The BCA Basics: Project Benefits, Costs, and Why They Matter
5 min read
In a nutshell, benefit-cost analyses (BCAs) measure the cost-effectiveness of proposed mitigation projects. The federal government uses the result of a BCA — 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.
5 Examples of Project Benefits
Avoided Future Damages:
Avoided structural damage based on the level of improvements the mitigation project will bring.
Avoided Loss of Service
Keeping important services functioning, like power, water, WiFi, and emergency services.
Continued Roadway Access
Alternate routes can take time and fuel among others which result in socioeconomic losses; can also include the loss of emergency service access.
Utilities such as Loss of Electricity
Combines a number of factors including loss of heat/cooling, refrigeration, visibility, and loss of material goods, inconvenience, cost of backup power generation.
Creation of Riparian Areas or Green Space
Provides benefits such as erosion control, pollutant filtration, flood reduction through infiltration, flood risk reduction through preservation of riparian areas, aesthetics, air quality, recreation, habitat creation, etc.
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.
How to Conduct a BCA in 4 Steps
1. Compile benefits over the service life of the project, and convert to present-day dollars to account for inflation and other factors.
2. Determine the costs to construct or implement the project.
3. Divide the present-day benefits by the project costs
4. Determine 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 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.