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Objectives of Business Impact Analysis
Large and medium sized organizations often conduct a Business Impact Analysis to measure financial and operational impact on their business. The analysis is done considering a worst case scenario on a sample business unit. There are many examples of Business Impact Analysis methods that can be shared. For example, software companies conduct an analysis by moving their staff to another location, simulating and analyzing the impact of a country outage. These efforts help them to be better prepared for unforeseen events if they were ever to happen.
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Methods used in Business Impact Analysis
There are different Business Impact Analysis methods used by various organizations. The method that we are going to follow is a step-by-step analysis that will help to determine the impact of a new business opportunity.
STEP 1: Measuring the Business Opportunity
This step will help to measure the business opportunity that the company can garner if it decides to get into this business domain. It is a simple measure that takes into consideration 3 broad parameters. It considers the number of business inquiries, the average percentage of people who will actually buy the product and the margin that can be generated. Let’s look at a simple example. If an E-Commerce website decides to sell books it will calculate the number of visitors to the books section and multiply it with the percentage of people who will buy and the average profit per book to come up with an effective number analysis.
STEP 2: Loss of Opportunity Because of Employee Factors, Customer Service, etc.
Not all business opportunities can be converted to real business ideas. Some ideas can be lost due to poor customer service, employee factors, and limited merchandise. So, business consultants often calculate a factor that will be lost from the overall opportunity that we had measured earlier. This factor, when multiplied by the business opportunity, leaves us with the actual impact that this opportunity can have on the business.
STEP 3: Take Steps to Minimize Losses Due to Employee Factors, Customer Service & Efficient Merchandising
Businesses take steps to minimize the impact of a lost of opportunity. This can include training for employees, improving efficiency with better systems, etc. The cost associated with these efforts will need to be deducted from the overall business opportunity. However, the benefits derived from these efforts will get added to the opportunity within a couple of years of successful operations.
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A comprehensive BIA is a time consuming and costly affair that needs to include different parameters. However, it is as important as launching the business itself. Negative Impacts of a business can be costly and can lead to a blame game among different departments of the company. Ultimately it affects the top line and bottom line of the company hindering growth and pulling down the share price. In order to avoid these consequences, using Business Impact Analysis methods are an important step before launching any new initiative. A thorough analysis will help to plug any loopholes and enable an organization to get a flying start into any new venture.
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