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Risk Assessment or Business Impact Analysis: What Comes First?

February 8, 2016/in Articles, BCM Methodology, Business Impact Analysis, Goh Moh Heng, Risk Analysis and Review/by Goh Moh Heng

What Comes First? RA or BIA

Over the past few years, I have been asked this question and also noticed the many discussions among professionals on the topic of whether one should, when going through the BCM planning methodology, conduct Risk Assessment (RA) or Business Impact Analysis (BIA) first. Often, these discussions are long and go on with the hasty conclusion in sight. They are rife with inconsistencies, misconceptions, and opposing viewpoints that have resulted not necessarily from any error on the professional’s part, but from the conflicting national Business Continuity Management (BCM) standard, each practitioner subscribes to. I would like to shed some light on some of these inconsistencies and misconceptions, as well as offer my thoughts on the RA versus BIA discussion itself.

The Risk Assessment and Business Impact Analysis are fundamental components in ensuring the development of an effective BCM framework in an organisation. However, there has been much confusion about the difference between the two phases, and that should come first have been a long debated topic. To be able to determine the exemplary process, we must first understand the objectives and expected deliverables of each phase.

Getting definitions out of the way

I’ll like to start by saying that Risk Assessment (RA) and Business Impact Analysis (BIA) are not the same things. They have gradually been used more and more interchangeably as similar processes, and this is not only incorrect but not identifying the individual features in each process can prove detrimental to your organization’s business continuity. The detailed definition can be found in BCMPedia.

Risk Assessment

Risk Assessment (RA) is the process of identifying internal and external threats and vulnerabilities, identifying the likelihood and impact of an event arising from such threats or vulnerabilities, defining the controls in place or necessary to reduce exposure and evaluating the cost for such controls.

Risk Assessment is a phase within the BCM planning process. It is the overall process of risk identification, risk analysis and risk evaluation. It is NOT to be confused or conflated with risk management, which is similar but separately defined as the identification, assessment, and prioritization of risks, followed by coordinated and economical application of resources to minimize, monitor, and control the probability and impact of unfortunate events. The primary objective of Risk assessment is to lessen vulnerability and decrease risk.

Business Impact Analysis

Business Impact Analysis (BIA) is the process of analysing the effect of interruptions to business operations or processes on all business functions. The scope of Business Impact Analysis includes facilities, It Infrastructure, Hardware, and Data. The main objective of Business Impact Analysis is to identify the operational and financial impacts resulting from the major disruption of business functions and processes, and thus, BIA is incredibly crucial to Business Continuity Planning. The outputs from RA are a bit different from those of BIA.

RA gives you a list of risks together with their values, whereas BIA gives you timing within which you need to recover (Recovery Time Objectives or RTO) and how much information you can afford to lose (Recovery Point Objectives or RPO). So, although these twos are related because they have to focus on the organization’s assets and processes, they are used in different contexts.

What does ISO22301 BCMS standard say?

The International Standard ISO 22301:2012 allows for both approaches, depending on the BCM planning methodology that is used. Organisations may choose to conduct BIA to identify their critical business functions followed by RA to analyse and mitigate the potential risks faced by each business operations and processes. The advantage of this approach is that it focuses on the identification and mitigation of specific business threats faced by each business unit. Another approach would be to conduct RA to identify threats and establish the risk landscape at the corporate level before conducting BIA. As the BCM framework is set up to prepare and build resiliency against corporate-wide disruptions, it is reasonable to assess threats and estimate the possible period of disruption at the corporate level. The outcome could be used to establish the Key Planning Scenario, which sets the basis for planning in the subsequent stages.

An effective Business Continuity Management framework ensures the capability of an organisation to continue delivery of products and services at an acceptable predefined minimum level and safeguard the interests of key stakeholders. The understanding of potential threats faced by the organisation and the determination of recovery priorities set the foundation for BCM implementation. Our preferred approach would be first to conduct an RA at the corporate level to establish the Key Planning Scenario, which could be used as a benchmark for determining the organisation’s critical business function in the BIA. To mitigate the RA not completed correctly, in ISO22301, a continuous review using RA is repeated in the BIA and then the BC Strategy phase.

What do the other standards say?

