Global Report on Human Settlements 2007 - PoA-ISS

286
Towards safer and more secure cities
Cost-benefit
analysis offers a
methodology to help
determine the
optimum allocation
of resources to
reduce disaster risk
Disaster risk is …
not included in the
majority of
evaluations for
urban planning
decisions
being. There is a wide variety of cost–benefit tools and these
are frequently applied in decision-making in urban infrastructure
development. Most methodologies include a
three-stage process. First, the costs and benefits of an investment
are identified. If a quantitative methodology is used, a
common metric and numerical value must be assigned to
each cost and benefit. Second, future costs and benefits are
discounted to allow for the comparison of future and current
values. Third, a decision criterion is applied to determine
which is greater, the costs or benefits of a proposed investment.
Recent efforts have applied the cost–benefit analysis
approach to measure the pros and cons of land-use decisions
and the relative merits of investing in hazard mitigation.
Despite some growing evidence of the utility of
cost–benefit analysis as an aid to land-use decision-making
for risk reduction, it is still not routinely used to determine
the comparative advantage of investing in disaster prevention,
preparedness and mitigation infrastructure
investments. Cost-benefit analysis offers a methodology to
help determine the optimum allocation of resources to
reduce disaster risk. Where cost–benefit analysis has been
undertaken, there is now a growing body of evidence to
show empirically the cost effectiveness of investing in risk
reduction. For example, a comparison of different disaster
prevention measures undertaken against floods and volcanic
hazard in the Philippines calculated benefits of between 3.5
and 30 times the project costs. 22 The Philippines case is
based only on direct losses. Box 12.7 presents additional
measures of the benefit of proactive investment in risk
reduction, which have been calculated using a range of
cost–benefit methodologies.
Disaster risk is similarly not included in the majority
of evaluations for urban planning decisions. 23 This increases
the chance of projects being damaged or destroyed by
natural and human-made hazards. Where investment funds
have to be borrowed internationally, this increases debt
Box 12.7 Revealing the advantages of disaster risk reduction
through cost–benefit analysis
The World Bank and US Geological Survey calculated that economic losses worldwide from
disasters during the 1990s could have been reduced by US$20 billion if US$40 million had been
invested in mitigation and preparedness.
In China, investments of US$3.15 billion in flood control measures over 40 years are
believed to have averted potential losses of US$12 billion.
In Viet Nam, 12,000 hectares of mangroves planted by the Red Cross to protect 110
kilometres of sea dikes costs US$1.1 million, but has reduced the costs of dike maintenance by
US$7.3 million per year, in addition to protecting 7750 families living behind the dikes.
A study on Jamaica and Dominica calculated that the potential avoided losses compared
with the costs of mitigation when building infrastructure, such as ports and schools, would have
been between two and four times. For example, a year after constructing a deepwater port in
Dominica, Hurricane David, in 1979, necessitated reconstruction costs equivalent to 41 per cent
of the original investment; while building the port to a standard that could resist such a hurricane
would have increased basic costs by only about 12 per cent.
In Darbhanga district in North Bihar (India), a cost–benefit analysis of disaster mitigation
and preparedness interventions suggests that for every Indian rupee spent, 3.76 rupees of
benefits were realized.
Source: DFID, 2005
while running the risk of losing the investment. The scale of
this problem is seen in the increasing number of disaster
reconstruction projects that international development
banks, and mainly the World Bank, have supported during
the last two decades. It is hoped that increasing the awareness
of disaster risk through tools such as cost–benefit
analysis will prevent reconstruction investments from also
becoming subject to disaster. The need to adapt to climate
change places additional pressure on the necessity of
integrating disaster risk within development planning
decision-making.
The variable frequency and severity of natural and
technological hazard events and any associated human
disasters present a challenge to cost–benefit analysis,
although a number of statistical methods can be employed
to measure the uncertainty that this brings to calculations.
24 Cost-benefit analysis is further constrained by the
need to reduce inputs to a common metric that usually
requires putting a monetary value on all costs and benefits,
including human life and injuries. This is a challenge for any
comparative assessments between places with different
land uses – for example, in attempting to measure relative
returns from an investment that increases security in a
business district or a low-income housing area. The former
land use will have far higher economic value; but the latter
provides life-support services, some of which (shelter and
access to basic services) can be quantified in economic
terms, as well as social and ecological services (a sense of
identity and community) that cannot be easily represented.
More generally, methods for deriving values for human life,
and also for other intangibles such as environmental quality
or women’s empowerment, are hotly contested. One
approach is to ask people how much they are willing to pay
to protect a certain asset, or how much they would be
willing to receive in compensation if an asset was lost. The
latter methodology routinely provides values an order of
magnitude higher. This serves to indicate the vulnerability
of cost–benefit analysis to manipulation or misinterpretation.
Part of the solution to this is not to use cost–benefit
analysis as a stand-alone tool to determine decisions, but
rather to provide supporting evidence for decision-making
alongside other non-economic inputs. 25
Institutional reform
Appropriate institutional arrangements define the relationships,
responsibilities and power of stakeholders in disaster
and its management. The movement from managing risk
through emergency relief and response towards a more
proactive pre-disaster orientation requires institutional
change. Development actors are better placed and have
more appropriate skills than emergency response experts in
achieving disaster risk reduction. Humanitarian actors and
those involved in disaster reconstruction also need to
integrate development planning within their work. These
two shifts require a change in the distribution of responsibilities
for risk management. This is likely to be accompanied
by adjustments in budgets and in policy. Institutional
arrangements can help in co-coordinating such changes