top of page

Would you invest in a project that pays for itself 4 times over?

Updated: Nov 25, 2020

Policy Pulse - 11 May 2019 - George Anjaparidze

Cyclone Fani made landfall in the Indian state of Odisha on 3 May, leaving a trail of destruction that spread all the way to northern Bangladesh. As of 11 May the death toll had reached 59 but it could have been much worse. In 1999, when a cyclone of comparable strength hit this region, over 10,000 people were massacred.

This time, carnage was avoided thanks to improvements in the early warning system and better preparedness to respond. The physical damage to infrastructure is still being assessed and is likely to be extensive. At least some of the damage could have been reduced with better resilience planning. Nevertheless, the example of cyclone Fani illustrates how investing in disaster management is a worthwhile undertaking.

Empirical evidence supports this assertion. R. Mechler`s 2016 global review of 39 studies, undertaken between 1998 and 2015, found that the benefit to cost ratio of disaster risk management programs is 3.7 (See chart). That means that on average disaster risk management programs pay for themselves nearly four times over.

These finding mirror earlier assessments. In 2005, the US Multihazard Mitigation Council assessed over 5,400 disaster risk management programs, costing $3.5 billion. It estimated these programs to have a discounted net present value of social benefits of $14 billion. Meaning that $1 spent on disaster risk management programs created $4 of benefits.

Leading experts in the field, such as Charlotte Benson and E.J. Clay, have identified the multifaceted types of impacts from disasters, including the existence of adverse long-term macroeconomic consequences. Benefit-cost analysis frameworks are not well suited to incorporate longer-term impacts and intangible benefits of risk reduction programs. Therefore, the findings from the empirical studies mentioned above can be viewed as conservative estimates and the actual benefit to cost ratios may be even greater.

As experts and donors gather in Geneva from 13-17 May for the Global Platform for Disaster Risk Reduction they do so under a backdrop of an accelerating trend in natural disasters, which have grown in intensity and impose ever increasing costs. This accelerating trend, combined with the economic rationale of investing in disaster risk management, means that incremental progress is no longer sufficient. Delegates need to deliver a step change in the scale-up of support for disaster risk management programs.

About Veritas Global: Our vision is to have a positive impact on the world through truthful advice informed by robust analysis. We are a premier provider of tailored solutions on climate change, international conflict economics and infrastructure.

bottom of page