Does mitigation save? Reviewing cost-benefit analyses of disaster risk reduction

Abstract

a b s t r a c tThe benefit-cost-ratio (BCR), used in cost-benefit analysis (CBA), is an indicator that attempts to summarize the overall value for money of a project. Disaster costs continue to rise and the demand has increased to demonstrate the economic benefit of disaster risk reduction (DRR) to policy makers. This study compiles and compares original CBA case studies reporting DRR BCRs, without restrictions as to hazard type, location, scale, or other parameters. Many results were identified supporting the economic effectiveness of DRR, however, key limitations were identified, including a lack of: sensitivity analyses, meta-analyses which critique the literature, consideration of climate change, evaluation of the duration of benefits, broader consideration of the process of vulnerability, and potential disbenefits of DRR measures. The studies demonstrate the importance of context for each BCR result. Recommendations are made regarding minimum criteria to consider when conducting DRR CBAs.

Flood recovery and property acquisition in Cedar Rapids, Iowa

“…For properties declared by the community as 'substantially damaged' by flooding and located within a mapped 100-year floodplain, property acquisition is automatically deemed to be cost effective and the benefit-cost requirements are waived (FEMA 2013). This economic justification for HMGP project selection increasingly aligns with demands of policy makers and decision-makers (Shreve and Kelman 2014), adopting a utilitarian perspective to disaster recovery in which resource distribution should focus on maximizing public utility (Johnson et al 2007;Schulze and Kneese 1981).…”

“…Following recommendations from the US Office of Management and Budget, we assume a 30-year property life and a discount rate of 3 % (OMB 2013). The life of the property has only limited influence on the calculation, but the choice of discount rate plays a significant role in the determination of present value of benefits (Shreve and Kelman 2014). To provide an upper bound on avoided future losses, the discount rate of 3 % was used because it is also a lower bound on discount rates used in practice.…”

“…However, the benefit-cost analysis focuses on avoided private losses and not losses as a whole that would include public environmental and infrastructure. A major critique of benefit-cost analysis for flood mitigation is that it purports to be forward looking in avoided losses, yet uses a historical perspective in doing so-the data used to calculate expected future flood probabilities are based on historical stream flows (Shreve and Kelman 2014). As shown by Villarini and Strong (2014) for a different Iowa watershed, changes in precipitation and land use have the potential to drastically change the probability distribution of annual peak discharge.…”

Quantification of flood risk mitigation benefits: A building-scale damage assessment through the RASOR platform

“…Accurate estimation of flood 5 impacts is crucial to quantify the actual risk and evaluate the cost-effectiveness of hydraulic mitigation works (Förster et al, 2005;Gouldby et al, 2008;Shreve and Kelman, 2014), which require significant investments. Flood impacts estimates are also crucial for non-structural mitigation measures, such as emergency management (Molinari et al, 2013).…”

Flood Proofing Low-Income Houses in India: an Application of Climate-Sensitive Probabilistic Benefit-Cost Analysis

“…At the same time, it is recognized that BCA has major challenges, including the choice of a discount rate, placing a value on human losses and explicitly considering the distribution of the benefits, risks and responsibilities (Shreve and Kelman 2014). Moreover, the World Bank (2016) has brought attention to the proprietary nature of risk assessment models in developing countries, and subsequently another challenge is acquiring data on the hazard, exposure to the hazard and vulnerability of exposed assets and people (Handmer et al 2017).…”