Every choice made when running a business can impact the bottom line, but sometimes change is forced upon businesses, and decisions become about trying to make the best of a bad situation. In these instances, the pragmatic business owner researches to see what consequences may develop and how different reactions may alter the outcome. To do this, they use impact analysis.
What Is Impact Analysis?
Impact analysis is the proverbial "look before you leap," the “what if” that stops a foolhardy move that can come from knee-jerk reactions to change.
If some aspect of your business is disrupted, what are the consequences? How will it affect your team, your budget, your profit, your losses and your future? An impact analysis is a formal way of collecting data and supposition in support of the pros and cons in any change or disruption to your business. Good impact analysis will help you identify recovery strategies, prevention methods or means of mitigating impacts to the business.
Disruptions can come in many forms – from the flooding after a hurricane through to something simpler, like a trusted supplier closing shop. Whether the disruption is large or small, it all has an impact. But traditionally, impact analysis has been considered as “business continuity management,” a must-do step in disaster recovery, where more significant impacts are felt.
Why You Need to Do a Business Impact Assessment
Impact analysis is usually completed when there’s a negative impact or hardship that must be confronted, and resolutions found, often in the case of disaster or other sudden and unforeseen impacts. Recovering from such problems can often be accomplished in several ways, but if the full extent of the consequences isn’t known, there may not be a good foundation upon which to make resolutions. The analysis is meant to change the odds by providing a better overall understanding before taking action.
Often, unforeseen change is forced upon a business, meaning there has been no preparation for it. Perhaps civic laws change regarding business hours or traffic zoning. Maybe a location change is required after an unexpected, dramatic lease increase or a massive plumbing disaster unfolded. Perhaps the supply chain has been disrupted.
In all these instances, impact analysis can help management understand the true costs of the situation they’re in and how to move forward.
It's great that impact analysis helps in these situations, but it's such a useful tool that it shouldn’t be relegated to only being used in emergencies. Whenever any major change stands before a business, impact analysis can help lend clarity before making impactful decisions.
Ultimately, why you need business impact assessments comes down to the reality that impacts are seldom felt only on the bottom line. They affect brand, trust, loyalty, reputation and other aspects that aren’t black and white, which can have longstanding consequences.
What to Look Out for in an Impact Analysis
Impact assessment would be easier if it were just about money, but there’s a lot riding on change and disaster recovery with your company.
While a business impact analysis should be somewhat comprehensive, it’s important not to go overboard and create a plethora of assessment categories. Too much data spread too thinly can muddy the waters.
Instead, take an overview that divides impact between "quantitative" and "qualitative" effects. Quantitative is anything that affects profit and loss from a money in/money out perspective. So this would include loss of revenue, increases in operating expenses and any penalties, fines or sanctions suffered as a consequence of the impact. Qualitative assessment is more about the rest of it – how it affects the customer, how it changes the sentiment for the brand, any damage or credit to the company’s reputation and even whether invoices can be paid promptly to maintain good standing with suppliers.
There will be obvious categories that nearly any impact assessment should include, like operating expense increases, revenue losses and brand or reputation damage. But other areas studied should reflect the company’s core mission.
For example, suppose it’s a doctor’s office that has suffered a flood. Perhaps the office could stay open despite the damage, but if it will cause particulate pollution in the air or compromise the heat or comfort of the waiting area, then it’s important to consider safety and security for the patients. That's impact, too. But shutting down for too long and delaying services could be dangerous for some clients – yet this factor would change in impact during, say, the summer months when many patients are on vacation versus in November when everyone’s back at work and school as the flu season rages.
Impact analysis parameters vary greatly depending on the business type involved, so it’s important you understand what external factors can and do affect how your specific business thrives or fails. Knowing this, pick three or four categories for each quantitative and qualitative impact assessment and make detailed notes accordingly. In doing so, ensure you use current or recent data and collaborate with other managers or staff for their observations or insight, as their input may be valuable to your strategizing.
Three Main Impact Categories
If you suffer a business impact, it’ll likely be from one of three categories:
- One is a loss affecting a building or store, which might be caused by fire, disaster, water damage and other situations that cause damage sufficient for business disruption.
- Two is data and technology disruptions where you’ve lost computer systems, or you’ve had major breakdowns in the technology or machinery that helps you do your day-to-day business.
- Three is a loss of staff and other resources that could be caused by, say, widespread illness or the effect of a transit strike that’s ongoing.
Doing Non-Emergent Impact Assessments
Sometimes, conducting after-disaster impact analysis is like learning how to swim after falling off a boat – it’s not ideal.
