A mother begins packing drinks into a bag for her toddler son and school-aged daughter. They have an outing planned today. Spring vacation has just begun, and the family is planning a trip to a Zoological Park. She turns on the television to watch the local news only to discover that a cold front has started its descent into the city where the park is located. Temperatures will continue to drop steadily in the next several hours making any outdoor activities unpleasant, especially with a toddler. The mother abandons her plans to head to the zoo, and instead, the family makes a trip to the local children’s museum. This scenario describes millions of families in thousands of cities on numerous days throughout the year. On fair sunshiny days they head outdoors to educational venues like zoos. For days that are less than pleasant, choices are made to stay indoors.
Zoological Parks rely heavily on weather conditions, the ups and downs of a forecast are critical components of day-to-day operational decisions and financial outcomes. Beyond the good weather/bad weather scenario, the steady increase of unusual weather events has become detrimental to operations and meeting budgeted goals. Believing that these weather events must be endured with little hope of finding a stopgap is a common misconception. Mitigating the financial impact of current climate and weather conditions is possible by adopting a weather risk management plan.
Weather risk management plans are actions taken to protect against potential losses (caused by a shortfall in revenue, an increase in expenses, or both) due to adverse weather. When creating a weather risk management plan one solution is to use weather insurance. Negative weather events or patterns can be mitigated by insuring multiple perils such as: excessive rainfall, seasonal weather, e.g. temperature highs and lows, wind, lightning, or even cancellation. Further, weather insurance can be tailored to a client’s needs, thus solidifying a zoological park’s plan to help to reduce unnecessary financial losses and stabilize income that fluctuates dramatically when adverse weather conditions strike.
ZOO’s Weather Risk Management Plan
To introduce the conceptual idea of weather risk management planning, a factual account of an unnamed zoological park referred to simply as ZOO is presented. Data sourced from the park’s records indicated that weather significantly impacted daily attendance. Temperature highs and lows had direct correlation with lower-levels of attendance, while moderate weather conditions correlated with high attendance levels. This discovery demonstrated that non-optimal weather days, when conditions fall above or below specified temperatures, resulted in a significant decline in attendance (and a related reduction in concession sales).
ZOO is in the eastern portion of the United States and has a diverse animal population. It is located near a major metropolis. Attendees enjoy the many miles of walking trails and numerous exhibits
ZOO completed several capital improvements over the previous year. As a result, the park needed to reach higher than average revenue levels to recover these expenditures during the following operational year. As previously indicated, during non-optimal days there was a very notable reduction in attendance and concession spending. To expand on this data, ZOO determined the approximate cost to the park in terms of lost revenue for each non-optimal day it encountered over the course of its seasonal cycle. (This was determined through analysis of the average revenue per patron and attendance volumes lost to non-optimal days.) A season with an abnormal increase of non-optimal days could adversely affect ZOO’s budgeted goal to cover the capital improvement project, which would result in future projects being delayed.
The advantages of using a variety of weather risk management products were introduced to ZOO through a team of meteorologists and weather index insurance professionals. Through this relationship the park was able to identify seasonal and date specific risks and insure against them. A baseline of non-optimal days ZOO could afford to experience over the course of its operating season was determined first. In this particular case the park sought to avoid financial paralysis by using a product that compensated for a large number of non-optimal days, but still chose to bear some portion of risk during the season. This allowed for income stabilization and diversion of loss previously associated with significant amounts of adverse weather. Using this approach, ZOO was able to economically protect against major shortfalls in revenue that could result from an abnormally high number of non-optimal days during its operating season.
Additionally, ZOO’s data indicated that the park had its highest attendance days during several holiday weekends. The most significant weather risk associated with these days was determined to be excessive precipitation in the early morning hours as patrons made the decision of whether or not to visit the park that day. In this case, the park was unwilling to bear any of the risk associated with a rainy morning during these holiday weekends given the potential impact on attendance during those critical days. With this approach ZOO was able to mitigate the impact of adverse weather during this critical holiday period.
Weather is unpredictable. Now, more than ever that statement is true. Most zoological parks are heavily dependent upon attendance to drive revenue and this reliance makes them extremely vulnerable to weather events and climate conditions. Mitigating these impacts is the essence of what a weather risk management plan is designed to accomplish, and allows zoological parks to stop worrying about the impact of adverse weather on operational results. Further, the specialized nature of weather risk management allows for customized solutions to be developed for unique weather risks associated with any location. Product coverage can include the full operating season, a period as short as a few days, or a single event. With a weather risk management plan in place, a zoological park would have an increased ability to reach annual budgeted goals even if unpredictable adverse weather caused attendance to drop. While weather impact cannot be completely avoided, through a well-designed and highly-specific plan the impact can be lessened and losses avoided.