Assuring the validity of a proposed Initiative

The vulnerability assessment process indicates how existing and future development in the county could be damaged by a disaster. As indicated in Step Three, the process also enables the Working Group to determine the specific types of structural and non-structural initiatives that could avoid or lessen these damages. Nevertheless, in order to have confidence that these initiatives are a valid approach to achieving this objective, the Working Group should compare the benefits gained from an initiative with the costs for its implementation and maintenance in future years. This process is based on determining the estimated "benefit to cost" ratio for the initiative.

Fundamentally, if it can be shown that a proposed initiative will provide more benefits to the community than it costs to implement and maintain the Working Group can be confident that the initiative should be considered for incorporation into the strategy.

The level of analysis needed for strategy development

Step Three noted that it was important for the Working Group to assure that the level of detail in the investigation of the vulnerabilities of the facilities, systems and neighborhoods of concern was appropriate for the level of planning represented by the Local Mitigation Strategy. The same caution is applicable to the development of information and analyses to justify a proposed mitigation initiative, and specifically to estimating the benefit to cost ratio. At this point in the planning process, it is only necessary for the Working Group to have a adequate level of confidence that an initiative is "worth implementing," in that it will probably create more benefits than costs. A preliminary estimate of the benefit to cost ratio will provide this level of confidence so that the Working Group can determine if incorporation of the initiative into its strategy is warranted. In this case, the Working Group should consider this preliminary benefit to cost ratio as another filter or funnel to focus the initial edition of the Local Mitigation Strategy on the most needed and worthy projects. A more detailed analysis for justifying an individual mitigation initiative will come at a later point.

As a Local Mitigation Strategy is adopted and implemented, the Working Group or others may begin preparing funding applications for specific initiatives. It can be expected that funding will originate from several different federal, state, local, and private agencies and organizations. Each is likely to have its own application process, information needs, and analytical requirements. Most will require, in some form or another, the assurance that the project is worth funding. The basis of this assurance will be the benefit to cost ratio, and each funding organization may have differing requirements for the how the ratio or other economic justification is calculated. These requirements can be addressed during the specific application process.

Using a consistent approach in the analysis

As noted in Step Three, there will be several sources for the origin of proposed mitigation initiatives, and the findings of the hazard identification and vulnerability assessment process will be instrumental in their justification. Proposed structural and non-structural initiatives will originate directly from the vulnerability assessment process, the guiding principles analysis, or from past experience or sources of information. Regardless of the origin of an initiative, the Working Group should apply a consistent approach to the definition and characterization of an initiative. Whether a structural or non-structural initiative is proposed, a consistent approach will assure that there will be adequate information and analysis to assure that adequate information will be available to support subsequent decision-making and that all proposed initiatives can be equitably assessed and prioritized.

Defining the benefits and costs of an initiative

One of the important considerations in developing the benefit to cost ratio for a mitigation initiative is the definition of what the "benefit" of an initiative would be and what it would "cost" to implement and maintain. There are many specific definitions for the benefits and costs of a specific mitigation initiative, and the benefit to cost ratio can be derived in processes that vary from relatively straightforward to highly complex. The Working Group should select an approach that is suitable for its purposes and can be consistently applied to the analysis of all proposed mitigation initiatives.

Defining the cost or cost impact of an initiative

In estimating the "cost" of an initiative under consideration for the Local Mitigation Strategy, the Working Group will want to define two general factors to be considered. The first is the economic costs that are necessary to design, develop, implement and maintain an initiative over its useful life. This category of cost will be a consideration in all types of structural mitigation initiatives, as well as certain types of non-structural initiatives, such as development and implementation of educational programs. The costs will vary widely, of course, depending on the characteristics of the initiative, from reasonably small, such as for development of public information materials, to substantial, such as for construction-related projects.

The second factor that will need to be defined by the Working Group will be the potential that implementation and maintenance of an initiative will have a "cost impact" on all or portions of the community. A significant "cost impact" will not necessarily be a feature of all mitigation initiatives, but should be considered as a probable result of some initiatives, predominately non-structural initiatives to change codes and other requirements. For example, the promulgation of a change to land development requirements, mandating developers to incorporate specific mitigation features into future developments, may result in increased costs for the buildings and/or infrastructures being planned. Or, placing an initiative into the strategy that require building owners in hazard areas to retrofit facilities may not cost local government a significant amount to implement, but could cost the owners a substantial amount. Understanding and accounting for the cost impact of a proposal may be the key to its successful incorporation in the strategy, as well as its eventual implementation.

