Must Climate Risk Assessment be Prohibitively Expensive?
We often speak with folks who believe that assessing their climate risk will be prohibitively expensive. As a result, they don’t act. Unfortunately, for most organizations, inaction leaves them exposed to potentially devastating climate events and in some cases missed strategic opportunities. We believe that not knowing does not make the risk go away. Uncertainty about outcomes is in itself risk. Unidentified and unaddressed risk can seriously harm an organization.
At the same time, we know that an in-depth and wide-ranging climate risk assessment can be expensive. Such full bore assessments can cost well over $100,000. We have seen consulting and data fees exceed $200,000. Even for a large organization, this can be a large chunk to swallow. Consequently, organizations vigorously debate the decision to do an assessment. It can often take several budget cycles to get approval, if ever.
But, does it have to be that way?
We believe in a phased approach to climate risk assessment that focusses on cost-effectiveness. An organization can promote this strategy by developing explicit expectations for the work and ensuring that contracted services directly address those specific requirements. While this seems obvious, organizations often miss this step. Staff preparing requests for proposals may have no clear sense of what their leadership is expecting. Management expectations should go well beyond merely wanting an assessment to help establish their direction in the first place. Lack of clarity often leads to scope creep, mounting costs, and potential friction between the consulting team and the client.
With this in mind, the first step in controlling risk assessment costs is establishing clear, measurable, objectives to guide the organization’s climate resiliency program. What do you hope to achieve? Goals vary from organization to organization. In the process, the organization must examine their risk tolerance, as that will focus the work. How much risk can your organization accept from any single climate event? If possible, the organization should quantify tolerance in dollar terms, and wherever possible, should also identify the level of social impact that the organization finds unacceptable. Answering these questions requires some organizational soul-searching.
Often, during assessments, when probed about their organization’s risk criteria, the staff ask the consultants to define risk tolerance thresholds for the organization. This request is challenging for a consulting team, as the organizational culture should determine risk tolerance. Culture varies significantly from organization to organization. Ultimately, when left to the consultant, the assessment provides only the consultant’s judgment of acceptable and unacceptable risk, not that of the organization. While the consulting team may address such gaps can through staff engagement, using billable hours to mine this information from the organization during an ongoing assessment is both time consuming and potentially expensive.
The most significant step to control climate risk assessment costs is establishing organizational objectives and criteria that guide the process, before hiring a consultant to execute an assessment.
With clear climate resiliency and risk objectives defined, the organization can tailor and focus the risk assessment to further organizational goals. At this point, the organization can save costs by limiting the evaluation to focus only on the specific issues and objectives of the program. The consultant can offer a package that targets those clear criteria. Consequently, they will be less inclined to add a contingency budget to the project to cover unexpected questions or new directions from the company.
Often, at least in the early stages of a climate residency program, there is no need to conduct a comprehensive assessment. Detailed work often requires extensive research and specialized climate data development. This work is labour intensive and potentially very expensive. Better, the organization should plan to phase the job, doing high-level screening first, identifying potentially dangerous climate exposures, and only then applying resources for research and data development for those specific problem areas. The organization can classify problem areas by comparing the high-level results with their climate risk objectives and criteria. By definition, a risk is a problem for the organization when it pushes toward the organization’s risk tolerance thresholds. If not, action can be deferred, yielding significant cost savings.
Once the high-level assessment identifies problem areas, the organization can opt to conduct comprehensive analyses of those specific issues. This approach focusses corporate resources on the particular problems that trigger risk tolerance thresholds and objectives. Rather than spreading dollars over a wide range of concerns, most of which are not severe, the organization can apply resources where there are potentially significant issues.
Scan, Scan, Scan
With concrete climate resiliency objectives and a phased approach, an organization can allocate most resources on those specific issues that can cause the most significant problems. Ultimately, with the help of the assessment team, and in consultation with key internal stakeholders, you will be positioned to identify corrective actions. Even better, along the way organizations often flesh out ways to capitalize on opportunities to improve overall organizational success. The process draws on the active engagement of decision-makers who usually ensure that the risk criteria fully align with their overall business strategy.
Even so, things change over time, and more detailed work can often uncover issues and opportunities that preliminary, high-level, scanning overlooked. With this in mind, the organization must continually scan their risk environment in light of the new data. They should consider this scanning part of the assessment process, as the work delves deeper into problem areas. How do the new findings affect our previous observations and decisions? These checks can help identify and prevent adverse outcomes.
It’s a Process
Once the organization addresses their risk issues, they complete the first round of their climate resiliency program. In many cases, organizations finish their assessment work, and may even take concrete action to mitigate their risks, and then close the file. They believe that everything is now under control. Unfortunately, uncertainty drives risk, and the future is always uncertain. With this in mind, it is worthwhile to consider the climate resiliency program to be a cycle. Once every few years, the organization should contemplate ongoing assessment work, at least at a screening level. Consider:
- How have things changed?
- Do we have new data?
- Have we experienced events that could drive us to reconsider our risk thresholds and objectives?
This review need
Ultimately, climate resiliency should be viewed as a continuous improvement cycle, setting objectives, taking action, monitoring progress, and then revisiting goals on a planned schedule. This is the surest way to control climate assessment costs.
We are Here to Help
We have many years of experience setting up and managing climate assessment processes. We can help you identify your climate risk tolerances and prepare a planned and cost-effective program to manage your risk.
Feel free to contact us to discuss your climate resiliency needs.
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