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• 10/97-DR 1187 <br /> BENEFIT/ COST ANALYSIS OF <br /> HAZARD MITIGATION PROJECTS <br /> Introduction <br /> - The Stafford Act requires HMGP mitigation projects to be cost-effective, and FEMA <br /> regulations require net present value calculations to be used in determining cost- <br /> effectiveness. <br /> - Since mitigation projects are designed to reduce or eliminate future damages, cost- <br /> effectiveness evaluations of them must estimate damages which are likely to be avoided <br /> over the entire expected life of each project. <br /> - Flood mitigation projects located where a Flood Insurance Study or other reliable <br /> hydrology information is available should be evaluated using the FEMA RIVERINE <br /> FLOOD B/C computer model. <br /> - Projects located where detailed hydrology information is not available, particularly <br /> small infrastructure and non-riverine projects, should be evaluated using the FEMA <br /> • RIVERINE FLOOD INFRASTRUCTURE Mini-Model. <br /> - Large, complicated projects should be evaluated by a FEMA contractor under the <br /> Hazard Mitigation Technical Assistance Program (HMTAP). <br /> - DEM staff or FEMA contractors can perform B/C analyses of proposed projects if the <br /> material described in the "Information Needs" sections below is provided. <br /> Concepts <br /> - "Benefits" are expected future damages, losses, and costs that would be avoided with a <br /> project in place, discounted to present value. <br /> - "Costs" are the total of initial construction & installation costs, long-term maintenance <br /> costs, and project management costs, discounted to present value. <br /> - "Present Value" is the result of a calculation to determine the time value of money. <br /> Dollars expected to be received in the future have a present value which is less than <br /> dollars available now. Present value is calculated by use of a discount rate of 7% (current <br /> rate established by Federal OMB). This "discounting" calculation may be thought of as <br /> the reverse of an "interest" calculation. <br /> • - "B/C Ratio" is the sum of yearly benefits over the life of the project, discounted to <br /> present value, divided by total costs, also discounted. If the ratio is >1.0, the project is <br /> cost-effective (benefits exceed costs). <br />