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.

Alternative Cost-Effectiveness Methodology for Fiscal Year 2022 BRIC and FMA Application Cycle

October 6, 2022

Building Resilient Infrastructure and Communities (BRIC) and Flood Mitigation Assistance (FMA) Grant Program Applicants and Subapplicants.

FEMA introduced an alternative cost-effectiveness methodology that will modify the threshold for mitigation projects to be considered cost-effective under limited conditions. A mitigation project may be considered cost-effective if, when using the 7% discount rate, the BCR is at least 0.75 or greater, and if at the 3% discount rate the BCR is at least 1.0 or greater, and the mitigation activity benefits disadvantaged communities, addresses climate change impacts, has hard to quantify benefits, and/or is subject to higher costs due to the use of low carbon building materials or compliance with the Federal Flood Risk Management Standard.

This alternative cost-effectiveness method allows FEMA to analyze the impacts of the rate differential from 7% to 3% and inform future decision-making. This approach also encourages the use of climate-informed science to make our communities safer and reduce disaster suffering. This memorandum outlines the criteria under which applicants and subapplicants may use the alternative cost-effectiveness methodology and provides instructions for subapplication submissions.

Link to https://www.fema.gov/sites/default/files/documents/fema_alternative-cost-effectiveness-methodology_102022.pdf

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

Feb 15, 2022

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.

BCA Toolkit Version 6.0

July 23, 2019

FEMA released the BCA Toolkit Version 6.0. Version 6.0 replaces previous versions of the BCA Toolkit with the exception of the seismic building retrofit BCAs (see note below).

To help complete an analysis within the required guidelines, you must use the BCA Toolkit, which is a calculator developed using FEMA-approved methodologies and tools to show the cost-effectiveness of your projects. Do your BCA early in the project development process to make sure you will meet the cost-effectiveness eligibility requirement.

Some major features of Version 6.0 include:

Excel-based platform
Compatible with both Windows and Macintosh operating systems
Streamlined user interface and improved user experience
Reduction in the number of manual-input data fields
Improved help content
Improved report formatting

Note: Users should continue to utilize version 5.3 to conduct BCAs for seismic building retrofit projects (structure and non-structural). See the release notes for additional details.

Benefit-Cost Analysis Methodology

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

Applicants and subapplicants must use FEMA-approved methodologies and tools to demonstrate the cost-effectiveness of their projects. FEMA has developed the BCA Toolkit to facilitate the process of preparing a BCA.

Using the BCA Toolkit will ensure that the calculations are prepared in accordance with OMB Circular A-94 and FEMA’s standardized methodologies. It is imperative to conduct a BCA early in the project development process to ensure the likelihood of meeting the cost-effectiveness eligibility requirement.

The BCA Toolkit consists of modules for a range of major natural hazards and project types including:

Flood
Tornado Safe Room
Hurricane Wind
Hurricane Safe Room
Earthquake
Wildfire
Drought
Landslide

The Greatest Savings to the Fund (GSTF) approach is no longer allowed to determine cost-effectiveness for Severe Repetitive Loss (SRL) properties.

Pre-Calculated Benefits

To streamline the grant application process, FEMA has released pre-calculated analyses for several eligible projects as follows.

The pre-calculated benefits and benchmark costs are not intended to drive actual project costs or to serve as detailed project cost estimates. Individual project cost estimates must be based on industry standards, vendor estimates or other acceptable sources. Projects must still meet all other grant requirements.

Reference Materials

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

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.

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

Mitigation Matters!

Have questions, contact us at help@kymitigation.org.

Don’t forget to join the KAMM group on LinkedIn and Facebook.

KAMM is a non-profit 501 (c) (3).

KAMM
Ky Association of Mitigation Managers