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<br />VERSION 1.0 1/12/95 <br /> <br />THE ROLE OF BENEFIT-COST ANALYSIS <br /> <br />Mvths and Misconceptions About Benefit-Cost Analvsis <br /> <br />1. The benefits of hazard mitigation projects are avoided future <br />damages. Benefits are DQl the damages experienced in the <br />declared event, even if such damages would be 100% avoided <br />by the mitigation project. Rather, benefits are the present value <br />of the sum of expected avoided future damages for all levels of <br />intensity of future disasters (e.g., floods). <br /> <br />2. To estimate future damages (and the benefits of avoiding them). <br />the probabilities of future events IIl.l.lH be considered. The <br />probabilities of future events profoundly affect whether or not a <br />proposed hazard mitigation project is cost effective. ' The <br />benefits of avoiding flood damage for a building in'the 10-year <br />flood plain will be enormously greater than the benefits for an <br />identical building situated at the 1000-year flood elevation. <br /> <br />3. Mitigation may not be cost-effective even though a particular <br />facility experienced great damage in the declared event, if the <br />event were a low probability (i.e., a 500- or 1 ODD-year) event. <br />Conversely, mitigation mn be cost effective even though the <br />particular facility experienced little or no damage in the declared <br />event, If the probability of future damage is high. <br /> <br />4. The benefits of hazard mitigation projects for critical facilities <br />such as hospitals, emergency operations centers, and fire <br />stations, and for high occupancy facilities such as schools tend <br />to be higher than the benefits of projects for non-critical or low <br />occupancy facilities. The higher benefits arise because future <br />damages and losses may be high if the hazards are not <br />mitigated. However, just because a proposed haZard mitigation <br />project is for a critical facility does nm guarantee that the project <br />is cost-effective. On the contrary, even for critical facilities, <br />hazard mitigation projects may nm be cost-effective if the project <br />is too expensive or the risk of future damage is not high enough. <br /> <br />5, Each proposed hazard mitigation project llllIH,be evaluated on <br />its own merits to compare the benefits and costs of a specific <br />project. There are no "rules of thumb" which determine eligible <br />and ineligible projects because the costs and benefits of each <br />project are different. The benefits of a particular project may <br />vary markedly depending on the vulnerability of the existing <br />facility to damages and losses, the probabilities of future <br />damages. and the effectiveness of the mitigation measure in <br />avoiding future damages. <br /> <br />1-3 <br />