You may be surprised 🤯 to learn that a study shows that about 72%, nearly three out of four organizations worldwide, fail to recover from a disaster due to inadequate business continuity planning and testing.
This clearly indicates why Business Impact Analysis is crucial for a business to stay active in this competitive market. A business impact analysis is a structured process that enables businesses to anticipate the consequences of disruptions to their systems, processes, and operations.
➡️ In this article, we will understand each business impact analysis concept, its significance, its examples, and more.
🔑KEY HIGHLIGHTS
- Business impact analysis (BIA) is the process of assessing the likely effects of disruption in essential business activities.
- BIA is crucial for businesses because it provides a clear and intuitive way of identifying disruption consequences in resource allocation priorities and establishes solid company continuity plans.
- Establishing the BIA team, defining scope and objectives, gathering information, and implementing test plans are some ways to conduct a BIA.
- The primary goal of the BIA is to determine and rank system components in relation to the functions and activities they assist by linking them to potential consequences in case of system unavailability.
What is business impact analysis (BIA)?
Business impact analysis (BIA) is a method for predicting the consequences of disruptions to a business, its processes, and systems by collecting relevant data. This data can be used to develop strategies for the business’s recovery in an emergency.
Understanding potential disruptions’ effects is essential for every business, which is why business impact analysis, or BIA is vital. It assists in allocating resources for risk management, serves as the foundation for the continuity of operations, improves financial funds distribution, reaffirms organizations to adhere to set laws and rules, and safeguards the confidence of the stakeholders.
BIA is not limited to risk assessment; it is a strategic management approach to prevent threats and build resilience for future success in organizations.
Business impact analysis examples
A business impact analysis (BIA) is a systematic process that helps organizations understand the potential effects of disruptions on their critical business functions and processes.
Here is an example of how a BIA can be conducted 👇:
1. Preparing for natural disasters at a manufacturing plant
Natural disasters refer to events in which natural forces damage or destroy manufacturing Plant infrastructure and disrupt plant operations.
It becomes very difficult for a manufacturing plant if it experiences a natural disaster such as a hurricane or earthquake. As part of this, we must define what aspects would be crucial to maintaining the plant to prepare for this.
Identifying what’s most important
- Open the supply chain diagram and try to outline the areas that are the most vulnerable to a natural calamity.
- Determine which machines and technology are crucial for operation and can be damaged.
- List the key phases of the manufacturing process to determine where issues may create the most profound negative effect.
Assessing the impact
- Assume the plant shutdown period and how this duration will impact the production timetable.
- Consider how the supply chain/infrastructure might be impacted and when life will return to normal.
- Calculate the expenses related to lost production incurred in the hunt for other suppliers in case of an emergency.
Preventing disasters
- If the primary way of producing goods is affected, diversification should be made in the way goods can be produced.
- The backup suppliers and logistics companies must be dealt with accordingly.
- Address the plant’s and processes’ vulnerability to natural disasters, for example, by constructing a protective barrier to flooding or better reinforcing the plant in an area where earthquakes are prevalent.
2. Cyberattack on a financial institution
Cybercrimes involve hacking and the exposure of people’s privacy, which negatively impacts financial institutions as they may lose their customer base and a lot of money. Certain factors have to be considered, and some of the crucial areas that must be addressed are the institution’s cybersecurity strengths and weaknesses, together with what is vulnerable.
Evaluating cybersecurity
- Risk assessment involves identifying potential loopholes in the institution’s protection systems to discover areas where hackers can infiltrate.
- This involves identifying and analyzing the key organizational assets that require protection, such as customers’ data and essential banking platforms.
Assessing the impact
- Consider where these systems fit into the institution’s operations and try to predict the further monetary damage from continuous interference.
- Think about where the attack will happen, whether customers will be affected, and the long-term effect on these customers.
Recovery planning
- Implement engineering and administrative controls to protect against future cyberattacks and develop a strategy for prompt reaction to contain this kind of incident according to international standards for business continuity.
- Devise a plan to inform all stakeholders and rebuild the public’s trust when repairing the losses.
3. Regulatory change impacts a pharmaceutical company
In the pharma industry, it is much more challenging to forecast the change in regulations and react accordingly in a manner that would allow for the lessening of the impact of such change.
Indeed, these changes are important because regulatory changes often significantly transform the landscape within which pharmaceutical firms operate.
Understanding the regulatory landscape
- This may also encompass regulations in the pipeline, which may affect how the company conducts its business, introduces new products into the market, and markets existing products in diverse markets.
- Find out which of the changes is the most significant for the regulation and at which periods it is wiser to implement it.
Evaluating the impact
- Possible costs connected with the new regulations and the changed activities in manufacturing, clinical trials, etc.
