What is a business impact analysis?

Publish on April 5, 2019

You have heard of a business continuity plan, but you may hear less frequently about one of its important components: the business impact analysis.

A business impact analysis is the step where you make an inventory of the what business functions or assets would be impacted by any major negative events that could strike your business, such as a natural disaster, loss of key personnel, power or internet connectivity, floor, or fire. The business impact analysis breaks down all of the individual components of your business and evaluates how any disaster could restrict their ability to function.

For example, a quick general list of targets would include: people; property and business locations; supply chain links; any portion of your technology infrastructure, including communications technology; operations; support; contractual agreements; the environment; and brand reputation. In short, this asks you to define the scenarios that could play out if any of the events listed in the risk assessment occurred.

After identifying the general areas of potential impact, the business impact analysis goes on to identify the specific results of damage to any of the assets identified above.

It should also look at each scenario along a continuum of severity. For example what would be the impact on customer service if you lost internet connectivity for 3 hours, for one day, two days, a week? For instance, if you couldn't meet certain contractual thresholds, at what point might downtime trigger penalties? General categories of the results of these negative scenarios would likely include loss of customers; fines and penalties; fines for regulatory lapses; lost sales; lost income; damaged cash flow; increased short term costs, such as overtime; outsourcing; customer discounts: and disruption of expansion or growth strategies.

At this point, you should have developed a clear picture of your vulnerabilities and a concrete awareness of what is at stake if you don’t make plans to circumvent the damage any of these events could impose on your business.

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