Australia (HB221:2004): “Risk & Vulnerability Assessment” is step #2, whereas “Conduct BIA” is step #3
Canada (Z1600-08): Risk Assessment precedes BIA as part of a continuity project planning activities
Great Britain (BS25999-1:2006): BIA precedes the Risk Assessment
U.S. (NFPA1600 2007): The Risk Assessment takes precedence, with the BIA being a subset of the RA
Singapore Standard (SS540:2010): Risk Assessment precedes BIA as part of a continuity project planning activities

As you can see, every standard offers a different take or variant on what comes first, and some of these standards do not factor in Risk Assessment. Additionally, business impact analysis is mandatory for ISO 22301 implementation, but not for ISO 27001. Who, then, do we subscribe to for a universal take on what is right?

Why Risk Analysis first?

Some practitioners and most of the older international BCM standards believe that the RA should come first as it enables one first to identify exposure and risks, allowing the practitioner to develop the necessary mitigation measures to reduce the threat. It also allows the practitioner to perform BIA more quickly as the lists of assets in the organization have been completely identified.

Most of the international standards support this claim, with RA being regarded as the initial step to take before the BIA.

Additionally, will have a better impression of which incidents can happen which risks you are exposed to. Therefore, be better prepared for doing the business impact analysis that focuses on consequences of those incidents. Furthermore, if you choose the asset-based approach for risk assessment, you will have an easier time identifying all the resources later on in the business impact analysis.

Why BIA first?

The counter argument against using RA first is that in sufficiently large organizations, it can be quite difficult, if not flat out impossible, to access all the risks and their impact on the organization. Rather than going for RA first, it would be much easier to go for BIA first, evaluating all the critical functions (or prioritised activities as ISO22301) and assets of the business and how they will impact the organization.

Different business units or departments in large organizations often have their individual subcultures and approaches to work. By showcasing a complete list of risks to critical business functions that have been identified from all parts of the business, new thinking and debate almost always ensue. Thus, some would argue that employing BIA first saves everyone involved in the BCM process an enormous amount of time and effort.

BIA forces the practitioner to consider which assets are of most importance to your business and its continuation. RA will then be applied afterwards to access the potential risks against these critical functions, followed by forming a mitigation plan to counteract the risks involved.

Sometimes, practitioners start with BIA because they want the organisation to talk about business processes and assets. This is often a strategy, and it should not be part of this discussion.

Conclusion

It is a matter of preference and circumstance. It can be conducted before, after, or even concurrently with one another, depending on what the situation demands. Some implementers felt that the combined effort to gather the information combined with one interview was time saving. As a practitioner, the argument is what constitute RA – it may require you to conduct a field RA survey.

When RA and BIA are placed together, these two processes combined can easily tell how hard a potential disruption can impact a business, as well as how quickly and how damaging it can be.
It is always good to have a healthy discussion but the key message does we have the same understanding of the RA and BIA definitions, are you speaking when you are just starting a new BCM project or updating an existing program, do you have other standards already in place such as ISO9000, ISO27000, and consulting techniques to gain acceptance of organisation.

It is always good to have a healthy discussion but the key message does we have the same understanding of the RA and BIA definitions, are you speaking when you are just starting a new BCM project or updating an existing program, do you have other standards already in place such as ISO9000, ISO27000, and consulting techniques to gain acceptance of organisation.

I would expect comments, and there are strong opinions on both sides with justifications. However, having spent some time in this industry, I would like to take a middle ground that there is no true right or wrong position on this debate as it is from which perspectives you are starting from and essentially what meets the requirement of the internal or external customers’ needs.

About the Author

Dr Goh Moh Heng is the President of BCM Institute and the Managing Director of GMH Continuity Architects – a specialized BCM Consulting firm. His primary areas of expertise include Business Continuity Management (BCM), Disaster Recovery Planning (DRP), ISO22301 BCM Audit and Crisis Management. Since 2011, Moh Heng has assisted more than 20 organizations, particularly those operating in the Asia Pacific and Middle-East Region in their successful implementation of their Business Continuity Management System (BCMS) and achieving their BS 25999/ SS 540 / ISO 22301 organization certification. Before establishing BCM Institute and GMH BCM Consulting, Dr Goh held senior positions with some large organizations. During his career with the Government of Singapore Investment Corporation (GIC), he was responsible for all aspects of its BC and contingency planning. At Standard Chartered Bank, he saw to the global implementation of its BC management and planning. He also managed the BCM practice at PricewaterhouseCoopers.

