Benefit-Cost Analysis of FEMA Hazard Mitigation Grants

Abstract

Mitigation decreases the losses from natural hazards by reducing our vulnerability or by reducing the frequency and magnitude of causal factors. Reducing these losses brings many benefits, but every mitigation activity has a cost that must be considered in our world of limited resources. In principle, benefit-cost analysis (BCA) attempts to assess a mitigation activity’s expected net benefits (discounted future benefits less discounted costs), but in practice this often proves difficult. This paper reports on a study that applied BCA methodologies to a statistical sample of the nearly 5,500 Federal Emergency Management Agency (FEMA) mitigation grants between 1993 and 2003 for earthquake, flood, and wind hazards. HAZUS MH was employed to assess the benefits, with and without FEMA mitigation in regions across the country, for a variety of hazards with different probabilities and severities. The results indicate that the overall benefit-cost ratio for FEMA mitigation grants is about 4:1, though the ratio varies from 1.5 for earthquake mitigation to 5.1 for flood mitigation. Sensitivity analysis was conducted and shows these estimates to be quite robust.