Preparing for extreme weather events

Abnormal weather is the difference between observed weather and its normal value, which is typically calculated using the 30-year average. Extreme events can have a highly significant influence on business performance and resource planning today, both positively and negatively, affecting production, supply, demand and operations across all sectors of the economy. In recent years organisations in the fields of energy, water, telecoms, transport, retail, leisure and agriculture have all been affected in a variety of ways.

Abnormal weather patterns offer a unique form of disruption for companies. They can last for several days, weeks or even months, and prolonged periods of disruption can lead to financial distress, triggering shortfalls in sales, store closures and even job cuts. In some instances, complete business failure is the only outcome, with small businesses often paying the highest price.

Thanks to climate change, the frequency and intensity of abnormal weather patterns have increased too, with a shift to warmer temperatures only set to further the threats. Financial losses caused by adverse weather that didn’t seem material enough for companies to concern themselves with 10 years ago, are now examined and managed by weather-based financial instruments that seek to cover the risk to which businesses are exposed. 

As Britain’s weather becomes more variable, and events such as extreme flooding are experienced by communities up and down the country, many companies are right to question how to best prepare and respond.

Failure to plan

In a 2018 report, the House of Commons Environmental Audit Committee observed that continuity plans were vital to help businesses avoid "significant economic losses" during extreme weather events. Findings from the investigation concluded that firms are still largely unprepared, with the majority of organisations only choosing to take action once a severe weather event has occurred.

The European Economic Area also records that, over the period 1980 - 2017, total reported economic losses caused by weather and climate-related extremes in the member countries amounted to approximately EUR 453 billion, with around 63% of all economic losses were a result of meteorological and hydrological events.

Natural disasters and resulting power failures are particularly disruptive due to their tendency to produce the longest down times. This is due to the fact that these events tend to generate an impact on a wide variety of systems, which can spread over an entire regional footprint. They are also notoriously difficult to predict and can create disruption in the blink of an eye. Last year, for example, a bolt of lightning suddenly struck a power line in Cambridgeshire, leaving over a million homes without power and knocked out trains, a hospital and an airport.

Organisations must review assumptions about the risks they face because of their direct influence on both organisational resilience and the bottom line. Key to deciding how to move forward is making an accurate assessment of the level of risk a business is willing to accept, and taking a multi-tiered approach to assess and plan for a range of threats.

Advice for organisations to consider today

To best address extreme weather events, companies should consider the following:

• Get a good weather forecast. The quality and range of forecasts has improved markedly in recent years.
• Evaluate how to react to a disruption of this nature – organisations should look at completing an assessment of business impact, risk and overall resilience.
• Ensure ICT is robust yet agile – businesses must ensure an ICT service continuity plan is in place, and that it extends to disaster recovery scenarios.
• Prepare operations for action accordingly – this should consider business continuity processes, security  training and awareness processes for staff at all levels of the business, and vendor/supplier risk management too.
• Develop crisis leadership competencies within the executive team – this can include training, executive coaching and coached crisis scenarios.
• Foster a mutually supportive network of suppliers and stakeholders – examine market-wide crisis exercises and identify best practice. Also assess supply chain resilience.

A growing trend

Environmental risks have grown in prominence over the last decade and we can expect this trend to continue. Findings from the World Economic Forum’s 2019 Global Risks Report send a clear message to companies, with extreme weather events, natural disasters and climate change all highlighted as top concerns.

As tempting as it might be to think “that’ll never happen to us”, understanding and investing in a business continuity plan, and business interruption insurance can greatly support recovery. The latter can be an invaluable safeguard for a business, for example allowing for the reimbursement of ongoing expenses and lost gross profit while a permanent business location is being repaired.

Disasters can happen when least expected. Companies might not be able to prevent the storm, but they can take steps to handle the situation and keep operations up and IT services running with minimal disruption. This is what the most resilient companies do, and it’s why they’ve stayed afloat while others have not.

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