Once a specific mitigation initiative has been proposed for the strategy, it will be possible for the Working Group to develop an estimate of its cost and/or cost impact. In most cases, this can be best accomplished by a cooperative effort between the Working Group and the individual(s) or organization(s) most likely to be the sponsor of the proposed initiative, using a consistent definition for the term and approach to its calculation.

There may be costs involved in a proposed initiative that may be difficult to quantify, but must be considered by Working Group. Some structural initiatives, e.g., drainage projects, may have environmental costs or potentially damage or change a valuable cultural resource, such as a historic or archaeological site. These types of qualitative costs can be considered in the Working Group’s approach to prioritization of projects, which is described in Step Five.

Defining the benefit of an initiative

The "benefit" of an initiative can be considered the human, economic, and environmental costs of future disasters that the initiative would avoid or minimize. Basically the "benefit" of the initiative is the "costs avoided" over its useful life. There are many direct and indirect benefits or "costs avoided" that should be considered in evaluating a proposed mitigation initiative. These include both direct economic costs, such as the cost of replacing damaged property, and indirect economic costs, such as revenue lost due to the inability to operate a facility or system.

In addition to economic costs, there are also potential human and environmental costs that need to be considered for some types of initiatives. Clearly, some mitigation initiatives originating from the vulnerability assessment process will be intended to reduce fatalities and injuries to the people at risk. While these benefits are very difficult to quantify in economic terms, they need to be considered by the Working Group in a methodical and objective manner.

Similarly, mitigation initiatives may originate from the vulnerability assessment process to protect important environmental or historic resources, whose value to the community also cannot be readily measured in economic terms. Nevertheless, the Working Group needs to develop an approach to including these benefits of an initiative as it considers it for incorporation into a strategy and prioritization for implementation.

Comparing the economic costs and benefits

In order to determine if the benefits of a proposed initiative are likely to outweigh the costs (and/or cost impact of its implementation), it will be necessary to have a common basis for comparison, e.g., to be comparing "apples to apples" to the extent that it is feasible to do so. Several steps are needed for this comparison, and they are explained in this section.

It is important for a Working Group to utilize an appropriate level of detail for the analysis, recognizing that the strategy is a planning document, and later implementation of the initiatives included will allow a more detailed assessment of each. Sophisticated analyses¹ could be applied to each project at this point, although a Working Group may find it helpful to base the benefit to cost analysis on a more straightforward methodology.

One approach to comparing the economic costs to the benefits of a proposed initiative is to estimate them both in terms of annual dollar value. For the development of the mitigation strategy, this can easily be accomplished by using estimates and assumptions based on the knowledge of the individuals participating in the process.

Estimating the annual cost or cost impact

The annual cost or cost impact of a proposal can be calculated by developing an estimate for its initial development and implementation, as well as its total costs for operations and maintenance over its useful life. This total is divided by the useful life of the initiative to derive the annualized costs.

Some assumptions will be needed regarding both the cost and/or cost impact figures, as well as the expected life of the project. The Working Group will probably want to establish a suitable range, in years, for the anticipated life of different types of mitigation initiatives.

TYPE OF INITIATIVE	USEFUL LIFETIME	COMMENTS
Levees and other major flood control projects	100 years
Acquisitions or relocations of property at risk	Unlimited	For benefit-cost calculations, 100 years is commonly used because benefits received beyond 100 years have negligible present value
Public building or infrastructure projects	50 years
Residential, office, or commercial building projects	30 years
Equipment purchases	5 to 30 years	Depends on the type of equipment. (e.g., computers have short lifetimes, while heavy-duty equipment may have a 30-year lifetime.)
Taken from: "Technical Overview: The Benefit-Cost Model" HOW TO DETERMINE COST-EFFECTIVENESS OF HAZARD MITIGATION PROJECTS. Mitigation Directorate, Federal Emergency Management Agency, December 1996.