Currently, Dr Goh is the senior advisor to the China BCM Forum, a quasi-government agency responsible for BCM throughout China and an expert panel member of the Asia-Pacific Economic Cooperation (APEC) Network on Improving SME Disaster Resilience (since 2011) and JICA-ASEAN study to enhance resiliency of industrial areas against natural disasters (since 2012). He hold a Ph.D. and also been awarded the highest level of certification from the three major business continuity management institutes. He is the author of nine business continuity management books. Dr. Goh is instrumental in creating the first Wikipedia for BC www.BCMpedia.org. He can be contacted at moh_heng@bcm-institute.org or moh_heng@gmhasia.com.

References

Goh, M. H. (2016). Risk Assessment or Business Impact Analysis: What Comes First? LinkedIn Pulse

Goh, M. H. (2015). Business Continuity Management Planning Methodology. International Journal of Disaster Recovery and Business Continuity, 6, 9–16. Retrieved from http://dx.doi.org/10.14257/ijdrbc.2015.6.02

Kosutic, D. (2014). Risk assessment vs. business impact analysis. Advisera, (Mar), 2–5.

Ross, S. (2010). A business impact analysis checklist: 10 common BIA mistakes. Search Disaster Recovery, (Oct).

Rupert, J. (2013). The Relationship Between the Business Impact Analysis and Risk Assessment. Avalution Perspective.

Zecuboy. (2013). Risk Assessment versus Business Impact Analysis. Information Security Cafe, 5–8.

BCM Implementation for Organizations using the Singapore Standard SS540:2008

January 21, 2009/in Articles, BCM Methodology/by admin

Business Continuity aims to safeguard the interests of an organization and its key stakeholders by protecting its critical business functions against predetermined disruptions.
“ … the Government views corporate resilience as a national priority. An
inter-agency task force was formed to formulate implementation strategies to enhance our corporate resilience through adopting the processes of Business Continuity Management.”

Prof S Jayakumar,
Deputy Prime Minister and Coordinating Minister for National Security.

Synopsis

SS540:2008 is a Singapore Standard for Business Continuity Management (BCM) that is being embraced by both the international and local businesses operating within Singapore. With the support of a thirty million dollar grant from the government for the implementation of BCM within their organization, the initiative to implement BCM is now given a tremendous boost by the government. This paper starts with a history of the standard implementation, an introduction to the concept of BCM and BC and summing up with the framework within the SS540:2008 standard. The BCM framework within the SS540:2008 is highly rigorous as it contains the 6 major BCM areas and also the four major BCM components. The BCM framework matrix provides a coverage which makes the SS540:2008 a comprehensive BCM standard. An overview of the each BCM area cross referencing to its major component is elaborated in detail.

1. Introduction

Business Continuity (BC) is about the ability of an organization to operate its business in a manner that upholds its accountabilities to its customers, itself and its suppliers despite occurrence of events that disrupt its usual business activities in a significant fashion. Organizations have to face their external stakeholders it has to answer to include the authorities, shareholders and the public at large. It is no easy task in general to balance between the demands of these parties. For example, how should an organization organize and operate its business activities in a way that is acceptable to stakeholders upon a disruption? What alternate methods of operations for the delivery of its products and services least inconvenienced its customers?

The key to achieving the balance lies in the organization consulting its stakeholders and establishing a set of ‘acceptable’ business behaviour and operations when a disruption occurred. This set of behaviour and operations then form the critical objectives which the organization should attain as it responds to a disruption. Such BC planning brings the organization a step closer to answer the question – “Is your organization ready for an event that would disrupt your usual business activities in a significant fashion?” Alternatively, “Is your organization BC Ready?”

1.1 Background of SS540:2008

Singapore Standard SS540

The project was initiated by Economic Development Board (EDB) with the collaboration of Singapore Business Federation (SBF) and SPRING in 2004. The standard was guided by the Business Continuity Management (BCM) Council and supported by the BCM Technical Committee to develop the Technical Reference. The Technical Reference or TR19:2005 was launched on September 2005 during the international ISO meeting. The TR19 was subsequently reviewed and published as the Singapore Standard for BCM and was it officially launched on 31st October 2008.

