Benefits and Costs of Earthquake Hazard Mitigation
What Is Mitigation? The Federal Emergency Management Agency (FEMA) defines mitigation as "an action taken specifically to reduce future damages and losses from natural disasters." The most "typical" types of activities that a business might undertake for mitigation of earthquake damage and losses are strengthening buildings (or infrastructure) and bracing or anchoring of building contents. Other projects that might be undertaken by a business include employee education and training programs, publications or videos, as well as mitigation planning activities. While such projects result in actions that reduce future damages and losses and are valuable for general preparedness and risk management, the benefits of these activities are difficult to evaluate using standard cost-benefit analyses.
What Are Benefits? Benefits are simply avoided damages and losses - In a simple calculation of the benefit of retrofitting an unreinforced masonry building, one would first calculate the likely structural damage to that building both with and without various retrofit schemes in a variety of levels of shaking. Next, one would use available data on the likelihood of those shaking levels to calculate the average annual structural loss both before and after a retrofit. Then, the losses after mitigation are subtracted from the losses without mitigation to calculate net benefits. Finally, the useful life of the building and the time value of money (discount rate) are used to convert those average annual losses to their present value.

Such an analysis is insufficient, however. The full analysis should consider other physical losses, including building contents, vehicles, and equipment. In addition, it should consider avoided costs associated with loss of function and business disruption, casualties, and avoided liability.

What Are Costs and the Benefit-Cost Ratio? The net benefits of mitigation are compared to the direct costs of the retrofit, or other mitigation. This relationship is expressed as the ratio of benefits to costs. A ratio of greater than 1.0 is considered a worthwhile mitigation investment.

FEMA notes that "Benefit-cost analysis can be a powerful tool to help sell the concept of mitigation and to convince individuals and communities that mitigation investments are in their own self interest."

Table - Categories of Avoided Damages (adapted from FEMA)
Avoided Physical Damages Building damages
Contents damages, including equipment
Damage to building or site infrastructure
Hazardous material contamination
Avoided Loss-of-Function Costs Displacement costs for temporary quarters
Loss of rental income
Loss of business income
Lost wages
Disruption time for employees or tenants
Avoided Casualties Deaths
Injuries
Illnesses
Avoided Emergency Management Costs Emergency operations center costs
Evacuation or rescue costs
Security costs
Temporary protective measure costs
Debris removal and cleanup costs
Other management costs
 
Other Resources and Examples of Large Benefit-Cost Assessments:
 

BART system Seismic Vulnerability Study - includes an extensive analysis on the costs and benefits of seismic upgrading - For more information about the BART Earthquake Safety Program, including this benefit-cost analysis, contact Catherine Westphall, Community Relations Manager, at (510)464-7595.
Hetch Hetchy Water and the Bay Area Economy - an innovative assessment by the Bay Area Economic Forum on the probably effects on the Bay Area Economy of a major failure of the Hetch Hetchy water system due to, for example, a major earthquake
Federal Emergency Management Agency (FEMA) Mitigation BCA Toolkit Version 1.0 CD - July 2003. Call the FEMA BC Hotline at (866)222-3580 (toll-free) to receive this FREE CD publication.

 
 
ABAG, the Association of Bay Area Governments, is the regional planning and services agency for the nine-county San Francisco Bay Area.
The writing and production of the materials and reports of this page and the others in this section of the ABAG Earthquake Program web site were funded in large part by Grant No. 01-HQGR-0214 from the U.S. Geological Survey (USGS), as well as by the Association of Bay Area Governments. Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the funding agencies. Last updated 4/26/04 by jbp.