What is a BCA and how is one conducted?

04/06/2020

8 min read

*Originally Published in March 2018. Updated for 2020

When pursuing federal funding for a mitigation project, making a strong case for how the project will benefit the public is imperative. For years, conducting a BCA has been the go-to method for demonstrating a project’s benefits.

A benefit-cost analysis (BCA) is an equation that measures the cost-effectiveness of a proposed mitigation project throughout its service life. The federal government uses the result of a BCA — known as a benefit-cost ratio (BCR) — to decide how cost-effective their funding assistance will be in a given project. From the perspective of many funding agencies, a project is cost-effective when the benefits outweigh the costs.

Five Examples of Project Benefits that can be included in a BCA

Avoided Future Damages:

Structural damages avoided as a result of the proposed project.

Critical Service Continuity

Costs avoided by maintaining critical services such as WiFi, or emergency service providers, as a result of the project.

Roadway Access

Consequential damages or costs avoided by a closure of a roadway, as a result of your project. This would include the increased fuel spending to navigate detours, loss of economic activity in the form of lost wages due to increased commute times or inability to commute, as well as the loss of access for emergency services.

Utility Continuity

Costs avoided as a result of utility continuity, as a result of your proposed mitigation project. This could include damages associated with loss of heat/cooling, refrigeration, visibility, loss of material goods, inconvenience, and cost of backup power generation.

Creation of Riparian Areas or Green Space

If your project provides benefits such as erosion control, pollutant filtration, flood reduction through infiltration, flood risk reduction through the preservation of riparian areas, aesthetics, air quality, recreation, habitat creation, etc., they should be added to the benefits column in your analysis.

Historical data has been analyzed to develop standardized monetary values for each type of benefit. For example, one acre of green space has been quantified as providing $1,623 in aesthetic benefits each year.

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How to Conduct a BCA in 4 Steps

Compile benefits over the service life of your project and convert to present-day dollars to account for inflation and other factors.
Determine the costs to construct or implement the project.
Divide the present-day benefits by the project costs
Determine the benefit-cost ratio (BCR).

If greater or equal to 1.0, the project’s benefits sufficiently warrant the cost, and it’s deemed cost-effective!

However, not all cost-effective projects are created equal. Consider the following example:

Project A: Cost: $100,000 / Benefits: $200,000 = BCR: 2.0

Project B: Cost: $1,000,000 / Benefits: $1,500,000 = BCR: 1.5

Project A is more cost-effective, with a higher BCR. Given the lower costs, funding agencies would consider this project more feasible. From a different perspective, Project B provides greater benefits albeit at a lower BCR. The considerably greater benefits could lead to determining that this project is more feasible.

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The Bottom Line:

A BCA is an effective tool for determining a project’s cost-effectiveness, as well as how likely you are to receive funding assistance. Other factors should be considered during the decision-making process for selecting projects, as discussed in “5 Steps to Implementing Your Hazard Mitigation Plan After Adoption.”

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