The Public Assistance Program and Policy Guide establishes three methods to determine whether a project is cost-effective. The cost-effectiveness of most 406 Hazard Mitigation projects is determined by either the 15% or 100% rule. However, these rules may exclude some otherwise cost-effective projects.

If the mitigation measure is not cost-effective based on the first two criteria, FEMA, Recipient, and Applicant will work together to develop a Benefit-Cost Analysis to determine whether it is cost-effective.

FEMA considers mitigation measures to be cost-effective if the cost for the mitigation measure does not exceed 15% of the total eligible repair cost (prior to any insurance reductions) of the facility or facilities for which the mitigation measure applies.

If the costs exceed 15% of the total eligible repair cost, consider the 100% rule.

FEMA also considers mitigation measures to be cost-effective if:

• The mitigation measure is specifically listed in Appendix J: Cost-Effective Hazard Mitigation Measures of the Public Assistance Program and Policy Guide
• The cost of the mitigation measure does not exceed 100% of the eligible repair cost (prior to any insurance reductions) of the facility or facilities for which the mitigation measure applies

The items listed in Appendix J were derived from historical mitigation measures FEMA has determined to be cost effective.

If the project costs more than 15% of the total eligible repair cost or 100% of the damaged element repairs, then conduct a Benefit-Cost Analysis.

Many mitigation measures that do not meet either the 15% or 100% rule prove to be cost-effective based on a Benefit-Cost Analysis. The Applicant must demonstrate through an acceptable benefit-cost analysis methodology that the benefits of the mitigation measure exceed the cost of implementing it.

A Benefit-Cost Analysis is based on a comparison of the total eligible cost for the mitigation measure to the total value of expected benefits to society.

Benefits include reductions in:

• Damage to the facility and its contents
• The need for Emergency Protective Measures
• The need for temporary facilities
• Loss of function
• Casualties (typically included only for earthquake, tornado, and wildfire mitigation)

Some factors that a Benefit-Cost Analysis should also take into account include:

• The population affected
• Historical data
• Historical damage records
• Hydrology and hydraulics studies
• Damage frequency assessment
• Change in development of land

Each disaster should have access to a Benefit-Cost Analysis specialist. This specialist makes the Benefit-Cost Analysis calculations. Most counties will have someone in engineering and planning who can do the same.

There are a number of other tools and resources you can use to develop a Benefit-Cost Analysis:

• Benefit-Cost Analysis software: Make sure the version you are using is up to date and has the most current national guidelines for cost codes
• Third-party professionals: Individuals, such as the State Public Assistance Representative, can provide further guidance
• Recipient: The Recipient can also provide useful guidance when developing a Benefit-Cost Analysis
• FEMA courses:
• E0239: 406 Hazard Mitigation
• E0276: Benefit-Cost Analysis: Entry Level
• FEMA has Benefit-Cost Analysis software that provides appropriate Benefit-Cost Analysis methodologies. However, it is the Applicant or Recipient's responsibility to gather the necessary information and provide it to FEMA. FEMA Benefit Cost Analysis

Once the Benefit-Cost Analysis has been calculated, it can be submitted to FEMA along with the other documentation for your hazard mitigation project.

FEMA validates the Benefit-Cost Analysis by reviewing the methodology and the supporting documentation provided by the Applicant.