Covid-19 were coming out of China, U.S. businesses had some time to form a team, gather information, and put together a plan of attack for the potential disruption the pandemic was likely to cause. Potential solutions could have included broadening the supply base, increasing resources behind online sales and service, getting the workforce ready to work virtually, and providing factories with additional safety protocols, cleaning supplies, and protective equipment.

Business Impact Analysis Template

There are a variety of business impact analysis templates available for download. A good business impact analysis template will help you capture all essential information. It should cover activities, dependencies, requirements, and risks, as well as scenarios and contingency plans. A team may use the business impact analysis template itself in its communication to company leadership, or create presentation slides based on the BIA report. In either case, the confidence behind the communication and recommendation is critical in the decision-making and implementation process.

Benefits of Business Impact Analysis

The benefits of business impact analysis are often not obvious before a disaster, but they sure become clear after one. Benefits of good business impact analysis include the following:

  • Reduced loss of life in a factory
  • Faster recovery time
  • Reduced time for a business to be shut down
  • Increased market share as your business returns to operations while others are closed
  • Lower cost of goods as your company engages alternative supply sources
  • Goodwill with employees in the face of a disaster

Conclusion

It’s difficult and often impossible to forecast what disaster will or will not occur. But the benefits of business impact analysis outweigh the costs in the event of an unforeseen disaster. Millions of dollars and lives are potentially at stake for some companies. This perspective should make the effort and investment required for business impact analysis easier to swallow. Are you ready to future-proof your business? It may be time to consider business impact analysis.

 

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