According to a recent study, 40% of businesses that experience a disaster never reopen, and of those that do, 25% close within two years.
This highlights the importance of having a business impact analysis (BIA) in place. A BIA is a systematic process that predicts the consequences of a disruption to your business and gathers information needed to develop recovery strategies.
It identifies and evaluates the impact of disasters on business, providing the basis for investment in prevention and mitigation strategies. In this article, we will discuss how to perform a business impact analysis, including its purpose, steps, and benefits.
Before Continuing: Some Insights & BIA Case Studies
- According to a survey conducted by TechTarget, 73% of companies have conducted a business impact analysis.
- A case study by ProArch showed that a business impact analysis helped KJT Group establish recovery time objectives (RTOs) and recovery point objectives (RPOs) and meet compliance with ISO 27001 requirements.
- A case study by Inoni showed that a highly cost-effective and innovative business impact analysis helped Reed & Mackay Limited, a high-end City-based travel agency, en route to ISO 22301 certification.
- The business impact analysis report typically includes 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 RTOs and RPOs.
Why is BIA Important?
A business impact analysis (BIA) is a systematic process for identifying an organization’s critical business functions and assessing the potential quantitative and qualitative impacts of a disruption to those functions. Conducting a business impact analysis serves several key purposes:
- It informs an organization’s overall risk assessment by highlighting the business functions, resources, and stakeholders that are most vulnerable to disruptions. By understanding these critical areas, an organization can prioritize its risk management efforts and continuity planning.
- It supports the development of business continuity and disaster recovery strategies by detailing the potential impacts from a loss of key business functions. The BIA provides vital information for determining recovery time objectives, developing continuity procedures, and deciding on strategies like redundancy and alternative work arrangements.
- It provides quantitative loss estimates for potential disruptions. This includes impacts like lost revenue, regulatory infractions, contractual penalties, and reputational damage. These projections help to illustrate the financial, legal, and reputational risks and ensure appropriate attention is given to continuity planning.
- It assesses qualitative impacts that are harder to quantify numerically but still vital. This includes effects like loss of customer confidence, decreased employee morale, and intellectual property compromise after a disruption.
Steps to Perform a Business Impact Analysis
Step1: Identify Critical Business Functions
The first step is to identify an organization’s complete portfolio of business functions and processes. This includes major categories such as sales, marketing, manufacturing, research and development, human resources, IT and systems support, facilities management, supply chain logistics, and distribution. It may also require documenting more granular business activities within those broader functional areas.
With the full list documented, critical business functions are then determined based on their necessity for immediate survival and longer-term recovery after a disruption. Functions that meet this criteria typically include revenue-generating operations, compliance activities with legal or regulatory mandates, contractual obligations that carry penalties or liability, and customer or stakeholder-facing services that carry reputational risks if halted.
Step 2: Determine Resource Requirements
For each critical business function identified, the next step is to detail the specific resources that support those operations. This includes:
- Technology systems needed such as hardware, software applications, IT infrastructure, and specialty equipment like machinery and tools.
- Vital records and data requirements including databases, digitized documents and files, paper-based records, and access to external data. Considerations for data protection, redundancy, and backup are determined.
- Key personnel positions required for critical tasks. This may indicate a need for cross-training initiatives to establish backup capacity of staff.
- Facilities and vital equipment necessary for business processes and workspaces to function. This encompasses not only the physical locations but utilities, environmental conditions, layout, and access requirements that enable operations.
Documenting these vital resources provides helpful data points for informing risk mitigation priorities, allocation of resources towards business continuity planning, and incident response procedures focused on stabilizing critical components.
Step 3: Estimate Quantitative Impacts
The next major step is forecasting the quantitative impacts for potential disruptions to critical business functions in monetary or numerical terms. Common impacts to estimate at this stage include:
- Lost revenue over time if a business function is disrupted. This may require analyzing historical sales data and projecting future losses across days, weeks or months of estimated downtime.
- Extra expenses likely to accrue from a disruption including costs related to workaround measures, expediting order shipments, equipment rentals, overtime labor, and more.
- Potential regulatory fines or non-compliance penalties that could result from an inability to perform required compliance activities or meet mandated service levels.
- Contractual liabilities like penalties, lost incentives, or obligation repayments stemming from supply chain interruptions or halted operations.
Quantifying these financial consequences builds a compelling business case and captures management’s attention towards continuity planning investments.
Step 4: Estimate Qualitative Impacts
While quantitative estimates portray potential financial losses, equally important qualitative impacts should also be assessed such as:
- Long term reputational damage with customers, partners, shareholders and other external stakeholders caused by disruptions to outward facing business functions.
- Legal or regulatory problems including lawsuits, suspended licenses, increased scrutiny, or mandated activity restrictions imposed in response to discontinuity events.
- Customer dissatisfaction, loss of business opportunities, or user abandonment caused by sustained outages to customer-facing systems and services.
- Reduced competitive advantage from intellectual property compromise, loss of innovative developments or technology advancements due to research delays stemming from the disruption.
While harder to numerically quantify, capturing these qualitative impacts helps organizations assess the complete profile of risks associated with potential business function disruptions.
Step 5: Calculate Recovery Time Objectives
Recovery time objectives (RTOs) should be established for critical business functions by determining the maximum acceptable outage duration that can be sustained before severe impacts accrue, as quantified in the previous steps.
Specifically, RTOs mark the threshold where rising quantitative costs and qualitative consequences of non-functioning processes begin to exceed acceptable risk levels and prompt invocation of business continuity and disaster recovery plans. RTOs are vital for appropriate continuity planning, indicating necessary investments in solutions like redundancy.
Step 6: Document Results
The business impact analysis should be completely documented, covering the detailed findings from each step, all assumptions made, and the key conclusions regarding critical business functions, associated resource requirements, quantitative and qualitative impacts, and recovery time objectives.
This documentation serves as a central repository for all continuity planning initiatives. It also provides helpful data points for additional risk management activities beyond business continuity.
Bottom Line
A business impact analysis is a crucial process for understanding potential quantitative and qualitative impacts from disruptions to critical business functions. It provides vital insights to inform an organization’s overall risk management and continuity planning.
However, it is important to keep the analysis current in alignment with any changes to business processes, resource dependencies, technologies, or external risk environments. This ensures continuity strategies remain relevant as the organization evolves. The BIA should be updated periodically as a key component of ongoing resilience initiatives.
Ultimately, maintaining an accurate business impact analysis helps organizations thoroughly prepare for, respond to, and recover from disruptions when they do occur. It supports vital decision making to mitigate risks proactively, invest appropriately in continuity capabilities, and ensure both survival and the rapid recovery of business operations. An updated, robust BIA is integral for organizational resilience across complex, evolving risk landscapes.