Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA)...

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Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course

Transcript of Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA)...

Page 1: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

Benefit Cost Analysis for Flood Hazard Mitigation: The

Federal Emergency Management Agency (FEMA)

Method

(selected excerpts from FEMA EMI Training Course)

Page 2: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

FEMA does benefit-cost FEMA does benefit-cost analysis to . . .analysis to . . .

Meet the statutory eligibility requirement.Meet the statutory eligibility requirement.

Determine whether or not a project is worth doing.Determine whether or not a project is worth doing.

Have a common basis on which to compare projects.Have a common basis on which to compare projects.

Show that mitigation works.Show that mitigation works.

Page 3: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

Section 404 (a) of the Stafford Section 404 (a) of the Stafford Act:Act:

““The President may contribute up to 75% The President may contribute up to 75% of the cost of hazard mitigation of the cost of hazard mitigation measures which the President has measures which the President has determined are determined are cost-effectivecost-effective and which and which substantially reduce the risk of future substantially reduce the risk of future damage, hardship, loss or suffering in damage, hardship, loss or suffering in any area affected by a major disaster.”any area affected by a major disaster.”

Page 4: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

44 CFR Part 206 Section 44 CFR Part 206 Section 206.434 (b) (5) (ii) 206.434 (b) (5) (ii)

““The Grantee must demonstrate (that the The Grantee must demonstrate (that the project is cost effective) by documenting that project is cost effective) by documenting that the project…will not cost more than the the project…will not cost more than the anticipated value of the reduction in both anticipated value of the reduction in both direct damages and subsequent negative direct damages and subsequent negative impacts to the area if future disasters were to impacts to the area if future disasters were to occur. Both costs and benefits will be occur. Both costs and benefits will be computed on a net present value basis.”computed on a net present value basis.”

Page 5: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

TRUE or FALSE?TRUE or FALSE?

““All well-designed mitigation All well-designed mitigation projects reduce future projects reduce future damages and losses.”damages and losses.”

Page 6: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

TRUETRUE or FALSE? or FALSE?

““All well-designed mitigation All well-designed mitigation projects reduce future projects reduce future damages and losses.”damages and losses.”

Page 7: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

TRUE or FALSE?TRUE or FALSE?

““All well-designed mitigation All well-designed mitigation projects reduce future damages projects reduce future damages and losses and thus all are and losses and thus all are cost-effective projects.”cost-effective projects.”

Page 8: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

TRUE or TRUE or FALSEFALSE??

““All well-designed mitigation All well-designed mitigation projects reduce future damages projects reduce future damages and losses and thus all are and losses and thus all are cost-effective projects.”cost-effective projects.”

Page 9: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

Is It Worth $1 Million To . . .?Is It Worth $1 Million To . . .?

1.1. Protect one doghouse Protect one doghouse or one outhouse?or one outhouse?

2.2. Protect one house that Protect one house that floods infrequently?floods infrequently?

3.3. Protect a flood-prone Protect a flood-prone hospital, city hall, hospital, city hall, school, and other school, and other important buildings?important buildings?

4.4. Protect 150 flood-Protect 150 flood-prone houses?prone houses?

Probably Probably

Not

Page 10: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

Is It Worth $1 Million To . . .?Is It Worth $1 Million To . . .?

Probably Probably

Not1.1. Protect one doghouse Protect one doghouse or one outhouse?or one outhouse?

2.2. Protect one house that Protect one house that floods infrequently?floods infrequently?

3.3. Protect a flood-prone Protect a flood-prone hospital, city hall, hospital, city hall, school, and other school, and other important buildings?important buildings?

4.4. Protect 150 flood-Protect 150 flood-prone houses?prone houses?

Page 11: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

Flood Hazard and Flood RiskFlood Hazard and Flood Risk

x =FLOOD HAZARD

(FREQUENCY & SEVERITY)

FLOOD HAZARD

(FREQUENCY & SEVERITY)

Probability Probability of Damaging of Damaging FloodsFloods

PROPERTYEXPOSED

TO FLOODS

PROPERTYEXPOSED

TO FLOODS

Value and Value and Vulnerability Vulnerability of Property of Property Exposed Exposed to Flood to Flood HazardHazard

FLOODRISK

(DOLLARS)

FLOODRISK

(DOLLARS)

Severity Severity of Threatof Threatto the Builtto the BuiltEnvironmenEnvironmentt

Page 12: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

MitigationMitigation

Mitigation is an action taken Mitigation is an action taken

specifically to eliminate or reduce specifically to eliminate or reduce

the potential for the potential for FUTUREFUTURE

damages and losses from the damages and losses from the

hazard being addressed.hazard being addressed.

