Glendale (PDF) - Hazard Mitigation Web Portal - State of California

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Natural Hazards Mitigation PlanCity of Glendale, CaliforniaAppendix C – Economic AnalysisAPPENDIX C: ECONOMIC ANALYSIS OFNATURAL HAZARD MITIGATIONPROJECTSBenefit/cost analysis is a key mechanism used by the State Office of Emergency Services (OES),the Federal Emergency Management Agency, and other State and Federal agencies inevaluating hazard mitigation projects, and is required by the Robert T. Stafford Disaster Reliefand Emergency Assistance Act, Public Law 93-288, as amended.This appendix outlines several approaches for conducting economic analysis of natural hazardmitigation projects. It describes the importance of implementing mitigation activities, differentapproaches to economic analysis of mitigation strategies, and methods to calculate costs andbenefits associated with mitigation strategies. Information in this section is derived in part from:The Interagency Hazards Mitigation Team, State Hazard Mitigation Plan, (Oregon State Police– Office of Emergency Management, 2000), and Federal Emergency Management AgencyPublication 331, Report on Costs and Benefits of Natural Hazard Mitigation.This section is not intended to provide a comprehensive description of benefit/cost analysis, noris it intended to provide the details of economic analysis methods that can be used to evaluatelocal projects. It is intended to (1) raise benefit/cost analysis as an important issue, and (2)provide some background on how economic analysis can be used to evaluate mitigation projects.Why Evaluate Mitigation Strategies?Mitigation activities reduce the cost of disasters by minimizing property damage, injuries, andthe potential for loss of life, and by reducing emergency response costs, which would otherwisebe incurred.Evaluating natural hazard mitigation provides decision-makers with an understanding of thepotential benefits and costs of an activity, as well as a basis upon which to compare alternativeprojects. Evaluating mitigation projects is a complex and difficult undertaking, which isinfluenced by many variables. First, natural disasters affect all segments of the communitiesthey strike, including individuals, businesses, and public services such as fire, police, utilities,and schools. Second, while some of the direct and indirect costs of disaster damages aremeasurable, some of the costs are non-financial and difficult to quantify in dollars. Third, manyof the impacts of such events produce “ripple-effects” throughout the community, greatlyincreasing the disaster’s social and economic consequences.While not easily accomplished, there is value, from a public policy perspective, in assessing thepositive and negative impacts from mitigation activities, and obtaining an instructivebenefit/cost comparison. Otherwise, the decision to pursue or not pursue various mitigationoptions would not be based on an objective understanding of the net benefit or loss associatedwith these actions.What are Some Economic Analysis Approaches forMitigation Strategies?The approaches used to identify the costs and benefits associated with natural hazard mitigationstrategies, measures, or projects fall into two general categories: benefit/cost analysis and costeffectivenessanalysis. The distinction between the two methods is the way in which the relative2006 PAGE C - 1
Natural Hazards Mitigation PlanCity of Glendale, CaliforniaAppendix C – Economic Analysiscosts and benefits are measured. Additionally, there are varying approaches to assessing thevalue of mitigation for public sector and private sector activities.Benefit/Cost AnalysisBenefit/cost analysis is used in natural hazards mitigation to show if the benefits to life andproperty protected through mitigation efforts exceed the cost of the mitigation activity.Conducting benefit/cost analysis for a mitigation activity can assist communities in determiningwhether a project is worth undertaking now, in order to avoid disaster related damages later.Benefit/cost analysis is based on calculating the frequency and severity of a hazard, avoidedfuture damages, and risk.In benefit/cost analysis, all costs and benefits are evaluated in terms of dollars, and a netbenefit/cost ratio is computed to determine whether a project should be implemented (i.e., if netbenefits exceed net costs, the project is worth pursuing). A project must have a benefit/costratio greater than 1 in order to be funded.Cost-Effectiveness AnalysisCost-effectiveness analysis evaluates how best to spend a given amount of money to achieve aspecific goal. This type of analysis, however, does not necessarily measure costs and benefits interms of dollars. Determining the economic feasibility of mitigating natural hazards can also beorganized according to the perspective of those with an economic interest in the outcome.Hence, economic analysis approaches are covered for both public and private sectors as follows.• Investing in Public Sector Mitigation ActivitiesEvaluating mitigation strategies in the public sector is complicated because it involvesestimating all of the economic benefits and costs regardless of who realizes them, whichcould potentially be a large number of people and economic entities. Furthermore, somebenefits cannot be evaluated monetarily, but still affect the public in profound ways.Economists have developed methods to evaluate the economic feasibility of publicdecisions that involve a diverse set of beneficiaries and non-market benefits.• Investing in Private Sector Mitigation ActivitiesPrivate sector mitigation projects may occur on the basis of one of two approaches: itmay be mandated by a regulation or standard, or it may be economically justified on itsown merits. A building or landowner, whether a private entity or a public agency,required to conform to a mandated standard may consider the following options:1. Request cost sharing from public agencies;2. Dispose of the building or land either by sale or demolition;3. Change the designated use of the building or land and change the hazardmitigation compliance requirement; or4. Evaluate the most feasible alternatives and initiate the most cost-effective hazardmitigation alternative.Estimating the costs and benefits of a hazard mitigation plan strategycan be a complex process.Employing the services of a specialist can assist in this process.The sale of a building or land triggers another set of concerns. For example, real estate2006 PAGE C - 2
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NOTES:This map is intended for gene
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City of GlendaleUpdateHazard Mitiga
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HospitalsPartnershipsWithin City an
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