About Benefit-Cost Analysis
Benefit-Cost Analysis (BCA) is the method by which the future benefits of a hazard mitigation project are determined and compared to its costs. The end result is a Benefit-Cost Ratio (BCR), which is calculated by a project’s total benefits divided by its total costs. The BCR is a numerical expression of the "cost-effectiveness" of a project. A project is 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 requires a BCA to validate cost effectiveness of proposed hazard mitigation projects prior to funding. There are two drivers behind this requirement: (1) the Office of Management and Budget’s (OMB) Circular A-94 Revised, “Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs” and (2) the Stafford Act.
The goal of Circular A-94 is to promote efficient resource allocation through well-informed decision-making by the Federal Government. FEMA’s BCA Toolkit has been developed to meet the guidelines published in Circular A-94.
The Stafford Act authorizes the President to establish a program to provide technical and financial assistance to state and local governments to assist in the implementation of hazard mitigation measures that are cost effective and designed to substantially reduce injuries, loss of life, hardship, or the risk of future damage and destruction of property.
Benefit-Cost Analysis Methodology
Applicants and subapplicants must use FEMA-approved methodologies and tools to demonstrate the cost-effectiveness of their projects. FEMA has developed the BCA Toolkit to facilitate the process of preparing a BCA. Using the BCA Toolkit will ensure that the calculations are prepared in accordance with OMB Circular A-94 and FEMA's standardized methodologies. It is imperative to conduct a BCA early in the project development process to ensure the likelihood of meeting the cost-effectiveness eligibility requirement.
The BCA Toolkit consists of modules for a range of major natural hazards and project types including:
- Tornado Safe Room
- Hurricane Wind
- Hurricane Safe Room
- Damage-Frequency Assessment (Multi-Hazard)
A non-FEMA BCA methodology may only be used when it addresses a non-correctable flaw in the FEMA-approved BCA methodology or it proposes a new approach that is unavailable using the FEMA BCA Toolkit. The non-FEMA methodology must be approved by FEMA in writing prior to submission of the project application to FEMA.
In June 2009, the Greatest Savings to The Fund (GSTF) approach was released for use in demonstrating the cost-effectiveness of mitigation projects. Currently, FEMA allows the use of the GSTF methodology for any HMA program for Severe Repetitive Loss (SRL) properties. Applicants are required to use the current GSTF value at the time of application submission.
To streamline the HMA grant application process, FEMA has released several benefit-cost efficiencies to provide pre-determined cost effectiveness values. Using pre-calculated benefits eliminates the requirement for applicants to conduct a separate BCA for eligible projects:
- Acquisitions and Elevations in the Special Flood Hazard Area (SFHA)
- Residential Hurricane Wind Retrofits
- Non-Residential Hurricane Wind Retrofits
- Individual Tornado Safe Rooms
- Post-Wildfire Mitigation
The pre-calculated benefits and benchmark costs are not intended to drive actual project costs or to serve as detailed project cost estimates; individual project cost estimates must be based on industry standards, vendor estimates or other acceptable sources. Projects must still meet all other HMA requirements.
BCA Tool Download
On January 10, 2017, FEMA released the BCA Toolkit Version 5.3.0. Version 5.3.0 replaces previous versions of the BCA Toolkit.
ATTENTION: Due to a known installation issue with the BCA Toolkit Version 5.3.0, users must download and install the Microsoft Office Access Runtime 2007 prior to installing the BCA Toolkit.
FEMA staff can install the “Microsoft .Net 3.5 Installer” and “SharePoint Datasheet View Fix 2007 32bit (Access DB Engine 2007)” from the Software Center.
Users must download the Benefit Cost Analysis Version 5.3.0 Setup Standard Zip File, extract the contents into a folder on the user's computer and then run BCAV5_3_0_Setup_Standard.exe to install. Those without administrative rights to their machine (including FEMA employees) will need to contact their IT department for support.
This version release includes updated Hurricane Hazard and Earthquake Hazard datasets. Links to those hazard data sets are provided below and are required when performing analysis for hurricane wind retrofit projects or seismic retrofit projects.
- BCA Tool Version 5.3.0
- Hurricane Hazard Dat (Version 5.3.0 and later)
- Earthquake Hazard Dat (Version 5.3.0 and later)
Version 5.3.0 and version 5.2.1 can be installed on the same machine at the same time. It is recommended that you keep version 5.2.1 installed as users transition to version 5.3.0 of the benefit cost toolkit. As of January 10, 2017, Version 5.1 of the benefit cost toolkit has been sunset and should no longer be used to conduct analysis. If Version 5.1 is still in use, the projects should be exported from that version of the tool and imported into Version 5.3.
Some major features of Version 5.3.0 include:
- Updated all standard economic values utilized in analysis
- Creation of the Aquifer Storage and Recovery module for drought mitigation
- Expansion of Ecosystem Service Benefits
- Updated Tornado recurrence information
- Updated Hurricane Wind and Earthquake Hazard datasets
Other Reference Materials
- Landslide Acquisition Benefit Calculator
- Hurricane Hazard Data (Version 5.2.1 and earlier versions)
- Earthquake Hazard Data (Version 5.2.1 and earlier versions)
- BCA Reference Guide
- BCA Reference Guide Supplement
FEMA provides both classroom and online independent study courses for FEMA, state, local, territorial, and tribal staff to learn BCA fundamentals.
To see upcoming offerings and register for the classroom BCA course (E0276), visit the FEMA training website and search the course catalog for “Benefit-Cost Analysis.”
The training materials used in the classroom course may be accessed here.
Independent Study Courses
- Independent Study (IS) Course 276.A: Benefit-Cost Analysis Fundamentals
- Independent Study (IS) Course 277.A: Benefit-Cost Analysis (BCA) Entry-Level
FEMA’s BCA Helpline is available to provide assistance using the BCA Toolkit. The BCA Helpline cannot review or perform benefit cost analysis. Assistance requests in reviewing or performing BCA and eligibility or policy questions should be directed to the local State Hazard Mitigation Officer.
The Helpline’s hours are 9 a.m. – 5 p.m. (EST) Monday through Friday. Questions to the BCA Helpline can be directed to firstname.lastname@example.org or by calling toll free at 1-855-540-6744.