Cost Benefit Analysis for DRR

Cost Benefit Analysis for Disaster Risk Reduction

A major decision-supporting tool commonly used for estimating the efficiency of projects is cost-benefit analysis (CBA). CBA is used to organise, appraise and present the costs and benefits, and inherent tradeoffs of projects taken by public sector authorities like local, regional and central governments and international donor institutions to increase public welfare (Kopp 1997). However, generally there is a lack of information on the costs and benefits and the profitability (net benefits) of natural disaster risk management projects.

In the absence of concrete information on net economic and social benefits and faced with limited budgetary resources, many policy makers have been reluctant to commit significant funds for risk reduction, although happy to continue pumping considerable funds into high profile, post-disaster response (Benson/Twigg 2004).

Outlining the benefits of risk management in terms of damages2 avoided and methods for including risk into project appraisal methodologies such as CBA can help changing such attitudes. There are two issues with respect to CBA in the context of efficient natural disaster risk management:

 1. CBA can be used to select efficient natural disaster risk management measures in hazard prone areas. In the context of scarce resources, CBAs are useful for selecting the most profitable projects in terms of damages avoided and rejecting those projects that are not cost-effective.
 2. There is a need for incorporating disaster risk and risk management measures in project and development planning (also called mainstreaming). Including disaster risk and risk management measures in appraisal methods will help rendering development more robust.



For further readings on related topics please find the following recommended links:

Cost-benefit Analysis of Natural Disaster Risk Management in developing countries manual (GIZ)