Page 13: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

Cost-EffectiveCost-Effective

Cost-effective means: Cost-effective means:

The benefits of a hazard mitigation project The benefits of a hazard mitigation project exceed the costs, or exceed the costs, or

The benefit-cost ratio is greater than one.The benefit-cost ratio is greater than one.

Page 14: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

The Benefit-Cost Model The Benefit-Cost Model “Model” vs. “Modules”“Model” vs. “Modules”

TheThe MODELMODEL is theis the MATHMATH..The economic theory, hazard and risk assessment The economic theory, hazard and risk assessment methods, and mathematical formulas on which FEMA methods, and mathematical formulas on which FEMA bases the benefit-cost analysis of hazard mitigation bases the benefit-cost analysis of hazard mitigation projects.projects.

TheThe MODULESMODULES are theare the SOFTWARESOFTWARE..FEMA’s software programs for conducting benefit-cost FEMA’s software programs for conducting benefit-cost analysis. The benefit-cost modules are based on the analysis. The benefit-cost modules are based on the benefit-cost model.benefit-cost model.

Page 15: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

The Benefit-Cost ModelThe Benefit-Cost Model

BB EE NN EE FF II TT SS

CC OO SS TT SS== BC R BC R AA TT II OO

Page 16: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

Mitigation Project Benefits:Mitigation Project Benefits:DefinitionDefinition

BB EE NN EE FF II TT SS

The expected avoided damages and The expected avoided damages and losses over the lifetime of the mitigation losses over the lifetime of the mitigation project.project.

Page 17: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

Project BenefitsProject BenefitsDirect Damages and Losses AvoidedDirect Damages and Losses Avoided

Damages to buildings and other facilities Damages to buildings and other facilities such as infrastructuresuch as infrastructure

Damages to contentsDamages to contents

Loss of function costsLoss of function costs

CasualtiesCasualties

Emergency management costsEmergency management costs

Page 18: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

Project BenefitsProject BenefitsIndirect Damages Indirect Damages NOTNOT Considered Considered

Changes in gross regional economic Changes in gross regional economic product, incomes, or employmentproduct, incomes, or employment

Changes in future economic development or Changes in future economic development or tourismtourism

Criminal justice system costs for disaster- Criminal justice system costs for disaster- related crime (e.g., looters)related crime (e.g., looters)

Page 19: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

Mitigation Project BenefitsMitigation Project Benefits The project benefits calculation is based on The project benefits calculation is based on

four key elements:four key elements:

Flood frequency and severity Flood frequency and severity

Damages and losses beforeDamages and losses before mitigationmitigation

Damages and losses after mitigationDamages and losses after mitigation

Economic factors including the discount rate Economic factors including the discount rate and the mitigation project useful lifetimeand the mitigation project useful lifetime

Page 20: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

The Benefit-Cost ModelThe Benefit-Cost ModelFlood Frequency and SeverityFlood Frequency and Severity

FFE = 2,300’FFE = 2,300’10-year flood = 10-year flood = 2,302’2,302’

100-year flood = 2,310’

Page 21: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

Mitigation Project Benefits: Mitigation Project Benefits: Damages Damages BeforeBefore Mitigation Mitigation

Flood Depth (feet)

Annual Probability

ofFlooding

Scenario Damages

and Losses

Expected Annual

Damages and Losses

0 0.2050 $ 6,400 $1,312

1 0.1234 $14,300 $1,765

2 0.0867 $24,500 $2,124

3 0.0233 $28,900 $ 673

4 0.0098 $32,100 $ 315

5 0.0034 $36,300 $ 123

Total Expected Annual Damages and Losses

$6,312

Page 22: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

Flood Depth (feet)

Annual Probability

ofFlooding

Scenario Damages

and Losses

Expected Annual

Damages and Losses

0 0.2050 $ 0 $ 0

1 0.1234 $ 0 $ 0

2 0.0867 $ 0 $ 0

3 0.0233 $ 0 $ 0

4 0.0098 $ 6,400 $ 63

5 0.0034 $14,300 $ 49

Total Expected Annual Damages and Losses

$112

Mitigation Project Benefits: Mitigation Project Benefits: Damages Damages AfterAfter Mitigation Mitigation

Page 23: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

Mitigation Project Benefits:Mitigation Project Benefits: Annual Avoided Damages and LossesAnnual Avoided Damages and Losses

Flood Depth (feet)

Expected Annual Damages Before

Mitigation

Expected Annual Damages

AfterMitigation

Expected Annual Avoided Damages and

Losses

0 $1,312 $ 0 $1,312

1 $1,765 $ 0 $1,765

2 $2,124 $ 0 $2,124

3 $ 673 $ 0 $ 673

4 $ 315 $63 $ 252

5 $ 123 $49 $ 74

Totals $6,312 $112 $6,200

Page 24: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

The Benefit-Cost ModelThe Benefit-Cost ModelEconomics Terminology and ConceptsEconomics Terminology and Concepts

NN EE T PT P RR EE SS EE NN T VT V AA LL UU EE

The value “today” of money that you will receive The value “today” of money that you will receive in the future.in the future.

