Benefit Cost Analysis

Background

To evaluate proposed hazard mitigation projects prior to funding FEMA requires a Benefit-Cost Analysis (BCA) to validate cost effectiveness. The program can address multiple buildings and hazards in a single BCA module run. The end result of a module run is a benefit-cost ratio (BCR), which is derived from a project’s total net benefits divided by its total project cost. A project is considered to be cost effective when the BCR is 1.0 or greater, indicating the benefits of a prospective hazard mitigation project are sufficient to justify the costs.

Recommendation

Conduct a BCA early in the project development process to ensure the likelihood of meeting the cost-effective eligibility requirement in the Stafford Act.

The BCA program consists of guidelines, methodologies and software modules for a range of major natural hazards including:

  • Flood (Riverine, Coastal Zone A, Coastal Zone V)
  • Hurricane Wind
  • Hurricane Safe Room
  • Damage-Frequency Assessment
  • Tornado Safe Room
  • Earthquake
  • Wildfire

The BCA program provides up to date program data, up to date default and standard values, user manuals and training.

Benefit-Cost Analysis Methodology

Grantees and sub-grantees must use FEMA-approved methodologies and the current software to demonstrate the cost-effectiveness of their projects. Using FEMA-approved BCA software will ensure that the calculations are prepared in accordance with OMB Circular A-94, Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs and FEMA's standardized methodologies.

A non-FEMA BCA methodology may only be used when it addresses a non-correctable flaw in the FEMA-approved BCA methodology or it proposes a new approach that is unavailable using FEMA BCA software. The non-FEMA methodology must be approved by FEMA in writing prior to submission of the project application to FEMA.

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