Geohazard Risk Cost Benefit in a Changing Landscape
Landslides and river processes are dynamic in nature. They occur in response to extreme rainfall, snowmelt, and other natural and anthropogenic causes, and their future timing and significance is almost always uncertain. As a result, estimates of event probability and consequence are often used to assess geohazard risk, prioritize sites for further characterization, and to help quantify the benefits and costs of management options.
Leveraging risk cost benefit analysis allows for the expected costs and benefits of different geohazard management options to be compared, including options requiring different levels of upfront investment and ongoing maintenance effort, and with different efficacy and expected design life. The analysis outputs can take several forms, including benefit-cost ratios, cost to save a statistical life, and estimates of life cycle costs.
To calculate a benefit-cost ratio, benefits are represented in terms of the present value of the expected reduction in annualized risk as a result of the geohazard management strategy (achieved through a reduction in event likelihood and/or consequence). The cost represents the total cost across the entire lifecycle of the management strategy, including capital costs, present value of ongoing monitoring and maintenance effort, and renewal cost if the lifespan of mitigation measures is expected to be shorter than the lifespan of the infrastructure being protected. Financing costs, the effects of inflation and other considerations are accounted for in the discount rate selected for the present value calculations. When the benefit-cost ratio is greater than 1 it suggests the benefits of the management option might exceed the costs; options with higher benefit-cost ratios often provide more efficient risk reduction.
Lifecycle cost can be represented by the sum of the present values of the management effort and the annualized residual geohazard risk associated with each option. Provided sufficient funding is available to execute them, options with the lowest total life cycle cost may often be preferrable, even if they have lower benefit-cost ratios than alternatives.
Even considering life cycle cost, however, one sometimes finds it difficult to provide financial justification for large investments in geohazard management that have the potential to confer long-term benefits. The main reason for this is that most costs occur up-front, while the risk-reduction benefits can accrue over a very long period of time. The discount rates typically used in these types of analyses can significantly discount the potential benefits that may persist for decades or even generations into the future. In this situation, there are several factors that might warrant further consideration before giving up on a potentially costly, but effective, management strategy. These include a more careful treatment of geohazard event consequences, expected infrastructure value and consequence escalation rates, and potential increases in event probability.
Geohazard events that cause damage or failure of infrastructure can produce a wide range of consequences. These can include engineering assessment, design and repair costs, potentially including both repairs to the infrastructure and stabilization of the geohazard itself. Geohazard events may also cause injury or fatality, and environmental consequences. Damage to infrastructure can result in unplanned service outages and costly service disruptions. They can also lead to reputational damage, loss of social license, and negative impacts on an owner’s ability to finance and develop new projects. Accepted techniques are available to monetize most of these consequence types. While many of these consequence categories are often considered in a matrix approach to risk assessment, approaches that don’t consider the full suite of consequences in the quantitative risk analysis and cost-benefit calculations will obviously under-estimate the true level of risk and the potential benefits of risk management.
In cost benefit analysis, future costs can either be treated as real or nominal costs, which either ignore or account for the effects of inflation. Different discount rates are deployed depending on whether real or nominal costs are used, such that similar present values are obtained either way. However, there are many scenarios where future costs (e.g., the consequences of infrastructure damage or failure) may escalate at rates exceeding those of inflation, and these can have a significant impact on the present value calculations. Examples include roads, railways or pipelines that are expected to transport an increasing volume of goods over time, or measures providing flood protection for a growing community. In some instances, infrastructure replacement costs might also be expected to escalate faster than inflation. Where relevant, these escalating consequence values need to be accounted for in the analysis.
Geohazard event frequency/probability and magnitude will often be expected to change over the lifetime of planned mitigation measures, particularly in response to climate changes and changes in land use. Certain types of geohazard processes, such as damage caused by slow-moving landslides or lateral river channel migration, are also very likely to result in failure probabilities that increase with time. Infrastructure subject to accumulating landslide displacements from a slow-moving landslide may be unlikely to fail within a year to two, but very likely to fail within a couple of decades. Similarly, infrastructure located near the outside of a river meander might currently be reasonably well protected from bank erosion at the present time, but the probability of impact might increase year-over. Inputs from landslide, fluvial geomorphology, and climate specialists are needed so that the dynamic nature of these hazards and risks can be properly accounted for in cost benefit analysis.
Investments in geohazard investigation, monitoring, and mitigation often yield significant returns which can be demonstrated through thoughtful risk assessment and cost benefit analysis. Interested in learning more? Please contact us to explore approaches to quantitative risk assessment, cost benefit analysis for geohazard mitigation, and for support optimizing your risk management strategies.