1.2 What is BCM?

Business Continuity Management (BCM) is defined as a holistic management process that identifies potential impacts which threaten an organization and provides a framework for building resilience and the capability for an effective response that safeguards the interests of its key stakeholders, reputation, brand and value creating activities (SS540:2008).

Potential disruptions to the interests of these stakeholders would have to be identified, pre-empted or kept to a minimum. Business functions supporting value creating activities would have to be identified. Processes and resources would need to be established to ensure the continued operation of these functions due to disruptions.

1.3 What is BC?

From the above definition of BCM, BC seeks to ensure the following concerns are managed on a perennial basis.

Identify the interests of the organization and its key stakeholders.
Safeguard the identified interests by:
Identify the critical business functions supporting these interests
Identify potential disruptions to these critical business functions
Minimize the number of potential disruptions
Reduce the impact of disruptions to these critical business functions
Ensure these critical business functions can continue to support, if not sustained on a moderated basis, the identified interests

In short, BCM is an ongoing management process employ by organizations to identify potential impacts and establish the necessary arrangements and plans to maintain their BC capability.

2. A Framework to Undertake BCM

A framework should be employed to guide the processes used to identify, establish and maintain an appropriate plan to deal with the items in each of the above concerns. The following is a framework that can be used to guide BCM processes in organizations. It contains the BCM areas and the major BCM components.

2.1 The BCM Activities

Figure 1: BCM Planning Methodology

As part of the training curriculum for BCM Institute, this is the BCM planning methodology and it is as shown in Figure 1.

Based on the BCM planning methodology, a comparison is made with the SS540:2008 major BCM areas. Figure 2 show the correlations between the methodology and the BCM areas.

Figure 2: Main BCM Area of SS540:2008 being mapped against the BCM Planning Methodology

2.2 Major BCM Areas

This framework (Figure 2) divides into 6 broad BCM areas:

2.2.1 Risk Analysis and Review (This terms are similar for SS540 and BCM Planning Methodology)

The potential threats and risks to an organization can be uncovered via a risk analysis and review of its internal operations and external operating environment. Examples of risks due to internal operations include malfunction of critical manufacturing processes, failure of Information Technology (IT) systems and fire which destroys plant facilities. Examples of risks due to external operating environment include terrorist attacks, floods, political turmoil and disruption of supply chain.

2.2.2 Business Impact Analysis (This terms are similar for SS540 and BCM Planning Methodology)

The potential impacts of risks actually occurring to an organization and affecting its ability to achieve its business operation and service can be obtained by conducting a business impact analysis. The later would include, where possible, quantifying the loss impact from both a number of days of business disruption and a financial standpoint. For example, a fire which destroys the finished inventory at the warehouse can result in delay of shipment to key customers for a few days and incurring impact such as contractual penalty.

2.2.3 Strategy (Recovery Strategy)

Based on these potential loss impacts the organization would deliberate and select the appropriate strategy or strategies to safeguards its interests. These strategies can be preventive or pre-emptive in nature. For example, outsourcing the risks to third parties or setting up of alternate facilities at another location would be efforts towards preventing and pre-empting potential loss impact. The rationale behind these strategies is to build resilience for the organization against impact of loss.

2.2.4 Business continuity plan (Plan Development)

From the selected strategies a detail business continuity plan (BC Plan) should be instituted in place to respond to risks which can occur and impact its business operation and service. The BC Plan would specify and allocate the resources and thereby building up the capability of the organization to respond to risk occurrences. For example, by specifying the BC roles and responsibilities of staff in the BC Plan the organization is better adapt to respond to occurrence of risks.

2.2.5 Tests and exercises (Testing and Exercising)

An established BC Plan should be subject to verification via Tests and exercises. Tests and exercises expose probable errors and omissions in carrying out the established plan. It examines if the resources committed are accessible, available and adequate for undertaking the recovery efficiently and effectively. It checks if staff in the organization are familiar with recovery procedures. Overall Tests and exercises validate if the BC Plan indeed meet its recovery objectives.