Running impact assessments before disasters happen is kind of like safe driving, where you should always be aware of what the driver two cars ahead of you is doing, not just the one in front of you. It prepares you, so you’re ready to act if things happen.
Understanding things like the cost and impact for possible disruptions, like flooding and supply chain upheaval, allows you to create contingency plans so you can fly into action instead of figuring out where you stand. For larger companies, preemptive impact analysis can save the day if things go sideways down the road. Instances like floods, ice storms and supplier problems can all be planned for in advance, and impact analysis can help.
Often, impacts happen with some warning. Perhaps a supplier has let slip that they may be unable to provide you with a certain brand of product or a kind of service you’ve become dependent on. By running a business impact assessment, you may be able to ascertain what actions are ideal if this change comes to pass. Perhaps you realize you can’t accept said change, so you could source a new provider and possibly negotiate with them. Perhaps you learn your trusted supplier is finding an alternative, so you can assess to see if this will work for you and your customers.
Navigating Emergency Impact Assessments
Impacts are threats to your business and having threat readiness plans is part of being a smart business owner. But what if it’s what they call a “black swan event” – something you can’t foresee, which is completely unpredictable and unexpected? How do you pick up the pieces and understand what’s really at stake?
Beyond black swan events, the other options are that you're facing a crisis both known and prepared for, or it's something that is known but unprepared for.
Whatever the case, you’ll need to fly into action. You’ll need steady-minded people at the helm so that you can figure out what to do next.
All these situations mean that time is critical, and action is needed to contain loss of income and prevent business disruptions from being longer than needed. By having systems in place for backing up data off-site to maintain access to things like suppliers, staff and other contacts you’ll need during impact recovery, you may get up and running considerably quicker.
In dire situations, know some experts do this for a living. Contacting a business crisis management company can help you get through the initial shock and formulate a quicker action plan for doing triage. It may be expensive, but you’ll need to weigh that against the added costs that might be suffered if you’re left trying to figure out where to start on your own.
Impact Analysis: A Case Study
Here’s an example of a non-emergent situation that benefits from doing an impact analysis before reacting to bad news.
Imagine you run a coffee shop on a busy corner. The news comes down that regional transit authorities have approved a new bus line to run parallel to your shop front. The above-ground construction plan states work may be ongoing in varying degrees for two years. It means there will be a metal barrier on both sides of the street for much of that time, blocking cross-street traffic for over a mile. Here and there, pedestrians will be able to cross, but not cars; but even pedestrians will struggle. The entire area is expected to suffer a loss of business, and many of your fellow businesses are thinking of relocating.
So the dilemma is, do you stay, or do you go? If you stay, in two years you’ll have a prime storefront with likely more business than you’ve ever had before, as it will be a transit hub. The stop will be right there, and a new destination supermarket will have finished construction across the street. But in the meantime, you'll face a dramatic loss in business. No more drive-by people stopping for coffee and very few people from beyond the barrier. To what extent will your business suffer?
On the other hand, moving would be expensive. You would need to do a location analysis, get permits and even new business cards and letterhead. You would lose long-term clientele who rely on you out of convenience or habit. You would need to market in a new neighborhood. There would be build costs. On the other hand, staying where you are would mean keeping diehard locals – your core patrons – and likely gaining patronage from those working on the bus line. When the work escalates, and business slows in the summer, you could refurbish the store, since business would be at a loss anyhow, and in two years, you’d have a fresh look just in time for new patrons.
Here, an impact analysis gives you a firm idea of what you lose versus what you gain from both scenarios. Maybe you decide the gains from moving don’t outweigh the costs for doing so and staying makes the most sense. Now you can form a strategy. Negotiate with the landlord for a lease discount for not leaving during construction, plus cement a good deal on a long-term lease for post-bus line life. Maybe reduce hours, cut staff and adjust the budget. With a less hectic shop, it would be the perfect time to do more community outreach or start that open-mic night you’ve always thought about, allowing you to plant the seed for more diverse business when the construction ends.
Impact Analysis Is Smart Management
While impact analysis may be initially born of disaster recovery, the reality is that it can also be used to prevent disastrous decisions. Will changes you’re undertaking lead to only minimal gains while costing money to implement? Will your brand and reputation suffer, counteracting any financial savings said changes might have?
By taking the opportunity to more carefully consider consequences and payoffs from making changes in your business, or using analysis to mitigate unwanted impacts, you may discover unexpected benefits – or avoid compounding an already-unfortunate situation. Either way, impact analysis is just another smart weapon in the arsenal of any well-prepared business owner or manager.