In accordance with authorizing statutes, only cost-effective mitigation measures are eligible for potential funding from the Federal Emergency Management Agency (FEMA).[181] FEMA has specified minimum project criteria via regulation and policy, including that applicants must demonstrate mitigation projects are cost-effective.[182]
FEMA developed several methodologies that applicants and subapplicants may use to demonstrate cost-effectiveness in accordance with Office of Management and Budget (OMB) Circular A-94, Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs. FEMA generally assesses the cost-effectiveness of hazard mitigation projects through a Benefit-Cost Analysis (BCA)—a quantitative analysis used to assess the cost-effectiveness of a hazard mitigation measure by comparing the project’s avoided future damage to the costs over the project lifetime. The result is a Benefit-Cost Ratio (BCR), which is the numerical expression of the cost-effectiveness of a project calculated as the net present value of total project benefits divided by the net present value of total project costs.[183] A project is generally considered to be cost-effective when the BCR is 1.0 or greater, indicating the benefits of a prospective hazard mitigation project are sufficient to justify the costs.
FEMA created the BCA Toolkit to help applicants perform benefit cost analyses in accordance with OMB’s guidelines. Through the development of the BCA Toolkit, FEMA created a standardized methodology that is specific to mitigation activities and provides consistency across applicants and subapplicants.
In addition to the BCA Toolkit, FEMA provides several streamlined methodologies that applicants and subapplicants may use to demonstrate cost-effectiveness. While FEMA encourages the use of the BCA Toolkit, applicants and subapplicants may also use a non-FEMA BCA methodology if pre-approved by FEMA in writing.
For Building Resilient Infrastructure and Communities (BRIC) and Flood Mitigation Assistance (FMA), additional information on demonstrating cost-effectiveness may be found in the appropriate year’s Notice of Funding Opportunity (NOFO).