Companies affected by the weather have to make operational decisions based on forecasts of what may happen. For example, research reveals thresholds in outdoor temperature, above which the demand for soft drinks rises sharply. If retailers are aware of predicted temperature changes, they can prepare to meet this demand by purchasing more drinks in advance.
But current weather forecasts are not reliable enough, and businesses cannot be certain how precise they are. When a company’s success depends on whether it will rain or shine, it requires greater confidence in the decisions it makes and in the impact of weather predictions upon those decisions.
The Smith Institute helped companies to use the mathematics of weather predictions to make critical decisions about how they run their businesses for maximum performance.
Working with the London School of Economics, the Smith Institute is helping to introduce NAPSTER, a more accurate way to assess the impact of weather changes upon a company’s business. It combines multiple weather predictions with information about how individual companies run their business. While basic weather forecasts offer a variety of forecast weather variables (such as temperature, pressure, wind and precipitation), the addition of company information means the system can also produce a spread of possible outcomes, specific to each organisation. This allows companies to determine the best decision based on their own organisational practices, considering the variations likely in the coming weather.
The system works. Research at the London School of Economics has shown that Cal ISO - a US electricity grid system operator - would have saved $15m during the summer of 2002 had they used this method of forecasting.
Our work with LSE and the Smith Institute has helped us consider the true value of a spread of weather prediction. It has allowed us to evaluate new ways of using this data to forecast energy demands. EDF Energy projects underway in this area are expected to deliver substantial financial benefits and significantly reduce our risk.Dave ParkerEDF Energy’s Head of forecasting