How Business Impact Analysis Helps Organizations Prepare for Unforeseen Events

In a time where a disruption of any type – be it a natural disaster or cyber threat – can stop a business from operating in a second, the necessity for organizations to be resilient, flexible and preventative is very real. This is where Business Impact Analysis (BIA) comes in as a key safeguard of continuity and a means of limiting loss.

A BIA examines the impacts of disruptions to the various operations and processes in a business. This is done to let the organizations prioritize their resources and generate techniques for recovery. Regardless of whether it’s a server loss, data breach or supply chain failure, a solid completed business impact assessment provides organizations with that all-important knowledge to make sound and swift decisions in case there are unforeseen events.

Business impact analysis does not operate as a risk exercise. It is an integral part of business analysis and business process management, which provides the background for many wider strategies such as risk treatment, business continuity and long-term sustainability. With the increasing frequency and complexity of unexpected events, an organization must comprehend the business impact analysis steps to continually move forward.

In the next few sections we will discuss the following aspects of business impact analysis: 

• The business impact analysis as it relates to organizational preparedness
• Why business impact analysis work is important and relevant in today’s risk-heavy world
• The associations between business impact analysis and risk assessment, and other processes to improve business results.

Business Impact Assessment: An Overview

A Business Impact Assessment (BIA) is a systematic approach to identifying and assessing the potential impacts of an interruption to important business operations caused by an unforeseen event. Simply put, a BIA helps an organization determine which business functions are necessary for survivability, how long the organization can survive the disruption, and what resources (both staff and physical) are required to recover.

What is a Business Impact Assessment?

A BIA business impact assessment is an analysis of qualitative and quantitative impacts that disruptions may have on organizations. The impacts may be financial, legal, reputational regulatory non-compliance, and customer dissatisfaction. Identifying critical operations and how disruptions of varying degrees and durations affect them allows business and organizations to develop targeted plans for continuity that are more cost-effective than the alternatives. 

For example, a hospital’s patient record storing and delivery system is undoubtedly more critical than the cafeteria scheduling system. A BIA helps in differentiating between benefits derivation essential operations, key operations, and non-essential operations, and sets out the recovery hierarchy based on essentiality.

BIA vs. Risk Assessment

A common misconception is that a BIA is a risk assessment. Risk Assessments identify possible threats (e.g., cyberattacks, floods), and look at the probability of occurrence. 

• BIA investigates what happens when something is disrupted—whatever the cause.
• To put that simply, a risk assessment asks “What can happen?” while a BIA asks “What happens when something happens?”
• When you use BIA and risk assessments, you get a picture of both vulnerabilities and impacts, and organisations can plan for multiple aspects of risk. 

BIA in Business Analysis and Process Management

Business Impact Analyses are not done in isolation, but as part of the wider field of business analysis and process management. It regularly happens that when businesses consider workflows, dependencies and interdependencies across departments, they discover there are processes that are more mission-critical than they thought. 

By integrating BIA into process management, businesses can:

• Identify areas to improve inefficiencies and vulnerabilities
• Increase cross-functional coordination
• Create flexible and adaptable workflows that can adapt to disruption

Whether adopting frameworks such as Six Sigma, Lean, or BPMN, BIA fits in with any process driven approach and data-driven planning allows for more resilient designs.

Key Business Impact Analysis Steps

Conducting a BIA business impact analysis is not a simple activity. Performing a business impact analysis requires the use of a structured, step-by-step approach, which varies in complexity and size depending on the organization’s size, complexity, and field of work. 

Step 1: Identify Critical Business Functions

The first thing to do is to identify the operations the business cannot do without. This includes:

• Revenue-generating operations
• Customer-facing processes
• Compliance-related functions
• Operational support services

It is common to have these functions across finance, IT, HR, customer services, and supply chain management.

Step 2: Identify Dependencies

Once the critical functions are needed then map out what makes those functions possible. Parts include:

• Staff/teams
• IT systems/ software applications
• Third-party vendors or partners
• Equipment and physical facilities

For example, the sales team may have a dependency on using a CRM system, cloud-based tools, who all have many further dependencies on the overall internet service and cybersecurity compliance measures.

Step 3: Try Examining What Disruptions can Lead to

Asking the question is where the real business impact assessment comes into play.

Outcomes will commonly fall into:

• Financial losses (lost sales, penalties, operational costs)
• Operational disruption (inability to service customers, or process data)
• Reputational harm (negative press, customer loss)
• Legal/compliance issues (violations, lawsuits)

Step 4: Define Recovery Objectives

There are various factors that the organizations should define:

• Recovery Time Objective (RTO) – Maximum amount of time an organization can tolerate going without and having to restore a process
• Recovery Point Objective (RPO) – Maximum amount of data an organization can tolerate losing, and is usually measured in time (e.g., 4 hours of data)

A financial services example could define RTO of 4 hours for transactional systems and RTO of 24 hours for internal HR tools.

Step 5: Document Findings and Participants

The team must document all findings in an official BIA report, which should include the following:

• Critical functions
• Dependencies
• Impact over time
• RTO/RPO objectives
• Recommendations

Equally important is participant involvement. All department leads, IT teams, compliance officers, and business continuity managers, should be involved and have participated in signing the BIA report. 

By completing the business impact analysis steps as outlined, organizations have a preparedness plan that is realistic based on real operational priorities – not assumptions or hypotheticals.

BIA and Risk Assessment: Complementary Tools

A Business Impact Analysis (BIA) provides insight into the implications of interruptions to operations, while a risk assessment examines the reasons for possible interruptions. Together, the BIA and risk assessment provide a holistic perspective on resiliency of the organization.

Interaction between BIA and Risk Assessment

BIA and risk assessment, one could view them as two sides of a coin:

• Risk Assessment: Identifies risks (e.g., natural hazards, cyber threat, equipment failure) and a probability of when they occur.
• Business Impact Assessment: Evaluates how those risks, if realized, would affect key business operations.

For example, you could conduct a risk assessment that assesses the probability of a regional power outage that could occur at a medium risk of once every five years. Then the BIA would evaluate how the effects of a power loss for 12 hours would impact call center capacity, order processing, or customer support, or what would be needed to recover in the event of such an occurrence.

Used together, BIA and risk assessment:

• Prioritize preparedness activities
• Aid in allocating budgets
• Help make data-driven decisions about business continuity

Real-World Example

Take, for example, a global e-commerce company. A risk assessment may identify the risk of a distributed denial-of-service (DDoS) attack. The BIA business impact assessment would examine the likely effect on:

• Website uptime
• Customer orders
• Inventory management
• Delivery times

About BPX

BPX is a leading consulting agency in business process and BIM consulting, with more than ten years of experience, serving a worldwide client base across 12 countries. BPX is a global consulting firm dedicated to helping organizations improve efficiency, decrease costs and facilitate innovation by working with an expert team to analyze and transform business processes.