What is Business Impact Analysis (BIA)?

Business Impact Analysis is a process carried out to determine the potential risks that can disrupt a business due to a disaster, accident, or other reasons. It is a mandatory part of a company’s business continuance plan. A business impact analysis measures the effects of disruptions on various business aspects, including service delivery, risks in delivery, Recovery Time Objectives (RTO), Recovery Point Objectives (RPO), and so on. The analysis helps to minimize the risk during the business. After completing the business impact analysis, the details are logged into a business impact analysis report, which is reviewed by the senior management.

Importance of Business Impact Analysis

Most companies fail to understand the importance of conducting a BIA. However, without a BIA, it is difficult to learn about the clear requirements in a business. Below are a few points that can be determined using BIA.

Confirms the scope of the business continuity program

BIA helps to understand the business activities and resources required to deliver the services or products of an organization. It identifies the hidden activities or resources that were not present in the actual program scope. This helps the organization to determine which activities or resources should be used during a particular circumstance.

Determines the legal matters involved

Most companies do not have a proper understanding of the roles and responsibilities. They do not know how to deal with a specific problem and the implications if the obligations are not fulfilled. In such cases, the BIA gives a clear understanding of handling obligations and maintaining the business continuity planning.

Gathers preliminary plan content

For business continuity plans, it is necessary to have details of how to collect data initially. By conducting a BIA, an organization can start collecting the business continuity requirements such as current controls, recovery strategies, staffing requirements, contact data, and so on. After collecting these details, the organization can analyze the business continuity plan and present a starting point for the people involved in the creation process.

Impacts considered in a BIA

A BIA must recognize all the operational and financial effects that would cause business functions and processes to disrupt. Hence, it should cover the following impacts:

  • Financial loss in sales and income.
  • Delay in receiving sales or income.
  • Hike in expenses.
  • Regulatory penalties.
  • Deduction in contractual bonuses.
  • Contract fines.
  • Postponing of new business plans.

Business Impact Analysis and Risk Assessment

Business impact analysis and risk assessment are two different processes involved in a business continuity plan. A business impact analysis identifies the consequences of business disruptions in IT operations, financially and non-financially, during a disaster. It creates a starting point for a disaster recovery strategy.

Processes involved in Business Continuity Plan

A risk assessment process determines the potential risks like an earthquake, fire, supplier issues, network problems, cyber-attacks, etc., and measures the vulnerability. It calculates the assets at risk like people, properties, contract obligations, and so on. Finally, a strategy to reduce the impact of hazards is developed.

Conducting Business Impact Analysis

There is no standard procedure to conduct a business impact analysis. Companies follow different approaches to conduct a BIA. Some companies hire third-party organizations, while some create an internal project management team to conduct BIA.

In most cases, the process involves the following steps.

Process of business impact analysis

Step 1: Take approval for the project

Before beginning with the BIA process, it is necessary to get approval from the senior management. At this point, discussions related to the objectives, scope, and goal of the BIA are done. The clear strategies of the business are identified during this stage.

Next, the organization has to create a project team or hire a third-party firm to conduct the BIA.

Step 2: Gather information

The next step is to gather all the information required to perform the analysis. There are several ways to gather this information. For instance, the team can conduct interviews or create a questionnaire to collect the data.

The questions involved in the questionnaire or interview should be designed such that all the answers regarding the disruption effects can be discovered. Interviews or questionnaires should be given to the people who know about the critical business functions, such as the managers, team members, supervisors, and so on. They can also be given to stakeholders of the organization.

Questions that should be included in the interview or questionnaire include the process name, description of the location of the process, inputs and outputs of the process, resources required in the process, end-users of the process, timing, financial impacts, and regulatory compliance impacts.

Step 3: Review the gathered information

Once the necessary data is collected, it should be properly documented and reviewed by the BIA team. All the information has to be analyzed manually or using a computer. This review will make it easier to understand the operational impacts on various business factors and solve them. For instance, the review will give a solution for prioritizing business operations, identifying the required resources, formulating a recovery timeframe to get the business back to normal.

Step 4: Create the BIA report

The last step is to document the results. At this point, the final BIA report needs to be prepared. There is no specific format for a BIA report. However, it involves the following content.

  • Executive summary.
  • Objectives and scope of the project.
  • Techniques used to collect the information and evaluation.
  • Summary of the results.
  • Detailed report of the results for each department.
  • Supporting documents (if any).
  • Suggestions for recovery.

The BIA report has to be submitted to the senior management after preparation.

Step 5: Analyze the BIA results

As the senior management handles the decision-making part, they need to review the BIA report and proceed with the business continuity plan as well as the disaster recovery strategy. They need to consider the maximum downtime for the business processes and losses that would occur during the time. The senior management is also responsible for regularly reviewing and updating the business impact analysis.

Context and Applications

The topic is studied under various courses such as

  • Bachelors in Business Administration.
  • Masters in Business Administration.
  • Masters in Project Management.

Practice Problems

  1. From the following methods, which one is the best to develop recovery time objectives?
  1. Non-critical industry averages
  2. Business continuity plan
  3. Business impact analysis
  4. Past recovery test reports

Ans: Option c

Explanation: One of the reasons to conduct a business impact analysis is to find out the recovery time objectives.

2. Which of the following stages are involved in the process of conducting business impact analysis?

  1. Collecting information regarding the business requirements
  2. Determining the consequences of the disruption
  3. Interviewing the people involved in the business
  4. All of the above

Ans: Option d

Explanation: Although the process of conducting BIA varies depending on the company and recovery objectives, the basic process involves gathering information, talking to the staff or owners, and finding the results of the interruptions in the business.

3. Which of the following statements is/are correct?

  1. BIA is a crucial step involved in creating the business continuity plan.
  2. BIA involves determining the events that might negatively impact the business operations.
  1. Statement 1 is true
  2. Statement 2 is true
  3. Both statements 1 and 2 are true
  4. Both statements 1 and 2 are false

Ans: Option c

Explanation: As mentioned in the article above, the BIA is an essential part of creating the business continuity plan, since it helps to minimize the risks involved in the continuity plan. It also identifies the possible risks that would occur in a business due to particular circumstances.

4. Who is responsible to ensure that the information is proper and the necessary measures are taken as per the BIA report?

  1. Senior management
  2. End-user
  3. Supervisors
  4. Service-level officer

Ans: Option a

Explanation: The project team or third-party company prepares the BIA report and hands it over to the senior management. Later, the senior management has to review the report and ensure that the recovery process is conducted as mentioned in the report.

5. Why do continuity planners can develop plans without a business impact analysis process?

  1. Business impact analysis is not important.
  2. Management has stated the fundamental methods that should be used.
  3. Risk assessment is considered a disruptive event.
  4. It is not possible because the critical processes continually change.

Ans: Option d

Explanation: It is not possible to create a business continuity plan without a BIA. Because the potential impacts involved change continuously, so, with a BIA, it becomes easy to review and update these changes during the continuity plan.

Common Mistakes

  • People often consider that risk assessment and business impact analysis processes are the same.
  • Not understanding the difference between project impact analysis and business impact analysis.
  • Business continuity plan
  • Information technology disaster recovery plan
  • Risk assessment
  • Business impact analysis cyber security

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