Abnormal weather disrupts performance of 70% of businesses worldwide.
In the Harvard Business Review, Risk Management article entitled “Severe Weather Threatens Businesses. It’s Time to Measure and Disclose the Risks,” authors Jean-Louis Bertrand and Miia Parnaudeau highlight how unexpected, abnormal weather events present a series of challenges, threats and risks to business operations, such as construction operations.
Accordingly, Bertrand and Parnaudeau cite research that “…abnormal weather disrupts the operating and financial performance of 70% of businesses worldwide.” Adverse weather can decrease cash flow, force financial distress, and cause business failure, particularly in the construction industry that operates on tight cash flows and thin profit margins.
Further, the aggregate cost of disruptions to business operations as a result of weather variability is $630 billion in the U.S. or 3.5% of GDP. However, as a critical caveat, the aggregate cost of disruptions to business operations addresses net impacts, adding impacts from positive weather opportunities and subtracting impacts from negative weather threats.
Small businesses, such as construction businesses, are particularly sensitive to weather events. The U.S. Small Business Administration (SBA) cites statistics about NAICS Sector 23: Construction, establishments engaged in construction of buildings or engineering projects (e.g., highways and utility systems), and in preparation of sites for new construction.
- General building and heavy construction: $36.5 million in average annual receipts
- Special trade contractors: $15.0 million in average annual receipts
- Land subdivision: $27.5 million in average annual receipts
- Dredging and surface cleanup activities: $27.5 million in average annual receipts
The term “abnormal weather” is the difference or delta between actual or observed weather and its “normal value” over time, generally calculated from a 30-year historical average for a given geographic location. However, with climate change, the frequency and intensity of abnormal weather patterns and events are dramatically increasing year after year.
Poor planning practices based on “averages” lead to bad outcomes. The “flaw of averages” states that plans based on assumptions about average conditions generally go wrong, as Sam Savage elucidates in the seminal read “The Flaw of Averages: Why We Underestimate Risk in the Face of Uncertainty,” about uncertainty and risk in business decision making.
More in the next blog series about weather controls and weather risk management for the construction industry and built environment…
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