Saturday, March 22, 2014

Business Impact Analysis for Effective BCM

A business continuity plan facilitates in improving the availability of organization's critical services. In the process, the BCP plan identifies and mandates such critical processes and also periodically assesses the quantitative and qualitative impact to the organization in the event of any disruption to such services. While Business Continuity Plan is proactive in managing the risk of business disruption, Business Resumption Plan and Disaster Recovery Plan are reactive in restoring the business to its working state as it deals with recovering or resuming the business services and assets following a disruption. BCP planning is a direct input to the business's D/R action plans.

Business Continuity Management and disaster recovery are natural components of Enterprise Risk Management. All the resources and plans that make up a business continuity plan are developed to address business interruption risk in an organization and should be part of a comprehensive mitigation plan for all the enterprise risks. Many organizations are beginning to recognize the opportunity they have from embedding or incorporating BCM into an overall program to identify, evaluate and mitigate risk. By viewing BCM as a risk management function and embedding it into the enterprise level ERM program, which has been aligned with the strategic imperatives of the company, boardroom expectations are met and alignment achieved.

The typical goals of BCM are:

  • To identify critical business processes and assign criticality. Factors influencing the determination of criticality include inter-dependencies among business processes and the MAD for each unique business process.
  • To estimate the maximum downtime the bank can tolerate while still maintaining viability. Bank management must determine the longest period of time a business process can be disrupted before recovery becomes impossible or moot.
  • To evaluate resource requirements such as facilities, personnel, equipment, software, data files, vital records, and vendor and service provider relationships

Business Impact Analysis

The first step in developing a strong, organization-wide business continuity plan is conducting a Business Impact Analysis. The result of BIA is a business impact analysis report, which describes the potential risks specific to the organization. The challenge lies in assessing the financial and other business risks associated with a service disruption. A BIA report quantifies the importance of business components and suggests appropriate plan and fund allocation for measures to protect them.

As with any plan, the Business Continuity Planning should also evolve on a continuous basis, as the business contexts keep changing in line with the growth and changing directions. Business Impact Analysis being an important phase of the BCM life-cycle,  the same should be revisited and refreshed in line with the BCM life cycle. As a process, the BIA shall be performed with respect to each critical activity or even resources forming part of the enterprise business processes. Though BIA is applied to critical activities, it is recommended to perform BIA on all activities as it is BIA that establishes the criticality of such activity, process or resource.

Performing BIA

The following are the key steps in performing the Business Impact Analysis:

  • Preparation and Set-up - It is important to identify the tools or templates required to perform BIA. For instance, a reference table to determine the business impact is essential to provide consistent definitions to different types of impacts and severity levels. If a structured risk assessment has already been carried out, the definitions and severity levels should already have been captured, and should be used for the BIA as well. 
  • Identification - This first step determines the activities to be performed, resources to be used to deliver the goods and services of the business organization. The source for gathering this information could be right from the mission & objectives of the enterprise to the defined business processes. Given that the BIA is performed on the identified activities and resources, this step however can be considered as a pre-requisite for BIA, rather than a step within BIA.
  • Identify potential disruptions - With respect to each identified activity or resource, identify the possible events or scenarios that could impact its desired outcome and thereby impacting the business process. This activity is usually best done using techniques like brain storming involving the relevant business users. As part of this step the correlation of the severity of the impact with the duration of disruption is also established.
  • Identify tangible losses - Disruption in certain activities or non availability of certain resources would directly result in monetary losses. If the given activity or resource or it in combination with other resources or activities could potentially cause revenue loss, the same should be identified and established as to the magnitude of such loss as well.
  • Quantify intangible losses - Certain activities, when disrupted may not directly result into monetary losses, but may result in intangible loss to the organization. For instance, non availability of customer care executives to respond to customer queries, could result in erosion of brand value. Such impacts should be quantified using appropriate techniques so that the same can be considered in determining the priority.
  • Recovery cost - As part of the impact analysis it would make sense to capture details of time and efforts it takes to resume or recover from the disruption. The magnitude of the recovery cost would also contribute to the determination of the prioritization or ranking.
  • Identify dependencies - Some times, the potential disruption or its impact depends on certain other activities or resources be it internal or external. This details will be useful in drawing up the business resumption plan and the disaster recovery plan. 
  • Ranking - Once all relevant information has been collected and assembled, rankings for the critical business services or resources can be produced. Ranking is based on the potential loss of revenue, time of recovery and severity of impact a disruption would cause. Minimum service levels and maximum allowable downtime are also established.
  • Prioritize critical services or products - Once the critical services or products are identified, they must be prioritized based on minimum acceptable delivery levels and the maximum period of time the service can be down before severe damage to the organization results. To determine the ranking of critical services, information is required to determine impact of a disruption to service delivery, loss of revenue, additional expenses and intangible losses.

The quality of the BIA is reflected in the reports that are produced after completing the above mentioned steps. Given that BIA is a critical phase of BCM, it is important that this activity is performed with as much care and attention to the details. Using the right set of tools, techniques, templates and questionaire is recommended for best results.

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