Flood prevention schemes: guidance for local authorities

SECTION 1: INTRODUCTION

Scope

1.1 This chapter provides guidance for Scottish local authorities on the economic aspects of project appraisal for flood prevention schemes promoted under the Flood Prevention (Scotland) Act 1961. It identifies methods for valuing costs and impacts in monetary terms and sets out a recommended decision process, based on economic values. Good practice recommendations are shown in bold text.

1.2 The guidance assumes that the reader has prior knowledge of general benefit-cost analysis techniques, and should be read in conjunction with the other chapters. It is not intended to be followed mechanically, or to cover every possible eventuality. Appropriate specialist advice should be sought as necessary for the benefit-cost analyses of all schemes.

1.3 Unless otherwise stated, references in this chapter to economic values, whether in terms of costs, losses or benefits, assume that all components of economic value are taken into account. Such components can include social, political and environmental values (Annex B).

1.4 The document is based on the procedural guide, "Flood and Coastal Defence Project Appraisal Guidance, Economic Appraisal", published by the Ministry of Agriculture, Fisheries and Food, now the Department of Environment, Food and Rural Affairs (Defra) (reference 1). It incorporates and develops certain aspects of the guidance to local authorities given in the Scottish Executive's Note of 14 March 2003.

Background to benefit-cost analysis

1.5 In Scotland, the capital works undertaken by local authorities in respect of flood prevention schemes can attract substantial support from public funds in the form of grant assistance. To qualify for such support, schemes must, among other things, be subjected to economic appraisal, to ensure value for money and the achievement of other goals. The procedures for economic appraisal should be consistent with the 'Treasury Green Book' (reference 2).

1.6 The recommended approach is appraisal-led design. That is, the whole process of option development, refinement and choice should be carried out within a logical appraisal framework. Ideally, this should entail working from strategic assessments through to appraisal of the options for a particular project.

1.7 The key to application of benefit-cost analysis to flood prevention schemes is the management of risks. Such schemes reduce the probability or severity of future flood damage, compared to the pre-scheme situation. This change in probability may vary over time; for example, as an embankment erodes. No scheme can eliminate the possibility of flooding, and there can be no certainty about the timing of the next damaging event. Further discussion of issues related to the definition and evaluation of risk can be found in Chapter 6.

1.8 It should be emphasised that the aim of benefit-cost analysis is to provide a transparent and inclusive approach to decision-making which, as far as possible, takes all relevant factors into account. While some impacts cannot easily be valued in monetary terms, they should not be excluded from the appraisal.

1.9 Benefit-cost analysis is a useful tool for determining the most appropriate strategic approach, deciding whether it is worthwhile to undertake a scheme, and identifying and comparing scheme options. It should not be viewed as a hurdle. The analysis should stimulate the development of alternative solutions by clarifying the consequences of all options. Well-designed, it should ensure that schemes undertaken represent the best value for money, and that uneconomic schemes are identified at an early stage.

1.10 The design process is cyclic and iterative. It involves exploring the problem, generating options, and refining the selection progressively. This approach should also be applied to the benefit-cost analysis, to aid and guide the design towards the best solution.

Goals

1.11 Economic appraisals have several goals:

Best use of public money Demands for public funding always exceed the money available. It is therefore necessary to aim for economic efficiency in the investments that are made. This is achieved when the total of all forms of benefit is maximised relative to the resources used. The analysis should not be limited to the consideration of priced benefits and resources. It should, where appropriate, include unpriced benefits, such as the enjoyment gained from walks by a river, as well as the unpriced costs incurred, such as nuisance during construction.

Sustainability Sustainable schemes are those which take account of the interrelationships with other defences, developments and processes within a catchment, and which avoid as far as possible tying future generations into inflexible and expensive options (see Chapter 3). This can often be demonstrated in economic terms (paragraphs 5.20, 5.21).

Accountability A formal process of project appraisal can demonstrate that a wide range of different options has been considered transparently, and that the advantages and disadvantages of each have been properly considered. Appraisals also create an effective audit trail of decision-making.

Quality assurance Good quality appraisals save time and money by early rejection of unrealistic options; they increase certainty and confidence in the final outcome.