Risk assessment - potential economic value

The EPS can be used as a quantitative tool for risk assessment in a range of commercial and humanitarian activities that are weather sensitive. The potential economic value of the EPS can be much higher than that of a forecasting system based on only a single deterministic forecast.

Different users will be more or less sensitive to adverse weather and so will benefit differently from weather forecasts. The figure shows an example of the potential economic value of forecasts to a range of users (represented along the horizontal axis). Value (which ranges between 0 for a forecast with no information to 1 for perfect forecasts) is higher for probabilistic predictions based on the EPS (red line) than for deterministic predictions based on the control forecast (blue line) or on the ensemble-mean forecast (green line). These results are for 5-day forecasts of heavy precipitation (more than 10 mm/day) over Europe for winter 1999-2000. Value is calculated using a simple cost-loss decision model.

More information can be found in the following ECMWF Newsletter articles:

Richardson, D. S. 1998: Obtaining economic value from the EPS ECMWF Newsletter 80, Summer 1998.

Buizza, R. 2001: Weather risk management with the ECMWF ensemble prediiction system. ECMWF Newsletter 92, Autumn 2001. (pdf file380kb)