Climate change will have drastic affects felt around the globe, and has already made its mark in many areas–in Australia, the estimated gross domestic product was reduced by 0.5 per cent due to the Queensland floods of 2010–11, and the Victorian bushfires of 2009 (commonly referred to as ‘Black Saturday’) cost more than $4 billion and resulted in the deaths of 173 people.
The Australian Government is looking to mitigate these kinds of outcomes from extreme weather events, and focused their attention on the Narrabeen Lagoon – located in the northern suburbs of Sydney, Australia – which is already subject to flooding. When the Narrabeen lagoon’s entrance is blocked, it can fill like a bathtub, thus flooding the surrounding land and houses. Because climate change is expected to increase flooding in the Narrabeen catchment over the coming century, decision makers needed a clearer understanding of the different possible adaptation measures.
The Australian Department of Climate Change commissioned AECOM, a professional technical and management support company, to evaluate the risk and costs of climate-change-related flooding of the Narrabeen Lagoon. Using @RISK to run Monte Carlo simulation and optimization techniques on their analysis, AECOM was able to estimate the social benefits of adaptation to climate change in terms of willingness to pay, rather than just costs avoided. Thanks to @RISK, they generated more realistic probabilities of overall costs and benefits, and modeling the expected future values of variables such as rainfall.
“The benefit of this approach is that it avoids the opportunity cost of early or no investment, while empowering decision makers to determine the options (i.e. pathways) that are the most suitable for adapting to climate change at a given point in time,” says Robert Kinghorn, who previously worked on the project as economists at AECOM.
Read the full case study here.
IT Business Edge, on online business publication recently published a piece by Palisade Vice President Randy Heffernan titled “Using Monte Carlo Simulations for Disaster Preparedness,” a slideshow featuring key tips on how to apply this statistical method to planning for extreme weather events.
As the article states, “the U.S. National Research Council recently suggested the necessity of a “national vision” that will take precautionary, rather than reactionary, approaches to flooding, particularly in the Atlantic and Gulf coasts, where water has reached flood levels an average of 20 days per year since 2001.”
As an expert in quantitative risk analysis, Heffernan had some tips for handling the key problems businesses face around climate change risk planning, including:
Fundamentally, all these tips are anchored by the application of Monte Carlo simulation, which, the article explains, “performs risk analysis by building models of possible results by substituting a range of values — a probability distribution — for any factor that has inherent uncertainty. It then calculates results over and over using a different set of random values from the probability functions.”
Want to make sure your business is better prepared for extreme weather? Check out the full article here, and check out @RISK, the Monte Carlo simulation software that makes planning for climate change events possible.
Randy Heffernan, Palisade’s Vice President, wrote a recently featured piece in the Risk Management Monitor discussing the looming risks of climate change. The piece, titled ‘Analyzing the Real Costs of Climate Change’ details how businesses and organizations are in for serious changes in the coming decades thanks to increasingly unpredictable weather patterns.
Heffernan references a report published earlier this year, “Risky Business: The Economic Risks of Climate Change in the United States,” which was co-chaired by business experts Michael R. Bloomberg, Henry Paulson and Tom Steyer and which quantifies and publicizes the economic risks posed by a changing climate.
“Are companies prepared for skyrocketing energy costs to combat extreme heat? Can farmers handle average crop losses of up to 73%? Should businesses invest in oceanfront property that is virtually guaranteed to flood?,” Heffernan asks in his piece.
Some organizations are preparing themselves. The Australian Federal Government hired AECOM, a professional technical and management support company, to run Monte Carlo simulation-based evaluations on flooding risk in populated areas, such as the Narabeen lagoon, near Sydney. “Because climate change is expected to increase flooding in the Narrabeen catchment over the coming century, decision-makers needed a clearer understanding of the different possible adaptation measures,” Heffernan says.
He goes on to say, “While many companies may be resistant to change, the [Risky Business] report makes an undeniable case; we cannot afford to ignore the momentous climate risks that threaten our near- and long-term future.”