What Is Business Impact Analysis

If Newton’s third law of physics is correct, and every action has an equal and opposite reaction, then businesses need to take note.That’s because any successful business relies on making intelligent and well-timed actions.

Those actions set a course towards profit and market dominance, but whether they achieve these objectives or not, they’re making an impact on people, places and things, which will react in kind. If a business isn’t prepared for those responses, then they’re taking a great risk.

Business impact analysis is a tool to help plan for the inevitability of consequences and their cost. It’s another arrow in the quiver to battle risk. If that sounds like it’s important, it is. Risk is always on the horizon and the better equipped businesses are to discern and prepare for them, the more likely they’ll be able to continue doing business in the future.

Business Impact Analysis Defined

First, what is business impact analysis (BIA)? It’s a way to predict the consequences of disruptions to a business and its processes and systems by collecting relevant data, which can be used to develop strategies for the business to recover in the case of emergency.

Scenarios that could potentially cause losses to the business are identified. These can include suppliers not delivering, delays in service, etc. The list of possibilities is long, but it’s key to explore them thoroughly in order to best assess risk. It is by identifying and evaluating these potential risk scenarios that a business can come up with a plan of investment for recovery and mitigation strategies, along with outright prevention.

What Does BIA Address, Specifically?

What the business impact analysis is analyzing are the operational and financial impacts of a disruption of business functions and processes. These include everything from lost sales and income, delayed sales or income, increased expenses, regulatory fines, contractual penalties, to a loss of customers or their dissatisfaction and a delay of new business plans.

Another factor to take into account is timing. The timing of a disruptive event can have a major impact on the loss suffered by a business. If your store is damage by a natural disaster before a big sale or large seasonal holiday, the impact is obviously greater than during a slower period.

The business impact analysis operates under two assumptions:

1. Every part of the business is dependent on the continued operations of the other parts of the business.

2. Some parts of the business are more important than others, requiring more allocations when disruptions occur.