Business Planning

What is a Business Impact Analysis (BIA)?

Read Time: 7 min

Just as you plan for things to go right, it’s important to have plans like a business impact analysis in place for when things go wrong. Murphey’s Law is an observation that says anything that can go wrong, will go wrong. This can also ring true when it comes to business. Disruptions in business can affect the lives of hundreds of people who depend on their work to carry on with their livelihoods. If disaster should strike a business, it’s imperative to have a plan. Businesses can and should utilize business impact analysis steps to assess all possible business risks and develop a recovery strategy.

A variety of businesses are, by their very nature, considered high risk. It will be important to understand where your organization may lie on the spectrum as you begin the process. It is highly recommended that every entity create an impact analysis to offset the potential risk. Read on to learn about what a BIA is and isn’t, the benefits of making one, and steps to take to create a business impact analysis of your own.

What is a Business Impact Analysis?

A Business Impact Analysis (BIA) is a document that predicts and outlines what will happen if a business’s functions and processes are disrupted. It also gathers the information companies need to develop recovery strategies and details these strategies as they should play out. An impact analysis is sometimes an essential component of a business plan for entities who are looking to obtain third-party funding.

Impact analysis vs. risk assessment

The first step of creating an impact analysis is to conduct a risk assessment to find potential hazards in a business and understand their effects should they occur. The risk assessment focuses solely on risk. Alternately, the business impact analysis determines the potential impact of an interruption in business processes.

Therefore, an impact analysis often includes a risk assessment, in order to provide the full scope of scenarios that may occur should a disaster come about.

Why Business Impact Analyses are Important

impact analysis

If disaster should strike unexpectedly, it’s important to have a plan in place ahead of time instead of trying to figure it out on the fly. Last year, in addition to its effects on public health, COVID-19 had a major impact on small businesses, and those issues are still present today. Without a plan in place for when something goes wrong, businesses could be left scrambling and unable to serve their customers.

An impact analysis is the key to ensuring that your company or entity can survive if an emergency or unexpected negative action should occur. It helps owners develop plans to ensure speedy and effective recovery. There are many benefits of completing a BIA. Read on to learn more about what they are and how they can ensure continuity.

Helps in the planning process

A business impact analysis helps you identify the most critical components of delivering your product and/or service. The analysis clearly outlines each business impact analysis step and only includes what is absolutely necessary to continue operations.

The impact analysis will also provide you with a clear understanding of what contractual obligations there are, as well as legal and regulatory responsibilities. Depending on what product or service you sell, it’s imperative to make sure that you are legally sound if you ever need to change your operations plan.

Prioritization of needs

The analysis helps uncover how much various parts of your business depend on each other. This allows you to better decide where to allocate resources. After identifying the most critical steps, it will be easy to see which departments need more or less attention and resources.

Each department gets a rating of 1-10 (1 being not necessary and 10 absolutely essential to deliver products/services). By comparing the ratings, it will become quite clear where priorities should be to ensure the continuation of operations. Additionally, there are always ways to improve and develop a killer operational strategy.

Integral aspect of business continuity plans (BCP)

After completing a business impact analysis, you will understand how much downtime will occur per scenario. The goal is to reduce the time between the disruption and response as much as possible to increase your likelihood of success. The faster you can get your business back up and running, the fewer losses you’ll incur.

Preparing for setbacks is a great way to lessen their impact and deal with them more effectively. A business continuity plan provides the exact roadmap of what to do should a disruption occur and how to reduce the chances of lost revenues, profits, or customers in case of a disaster. This type of plan will help you and your team understand what recovery strategies to prioritize.

Business Impact Analysis Steps

There are specific Business Impact Analysis steps to follow to ensure your report contains what it needs to accomplish the end goal. While these steps can vary based on the recommendations of a third-party consultant, they will most often follow the format below.

1. Collect information

The recommendations and forecasts will only be as good as the data you collect. In the first step of the process, gathering information through interviews and financial documents will be essential.

Personnel

Begin by deciding what elements of the business to focus on. This will allow you to then decide what key personnel to interview. Find out what processes they perform and how it affects the overall operation of the company.

Allot 2-3 hours to interview each key person and look for valuable insight into how their roles may or may not be critical to operations.

Financial

Many of the answers to staff interview questions will also reveal how each role and department affect the company financially. It will be important to both analyze and measure the scope and severity of the organization’s losses if an interruption were to occur in any unit. Based on the information, interviewers assign points (1 no impact – 10 essential) to each unit within a department to understand which are most critical.

2. Review the information

business impact analysis steps

After all the interviews are complete, the next step is to analyze the points given. This will determine what parts of the business are most essential.

By reviewing all of the information gathered, it will now be much easier to create recommendations for how to mitigate risk and losses.

3. Draw up the impact analysis report

With all of the data collected and analyzed, an Impact Analysis report can now be created. The report should include the following sections:

  • BIA process overview
  • Business process critical ranking
  • An action plan
  • Any important additional findings
  • Supporting documents/information
  • A conclusion

The report will need to be sent to the senior management team once completed for review.

The Challenges of BIA

While the importance of a business impact analysis is indisputable, it does present a few challenges. Sometimes, the leadership team does not see the value in spending the time and resources making this report. Some view the process as time-consuming. Others begrudge that it requires frequent updates to remain relevant. By understanding the most common barriers to making a BIA, you and your staff can prepare and plan ahead.

Time-consuming

The process to create a business impact analysis is quite lengthy and can take weeks and even months to complete. Staff often have a full plate of responsibilities and duties. Because of this, adding additional hours of work to an already busy schedule can become more than they can handle.

If you’re in this situation, there are third parties that can assist you. They will take some of the most time-intensive responsibilities off of upper management. For example, they can conduct the interviews so management can focus on more critical tasks.

Reports must be conducted frequently

Every time the business grows, shrinks, or changes, the impact analysis must be conducted again. This can take up quite a bit of an in-house business analyst’s time if the business is rapidly changing. If a company uses a third-party consultant for the BIA, the expenses can add up quickly.

It’s important to budget for the costs of making BIA’s and keeping them up to date. If you’re looking for more help, check out this guide for tips on financial planning and budgeting.

Do You Know What Risks Your Company Can Handle?

Now you understand the business impact analysis steps and what you need to mitigate your risks. At this point, you must decide what’s best for your business. Considering a BIA will ensure your company can survive natural or human disasters. Not only that, but it will also allow you to navigate them without having to shut down. It’s critical to understand what aspects of your business are vital to delivering your product or service. This assessment will ensure resources are being used at peak efficiency. Additionally, it will outline the plan to keep your business running with as little interruption as possible.

Reach out to someone, whether in-house or through a third-party today. Moreover, begin discussing the future of the company and how to develop a plan to ensure its success.