DD II SS CC OO UU NN T RT R AA TT EE

An interest rate used to determine the time value An interest rate used to determine the time value of money. For Federally funded mitigation of money. For Federally funded mitigation projects, the discount rate is determined by the projects, the discount rate is determined by the U.S. Office of Management and Budget (OMB).U.S. Office of Management and Budget (OMB).

Page 25: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

NEVER NEVER factor inflation into estimates of future damages or benefits.

The Benefit-Cost ModelThe Benefit-Cost ModelEconomics Terminology and ConceptsEconomics Terminology and Concepts

Page 26: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

The Benefit-Cost ModelThe Benefit-Cost ModelEconomics Terminology and ConceptsEconomics Terminology and Concepts

PP RR OO JJ EE CC T UT U SS EE FF UU L LL L II FF EE TT II MM EE

The estimated time period over which the The estimated time period over which the mitigation project will maintain its effectiveness mitigation project will maintain its effectiveness in preventing or reducing damages and losses in preventing or reducing damages and losses from future disasters.from future disasters.

Page 27: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

The Benefit-Cost ModelThe Benefit-Cost ModelEconomics Terminology and ConceptsEconomics Terminology and Concepts

PP RR EE SS EE NN T VT V AA LL UU E CE C OO EE FF FF II CC II EE NN T T (PVC)(PVC)

The PVC expresses the combined effect of the The PVC expresses the combined effect of the discount rate and the project useful lifetime on discount rate and the project useful lifetime on the net present value of future benefits. the net present value of future benefits.

Page 28: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

Mitigation Project Benefits: Mitigation Project Benefits: Benefit-Cost Analysis ResultsBenefit-Cost Analysis Results

Expected Annual

Benefits

Present Value

Coefficient

Net Present Value of Future

Benefits CostsBenefit-

Cost Ratio

$6,200 12.41 $76,942 $20,000 3.85

$6,200 x 12 .41 =

(PVC based on a 30-year project life and 7% discount rate)

Page 29: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

Benefit-Cost ModelBenefit-Cost ModelFlood Depth (feet)

Expected Annual Damages Before

Mitigation

Expected Annual Damages

AfterMitigation

Expected Annual Avoided Damages and

Losses

0

1

2

34

5

$1,312

$1,765

$2,124

$ 673$ 315

$ 123

$ 0

$ 0

$ 0

$ 0$63

$49

$1,312

$1,765

$2,124

$ 673$ 252

$ 74

Totals $6,312 $112 $6,200

PVC (7% Discount Rate, 30 years) 12.41

Net Present Value of Future Benefits $76,942

Costs $20,000

Benefit-Cost Ratio 3.85

Page 30: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

The BC ModulesThe BC Modules

BC Analysis Modules:BC Analysis Modules:

Full-Data (FD)Full-Data (FD)

Limited-Data (LD)Limited-Data (LD)

Very-Limited-Data (VLD)Very-Limited-Data (VLD)

Page 31: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

The BC ModulesThe BC Modules

Basis

Data Required

Accuracy

LD Module

VLDModule

FD Module

Engineering information and flood hazard data

Historic damage data

Historic damage data

Damage data from 2 or more flood eventsMost

Accurate (When flood hazard data available)

Damage data from 1 flood event

Accurate(Most accurate when flood hazard data unavailable)

Site-specific project data and flood hazard data

Least Accurate

Page 32: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

DemoDemo

Page 33: Benefit Cost Analysis for Flood Hazard Mitigation: The Federal Emergency Management Agency (FEMA) Method (selected excerpts from FEMA EMI Training Course)

Dr. Shane Parson, PE, CFM

Senior Project Associate

Virginia Tech

Center for Geospatial Information Technology

200 Patton Hall

Blacksburg, VA 24061

Office: (540) 231-7147

Fax: (540) 231-7532

E-mail: [email protected]

Website: www.cgit.vt.edu