- Consider the implications of the changes for the firm. In this case, the firm might note that new forms of change affect it directly in that new product releases or specific coupled offerings can be affected.
Adapting to the changes
- Based on the observations made in the above sections, it may become appropriate to transfer resources from one project to another, ensuring that the priority projects receive the required human and financial resources to realize the intended goals and objectives.
- It is recommended to contact several regulatory agencies to find out about each of these and when they should be complied with.
- It is used to address the change at the organizational level, specifically integrating it into business operations, policies, procedures, and training materials.
Why business impact analysis is important?
Business Impact Analysis (BIA) is crucial for organizations for several reasons. Some of the important ones are described below 👇:
Improved preparedness for disruptions
BIA enhances awareness of threats and the impact of shutting down or disrupting crucial business activities. Risk management involves determining the risks in an organization and assessing the consequences that would arise from the risks; hence, increasing the organization’s preparedness in case of risks would significantly affect it.
Reduced downtime and financial losses
By applying business impact analysis, organizations can understand how to minimize the amount of time that is usually impacted in the event of a disruption and, therefore, the amount of money that may have been lost. Consequently, the disruption can be managed well through redundancy, backup systems, and other work procedures. This guarantees that business life continues as before, and the expenses incurred in the process of actualization of the continuity are less than the actual loss would have reflected on the revenues.
Enhanced decision-making during emergencies
BIA offers an organization important information about disruptions’ effects on company functions. This makes it possible for the authorities, regarding the needs during an emergency, to be on the right side or make the right decisions in allocating resources as they wish. An understanding of prioritized and dependent activities will enable the organization’s timely and appropriate response to counter the effects of disruptions and prevent long downtimes.
Stronger business continuity plan (BCP) development
BIA is used as a starting point more often in creating efficient business continuity plans (BCPs). Thus, BCPs should be adjusted to individual threats and potential disturbances versus which organizations need to be safeguarded; the focus should be on valuable activities, assets, and threats. BIA aids organizations in the identification of the critical resources and functions that require reassurance, funding of the recovery plans, and designation of clear procedures for handling disaster incidents, thus enhancing the organization’s preparedness for continuity.
Business impact analysis template
Business impact analysis BIA template is the means to an end like a certain business function, and it shows what risks are possible in the organization if such function is disrupted. Here are the key components typically included in a BIA template:
Introduction
This report assesses the critical business functions, potential disruptions, and their impacts on the organization.
Objectives
- Identify critical business functions and processes.
- Assess potential impacts of disruptions on finances, operations, legal standing, and reputation.
- Determine resource requirements for each function.
- Establish recovery time and point objectives.
- Develop mitigation strategies and response and recovery plans.
Business function and process identification
- Finance and Accounting
- Operations management
- Sales and marketing
- Research and development (R&D)
- Human resources (HR)
- Information technology (IT)
- Legal and Compliance
Impact assessment
Disruptions to each function could significantly impact finances, operations, legal standing, and reputation, with varying timeframes.
Resource requirements
Key resources needed for each function include staff, technology, information, facilities, and equipment.
Recovery objectives
- Recovery time objectives (RTO): The time it takes for a business to recover and continue with the interrupted function.
- Recovery point objectives (RPO): The ideal recovery time of data and system after a disruption if appropriate disaster recovery strategies are implemented.
Mitigation strategies
- Risk assessment and management
- Business continuity planning
- Training and Awareness
- Infrastructure redundancy
- Supply chain management
Response and recovery plans
- Step-by-step response actions
- Recovery plans for restoring business operations and services.
Conclusion
This evaluation presents a business case breakdown of the essential business activities, threats of disruption, and their overall consequences to the business, as well as recommendations on how to enhance business continuity and reduce disruption threats.
Objective of business impact analysis
Business Impact Analysis (BIA), in its most straightforward sense, is meant to help define the consequences that might ensue from a disruption or incident. It informs organizations when a negative event occurs and interrupts vital functional processes.
The purpose of BIA is to:
- Understand how expected changes may affect the organization.
- Negative events are backed up by crisis plans to help reduce or eliminate their impacts.
- Specify the precise impact of an interruption or disruptive event and determine specific outcomes that various disruptions might have.
- Create procedures for how the organization will address one of those disruptions if it happens.
- It offers a detailed analysis of risks that might occur and their impacts, which is useful for identifying risk management decisions and business continuity decisions.
BIA is an essential tool for evaluating the impact of disruption on an organization and planning for its continuity based on analyzing the significance of specific operations.
BIA Vs. risk assessment
Business Impact Analysis (BIA) and Business Risk Assessment are distinct yet interconnected processes that help organizations prepare for potential disruptions and reduce risks. BIA focuses on the impact of disruptions on business processes and operations, identifying critical processes, resource availability, and the effect of a business disruption to develop recovery strategies.