While some types of initiatives, especially those involving construction or purchase of equipment, have widely accepted expectations for their life span, others, such as training and education programs, plan and code enhancements, etc. do not. By establishing a guideline for assumptions regarding the acceptable estimated lifetime for different types of initiatives, the organization proposing an initiative will be able to make the calculation of the estimated annual cost or cost impact.

The Working Group could establish this guidance in a variety of ways. The assumptions to be utilized should be consistent with the unique needs of the county, the budgetary needs of local government jurisdictions and/or other project sponsors, or its overall approach to processing proposed mitigation initiatives.

Guidelines for estimating the costs of a proposed initiative should be reflected in the Working Group’s procedures to enable all participants to be aware of them and to incorporate them into their own analysis. With a commonly accepted approach to the assumptions involved in setting the life span of initiatives, all participants in the planning process will be able to consistently evaluate the benefit to cost ratio of their proposals.

Estimating the benefits of a proposed initiative

The benefits of a mitigation initiative are basically the human, economic, and environmental costs that will be avoided when the next disaster impacts the community. As is necessary with estimating the annual costs of a mitigation initiative, a number of estimates and assumptions regarding the benefits of an initiative will be needed. An approach to making these estimates and assumptions is to undertake a brief "consequence analysis" of a disaster’s impacts if the initiative were not implemented.

Making assumptions

While consequence analyses can be very sophisticated and time-consuming to conduct, a simple approach, based on a set of reasonable assumptions, should be effective for the Working Group. A simple consequence analysis can provide a reasonable technical basis to either justify the initiative for purposes of including it in the Local Mitigation Strategy, or for eliminating it from further consideration. When the time comes to seek funding for an initiative, or to begin its design and development, its sponsor will most likely wish to enhance the initial analysis done for its inclusion in the strategy.

Two key assumptions will be needed to develop the abbreviated consequence analysis suggested here: the frequency of the disaster event and its severity.

For a number of disaster events, both the frequency and severity of the event will be readily available. For example, in considering a flood event, information available will be for the once in one hundred-year event, and the flood elevation specified can be used as the basis for the estimate of the damage that would be caused.

For other types of disaster events, the frequency and severity will not be as readily available, and the Working Group will need to make assumptions. One approach to these assumptions is to assume that the event will occur at least once during the lifetime of the initiative. This assumption could be considered reasonable in that most facility owners or operators would wish to avoid even one episode of damage or outage if possible, and if the initiative can be justified under these circumstances, it can be considered as worth implementing.

In making assumptions regarding the severity of the event, the Working Group will wish to establish a planning basis for the consequence analysis to be used uniformly in the analysis. That is, should the consequence analysis assume a "worst case" scenario, such as the impact of a Category 4 or 5 hurricane, or a "more likely case" analysis, such as the impact of a Category 3 hurricane. Irrespective of the hazard under consideration, if all participants in strategy development strive to use the same assumptions and planning bases, the proposed initiatives, regardless of their origin, can be more equitably evaluated as they are prioritized and incorporated into the strategy.

Calculating the economic benefits

With the assumptions made regarding the frequency and severity of the event, and the direct and indirect economic consequences estimated, the Working Group or the sponsor of the initiative is then able to calculate the annual economic benefits that would be gained from its implementation. This benefit is derived by: dividing the estimated dollar value of the consequences by the frequency of the event, to give a annual cost estimate for the "benefits" or the damages avoided during the next disaster event.

Deriving an economic benefit to cost ratio

Because the sponsor of the initiative and/or the Working Group now has the both the economic costs and benefits expressed on an annual basis, it is possible to derive a simple benefit to cost ratio by dividing the estimated annual benefits by the annual costs. Under this approach, if the resulting number is greater than +1.0, then the proposal can be considered warranted for implementation based on economic considerations. If it is less than +1.0, the proposal is probably not economically warranted.

At this point, the benefit to cost ratio is likely to address only an economic justification for the proposal, unless the Working Group has incorporated factors for health, safety and environmental costs or benefits to be incurred. Otherwise, if an initiative would have these benefits as well, the economic benefit to cost ratio should be adjusted in accord with the policies of the Working Group.

