Many of today’s organisations are more technologically advanced, automated, and data-driven than ever before, but they are still not immune to the perennial problem of business disruption and the ability to pivot or change direction to circumvent risks.
Risk is always on the horizon! Disruptive events such as natural disasters, market conditions, utility failures to infrastructure damage and cybersecurity attacks can wreak havoc on any organisation’s operations and can impact business growth. The organisation’s response to these disruptions can either fix the current situation or can make the situation worse, depending on how they handle this crisis and their readiness to act (and react to change).
“Be prepared” is an ominous statement but that is why organisations (of all sizes) need to ensure business continuity during times of crisis, thereby providing a framework for identifying and evaluating the effects of disruption. In this case, what can Business Managers do? Simple. Execute a Business Impact Analysis (BIA)!
What is Business Impact Analysis (BIA)?
A Business Impact Analysis (BIA) is a systematic process to determine and evaluate the potential effects of an interruption to critical business operations because of a disaster, accident, or emergency. A Business Impact Analysis (BIA) is an essential component of an organisation’s Business Continuity Plan (BCP). It includes an exploratory component to reveal any threats and vulnerabilities and a planning component to develop strategies for minimising risk. The result is a Business Impact Analysis Report, which describes the potential risks specific to the organisation studied.
Listed below are some examples of business disruptions and their potential impacts:
Examples of business disruptions
- Natural disasters
- Data security breaches or cyber attacks
- Production scheduling delays
- Power outages or utility outages
- Equipment malfunctions
- Loss of key employees
- Loss of key vendors or suppliers
Examples of business impacts
- Lost sales or revenue due to production downtime
- Delayed payments or collections from customers
- Unforeseen business expenses (e.g., overtime payments or outsourcing costs)
- Regulatory fines or contractual penalties
- Delayed business plans due to business disruptions
- Change in transport distribution supplier
- Loss of customers
Why is a Business Impact Analysis (BIA) important?
Business disruptions happen and this goes beyond rudimentary critiques of start-ups, business failures, inadequate products, and services. Understanding business disruption can be the key to helping your organisation get a better, clearer understanding of what true and productive innovation is, and thereby possibly, improving overall business results and produce more truly innovative services and products.
It’s critically important to be prepared and minimise profitability loss. A Business Impact Analysis helps you gather the strategic data you need to plan for (and manage) both internal and external roadblocks when they inevitably occur. This process helps you to:
Identify essential business activities, processes, and resources
A Business Impact Analysis helps you understand which processes are necessary to deliver your organisation’s most important products and services – so you know which business activities must be performed, regardless of the circumstances.
Analyse the financial impacts of managing business disruptions
When you better understand how potential roadblocks could impact your organisation finances, only then can you proactively implement strategies and allocate necessary funds to manage unexpected disruptions (whenever they occur). With a Business Impact Analysis, this provides insights into resource requirements, justify budget requests, project sponsorship, and pitch your Business Continuity Plan (BCP) to your Executive Management Team.
Collect the critical data you need to create a Business Continuity Plan (BCP)
A Business Continuity Plan lays out a system of strategies to prevent, respond, and recover to potential threats from business disruptions to an organisation. The plan ensures that personnel and assets are protected and can function quickly in the event of a disaster. Therefore, they should be tested to ensure there are no weaknesses, which can be identified and corrected.
What the Business Impact Analysis (BIA) highlights?
The Business Impact Analysis helps analyse both the operational and financial impacts of a business disruption, but another factor that must be considered is timing. These impacts may include lost revenue and income, delayed sales or income, increased expenses, regulatory fines, contractual penalties, loss of customers and a delay of new business plans.
The Business Impact Analysis operates under two (2) assumptions:
- Every part of the organisation is cohesively dependent on the continued operations of the other parts of the business.
- Some parts of the organisation are more important than other parts and therefore will require more allocation and operational resources when disruptions occur.
Identify your outcomes to help formulate the Contingency Plan
Apart from describing the various crisis scenarios, a Business Impact Analysis must also plan for the timing (and duration) of the disruption and the estimated recovery time. Businesses can consider the different outcomes within whatever scenarios are identified and then formulate a possible Contingency Plan. These risks are identified, and their corresponding strategies are then outlined in a Business Impact Analysis Report.
However, what needs to be highlighted is that a Business Impact Analysis does not plan for every possible business disruption and with a specific situation for certain types of events that have similar effects on businesses. The main point of the analysis is about identifying the organisation’s most critical processes and developing a plan to ensure their continuity (no matter the crisis) – a business should customise its analysis to the organisation’s specific circumstances.
4-Types of Business Impact Analysis (BIA)
Due to the complexity and breadth of collective information that goes into conducting a Business Impact Analysis, you need to commence planning at different levels of the business. There are several different types of impact analyses that organisations can use, but they often narrow down to the following four (4) types.
Initial Analysis
- Initial Analysis is a high-level analysis that helps set the foundation for deeper and more comprehensive analyses in the future.
Product Analysis
- Product Analysis seeks to identify the organisation’s products and services and their vulnerability to disruption.
Process Analysis
- Process Analysis focuses on the processes, workflows, and systems that support the creation and delivery of an organisation’s products and services.
Activity Analysis
- Activity Analysis takes a granular assessment of the business activities required to provide products and services to customers.
Measuring the impact of the Business Impact Analysis (BIA)
Typically, the Business Impact Analysis will measure impact across three (3) basic areas:
Delayed or lost sales revenue due to operational issues
If you were unable to produce products or deliver services due to internal operational issues, then most likely your organisation will experience delayed income or lost sales revenue and inventory to sell will be reduced temporarily. If production is shut down for an extended period, you could lose significant market share as your competitors take advantage of your ongoing difficulties.
Increased expenses due to business disruption
Any interruption to on-going business operations will also increase your expenses due to the increased cost of repairs, maintenance, or the need to buy new equipment. In addition, if your organisation is impacted by regulatory compliance, including emissions or safety regulations, your profitability will be negatively affected, due to fines and other penalties.
Customer dissatisfaction or defection to other market competitors
Whether your direct sales are business-to-business (B2B) or retail trading, the capacity of revenue generation is dependent on customer satisfaction. Any disruption – especially over an extended period — to production, sales, or services will firstly leave your customers dissatisfied with performance, and secondly then start looking for another service provider.
Summary
With managing the normal course of business challenges and no matter what type of event an organisation is preparing for, the Business Impact Analysis is one of the most important tasks to help reduce disruption in business operations and ensuing financial losses.
Both planned events, such as an organisational change project, and unexpected events, such as the COVID-19 pandemic, can be handled much more easily if a Business Impact Assessment has been completed. Importantly, this provides smart business intelligence insights and allows organisations to answer two (2) questions – “What does Business Impact Analysis indicate when it comes to the financial impact of a change?” or “How can we make our organisation as resilient as possible against a variety of impact types?”.
The Business Impact Analysis BIA is critically important because it allows organisations to plan for outcomes, to utilise a “What if” approach and take steps to mitigate any negative effects. Business Impact Analysis is a key part of Risk Management and should be actioned at regular intervals to assess the potential effects of disruptions on an organisation. The three (3) phases of a Business Impact Analysis are identification, assessment, and response – now businesses can make clear (and informed) decisions about whether a change is worth undertaking.
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