Developing Cost-Effective Resource Allocation Strategies to Enhance Community Resilience

Summary

Advancements in measurement science are needed to estimate the economic impact from planned community resilience enhancements that address natural and human-made hazards (e.g., the stream of expected net benefits resulting from investments into resilience activities).  Measuring the economic impacts of resilience requires understanding the full set of the benefits generated—including future losses avoided and non-hazard related impacts to social, economic, and environmental systems (“co-benefits”)—and the costs of those planned activities.  Developing loss avoidance estimates is currently difficult because the loss estimates available tend to focus on direct loss primarily, and often fail to consider down-stream, indirect, and sustained effects, such as business interruption, which can be large and have a significant effect on the sustainability of a local or regional economy.  Estimates of the cost of prevention, protection, and mitigation of hazards (as losses avoided are important, as well as understanding the expenditures required during the response and recovery phases. Analysis of the return-on-investment of resource allocation decisions made to reduce future (economic) damages to communities is required.

Further, the methodology must be comprehensive enough to identify those resilience strategies that achieve other community goals (e.g., economic development) through co-benefits, some of which may not have a straight-forward market value. Such valuation techniques promote an investment portfolio that yields tangible dividends during periods when hazards are not realized in the community. This project will build upon a first-generation decision support tool and draft standard to facilitate cost-effective resource allocations that minimize the economic impact of hazards and potential disaster events on communities, while accounting for uncertainty.  Furthermore, this economic decision methodology will be tested with communities facing issues of economic planning for increased resilience—using both primary data from field deployments and secondary data sources. The drivers for successful business continuity pre- and post-disaster will be explored through applied research.

Description

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 planning 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 human-made hazards. Currently, disaster-related loss (damage) estimates are available, although they tend to focus on direct loss only and are at aggregated levels; these estimates often 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 subcommittee E06.81 (Performance of Buildings - Building Economics).  The methodology has been implemented in the beta version software tool, the “EDGe$ Tool” (Economic Decision Guide Software Tool) that will be further developed as an online tool that implements 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—through the use of both data gathered in the field through surveys and interviews as well as secondary data sources; (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 this 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).

Through the AEO’s relationship with NIST’s Manufacturing Extension Partnership (MEP) that currently administers the Manufacturing Disaster Assistance Program (MDAP), there are plans to assess business continuity—specifically in manufacturing sectors— during all periods of resilience to a natural hazard event in the SE USA plus Puerto Rico.

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).

An online 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 and FY18, stakeholder input and feedback, and continued related research, including efforts on business continuity and the ‘resilience dividend.’  Draft standards submitted, and subsequently approved, to ASTM 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.