Addressing health, safety and environmental issues

Health, safety, and environmental benefits or proposed initiatives can be very difficult to express in dollar values. To account for these in developing its justification for proposed initiatives, the Working Group could select one of a variety of approaches. The Working Group’s objective is to account for the safety, health and environmental benefits on an equitable, consistent basis, reflecting the unique needs and desires of the community. Some ideas for considering these types of non-economic benefits of proposed initiatives are suggested below.

Assigning priority based on life safety

Every Working Group will probably feel that one of the most fundamental goals for the Local Mitigation Strategy is to save lives, prevent injuries, and protect the health of the county’s residents and visitors. Under this philosophy, the Working Group could simply agree that any initiative directly intended to save lives or prevent injury or illness would be given priority and its economic benefit to cost ratio would be a secondary concern. This policy decision would position the Working Group to incorporate such initiatives into the strategy and assign them a priority based solely on their intention to protect health and safety.

Assigning priority based on value to the community

In a similar manner, initiatives that are intended to protect the resources that have a substantial "intangible" value for the community could also be given priority, regardless of their economic benefit to cost ratio. For example, an initiative to protect a museum or historic structure may not be strictly warranted based on the economic costs that would be avoided in a future disaster, unless the essentially irreplaceable nature of the material that would be damaged or destroyed is considered. As such, the Working Group may simply elect to incorporate this initiative into the strategy, and give it a high priority for implementation, based on its intrinsic value to the community. The economic benefit to cost ratio could be considered a secondary concern. This approach may be warranted for such features in the county as parks, nature preserves, historic areas or structures, beaches, wetlands, etc.

Separately assessing the benefits

Another approach would be for the Working Group to separately assess those initiatives whose primary function is to protect safety or environmental values. With this decision, the Working Group would need another technical approach to analyzing their benefits, other than the benefit to cost comparison approach suggested in this supplement. In such an approach, the Working Group could conduct whatever analysis it deemed appropriate to assess the justification for such an initiative in order to consider it for incorporation into the strategy and to assign it a priority for implementation. Under this option, the analytical approaches could be sophisticated or simple, highly objective or subjective, depending on the policies adopted by the Working Group.

Weighting the benefit - cost ratio

An approach different from those given above is one that would include consideration of both the economic and non-economic justification for a mitigation initiative. This could be done by "weighting" the benefit to cost ratio to account for safety and environmental values.

With this approach, the economic benefit to cost ratio is multiplied by a positive number to account for the magnitude of the safety or environmental benefit. For example: Suppose a mitigation initiative has an economic benefit-cost ratio of +1.2. If the initiative is intended to protect 100 individuals, this could be multiplied by 2.0, giving an adjusted ratio of 2.4. If the initiative were to save 500 lives, it could be multiplied by 3.0, giving a new ratio of +3.6.

Under this approach, even an initiative that does not have an economic ratio above +1.0 could then be given a higher ratio when its safety and environmental benefits are considered. For example, an initiative may be estimated to have an economic benefit to cost ratio of +0.75, but if it protected 100 individuals, using a multiplier of 2.0, the ratio would then become +1.50, making the initiative eligible for incorporation into the strategy.

To implement this approach, the Working Group would establish a sliding scale of multiplier values that it considers reasonable to account for varying numbers of people protected, number of acres of valuable environmental resource protected, etc. Basically, with this approach, the more people or larger the environmental resource protected, the larger the multiplier that would be used.

This manipulation of the benefit to cost ratio may or may not be acceptable to funding organizations when applications are prepared for such an initiative. This option would, however, provide the Working Group with a consistent and objective approach to considering the safety and environmental benefits of a proposed initiative to determine if it should be incorporated into the strategy and the priority for implementation it should be assigned.

Using the benefit to cost ratio

A consistently and objectively derived benefit to cost ratio can be a valuable tool for many of the decision-making efforts needed to develop and maintain the strategy. Proposed initiatives with positive benefit to cost ratios, that have considered safety, health, and environmental costs and benefits as well, can be used to select proposals for incorporation into the strategy, for justifying their implementation, and for countering any appearance of bias in project selection. The ratio is also very useful in the process to prioritize initiatives, which is discussed in Step Five.