It’s Payback Time

In 1735, advocating for the creation of a firefighters’ brigade in Philadelphia, Benjamin Franklin wrote that an ounce of prevention is worth a pound of cure. Taken literally, that ounce of prevention had a benefit cost ratio (BCR), or payback, of 16:1. Today, when we talk about savings from natural hazard mitigation, we typically see BCR numbers ranging from 4:1 to 11:1. But where do these numbers come from, and what do they actually mean?

The original 4:1 BCR was established in the 2005 National Institute of Building Sciences (NIBS) study, Natural Hazard Mitigation Saves: An Independent Study to Assess the Future Savings from Mitigation Activities, which found that natural hazard mitigation funded by the Federal Emergency Management Agency (FEMA) between 1993 and 2003 resulted in an average of $4 in avoided future losses for every $1 invested. Although NIBS made it clear that this result applied only to FEMA-funded mitigation strategies, that BCR has been used to justify all types of mitigation strategies.

The latest NIBS study, Natural Hazard Mitigation Saves: 2018 Interim Report, updates the 2005 findings and expands its categories from one to four:

• The benefits and costs of mitigation grants from FEMA and the Department of Housing and Urban Development (HUD)  6:1 BCR 
• The benefits and costs to exceed select provisions in the 2015 International Residential Code (IRC) and International Building Code (IBC), and the implementation of the 2015 International Wildland-Urban Interface Code (IWUIC) in new construction  4:1 BCR 
• The benefits and costs to bring existing properties, designed under 1990-era design and National Flood Insurance Program (NFIP) requirements, up to the 2015 International Residential Code (IRC) and International Building Code (IBC)  11:1 BCR 
• The benefits and costs of investing in mitigation for select utility and transportation infrastructure projects (flood mitigation for roads and railroads, water and wastewater facilities, and electric and telecommunications; wind mitigation for electric and telecommunications), based on Economic Development Administration (EDA) grants and California projects  4:1 BCR 

NIBS says it expects to see a 6:1 BCR for all FEMA, EDA and HUD grants.

 

Benefit-cost ratio by hazard and mitigation measure (Source: Natural Hazard Mitigation Saves: 2018 Interim Report, National Institute of Building Sciences)

 

The 2018 Interim Report uses a more-realistic economic life span for buildings (75 versus 50 years), a more advanced flood model, and improvements in FEMA’s Benefit-Cost Analysis Tool, which now allows quantification of the benefit associated with the service to the community provided by public-sector facilities, such as fire stations and hospitals. It also considers mental health, such as post-traumatic stress disorder (PTSD) impact costs related to injuries as a whole (NIBS reports that, because few analyses include such PTSD impact costs, it used conservative estimates). Other updates include urban search and rescue costs, lost wages, lost household productivity, and pain and suffering.

The institute estimates that implementation of just the FEMA, HUD, and EDA mitigation strategies would prevent 600 deaths, 1 million nonfatal injuries, and 4,000 cases of PTSD.

As NIBS writes, the 2018 Interim Report does not quantify all of the important benefits of mitigation. Its focus is on mitigating casualties and PTSD, property loss, additional living expenses, direct and indirect business interruption, insurance costs, and urban search and rescue. But large disasters may have long-term consequences to the health and collective well-being of those affected, by permanently harming a culture or way of life and disproportionately impacting the most socially and financially vulnerable populations. And, catastrophic events often destroy natural ecosystems that are integral parts of communities and may spread toxic materials across the landscape. NIBS notes that disasters clearly disrupt populations in ways that are difficult to articulate, let alone assign monetary worth to.

Similarly, not all mitigation benefits are easily quantified. Benefits can extend well beyond property lines and communities. But, as CBR tools become more sophisticated, analysts should be able to apply multiple valuation methods to begin to incorporate the costs and benefits of these additional factors, as well. The clear message here is that, even the most conservative estimates demonstrate significant payback from mitigation investments and, in the long run, justify their initial costs.

 

Author: Jonathan Herz