2.2.6 Programme Management (This terms are similar for SS540 and BCM Planning Methodology)

Besides an established and thoroughly tested BC Plan the organization should demonstrate commitment in maintaining the currency of its plan through regular and systematic review of its risks and business impacts, realigning of its BCM strategies and revalidating of its BC Plan on a continuous basis. BCM should become an integral part of the organization’s operations, audit, testing, quality assurance, change management and culture. Ownership of BCM becomes embedded in individual business units where BCM risks reside.

BCM is an ongoing management process and can be examined from 2 standpoints. Firstly, the impacts of issues and concerns arising from each of the 7 BCM areas identified above need to be examined. For example, the risk impacts upon people and physical infrastructure. Secondly, the direction and support needed to ensure that BCM efforts can be implemented and sustained. For example, organizational policies direct BCM processes to support BCM on an ongoing basis.

2.3 Missing Phase

I am often asked about the missing phase within the BCM Areas. It is important to note that the project management area is not part of the 6 BCM areas. The reason is that the BC project is completed when it is due for certification by the organization and hence, this phase Project management is omitted from the SS540:2008.

2.3.1 Project Management

The project to establish the BC Plan for the organization needs the approval from Executive Management at the onset and ongoing support thereafter till completion. Foremost Executive Management needs to be convinced of the importance and need for business continuity. The reader may notice that this phase is not part of the standard. The reason will be explained later as the standard assumed that the BC plan is written and hence the project management phase is completed.

Examples include positive company’s image and shareholder value with the organization being able to withstand and continue its business activities despite environment disruption such as typhoons would help to highlight the importance of provision for BC and gain Executive Management support.

2.4 Major Components

BCM activities in each of the 6 BCM areas identified above therefore can be further examined in terms of the following 4 components:

2.4.1 Policies

Executive Management of the organization needs to stipulate policies to guide BCM efforts to be carried out by staff in the organization. Policies underlie the process events and people involvement in BCM activities. For example, a policy requiring all business units to appoint and assign BCM responsibility to a specific staff to participate in the organization BCM

Programme. In addition, policies provide the rationale for establishing the necessary infrastructure to support BCM on an ongoing basis.

2.4.2 Processes

These processes are set of activities with defined outcomes, deliverables and evaluation criteria to attain BCM policies on an ongoing basis. They include formal change control and documentation processes. For example, changes to keep the BC Plan current should be controlled and documented in a formal manner. In addition, BCM efforts go towards reducing the risks and their impacts on the operation processes in the organization. For example, the risk of disruption of raw material supply and its impact on production needs to be addressed as part of BCM.

2.4.3 People

Participation and the skill sets of participants in various BCM activities are crucial to the success of BCM in an organization. For example, a BCM steering committee comprising representatives from various business units and headed by a member of Executive Management should be established to oversee BCM efforts in the organization. In addition, BCM efforts go towards reducing the risks and their impacts on staff in the organization. For example, the health risk associated with handling of hazardous materials needs to be addressed as part of BCM.

2.4.4 Infrastructure

The organization should allocate resources to support critical business functions against risk events. This invariably requires a good understanding and application of available technology and equipment, and physical facilities to respond to risk occurrences. For example, installing a standby power generator and uninterrupted power supply (UPS) to ensure uninterrupted supply of power during electrical outage.

In addition, BCM efforts go towards reducing the risks and their impacts on physical organization infrastructure. For example, the impact of a risk occurrence on production equipment and facilities need to be addressed as part of BCM.

3. BCM Framework

Figure 3: The BCM Framework

The following Figure 1 summarizes the preceding BCM discussion in a matrix format. A matrix BCM framework allows potential gaps in an organization’s BCM efforts to be identified and located. For example, the implications of selecting a particular recovery strategy should be linked to the corresponding policies set forth by Executive Management. Implementation of the recovery strategy should be supported by corresponding infrastructure, training of recovery personnel and establishing the associated recovery processes.

Figure 3 presents each of the 6 BCM areas in a chronological sequence, from top to bottom, it should not be misconstrued that implementation of BCM should rigidly adhere to the same chronological sequence. In particular, for the BCM areas of Risk Analysis and Review and Business Impact Analysis, individual organizations may choose to alter the sequence.

4. PDCA Cycle

The standard adopted a process approach, the “Plan-Do-Check-Act” (PDCA) methodology. The figure below illustrates how a BCM system obtain inputs from the BCM requirements and expectations of stakeholders, through the PDCA and produces various risk management outcomes that aims to meet those requirements and expectations. Figure 4 is the PDCA diagram and Figure 5 is the description for each of the PDCA phases.

