Loss of power and communication, damages, and inadequate insurance coverage ended many small businesses in Hurricane Sandy’s wake.

Hurricane Sandy made landfall in northern New Jersey on October 29, 2012, and then traveled up the east coast, wreaking unimaginable devastation. Major cities were flooded, electric power was shut down, and tens of thousands of homes and businesses were damaged or destroyed. After the hurricane, it was time to assess the damage, listen to the tragic stories of human and property losses, question what could have been done to prevent the damage, and begin managing the crisis. For businesses, this meant finding a way to reopen as quickly as possible.

Thousands of businesses were impacted by Hurricane Sandy. Experiencing loss of power and water was a best-case scenario. The Staten Island restaurant Puglia by the Sea was completely swept into the ocean. In New York State alone, there was an estimated $6 billion of damage done to businesses. There is no doubt that business owners were taking stock of the damage and silently asking themselves, “What now?”

Hopefully, at least some of the business owners, particularly those with employees, had answers to that question because they had disaster recovery plans already in place. Unfortunately, many businesses fail to plan for a disaster, making the aftermath even worse.

Issues businesses face in the aftermath of a disaster like Hurricane Sandy extend beyond power outages or facilities damage. Businesses may have an inability to complete government or private contracts, experience a long term business interruption, have an inability to obtain supplies or materials, and lose critical employees when the business cannot operate. It is estimated that one out of four small businesses are unable to reopen after a disaster because they have no continuity plan to fall back on in the event of an emergency.

Continuity is the First Order of Business

Recovering from a major disaster is not easy. Just dealing with insurance companies can be tedious, especially when the insurance agent is overwhelmed with claims. Most businesses own multiple insurance policies, so each one must be managed. Usually, there is business owner’s insurance covering liability, equipment, and personal contents. Components of this type of insurance include crime insurance and business interruption insurance. Commercial property insurance covers loss or damage to business assets. Other types of insurance include data breach insurance, important to businesses managing private customer information and doing business on mobile devices; general liability protecting against injury or property damage and employee causes; and professional liability insurance, covering client lawsuits. Business interruption insurance can continue to pay employees up to a year after the disruption.

After any disaster, chaos can be the order of business for many weeks. If the employer has business interruption insurance, it will pay for the ongoing expenses, like rent and payroll that cannot be covered due to business damage or power outages.

When businesses are disrupted, so are lives, as employees find themselves without jobs. The business has two concerns: the potential loss of talented staff to other employers, and the emotional distress employees experience even if their jobs are intact. The staff is likely to have issues at home as a result of the disaster, and management needs to communicate with employees about their concerns. People under stress are less productive and more error-prone, which can cause further harm to a business, even if able to reopen. To prevent the loss of trained staff, some businesses are able to temporarily send them to work at other business locations, even if on a reduced work schedule. Some of the more creative approaches included businesses shuttling employees back and forth to work until public transportation options are available again, providing taxi service on a temporary basis, and utilizing “just-in-time” arrangements.

Making Sure an Energy Crisis is Not in the Making

One of the most difficult aspects of a crisis to deal with is the loss of utilities. Crisis management is certainly simplified if power is restored. In the days following Hurricane Sandy, businesses lost electricity, cell phone communication (since the towers were damaged and without power), and internet access. Supply chains were also impacted by the loss of power and communication.

Well-prepared business owners had backup power sources that enabled them to continue operating for at least several days, which in most cases is long enough to have power restored. (However, in the case of Hurricane Sandy, power was lost for several weeks.) The sophistication of the backup power source usually depends on the type and size of the business. For example, a hospital or manufacturing plant may have a large back-up generator system and uninterruptable power systems that protect equipment from damage during power surges and loss.

Disasters lead to discussions on how to minimize losses from business interruptions because even short outages are estimated to cost U.S. businesses $5 billion in damages annually. A topic gaining momentum in crises is the smart grid and renewable power services. A business that can go off-grid as necessary does not have to rely on the energy company for an uninterrupted electric power. For example, solar energy systems with integrated batteries can be connected to the electric grid. When electric power is disrupted, the solar energy system provides reliable power. Other systems include solar photovoltaics (PV), concentrating solar power (CSP) systems, and wind energy systems.

Turning a Crisis into Triumph?

No matter where a disaster occurs, it should trigger a business review of the disaster recovery plan to ensure there are plans in place to keep a business operating during a power outage. The specific plan will depend on the location, size of the business, and available technologies. The local energy company will work with any sized business to create a plan. Businesses that must rebuild due to extensive damage from a natural disaster are in an ideal situation to add a backup power or renewable energy power source and turn a disaster into a triumph. Managing a crisis before the crisis happens by having adequate insurance, an alternative staffing plan, and a backup power source. This can mean the difference between continuity and shutting down the business for good.