Benefit Cost Analysis

Benefit / cost analysis (BCA) compares the expected benefits from a candidate mitigation action with the costs to implement the mitigation. As such, BCA requires probabilistic risk analysis. Probabilistic risks are defined by severity of consequences and their annual probability (or frequency). Some consequences are easily translated to economic impacts (e.g., repair cost), some consequences require economic analysis (e.g., the financial impacts of a critical facility relocation) for the appropriate stakeholders, and some consequences are difficult or controversial to translate into simple economic terms (e.g., death or injury).

The typical steps in a benefit / cost analysis involve:

1. Stakeholder analysis to decide whose benefits and costs are relevant.
2. Listing all of the physical impacts to be assessed and how they will be measured.
3. Quantitative prediction of physical impacts over the life of the project.
4. Converting all impacts to monetary terms, to the extent possible.
5. Converting all monetary impacts and costs to present values.
6. Summing all present values benefits and costs and computing the expected benefit to cost.
7. Sensitivity analysis and quantification of uncertainty

BCR of earthquake mitigation by increasing strength and stiffness in new buildings (by county) to meet the 2018 IRC and IBC [Multi-Hazard Mitigation Council (2019). “Natural Hazard Mitigation Saves: 2019 Report“].


BCA for Seismic Hazard Mitigation Plans

Benefit-Cost Ratios (BCRs) are strongly affected by how frequently strong ground shaking occurs for the site of interest. For a mitigation project to reduce earthquake damage, an earthquake has to occur at the site at some point during the remaining useful life of the building after the seismic strengthening has been completed. The amount of payback achieved depends on how often the mitigated project will be shaken and how strongly, as well as how effective the seismic mitigation program is in improving life safety and reducing damage and downtime. It is important to use accepted probabilistic methods (e.g., FEMA 366) to estimate the benefits of seismic rehabilitation. In areas such as California, damaging strong ground shaking may occur many times during the remaining life of a building considered for seismic improvement. In locations such as the Pacific Northwest, damaging strong ground shaking occur less often, so a building may experience earthquake damage once, or at most a few times. In regions such as the Midwest, where hundreds of years may pass between damaging earthquakes, most buildings will never experience strong ground shaking during their useful life.

BCRs are higher where earthquake shaking and other hazards occur more frequently, so mitigation projects reduce damage, downtime or injury more frequently. For example, in locations where damaging earthquakes happen frequently, large benefits may accrue from mitigating the effects of many 50-year seismic events than for mitigating the effects of a single 10,000-year event. Therefore, to accurately calculate the benefit-cost ratio, the expected losses from earthquakes with relatively short return periods (such as 50 to 300 years) must be accurately calculated.

Even with a favorable BCR (i.e., greater than 1.0), it is not certain that a large earthquake will occur during the remaining useful life of the facility. Where multiple options produce similar BCRs, it is useful to estimate the probability that full payback for the proposed mitigation alternatives during the remaining useful life of the building. The benefit / cost ratio and the return period for full payback are both useful for ranking and comparing risk reduction alternatives for particular buildings, and for prioritizing programs of retrofit within a large portfolio.

If you are thinking about conducting a BCA study for a seismic retrofit scheme planned for a specific building, ImageCat’s Engineering and Seismology team can help! These studies are often required as part of application to FEMA Hazard Mitigation Grant Program (HMGP). ImageCat’s seismic risk experts were part of the team responisble for creation of FEMA current BCA tool (Full Structural Module) and have extensive knowledge on the process. Please contact us to discuss further.