The year 2017 was a good year for conducting risk mitigation studies.  Two 2017 studies came out about the same time.  In 2018, Lloyd’s of London and Cambridge published their 2017 risk assessment study.  Several months earlier, the National Institute of Building Science published “Natural Hazard Mitigation Saves: 2017 Interim Report”.  The Lloyd’s of London and Cambridge study are discussed in another piece.  The differences between the two studies is that the Lloyd’s study is a global assessment. It also expands the risk perspective by including man-made and natural hazard risks. 

The Natural Hazard Mitigation Save study focuses only on natural hazards.  It is also limited to the United States.  Both studies stress the benefits of mitigation. The Lloyd’s study finds that mitigative efforts can results in a reduction of adverse impact by as much as 13.4% of the global gross domestic product.  This piece looks at the Natural Hazard Mitigation Saves study.

Background

The 2017 study was an update of a 2005 study.  The 2005 study looked at the savings resulting from federal mitigation grants from the Federal Emergency Management Administration (FEMA), the Economic Development Administration and the Department of Housing and Urban Development from 1993 to 2003.   The 2017 study covered 23 years’ worth of data. It also took advantage of improved information on building life, expanding it from 50 to 75 years, better flood impact information and improvements in FEMA’s cost/benefit tool.  The FEMA tool allowed assessment of the benefits provided by fire stations, hospitals, and other public-facilities, better search and rescue techniques, the costs associated with Post Traumatic Stress (PTSD) and insurance costs.

For the cost/benefit study, the costs were the up-front construction and long-term maintenance costs to improve existing structures and the added costs of new construction.  The benefits were the present value reduction of future losses that resulted from mitigative efforts.  For the PTSD assessment, treatment cost, lost wages, lower productivity and pain and suffering were factored in.  The discount rate for the cost/benefit models was 2.2%.

The cost/benefit were calculated based on two mitigative efforts.  The first was the costs and benefits of federal mitigation programs.  The second was having building codes above the 2015 International Building Code (IBC) and International Residential Code (IRC) standards.

Results

The specific results of the two efforts are below.  Summarized, for every dollar spent on the federal grant mitigation efforts, six dollars in future costs are saved.  For building beyond the international standards, for every dollar spent, future four-dollars are saved.

Federal Grant Mitigation

Benefit:  $157.9 billion

Cost:

Causalities & PTSD $68.1 billion (43%)

Property damage $58.1 billion (37%)

Additional living expenses & direct business interruptions $12.9 billion (8%)

Insurance $10.5 billion (7%)

Indirect business interruption $6.3 billion (4%)

Loss of service $2.0 billion (1%)

Total Cost: $27.4 billion

Building beyond 2015 IBC and IRC

Benefits: $15.5 billion

Cost:

Property $6.7 billion (43%)

Additional Living expenses & direct business interruption $3.5 (22%)

Causalities & PTSD $1.8 billion (12%)

Indirect business interruption $1.8 billion (12%)

Insurance $1.5 billion (10%)

Total Cost $3.6 billion

The results indicate that mitigation efforts have significant positive impact.  Broadly, they reduce insurance costs and the number of claims and associated administrative fees.  Specifically, they free up resources which can help assure that post-disaster services such as fire stations and hospitals will be available and functioning.

To facilitate the cost benefit ratio several mitigative actions were proposed.

Mitigative Actions

The mitigative actions were: using federal grant mitigation strategies and building above international code mitigation strategies.

Federal grant mitigative strategies include:

For flood resistance acquire or demolish flood-prone buildings.

For wind resistance, add hurricane shutters and tornado safe rooms.

For earthquake resistance, strengthen various structural and nonstructural components.

For fire resistance, replace roofs, manage vegetation to reduce fuels and replace wooden water tanks.

Building code mitigation strategies include:

For flood build new homes higher than required by the 2015 IBC.

For resistance to hurricane winds, build new home to comply with the Insurance Institute for Business & Home Safety Fortified Home Hurricane standards.

For resistance to earthquakes, build new buildings stronger and stiffer than required by the 2015 IBC.

For fire resistance in the wildland-urban interface, build new buildings to comply with the 2015 International Wildland-urban interface standards.

The presentation of specific mitigative strategies made this study different from others, where there were only generalities.  The mitigative strategies indicated that cities have substantive options for dealing with natural hazards.  These options, when tailored to the specific hazard, could result in a positive cost/benefit ratio.

Summary

The Natural Hazard study showed that applying the federal mitigative efforts of FEMA, HUD, and the Economic Development Administration could save six dollars for every dollar spent.  If local governments required building improvement above the 2015 international building and commercial standards, a saving of four dollars for every one spent occured.  The study outlined specific mitigative efforts based on the nature of the hazard.

This study, like that conducted by Lloyd’s of London, provided positive reinforcement for mitigative efforts. Both provided a dollar costs for various adverse risk events. In the case of the Lloyd’s study the benefits were generalized.  The Natural Hazard study indicated the dollar benefits associated with specific mitigative action.  The information provided by both studies will allow local governments to make informed decisions on how to manage risks, whether natural disaster or man-made.

Bio:

James J. Kline is a Senior Member of ASQ, a Six Sigma Green Belt, a Manager of Quality/Organizational Excellence and a Certified Enterprise Risk Manager.  He has over ten year’s supervisory and managerial experience in both the public and private sector.  He has consulted on economic, quality and workforce development issues for state and local governments.  He has authored numerous articles on quality in government and risk analysis. jeffreyk12011@live.com