lecture 10 cost benefit analysis new

7/25/2019 Lecture 10 Cost Benefit Analysis New

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INTERNATIONAL INSTITUTE FOR GEO-INFORMATION SCIENCE AND EARTH OBSERVATION

Cost-benefit analysis in Disaster

Risk ManagementCees van Westen

[email protected]


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Disaster Risk Management


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Risk Evaluation.

Risk evaluationis the stage at which values and

judgment enter the decision process, explicitly orimplicitly, by including consideration of the importanceof the estimated risks and theassociated social,environmental, and economic consequences, in order to

identify a range of alternatives for managing the risks. We have analyed the risk either qualitatively or

quantitatively. !ow questions arise" #s the risk too high$

Where is the risk too high$

What is too high$

What do the people think$


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Risk evaluation versus perception

%isks can classified into involuntary riskand voluntary risks. %isks associated with natural haards are often classified as

involuntary risk.

&hey often relate to rare events with catastrophic potentialimpacts.

'ay perceivers (or non)experts* give more weight to haards thattake many lives at ones that is to major disasters ( +mith, --*.

&echnical experts assess infrequent haards that take many livesat one time equal to regular haards that take a similar number

of lives just once in a time (over an equivalent period* ( +mith,--*.


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Two dimensions of risk

&he /factual0 dimension, which indicates the actual measured

level of risk, and which can be expressed in probability of losses(e.g. number of people, building, monetary values*

&he /socio)cultural0 dimension, which includes how a particularrisk is viewed when values and emotions come into play.


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Risk perception

%isk perception is the way howpeople1communities1authorities judge theseverity of the risk. 2o they know$

3re they worried$ 3re they prepared to act$

Who they think should act$

What is it worth to them$


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Factors tat determine risk perception

&heir personal situation.

Cultural and religious background.

+ocial background

4conomic level

5olitical background

'evel of awareness 6edia exposure

7ther risks

%isk reduction situation

Acceptable risk: a risk which the society or impactedindividuals are prepared to accept. Actions to further reduce

such risk are usually not required unless reasonablypracticable measures are available at low cost in terms ofmoney, time and effort.

Tolerable risk: a risk within a range that society can livewith so as to secure certain net benefits. It is a range of riskregarded as non-negligible and needing to be kept underreview and reduced further if possible.

ALARP (As Low As Reasonably Practicable) principle:

Principle which states that risks, lower than the limit oftolerability, are tolerable only if risk reduction is impracticableor if its cost is grossly in disproportion depending on thelevel of risk! to the improvement gained.


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Risk evaluation.

&he !"!R# principleis that the residual risk shall be as low as

reasonably practicable.

6ust be avoided orreduced8

%isk reduction costmay be taken intoaccount. 9eyond a

certain pointinvestment in %%may be inefficient.


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Risk evaluation based on F-$ curves


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%ic risk is acceptable&

2uring the life of an average person, the chance of death is never lessthan "-,--- (.---4):*" this is due to all causes.

+o it would not be realistic to require the risk due to natural disasters tobe lower than this.

&hese curves differ from country to country. !o international standards

;oluntary < involuntary risk is also relevant.


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F-$ curves

Risk acceptability is mostly defined on te basis of F-$ curves


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Risk acceptance criteria in $eterlands

/dyke rings0 that protect apart of the country againstflooding.

&he more important thearea, the lower the chancethat the dyke ring breaks and

the area will be flooded.


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Cost- benefit analysis

3n important aspectin risk evaluation isalso"

=ow much do weneed to spend inorder to reduce therisk

CostsBenefits


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Tools to evaluate best risk reductionmeasures Cost 9enefit 3nalysis (C93* is used to compare costs and benefits of a one

specific measures or a set of alternative measures over a period of time fora. C93 assesses the measure(s* mainly on the basis of the efficiency criterion.#t requires the monetiation of all the effects. &he effects that cannot beexpressed in monetary terms will be usually described in their original unit ofmeasurement.

Cost 4ffectiveness 3nalysis" (C43*has most of the features of C93, but does

not require the monetiation of either the benefits or the costs (usually thebenefits*. C43 does not show whether the benefits outweigh the costs, butshows which alternative has the lowest costs (with the same level ofbenefits*. C43 is often applied when the norm for a certain level of safetyhas been set. C43 analyes which types of solution is the >cheapest? given acertain level of safety standard.

6ulti Criteria 3nalysis (6C4* is a tool that allows comparing alternativemeasures on multiple criteria. #n contrast to C93, 6C4 allows the treatmentof more than one criterion and does not require the monetiation of all theimpacts. 6C4 results in a ranking of alternatives.


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c. %ic alternative is economically temost attractive&

Flood proofing

relocation.Levees

If all alternatives are all as effective in terms of risk reduction the cheapest alternative (Cost Effectiveness Analysis, CEA

If effectiveness in risk reduction differsthe cheapest alternative

in terms of risk reduced (Cost Benefit Analysis, CBA


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%at is an optimal level of a riskreducing measure& 3 number (most$* risk reduction measures could be applied

in a variable way =eight level of dikes

4arthquake resistance of buildings

'egal restrictions land use

..

3 higher level of risk reducing measures reduced risk, 9A& diminishing returns

7ften at higher variable costs

67%4 is not necessarily more beneficial

4B365'4" small example C93riskreducing
http://small%20example%20cba_risk_reducing_working_file.xlsx/http://small%20example%20cba_risk_reducing_working_file.xlsx/


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Cost-'enefit !nalysis and Damage!ssessment ( for wom&&

Dovernment and fundingagencies

!ational and provincialgovernments

Dovernments1general public

4mergency planners

#nsurance companies

5rivate firms1house owners

4x)ante project appraisal

3ccountability ) &ax money

4conomic loss )compensation

#dentification of criticalrisk areas

Einancial loss

#nsurance or other

protection measures


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#erspective ( damage)cost)benefits forwom&

#ublic" nationalministries, provincialgovernments,emergency planners

#rivate" private firms,private propertyowners, insurancecompanies

4conomic values < realvalues < broad economicperspective

Einancial values

lecture 10 cost benefit analysis new

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