A Benefit-Cost Analysis (BCA) should be performed to demonstrate that a proposed project will be a wise expenditure of public funds.
For all mitigation projects, a cost-effectiveness determination is required as a basic eligibility requirement. In many cases, this means performing a BCA in the BCA Toolkit.
However, under certain conditions, an analysis may not be required to be performed in the BCA Toolkit, including if the project:
- Is eligible for pre-calculated benefits
- Qualifies as "substantially damaged" as defined by the National Flood Insurance Program
If the below conditions are not applicable for your project, you will need to perform a full BCA in the BCA Toolkit.
The term “pre-calculated benefit” refers to a benefit value that has been calculated based on research and statistical analysis or computer modeling of mitigation projects.
Each pre-calculated benefit that FEMA has determined is listed below. However, note that not every mitigation project type has a corresponding pre-calculated benefit. If a pre-calculated benefit is not listed for a specific project type, then it is likely that a full BCA will need to be performed.
BCA Toolkit users are strongly encouraged to review and understand the conditions for which a pre-calculated benefit may be used.
Be aware that using a pre-calculated benefit value does not change the eligibility requirement for developing a detailed cost estimate. A project’s cost estimate must be based on industry standards, vendor or construction estimates, or other reliable and defensible sources.
Available Pre-Calculated Benefits
FEMA Hazard Mitigation Assistance (HMA) funded mitigation projects must be cost-effective, which is typically demonstrated through a Benefit-Cost Analysis (BCA) or a pre-calculated benefit. This report details the methodology used to establish the pre-calculated benefit values for hospital generator projects. It is provided for informational purposes and does not contain any information needed to submit a grant application.
Practical Application of Pre-Calculated Benefits
When performing a BCA using pre-calculated benefits, you will use the benefits value provided in the applicable memorandum as the benefits value for the property being mitigated. If the project cost for that property is less than or equal to the pre-calculated benefits value, then mitigating that property is considered cost-effective.
However, even though a full BCA is not required, a benefit-cost ratio (BCR) must still be calculated since it is a required data field in FEMA’s electronic grant application systems such as FEMA GO. Either the BCR can be manually calculated or the BCA Toolkit can be used.
A manual calculation involves using an ordinary calculator to enter the pre-calculated benefits value and then dividing that by the estimated cost for mitigating that specific structure.
The pre-calculated benefits value for an acquisition project is $323,000 per structure. If it will cost $250,000 to acquire and demolish a house, then manually calculate the BCR by $323,000 / $250,000 = 1.29. Enter the BCR into the project subapplication documentation where requested.
Be sure to follow the requirements listed in each pre-calculated benefits memorandum or other document.
For acquisitions or elevations in a Special Flood Hazard Area, the average cost per structure should be used for all structures mitigated by the project.
If the costs to acquire and demolish three homes are $340,000, $300,000, and $300,000, the pre-calculated benefits policy could be used because the average cost is $313,333 ($340,000 + $300,000 + $300,000) / 3).
In the same memorandum, another example of following the requirements in a pre-calculated benefits policy involves using a location factor to boost the pre-calculated benefits value for project locations that have higher-than-average construction costs.
RS Means or Marshall & Swift construction data may show that a location factor of 10% is applicable. In this case, the pre-calculated benefits value can be increased by 10% by the following calculation: $323,000 * 1.10 = $355,300. Then, the pre-calculated benefits policy should be followed as explained above, but with using this higher dollar value. Additionally, the source of the location factor must be provided as supporting documentation.
Structures using pre-calculated benefits can be entered into the BCA Toolkit. If the BCA Toolkit detects that a project cost value could be applicable under a pre-calculated benefit, a sidebar will appear in the Cost Estimation Info section. If the user selects “Yes” to consider the structure under the pre-calculated benefits policy, the analysis for that structure will end and the benefits and costs will be displayed in the Project Summary screen as they would be displayed if a full BCA was performed.
The advantages of entering data this way for structures and projects for which pre-calculated benefits apply are that (a) the latitude and longitude values will be automatically generated for each structure, (b) the BCA Toolkit can aggregate the BCR for multiple structures in the project according to the pre-calculated benefits policy, and (c) users will have an exportable BCA file to attach to their project subapplication.
Warnings about Using Pre-Calculated Benefits
Take care to understand the pre-requisites for using a pre-calculated benefits methodology. For example, the Acquisitions and Elevations in the Special Flood Hazard Area (SFHA) memorandum applies only to buildings that are located within an SFHA. If the project involves mitigating buildings both inside and outside an SFHA, the pre-calculated benefits methodology can be used only for the buildings within the SFHA. Additionally, the memorandum prohibits aggregating buildings inside SFHAs with those outside SFHAs. Therefore, since it is often difficult to show that mitigating buildings outside of an SFHA are cost-effective due to a lack of flood data, it may be necessary to perform a full BCA in the BCA Toolkit for some or all buildings included in the project.
The cost estimate used as the basis for pre-calculated benefits must consider the entire project cost for the project type. For example, all required costs for an acquisition project, such as legal fees, structure demolition, and site restoration, must be included in the cost estimate and not just the cost to acquire the structure. Similarly, the cost estimate must not include ineligible project costs.
When using the hurricane wind pre-calculated benefits, make sure that the project location is in the correct county and/or wind zone, especially for cases where the structures are located near the boundary between two counties or in a county that is partially located in the appropriate wind zone.
Substantially Damaged Building
For communities participating in the National Flood Insurance Program, “substantial damage” is defined by the local floodplain management ordinance as a structure in a Special Flood Hazard Area for which the total cost of repairs is at least 50% of the structure’s market value before the damage event occurred, regardless of the cause of damage (the local ordinance may have a lower percentage).
If the following conditions are met, you do not have to perform a full BCA using the BCA Toolkit:
- The mitigation activity is structure acquisition and demolition.
- The building is located within a riverine (not coastal) floodplain as shown on a preliminary or effective Flood Insurance Rate Map (FIRM). Note: The building may be located in the floodplain based on its elevation instead of being located in the floodplain on a FIRM. In this case, the elevation documentation should be included in the project subapplication.
- The Local Floodplain Administrator has supplied documentation that the building is substantially damaged (from any origin).
To use this approach for not performing a full BCA in the BCA Toolkit, the following documentation is required to be submitted with the project subapplication:
- The FIRM or other documentation showing that the building is located in a riverine floodplain.
- The substantial damage determination letter.
When all of the above conditions have been satisfied, for data entry in the FEMA GO Cost-Effectiveness screen, users should enter a Total Project Benefits value equal to the Total Project Costs. This will automatically calculate a BCR of 1.0 and will allow FEMA GO users to navigate past this screen without an error.