Figure 4: PDCA Methodology

Figure 5: Description of the PDCA phase

5. BCM as Corporate Governance and Risk Management

BCM is often related to Corporate Governance and Risk Management. There is a strong correlation between this two areas and it should be clear demarked to its relationship.

5.1 BCM as Part of Corporate Governance

Corporate governance has been variously defined. Specifically, pertaining to BCM, the following definitions of corporate governance provide a good link to what have been defined and discussed above, namely BC and BCM.

Corporate governance is the system by which business corporations are directed and controlled. It spells out the rules and procedures for making decisions on corporate affairs. It also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance can be defined narrowly as the relationship of a company to its shareholders.

In terms of the BCM framework above, the policies and procedures established in each of the 7 broad areas serve as rules and procedures to direct and control decision making for an organization’s BC efforts.

5.1.2 BCM as Part of Risk Management

Risks are inherently present in decisions and activities in organizations. Some of these risks could disrupt critical business functions and thereby business continuity. While the management of risk encompasses the whole spectrum ranging from risk identification, assessment, treatment, monitor and review, BCM focuses only on those risks that affect its BC interests and associated critical business functions supporting these interests. This is reflected in the two areas of the BCM framework, namely Risk Analysis and Review and Business Impact Analysis.

6. Conclusion

SS54:2008 is a Singapore Standard for Business Continuity Management (BCM) that is being embraced by both the international and local businesses operating within Singapore. This Singapore Standard and its BCM framework is highly rigorous in its coverage of the BCM areas. The 6 major BCM areas and also the four major BCM components form the BCM framework matrix which makes the SS540:2008 a comprehensive BCM standard.

7. References

[1] BCMpedia (2008). Definition of Business Continuity and Disaster Recovery Terminologies, http://www.bcmpedia.org
[2] BCM SS540 (2009). Singapore Standard for Business Continuity Management, http://www.ss540.org
[3] Goh, Moh Heng (2009): A Manger’s Guide to SS540 Singapore Standard for Business Continuity Management, 160 pages.
[4] Goh, Moh Heng (2008). Managing Your Business Continuity Planning Project, 2nd Edition, 166 pages.
[5] Goh, Moh Heng (2008): Conducting Your Impact Analysis for Business Continuity Planning, 130 pages.
[6] Goh, Moh Heng (2008): Analyzing & Reviewing the Risk for Business Continuity Planning, 162 pages.
[7] Goh, Moh Heng (2005): Developing Recovery Strategy for Your Business Continuity Plan, 104 pages.
[8] Goh, Moh Heng (2004): Implementing Your Business Continuity Plan, 104 pages.
[9] Goh, Moh Heng (2006): Testing & Exercising Your Business Continuity Plan, 2nd Edition, 160 pages.
[10] Goh, Moh Heng (2007): Managing & Sustaining Your Business Continuity Management Programme, 190 pages.
[11] Goh, Moh Heng (2006): Developing Your Pandemic Influenza Business Continuity Plan, 128 pages
[12] SPRING Singapore (2008): Singapore Standard for Business Continuity Management (SS540:2008)
[13] SPRING Singapore, (2005) Technical Reference for Business Continuity Management for Manufacturing,

The Author

Dr Goh Moh Heng is the President of BCM Institute and is regarded as one of the leading practitioner in the area of business continuity. Dr Goh is also the Managing Director of an Asia Pacific BCM consultancy firm. He hold a PhD and also been awarded the highest level of certification from the three major business continuity management institutes. Dr Goh and his team are instrumental in the development of the TR19:2005 and subsequently in the publishing of the SS540:2008. Besides the writing the two national standards, he had authored nine business continuity management books, created the first Wikipedia for BC and disaster recovery www.BCMpedia.org.

Dr Goh Moh Heng is the President of and is regarded as one of the leading practitioner in the area of business continuity. He hold a PhD and also been awarded the highest level of certification from the three major business continuity management institutes. He is the author of nine business continuity management books. Dr. Goh is instrumental in creating the first Wikipedia for BC www.BCMpedia.org. He can be contacted at moh_heng@bcm-institute.org.

21 Jan 2009