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Benefit-Cost Analysis Tool

What is Benefit-Cost Analysis?

·      Benefit-cost analysis is a well-established, quantitative way of comparing the benefits of a seismic retrofit project with the costs of the project.  
·      Benefit-cost analysis results are expressed as a benefit-cost ratio which is simply the calculated benefits of the retrofit project divided by the project costs. 
·      When the benefit-cost ratio is greater than 1.0, the seismic retrofit project is deemed to be economically justified or cost-effective.
Benefit cost analysis is about evaluating risk.  In this context, risk means the potential for damages, economic losses and casualties in future earthquakes.  The higher the level of risk is for an existing building, the greater the benefits of reducing that risk by retrofitting a building. 
The following attributes combine to determine the level of risk for a given building:
  • Seismic Hazard.  The higher the level of seismic hazard is at a given location (the probability and severity of future earthquakes), the greater the level of risk.
  • Vulnerability.  The greater the vulnerability of a building and its contents (the extent of damage expected at various levels of earthquake ground shaking), the greater the level of risk.
  • Value at Risk. The greater the values of the building and contents, the greater the level of risk.
  • Economic Losses.  The greater the costs of displacement to temporary quarters in future earthquakes and the value of public services provided from the building, the greater the level of risk.
  • Occupancy.  The higher the average occupancy of a building is, the higher the level of risk of casualties (deaths and injuries).
For a given seismic retrofit project, the benefit-cost ratio depends strongly on the level of risk, as noted above, but also depends on the following two factors:
  • Effectiveness.  How effective is the proposed seismic retrofit in reducing the level of seismic risk?  The greater the effectiveness, the higher the BCR.
  • Cost.  For a given level of effectiveness, the lower the cost of the mitigation project the higher the benefit-cost ratio. 
·    The Oregon BCA Tool does all of the many complicated calculations necessary for benefit-cost analysis automatically.  The user must only enter the specified building-specific information in the designated cells in the spreadsheet.
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Seismic Hazard

The level of seismic hazard has a substantial effect on benefit-cost ratios.  Locations in Oregon with higher levels of seismic hazard will have higher benefit-cost ratios, everything else being equal, than locations with lower levels of seismic hazard.  
However, there are important caveats to keep in mind which considering seismic hazards, including:
·      Seismic hazard also varies with soil type –which is not considered in the following map which is for rock sites.  Soft soil sites typically have higher levels of ground motions and thus higher seismic hazard levels.
·      Not every prospective seismic retrofit in a high hazard location will have a high benefit-cost ratio.  The benefit-cost ratio depends on the combination of all of the risk factors noted above, as well as on the effectiveness and cost of the mitigation project.
·      Seismic retrofits in moderate or even relatively low seismic hazard locations may have high benefit-cost ratios if the building has profound seismic vulnerabilities, the building and contents have high values, high potential for economic losses, and a high occupancy.


Seismic Hazard Zones in Oregon

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The results of the BCA are only as good as the data about the building that you, the applicant, puts into the tool. It is recommended that you gather your input data ahead of time, prior to starting your benefit-cost analysis. The following are some of the questions you will need to answer for the tool, and suggested sources where you can find this information:


