6 minute read
Economic essentials in natural hazard management
ECONOMIC ESSENTIALS
IN NATURAL HAZARD MANAGEMENT
Natural hazard managers are often under pressure to prioritise and justify their investments in mitigation activities. New research has informed a suite of tools to help practitioners decide which mitigation option is best given individual budgets and limited resources.
The Value Tool for Natural Hazards is a searchable online database of intangible economic values.
PHOTO: UNIVERSITY OF WESTERN AUSTRALIA
RADHIYA FANHAM
Bushfire and Natural Hazards CRC
The 2015 Productivity Commission’s report on natural hazard funding arrangements in Australia found that governments overinvest in post-disaster reconstruction and underinvest in mitigation activities that would limit the impact of natural hazards.
With the multitude of natural hazards that require mitigation and response from government agencies and with tighter budgets at both state and national levels, natural hazard managers are increasingly under pressure to prioritise and justify their investments.
Governments need to ensure that the benefits justify the costs and that they are getting the best value for money from these investments. So how do you decide which mitigation option is best when only one can be afforded, and how do you know if you are making the most of limited resources?
The University of Western Australia and the Bushfire and Natural Hazards CRC have conducted integrated economic analyses of management options for different natural hazards to generate estimates of both tangible (market) and intangible (non-market) values.
The Economics of natural hazards project provided evidence on the economic, social and environmental impacts of natural hazards to help hazard managers make better decisions about the allocation of resources for the mitigation of natural hazard impacts. Researchers developed tools and materials that make it easier for natural hazard managers to understand and estimate the value of mitigation, integrate intangible values in economic analyses of mitigation, and evaluate the difference it makes to intangible values.
“Economic analysis is a key tool that can support decision-making about resource allocation for the mitigation of natural hazards,” notes project leader and economist Dr Veronique Florec from the University of Western Australia.
“An economic analysis won’t tell you exactly what you should do, but it does provide guidance and makes the trade-offs between the available options clearer.”
Through this project, the research team has launched: the Value Tool for Natural Hazards, a searchable database of the best available non-market value estimates relevant to natural hazards the Economic Analysis Screening
Tool for the evaluation of the costs and benefits of mitigation options an online video series on the economics of natural hazards to explain basic concepts and how they are applied to evaluate different mitigation options an online training course for managers and practitioners on how to use economics in natural hazards management.
Value Tool for Natural Hazards
The Value Tool for Natural Hazards is a searchable online database of the best available intangible economic values associated with the impacts of natural hazards, such as health, environmental and social values. The values are designed to be incorporated into other economic analysis tools, such as the Economic Analysis Screening Tool.
The Value Tool incorporates annual Consumer Price Index increases to the values, allowing users to use values corrected to the relevant date. It is currently being used by natural hazard managers across the emergency management sector.
The increased awareness of intangible values and their importance has led to a clearer understanding of the trade-offs between tangible and intangible impacts, helping hazard managers to make more informed and comprehensive decisions about different mitigation options.
Economic Analysis Screening Tool
The Economic Analysis Screening Tool performs economic analyses and evaluates the tangible and intangible costs and benefits of mitigation options for any natural hazard. Used in conjunction with the Value Tool for Natural Hazards, it enables the evaluation and prioritisation of mitigation options that provide the best potential value for money. The Economic Analysis Screening Tool allows users to: conduct economic analyses in weeks rather than months or years understand the data requirements for
cost–benefit analyses and how it all fits together identify the best options for which it is worth developing a business case identify and prioritise the type and quantity of information that is needed to improve decisions and the confidence in those decisions understand the calculations and assumptions behind a cost–benefit analysis clarify the counterfact, or baseline, of what the options are being compared to determine the importance of intangible values for different decisions.
Online video series
Dr Florec created an explainer video series that guides natural hazard managers and practitioners through easy-to-understand explanations of the key economics concepts relevant to natural hazard management. The series teaches managers the different economic analyses available and the data requirements for each.
Using drawings and simple examples, Dr Florec explains how to use economic analyses to assess the value for money of different mitigation options, what information is needed to conduct an economic analysis, and how to interpret the results.
Viewers have praised the series: “Just watched your videos and found it very useful for understanding the different ways to measure economic inputs against outcomes and the different ways they are measured,” said Paul Simpson, Principal Policy Officer in the Western Australian Department of Fire and Emergency Services’ Office of Bushfire Risk Management.
“I find the drawings concept more engaging than a PowerPoint style. The commentary combined with the drawings at the same time kept me focused on the screen and the words.”
Online training course
Researchers developed and delivered an online training course in 2021 on how to use economics in natural hazards management, using the Value Tool for Natural Hazards and the Economic Analysis Screening Tool as the primary training tools.
Participants were guided through different exercises about: data requirements how to calculate, interpret and use net present values cost–benefit ratios and the internal rate of return how to perform, read and use a sensitivity analysis.
Researchers modified the Economic Analysis Screening Tool slightly so it could be used as a training tool to explain, step-by-step, how to conduct a cost–benefit analysis and interpret the results. Upon completion of the course, participants reported that they felt empowered and better equipped to conduct economic analyses, seeing possibilities for better mitigation of natural hazards using the knowledge they gained.
“Your work is very interesting and very necessary for us to be able to conduct comprehensive analysis of mitigation options that include both tangible and intangible values,” said Senior Program Manager at the Country Fire Authority, Geoff Morris.
“In Victoria we are just working on doing that at the moment—evaluating the costs and benefits of different mitigation options for bushfires and we will need the type of work that you are doing in our analyses. It would be very good if we could include intangible values in our benefit–cost analyses.”
Building economics capacity
This research and its associated resources are helping build economics capacity within the emergency management sector. They can be found in the Economics, Mitigation and Value theme of the CRC’s Driving Change website, at www.bnhcrc.com.au/drivingchange/economics-mitigation-value.
“This project has done an excellent job throughout its life in creating and maintaining an excellent relationship with its end-users, while also focussing on producing high quality research,” said lead project end user Ed Pikusa at the South Australian Department for Environment and Water.
“I commend the project team and the community of end users in working well together and producing a suite of accessible products and knowledge on the economics of natural hazards.”
Ultimately, using the freely available resources has significant potential to create a shift in thinking within emergency management agencies, empowering more organisations to become effective users of economic data and analyses.
With more people using the training, discussions about how to allocate resources to mitigation and how to evaluate the cost and benefits of the tangible and intangible values of different mitigation options will not be limited to a few—instead, many more people in the emergency management sector will be able to contribute to those discussions.
Dr Veronique Florec (University of Western Australia) presenting at the online training course.
