ADJUSTERS INTERNAT IONAL .COM 3 project’s total net benefits divided by its total cost. The BCR is a numerical expression of the cost effectiveness of the project. BCRs of 1.0 or greater have more benefits than costs — and are therefore cost effective. The examples below demonstrate two scenarios — one cost effective and one not cost effective. The development of BCAs came as a result of the impetus provided by the Federal Navigation Act of 1936, which required that the U.S. Army Corps of Engineers (USACE) carry out projects for the improvement of a waterway systemwhen the total benefits of a project exceed the costs. Thus, USACE created a systematic method for measuring such benefits and costs. It wasn’t until 20 years later, in the 1950s, that economists tried to provide a rigorous, consistent set of methods for measuring benefits and costs to decide whether a project is worthwhile. In the newmillennium, the Disaster Mitigation Act of 2000 (DMA2K) focuses on taking action to reduce the impacts of hazards before disasters occur. The goal of DMA2K is to help federal and state reviewers evaluate mitigation plans frommultiple jurisdictions in a fair and consistent manner, and to help states and local jurisdictions develop newmitigation plans or modify existing ones.1 “A Benefit Cost Analysis is a method for determining the potential positive effects of a mitigation measure and comparing them to the cost of the measure.” COST EFFECT I VE SUMMARY OF BENEFITS AND COSTS EXPECTED ANNUAL PRESENT VALUE Expected Annual Damages Before Mitigation $5,431 $74,952 Expected Annual Damages After Mitigation $3,913 $54,003 Expected Avoided Damages After Mitigation (BENEFITS) $1,518 $20,949 PROJECT COSTS $10,000 PROJECT BENEFITS $20,949 BENEFITS MINUS COSTS $10,949 BENEFIT-COST RATIO 2.09 EXAMPLE 1 NOT COST EFFECT I VE EXAMPLE 2 SUMMARY OF BENEFITS AND COSTS EXPECTED ANNUAL PRESENT VALUE Expected Annual Damages Before Mitigation $3,960 $54,645 Expected Annual Damages After Mitigation $3,911 $53,969 Expected Avoided Damages After Mitigation (BENEFITS) $49 $676 PROJECT COSTS $10,000 PROJECT BENEFITS $676 BENEFITS MINUS COSTS ($9,324) BENEFIT-COST RATIO 0.07 S OUR C E : FEMA Benefit-Cost Analysis Re-Engineering (BCAR) Damage Frequency Assessment (DFA) Methodology Report —May 2009 Version 4.5 ____________________ 1 An often-overlooked section in DMA2K is: REDUCED FEDERAL SHARE —“The President shall promulgate regulations to reduce the federal share of assistance under this section to not less than 25 percent in the case of the repair, restoration, reconstruction, or replacement of any eligible public facility or private nonprofit facility following an event associated with a major disaster — (A) that has been damaged, on more than one occasion within the preceding 10-year period, by the same type of event; and (B) the owner of which has failed to implement appropriate mitigation measures to address the hazard that caused the damage to the facility.”
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