On the other hand, business risk assessment identifies potential business risks and their likelihood of occurrence, prioritizing them to create mitigation strategies. While they differ in focus and scope, they have a clear goal, with BIA analyzing business operations and resources and Risk Assessment solely concentrating on identifying and prioritizing any potential risks.
BIA vs. disaster recovery planning
The Business Impact Analysis (BIA) and Disaster Recovery Planning (DRP) remain key to the strategy of business continuity management. BIA determines how effectively an organization’s crucial activities and assets are being affected by disruptions and how this influence shapes the recovery process. It gives directions on the manufacturing and financial outcomes of functioning, which helps formulate the recovery plan.
On the other hand, disaster recovery planning takes the findings of BIA and develops plans and procedures for managing them. This policy also outlines ways of reducing the effects of downtime, getting back to operations, and recovering both the data and the systems in case of a calamity. Together, BIA establishes the basis that defines the main recovery goals, while DRP outlines specific measures for the recovery processes, giving the business the capability to quickly recover from disasters.
BIA vs. business continuity planning
BIA stands for Business Impact Analysis and BCP stands for Business Continuity Planning, both of which are vital elements of a business resilience framework of an organization as they have somewhat different purposes.
BIA involves defining work processes, the related assets, and the dependencies of these assets and evaluating possible consequences incurred in case of disruption. It helps to address what may happen during the operation of a business and make recommendations on priorities and means of the organization’s recovery during the downtime.
In contrast, business continuity planning (BCP) is a broader approach that includes BIA and aims to create detailed plans and procedures to support or recover business operations during disruptions. BCP involves protective measures, contingency plans, and response strategies to protect an organization in a crisis. BIA helps BCP by identifying vulnerable areas and priorities, and BCP then turns this information into solutions to ensure the organization is prepared for various risks.
How to conduct a BIA?
Business Impact Analysis (BIA) is simply a process that seeks to establish interruption impact, defined as a set of systematic steps that are applicable in identifying priorities and determining direct and indirect repercussions of threats towards business continuity.
Here’s a step-by-step guide 👇:
1. Establish the BIA team: It should be a team in the given company that recruits personnel from specific divisions. This includes management, operations, information technology & systems, financial, or risk management divisions and outlines how the types of tasks are distributed among the team members and their responsibilities.
2. Define scope and objectives: It is also important to define the goals and scope of the BIA process. Ask questions such as:
- Who will be involved in the analysis?
- What aspects of the business are most relevant and require consideration?
It should be easier to establish and define the primary objectives of risk analysis, mitigation, and management activities, including defining crucial dependencies, assessing and measuring risks and impact, and developing a recovery plan.
3. Identify critical business functions: Analyze and select core business activities, workflows, and assets that provide maximum value resulting from their disruption for the business. This could be from customer relations services to production lines, information technology, and other solutions that mimic the supply chain, compliance, and other elements that may be critical to the business.
4. Gather information: Gather all the information and data that can be collected for each of the main operational roles in the business. Some of the activities that may be performed in this step may include interviews, questionnaires, and workshops to identify how each function is dependent, related to, and resourceful in other functions.
5. Assess risks and impacts: In doing so, one is able to ascertain the risks and effects of any disruption to each of the business functions. The contingencies could for instance be natural calamities, hacking, equipment breakdown, and human mistakes. Investigate the possible risks that can result from the threat such as costs, amount of time lost, and negative impact on the organization’s image and failure to meet legal requirements.
6. Implement and test plans: Based on the BIA results, it is recommended that the risk mitigation strategies and continuity plans be enforced. Perform test exercises on the plans outlined above to verify how prepared the business is to respond to disruptions.
7. Review and update: This should be done periodically with updates on the BIA reflecting the current business environment, structure, technologies, and risks. Ensure that all the activities of the BIA stay grounded on the business strategies of the enterprise and the laws of the land.
Conclusion
The Business Impact Analysis (BIA) is a detailed and essential procedure for carrying out organizations regarding the consequences of possible disruptions and creating contingency plans. When certain processes are highlighted, the impact of these processes is evaluated and measured. Where measures are taken to lessen the effect and outcome, then BIA increases readiness and decreases off-time and financial risks more daily.
Depending on the approach chosen, the BIA process is divided into five steps: building a team, defining the scope and goals, as well as collecting data, evaluating threats, and putting and reviewing the plans. It supports business continuity management actions, helping establish anticipative actions to keep a business operational and sustainable.
FAQ
What is the difference between a BCP and a BIA?
A business continuity plan (BCP) and business impact analysis (BIA) are interconnected within the overall resilience management framework. The BCP guides how businesses can operate following catastrophes, while the BIA highlights risk areas of concern in the prioritization strategy.
