The importance of business continuity in a company can never be an overstatement. Every business is exposed to potential risks that threaten to disrupt operations or cripple the entire company altogether. This is why many turn to the business impact analysis

Having a plan that pre-empts this scenario and sets out measures to protect the business if, indeed, such unfortunate events occur is necessary. Business impact analysis is a crucial component of the overall business continuity plan.

What Is a Business Impact Analysis?

Business impact analysis is a step by step process that evaluates the effects that an interruption is likely to have on critical business operations in case of a disaster. Business impact analysis is often confused with risk assessment. It is important to understand the differences between the two. Risk assessment is an equally important process in business continuity. Yet, it focuses on identifying threats and vulnerabilities, the impact they might have, the control and measures needed to avert such threats and the cost implications.

  • Business impact analysis contains two critical components: analysis and planning. The analysis component identifies the risks and their impact on all business functions. Meanwhile, the planning component focuses on developing appropriate strategies for reducing risk.
  • This business Impact analysis operates under the assumption that each element in the organization is necessary in ensuring that all the other components continue to run. Also, it sees that some are necessary more than others and should have priority in case disaster strikes.
  • Business impact analysis is important in disaster recovery planning. It identifies various costs that are likely to incur in the recovery process. Such costs may include inadequate cash flow, replacing damaged equipment, salaries paid to reduce a backlog of work, profits lost, etc.
  • A business impact analysis monetizes the impact that interruptions may have on various business operations. It also recommends appropriate funds to be allocated for their protection. Monetizing the impact makes comparison much easier. It assesses interruptions by considering their effects in such areas as marketing, brand reputation, safety, quality assurance and legal compliance.

Main Benefits of a Business Impact Analysis

  • Helps you in identifying all business operations starting from the top management all the way down to the individual departments and divisions;
  • Enables you to determine which business processes are crucial to the company and which you can do without;
  • Helps you understand the dependency of various operations in the firm. You can uncover critical processes you would have otherwise overlooked. A significant operation could be depending on an individual function that you had trivialized for example;
  • Also helps you identify and categorize impacts that the disruptions may have on the firm be it financial, legal or operational;
  • Assists you in estimating an operation’s recovery time objective. This is the amount of time the business can be able to survive without the particular service;
  • Helps you determine what it would take to maintain operations at a minimum accepted level after a disaster occurs.

2 Key Goals of a Business Impact Analysis

1. Prioritization

A business impact analysis should determine how much each business function is critical to the company. It should then rank this functions by their importance. This ranking of business processes determines which of those operations must continue and the number of resources that you would need to do this. In determining the priority of any business function, you should consider various factors. These factors may include:

  • Amount of time that the firm could be able to operate without the service (recovery time objective);
  • Impact on the customer;
  • Financial implications;
  • Impact on the brand;
  • Reputation and operational impact.

The results of the rankings may then be represented as a critical rating or a recovery tier. Different companies may prioritize different impacts. For example, some may consider the implications to the customer to be more important than all else. This prioritization will help in determining rankings.

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2. Sequencing

Resources (equipment, technology, people, etc.) are essential for any business function. When disaster affects these resources, it affects the business operations as well. The order in which you restore these services and the resources available may determine whether the company can get back on its feet or not. The business impact analysis should take this particular factor into account.

Understanding the various dependencies will help you determine the causality chain. It will help you identify the actual consequence of any possible disruption. Furthermore, getting an accurate picture of the various functions and their dependencies can reveal vulnerabilities.

The two traditional methods of gathering information in the business impact analysis are interviews with relevant departmental heads in charge of specific business functions and conducting surveys. The data obtained after either or both methods are conducted usually grouped, categorized and ranked. It is then analyzed to determine its level of contribution towards achieving the business objectives. The criticality of each function is then determined based on these findings. This criticality is in turn used to identify services that should be prioritized during the recovery process.

Understanding the dependencies of the various functions and process is crucial in determining the sequence followed in the recovery process. Different operations are likely to have multiple dependencies. Therefore, the data you obtain should be able to reflect this complexity. The questionnaire is, therefore, not likely to be effective as an approach to business impact analysis. It cannot be able to capture the complex nature of those inter-dependencies.

Bottom Line

Essentially, a business impact analysis is necessary to set priorities. It helps to identify the processes that are crucial for the firm and to estimate just how long normal operations can continue in their absence. It is an integral part of the entire business continuity management plan. So, any company looking to have a solid business continuity plan cannot afford to ignore it.

Time is a critical factor in determining how quickly your business can recover in case of a disaster. A business impact analysis will go a long way in helping you avoid additional expenses which can arise due to slow recovery time.