FLOOD03186

• County: Statewide
• Community: All
• Stream Name: All
• Basin: Statewide
• Title: Benefit-Cost Analysis of Hazard Mitigation Projects
• Date: 1/1/1996
• Prepared For: FEMA
• Prepared By: FEMA
• Floodplain - Doc Type: Educational/Technical/Reference Information

VERSION 1.0 1/12/95

THE ROLE OF BENEFIT -COST ANALYSIS

LEVEL ONE vs.
LEVEL TWO
B-C Analyses

What Data are
Needed for B-C
Analysis?

The benefits considered in the Benefit-Cost Program include: avoided
damages to the building and contents, avoided displacement costs,
avoided rental and business income losses, and avoided loss of
public/nonprofit services,

The "benefits~' calculated by the program are expected future benefits
which are estimated over the useful lifetime of the mitigation project. To
account for the time value of money, a net present value calculation
must be performed. This calculation is done automatically in the
program, using the discount rate and project useful lifetime entered by
the user. Results of benefit-cost calculations are presented two ways:
first, the benefit-cost ratio (benefits divided by costs) and second, the
present value criterion (benefits minus costs).

The Benefit-Cost Program is designed to facilitate two different levels
of analysis. A LEVEL ONE (Minimum Data) analysis relies heavily on
default values built into the model and requires the minimum data input
from users. A LEVEL TWO (Detailed) analysis allows the user to
override default values with user-entered, building-specific estimates.

The validity of any benefit-cost calculation and the robustness of
conclusions drawn therefrom depend entirely on the validity of the data
used in the calculations. Calculations based on detailed, building-
specific engineering analysis will be much more accurate (and
correspondingly more useful) than calculations based largely on typical
or default values of input parameters.

For any benefit-cost analysis of a hazard mitigation project, basic
information about the building/facility under evaluation is required,
including: building type, size, replacement value, contents value, and
various economic data about the use and function of the building.
Estimates ofthe vulnerability of the building and contents to flood
damage both before and after mitigation are particularly important.

In most cases, few of the data inputs will be exact numbers, Rather,
approximate data or informed, reasonable estimates will be used. See
Chapter 5, Benefit-Cost Program: Guidance for helpful hints
regarding exact data V5. reasonable estimates.

In addition to data about the building under evaluation, benefit-cost
analysis of flood hazard mitigation projects requires a quantitative
assessment of the degree of flood risk at the site, This assessment is
performed automatically by the Benefit-Cost Program using flood data
input from a Flood Insurance Study and a Flood Insurance Rate Map,
along with data on the Zero Flood Depth Elevation of the building. ,
The degree of flood risk at a given site profoundly affectS the benefit-
cost results.

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