·       Building Information
·       Rapid Visual Screening (RVS) Data
·       The Oregon BCA Tool has a direct link to the RVS database (in the tool this is called the Building Database). You only need to know the RVS Site ID number and the tool will retrieve the RVS information. There is an opportunity to correct RVS data, or input data if no RVS was done on your building. It is recommended that you always have your engineer verify the accuracy of the RVS data.
·       Building square footage
·       Building Replacement Value
·       Contents Value
·       Seismic Retrofit Cost Estimate
·       An accurate cost estimate for the proposed seismic retrofit is important not only for benefit-cost analysis and for the evaluation and ranking of the proposal, but also for the applicant.  Cost overruns for successful applications will not be covered by the Oregon Seismic Rehabilitation Grant Program, but rather will be the responsibility of the applicant.
·       The seismic retrofit cost estimate must include the following elements:
o   Conceptual seismic retrofit scheme.  A meaningful cost estimate cannot be generated without knowing what retrofit measures are to be implemented.  At a minimum, there must be at least a conceptual retrofit scheme summarizing the structural measures to be implemented with a narrative and/or sketches showing where in the building each structural measure will be constructed.
o   More formal designs, either preliminary or final, allow more accurate cost estimates to me made.  Thus, having such formal designs is certainly helpful and adds to the credibility of the application, but is not required for a grant application. 
o   Engineering cost estimate which includes:
§  Quantities and unit costs for construction,
§  Architectural and engineering fees,
§  All of the other typical soft costs, including contractor mobilization, profit and overhead (if not included in the unit costs above), permitting, inspections, insurance, and project management.
·       Occupancy Information
o   The average building occupancy on a 24/7/365 basis is an important data entry for benefit-cost analysis because it is used to calculate the expected number of casualties both before and after mitigation.  For benefit-cost analysis, the number of casualties is monetized, using the 2009 FEMA statistical values for deaths, major injuries and minor injuries. The kind of occupany data you will need to gather depends on your building type, but may include:
§  Employees
§  Visitors
§  K-12 Students
§  For K-12 students, enter the following data for both the academic year and summer months:
• Average daily number of students
• Hours per day
• Days per year of classes.
§  College-University Students
§  For college and university students enter the following data for both the academic year and summer months:
·       The duration of typical class periods – such as 1 hour, 1.5 hours, 2 hours and so on.
·       The number of class periods per week of each class duration.  For example, a class that meets three times per week is three class periods.
·       The total enrollment for classes of each duration.  For example, if there are 100 1-hour class periods per week, each with 30 students, the total enrollment is 3,000.  That is, we are counting each class period for these calculations.
§  Patients
§  For in-patients, enter the total number of in-patient beds (for reference) and the average daily number of in-patients.  For benefit-cost analysis, in-patients are assumed to be in the hospital for each entire day. For out-patients, enter the average number of out-patients per day and the average time that each out-patient spends in the building.
§  Meetings, Sports Events and Other Special Events
§  Enter the following data for such events:
·       Name/type of event,
·       Number of events per year,
·       People per event, and
·       Average duration per event.
§  Budget Information


§  Budget information is a required component to gauge the true benefits of a project. This includes employee or volunteer costs, operating expenses for the facility and the organization as a whole, proxy rent calculations and other building expenses, depending on the building use. You may need to consult with your Business Manager or Payroll Administrator to gather some of this information.


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Interpretation of BCA Results

·      As noted above, a benefit-cost ratio greater than 1.0 means that the seismic retrofit project is deemed to be economically justified or cost-effective.  In this sense, the higher the benefit-cost ratio the better the project is from an economic perspective. Conversely, a benefit-cost ratio less than 1.0 means that the seismic retrofit project is not economically justified or cost-effective.  This conclusion becomes stronger for benefit-cost ratios well below 1.0.
·      Thus, in narrowly defined economic terms, projects with higher benefit-cost ratios are better projects than those with lower benefit-cost ratios. However, there are important caveats on the above interpretation of benefit-cost ratios.  Most importantly, they are valid only to the extent that the benefit-cost analysis includes all of the significant benefits for a seismic retrofit project.
·      In some cases, there may be other important factors, not considered at all or incompletely considered in the benefit-cost analysis.  Examples include the historical value of a building, the importance that a given community may place on a particular building or other factors that are difficult to quantify in purely monetary terms.
·      For the Oregon Seismic Rehabilitation Grant Program, benefit-cost results are an important part of the evaluation and ranking process, but are not the sole determinant of whether or not a given project will be selected for funding.  In some cases, projects with benefit-cost ratios below 1.0 may be selected for funding.
·      SRGP staff can provide technical assistance with completing the BCA and can answer questions on inputs, troubleshooting questionable results or if you need assistance getting the tool up and running.
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The Oregon BCA User Guide

Link to Oregon BCA User Guide available soon.
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Where do I get the Oregon BCA Tool?

The BCA Tool (a set of Excel workbooks) is released at the time of an application period opening, along with all other application materials.
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