From risk to resilience: the cost-benefit analysis methodology

From risk to resilience: the cost-benefit analysis methodology

Can cost benefit analysis aid disaster risk management?

Cost-benefit analysis (CBA) is an established tool for determining the economic efficiency of development interventions. A limited number of studies have demonstrated that disaster prevention can pay high dividends. Despite the benefits, disaster risk management (DRM) measures are rarely implemented and there is, for the most part, a reliance on reactive, after-the-fact approaches. This working paper discusses key methodological aspects and findings from CBA of DRM strategies in a detailed case study in Uttar Pradesh, India.

The authors focus on the essentials of CBA generally and outline key components necessary for utilizing CBA to assess DRM interventions. The paper discesses the assessment of risk, and identifying risk management measures and associated costs. A method for calculating the economic efficiency of DRM is also presented. The authors conclude that CBA can be a useful tool in DRM if a number of issues related to conducting a CBA assessment and using results are properly taken into consideration. These include:

  • before engaging in a CBA assessment, it is necessary to clarify the objectives, information needs and data situation among different potential stakeholders
  • specific challenges and characteristics of disaster risk management need to be properly communicated and understood in order to properly interpret results derived in a CBA
  • given the complexities involved in estimating the costs and benefits of DRM and the history and current usage of CBA as a decision support tool, the role of CBA in DRM is strongly related to process rather than outcome.