Covers Benefit-Cost ratio, Pros and Cons of the project cost effectiveness

1. Benefit-Cost-Analysis
Presented By Knowbook

2. What is B-C-A?
 B-C-A is the method by which the future benefits of a
mitigation project are determined and compared to its costs.
 A B-C-A always involves looking at damages and losses
twice: “Before vs. After” or “With vs. Without” to determine the
project's impact.
 The end result is a Benefit-Cost Ratio (BCR), which is
calculated by a project’s total benefits divided by its total
project costs.
 The BCR is a numerical expression of the "cost-
effectiveness" of a project. A project is considered to be cost-
effective when the BCR is 1.0 or greater

3. What is a Benefit-Cost Ratio?
 B/C=BCR
 If BCR > 1 then the project is cost-effective

4. Benefits
 Are any future costs than can be avoided as a result of
completing a mitigation project. That’s why mitigation benefits
are often called “ losses avoided”
 Benefits can include:
 Reducing physical damages
 Avoiding loss of function
 Preventing casualties
 Reducing emergency management costs

5. Costs
 Costs estimates must be accurate because when your
application is approved those estimates becme the basis for the
amount of the grant
 In addition, the costs must be realistic. Otherwise, you may find
yourself with unfinished tasks and little of the grant remaining to
complete them.
 Make sure you have a well-developed Scope of Work. The
Scope of Work is the blueprint for calculating all project costs
and ensures a complete and accurate total cost.
 Also, don’t overlook additional costs. For example, when buying
homes in a flood-prone area, the price of the house may not be
its total cost. There may be a property appraisal, legal fees, a
title search, closing costs, and demolition and restoration

6. BCA Terms
 Aside from BCA and BCR, additional key BCA terms include:
 Project Useful Life
 Project Effectiveness
 Net Present Value of Future Benefits
 Discount Rate
 Present Value Coefficient

7. Key Terms Definition
 Project Useful Life (PUL)
The estimated amount of time (in years) that the
mitigation action will be effective; how long it will
physically last on the landscape. The PUL data field is
important in the calculation of the BCR because it
establishes the timeframe to calculate annualized
benefits. Higher PUL values extend the duration over
which benefits are calculated, thus raising the final BCR

8. Project Effectiveness
 Project Effectiveness
How well the project will reduce future damages, or,
the difference between the "after project" annualized
damages versus the "before project" annualized
damages. Only structure acquisition and demolition
and structure acquisition and relocation projects can
assume that a project is completely effective. Other
project types assume that there is still some (but
reduced) hazard risk upon project completion—this
is called "residual risk."

9. Net Present Value of Future
Benefits
 Net Present Value of Future Benefits
The amount of annual benefits that will occur for each year of
the life of the project, represented in a present or current dollar
value. This brings the value of future benefits in line with the
current value of the project cost. Future benefits are discounted
by using a discount rate

10. Discount Rate
 Discount Rate
Often called the "time value of money." Future benefits are
worth less in current-dollar figures, and the discount rate is the
rate at which each consecutive year's benefits are reduced.
The discount rate is determined by the OMB

11. Present Value Coefficient
 Present Value Coefficient
Each combination of PUL and discount rate has a fixed present
value coefficient. The annualized project benefits (annualized
damages before mitigation minus annualized damages after
mitigation) is multiplied by the present value coefficient to
determine the project’s total benefits, which becomes the “B” in
the BCR.

12. Good Luck