Benefit Cost Analysis (BCA)

About Benefit-Cost Analysis

Link to https://www.fema.gov/benefit-cost-analysis

Benefit-Cost Analysis (BCA) is a method that determines the future risk reduction benefits of a hazard mitigation project and compares those benefits to its costs. The result is a Benefit-Cost Ratio (BCR). A project is considered cost-effective when the BCR is 1.0 or greater. Applicants and subapplicants must use FEMA-approved methodologies and tools—such as the BCA Toolkit—to demonstrate the cost-effectiveness of their projects.

Benefit-Cost Analysis (BCA) is the method by which the future benefits of a hazard mitigation project are determined and compared to its costs.  The end result is a Benefit-Cost Ratio (BCR), which is calculated by a project’s total benefits divided by its total 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, indicating the benefits of a prospective hazard mitigation project are sufficient to justify the costs.

FEMA requires a BCA to validate cost effectiveness of proposed hazard mitigation projects prior to funding.  There are two drivers behind this requirement: (1) the Office of Management and Budget’s (OMB) Circular A-94 Revised, “Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs” and (2) the Stafford Act.

The goal of Circular A-94 is to promote efficient resource allocation through well-informed decision-making by the Federal Government.  FEMA’s BCA Toolkit has been developed to meet the guidelines published in Circular A-94.

The Stafford Act authorizes the President to establish a program to provide technical and financial assistance to state and local governments to assist in the implementation of hazard mitigation measures that are cost effective and designed to substantially reduce injuries, loss of life, hardship, or the risk of future damage and destruction of property.


FEMA Streamlines Cost-Effectiveness in its Mitigation Grant Programs!!

FEMA is streamlining Benefit-Cost Analysis to facilitate access to make more communities resilient to natural hazards and the effects of climate change. This addresses long-standing barriers certain communities—particularly those that are underserved—have had accessing mitigation grants through the through the Hazard Mitigation Assistance grant programs and Public Assistance mitigation funding.

FEMA is reducing the discount rate from 7% to 3.1% to make it easier for states, Tribal Nations, territories and local governments to demonstrate cost-effectiveness of hazard mitigation projects when completing a Benefit Cost Analysis. It also aligns with updated federal guidance A-94 Circular, Guidelines and Discount Rates for Benefit Cost Analysis of Federal Programs, released by the White House Office of Management and Budget (OMB). A Benefit Cost Analysis is a quantitative analysis used to assess the benefits and costs of a hazard mitigation project by comparing the disaster impacts avoided by the mitigated project to the cost of the project.

FEMA’s Benefit Cost Analysis Toolkit has the discount rate built into its calculations and has been updated. Applicants do not need to perform separate calculations or redownload the toolkit to use the new discount rate.

Here are other ways that FEMA is simplifying the benefit-cost analysis requirements for its hazard mitigation grant programs:

  • Implementing distributional weights in determining the cost-effectiveness of a hazard mitigation project. The distributional weights will automatically adjust the Benefit-Cost Analysis results by increasing the building replacement value for properties located in census tracts with household incomes below the national median. These benefits will make it easier for projects in disadvantaged communities to be eligible for mitigation grant funding.
  • No longer requiring a full Benefit-Cost Analysis for projects being funded through its Hazard Mitigation Assistance grant programs with a total cost of less than $1 million.
  • Offering FEMA BCA assistance to disadvantaged communities and Tribal Nations to determine hazard mitigation project cost-effectiveness.
  • Updating the pre-calculated benefit amounts that can be used to determine hazard mitigation project cost-effectiveness. The term “pre-calculated benefit” refers to a benefit value that has been calculated based on research and statistical analysis or computer modeling of mitigation projects. Pre-calculated benefits simplify the cost-effectiveness determination process by eliminating the requirement for applicants to conduct separate BCAs for eligible projects.

By making it easier to demonstrate cost-effectiveness for hazard mitigation projects, applicants and subapplicants can more effectively implement and fund resiliency initiatives that will save lives and protect infrastructure and property.

Review the BCA policy updates by visiting FEMA.gov.

 


 

FEMA Memo Expands Use of Pre-Calculated Benefits for Project Cost Analysis of Repetitive Loss Properties

Hazard mitigation projects that are eligible for funding under FEMA’s Hazard Mitigation Assistance (HMA) programs must be evaluated to determine if they are cost-effective. However, the effort necessary to demonstrate cost-effectiveness for projects can increase the burden on subapplicants, particularly those with limited access to resources.

To help reduce this burden, pre-calculated benefits is a streamlined methodology in which FEMA calculates pre-determined cost-effectiveness values. Using these pre-calculated benefits eliminates the requirement for applicants to conduct a separate benefit-cost analysis for eligible projects. Pre-calculated benefits therefore reduce the time and resources needed to complete and review cost-effectiveness for projects.

Link to a the FEMA memo that makes the pre-calculated benefit for acquisitions ($323,000 per structure) available for Repetitive Loss and Severe Repetitive Loss  properties regardless of their location in the Special Flood Hazard Area.

Expansion of this methodology helps reduce complexity to FEMA’s HMA grant programs and continues to demonstrate FEMA’s commitment to delivering equitable outcomes. The efforts increase the availability of mitigation opportunities for underserved and at-risk communities to increase resilience against future disasters.


Benefit-Cost Analysis Info from FEMA

FEMA’s webpage provides information on FEMA’s Benefit-Cost Analysis (BCA) program guidelines, methodologies, and tools for the Hazard Mitigation Assistance (HMA) and Public Assistance (PA) grant programs.

Link to https://www.fema.gov/benefit-cost-analysis for information on training and technical assistance.


Benefit Cost Analysis (BCA)

For more information about guidance on acquisitions, elevation and hospital generator projects, view these memorandums on FEMA’s website:

 

 

 


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