What Is Impact Analysis? 3 Types of Impact Analysis Methods

An impact analysis (also known as change impact analysis) is a step-by-step process for determining the potential positive and negative consequences of a business decision. A company may also conduct an impact analysis to determine how they would respond to an unplanned disruptive event, such as a loss of data, a breakdown in the supply chain, or a natural disaster. Identifying the potential implications of a decision or change helps [business leaders](https://www.masterclass.com/articles/leadership-theories) make informed decisions and enact contingency plans should problems arise. In addition, it allows companies to consider modifications that could improve the quality of the decision. In practice, an impact analysis is a detailed study of business activities that can reveal how a disruptive event could impact products and services. This knowledge can prepare business leaders to make proactive changes to yield better results. Conducting an impact analysis is standard in the field of software development. Due to the complexity of software products, a single change to the software could initiate a potentially devastating domino effect, rendering the software unusable. Before making a change to the software, engineers perform an impact analysis to estimate any potential pitfalls of their decisions. Although an impact analysis is standard in software engineering, businesses can apply its principles and practices to many environments. There are three primary methodologies for assessing the impact of changes on the functioning of a business, product, or process. 1. __Traceability impact analysis__: Traceability analysis is a common component in software development used to discover the links between different product components. This type of analysis prioritizes consistency, ensuring that all the elements of a change align with each other, and meet all requirements. For example, suppose a software development team wants to change a software application’s functionality. In this case, the change they want to make enables users to click a line of text to reveal a drop-down menu. Before initiating this change, the team could run a traceability impact analysis to ensure that the decision does not cause a disruption to the product or interfere with other design elements. Teams often rely on software programs to run this analysis since manually performing this process is time-consuming. 2. __Dependency impact analysis__: In contrast to traceability impact analysis, this method of analysis studies dependencies—the effects a change could have on an entire system. For example, a company considering changing its distribution could run a dependency analysis to study whether the change would interfere with supply chain operations. 3. __Experimental impact analysis__: Experimental impact analysis looks at the effects of past disruptions to predict the impact of future changes. Following this method, a company analyzes historical data to see how certain decisions caused problems in the past, effectively planning for the potential problems of a future decision. There are several notable reasons why teams weighing a significant decision should perform an impact analysis. - __Minimizes loss__: Impact analysis is a form of [risk management](https://www.masterclass.com/articles/risk-management)—it helps teams mitigate potential losses due to significant changes within an organization, process, or product. - __Prepares for problems__: Knowing that problems could arise is not always a reason to refrain from making a change. However, this analysis does help businesses prepare for tackling potential problems should they occur. - __Encourages team buy-in__: Significant changes in a business environment can disrupt team harmony. Impact analysis allows team members to come together to assess the impact of a change and plan for its implementation. Follow these steps to conduct a comprehensive business impact analysis. 1. __Gather a team__. Prepare for the process by gathering [key stakeholders](https://www.masterclass.com/articles/stakeholder-explained) privy to all the information regarding the proposed change, including project managers, product managers, software engineers, developers, designers, or senior management. The exact makeup of the team will depend mainly on the proposed change and the type of company, but consider the different types of impact a change or business disruption could have and involve relevant team members. 2. __Brainstorm__: Consider the proposed change, then think about which areas of business operations it could affect. For example, consider how the change may impact the company’s business strategy , sales and marketing goals, and internal business processes. List all possible workstreams that the change may affect. Gather information by getting input from department heads or having project team members answer questionnaires. 3. __Evaluate__: Once you’ve gathered all the relevant information, identify the benefits and consequences of the proposed changes. If you’re conducting an impact analysis of potential unplanned disruptions such as a power outage or software malfunction, collect information on how this would affect output and possible downtimes and evaluate mitigation and recovery strategies. Unlike a [risk assessment plan](https://www.masterclass.com/articles/risk-management), an impact analysis report of this kind should focus on specific breakdowns and not general unplanned disruptions like natural disasters and regulatory changes. 4. __Report findings__: Report the findings of the potential impact of changes in an impact analysis report. Present the findings using an analysis model, such as a decision tree or influence diagram. Presenting a visual representation of the findings helps team members visualize the total impact of the proposed change. 5. __Make adjustments__: Based on the report’s findings, make adjustments to the proposed change. Adjustments can include contingency plans in case any of the estimated problems occur. 6. __Implement the change__: Finally, your team is ready to make the proposed change. Monitor the performance of the change and prepare to intervene if problems arise. Get the [MasterClass Annual Membership](https://www.masterclass.com/) for exclusive access to video lessons taught by business luminaries, including Sara Blakely, Chris Voss, Robin Roberts, Bob Iger, Howard Schultz, Anna Wintour, and more. When inadequately thought through, business decisions can have potentially catastrophic consequences. Conducting an impact analysis enables business leaders to analyze the possible effects of a decision before implementing a big change.