Objective - To support community resilience planning through the development of tools that evaluate the economic impacts of disruptive events, including accounting for uncertainties of future events and measuring the co-benefits from resilience actions.
What is the new technical idea? Advancements in measurement science are needed to estimate the economic impact associated with community resilience planning for natural and man-made hazards. Currently, disaster-related loss (damage) estimates are available, although they tend to focus on direct loss only, and fail to consider down-stream, indirect, and sustained effects, such as business interruption, which can be large and have a significant effect on the short- and long-term stability of a local or regional economy. Also missing are estimates of the cost of prevention, protection, and mitigation of hazards and potential disaster events, as well as the expenditures required during the response and recovery phases. A methodology to value the economic impact and avoided costs is needed to evaluate the return-on-investment of community resource allocation decisions made to reduce future economic damages from disturbances and disasters, while recognizing the need to achieve balance with other community goals, and to account for uncertainty.
The methodology, as described in the guidance document (‘Economic Decision Guide’ NIST SP1197) has been further developed and translated into ASTM ‘standard guides’ for submission to ASTM subcommittees E06.81 (Performance of Buildings - Building Economics) and E54.05 (Homeland Security Applications – Building and Infrastructure Protection). The methodology has been implemented with a prototype software tool, the “EDGeS Tool” (Economic Decision Guide Software Tool) that will be further developed to implement complex uncertainties and graphical interfaces. These activities will be designed to be complementary to the NIST Community Resilience Planning Guide for Buildings and Infrastructure Systems, providing decision makers at the community/regional level a process to evaluate alternate investment decisions and judge their economic viability.
What is the research plan? The research plan comprises five major activities: (1) the creation and formal acceptance of draft standard practices to formalize, publish, and make available an economic toolkit facilitating decision making for communities; (2) measurement of disturbance and disaster-related costs and potential linkages to achieve other community goals; (3) measurement of disaster losses, focusing on major indirect losses, such as business interruption, and distributional effects; (4) quantification of the uncertainty affecting economic decisions, and understanding how uncertainty should be communicated to decision makers; and (5) measure the ‘resilience dividend,’ the (non-disaster related) community co-benefits from investing in disaster resilience, and provide tractable guidance to communities on approaches to assessing the net co-benefits associated with resilience planning.
The methodology for measuring economic impact of community resilience planning is organized around the performance metric of ‘cost plus loss’ minimization – i.e., the economically optimal level of investment in prevention and mitigation activities to reduce future disturbance and disaster-related losses, as well as related expenditures that minimize the combined investment cost plus the value of expected losses. Also, the methodology considers various constraints placed on the minimization requirement given other community objectives (e.g., to minimize loss of life).
Measuring the economic impact associated with resilience planning requires a better understanding of the ‘costs’ and indirect ‘losses’ (direct losses are better documented to date). A full accounting of the major cost elements is needed. On the loss side, a better understanding of the cascading indirect losses is needed (e.g., a systems approach to community-wide losses). Further, quantifying and accounting for the uncertainty in measuring the costs and losses is needed. Finally, measuring the ‘resilience dividend’ is needed to articulate the business case for resilience planning. To date, the use of computable general equilibrium (CGE) modeling has been employed to explore this issue by the Applied Economics Office (AEO).
A first-generation decision support tool will be published to support community resilience planning to facilitate cost-effective resource allocation and to minimize the economic impact of hazards and potential disaster events. Development of this support tool will be based on the beta version of the tool developed in FY17, stakeholder input and feedback, and findings from the invitational workshop held in FY 2015, a literature review, stakeholder input, and continued related research, including efforts on business continuity and the ‘resilience dividend.’ Draft standards submitted, and subsequently approved, to ASTM through the subcommittees E06.81 (Performance of Buildings - Building Economics) and E54.05 (Homeland Security Applications – Building and Infrastructure Protection) will provide the technical basis of the first-generation decision support tool, based on industry best practices. Formal ‘standard guides’ will ensure the methodology is consistent (across communities and over time), transparent, reproducible, and based on peer-reviewed science. The standard practices will describe the approach for measuring the economic impact for communities by identifying the relevant costs and losses needed, as well as the economic tools, to make sound financial decisions.