A huge variety of businesses can suffer poor sales because of variations in the weather, with sectors such as agriculture, gas and electricity, and tourism and leisure especially affected.

However, in many cases the correlation between weather conditions and business results can be accurately modelled, and hedges in the form of insurance and derivatives have become more available.

Given these improvements in risk management, blaming the weather for poor results is becoming less and less credible.

Critical questions you need to consider

• Do you suspect that your business results are linked to variations in weather – and has any research into this been carried out within your organisation?
• In the absence of precisely quantifying the risk, are you aware that it is easy to blame the wrong form of weather (i.e. temperature rather than snowfall or sunshine hours) for poor results?
• Do you know that modelling and risk quantification can add value by improving your internal budgeting – helping you allocate capital to areas of highest return?
• Are you aware of the various hedging instruments available – from traditional insurance to the latest type of derivatives?