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1
Cost Effectiveness (CE) and Incremental Cost Analyses (ICA)
“IWR-Planning Suite”
Http://www.iwr.usace.army.milCh 6 Mod 5
ENVIRONMENTAL PLANNINGENVIRONMENTAL PLANNING
2
Learning Objectives
• Students will be able to identify conditions under which CE/ICA is required under current Corps guidance
• Students will be able to identify the data required to conduct an effective CE/ICA
3
Which Scares YOU More??
OR
Cost Effectiveness and Incremental Cost Analyses….
4
References• ER 1105-2-100
• Chapter 2, Planning Principles• Chapter 3, Corps Civil Works Missions• Appendix E, Civil Works Missions &
Evaluation Procedures
• IWR Report 95-R-1• “Procedures Manual: Cost Effectiveness and
Incremental Cost Analyses”
• IWR Report 94-PS-2• “Cost Effectiveness Analysis for
Environmental Planning: Nine EASY Steps”
• IWR Report 02-R-5• “Lessons Learned from Cost Effectiveness &
Incremental Cost Analyses”
5
Planning Guidance ER 1105-2-100 (22 April 2000)
• Requires CE/IC analyses for all mitigation and ecosystem restoration projects
• “Selecting the NER plan requires careful consideration of the plan that meets planning objectives and constraints and reasonably maximizes environmental benefits while passing tests of cost effectiveness and incremental cost analyses, significance of outputs, acceptability, completeness, efficiency, and effectiveness.” (Appendix E, E-41)
• CE/ICA helps support selection of mitigation plans
6
Why use CE/ICA?Why use CE/ICA?
To make more informed decisions…
document economic efficiency,make sound financial investments
To make more informed decisions…
document economic efficiency,make sound financial investments
What are CE/ICA?
Tools to inform and support environmental investment decision-
making
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CE/IC Analyses are NOT….CE/IC Analyses are NOT….
• A substitute for the planning process
• A measurement technique• Methods to provide a single
“right” answer • Basis for a Benefit Cost Ratio
(BCR) -(Flood Control Act 1936)
• A substitute for the planning process
• A measurement technique• Methods to provide a single
“right” answer • Basis for a Benefit Cost Ratio
(BCR) -(Flood Control Act 1936)
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Plan Comparison: Costs & Outputs
Plan Comparison: Costs & Outputs
Alternative Restoration
Plans
Plan Outputs
Plan Costs
No Action Plan 0 Habitat Units $0
Green Plan 950 Habitat Units $500,000
Blue Plan 950 Habitat Units $ 750,000
Red Plan 1,000 Habitat Units $ 1,000,000
Alternative Restoration
Plans
Plan Outputs
Plan Costs
No Action Plan 0 Habitat Units $0
Green Plan 950 Habitat Units $500,000
Blue Plan 950 Habitat Units $ 750,000
Red Plan 1,000 Habitat Units $ 1,000,000
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Results of Cost Effectiveness Analysis
Results of Cost Effectiveness Analysis
Alternative Restoration
Plans
Plan Outputs
Plan Costs
No Action Plan 0 Habitat Units $0
Green Plan 950 Habitat Units $500,000
Red Plan 1,000 Habitat Units $ 1,000,000
Alternative Restoration
Plans
Plan Outputs
Plan Costs
No Action Plan 0 Habitat Units $0
Green Plan 950 Habitat Units $500,000
Red Plan 1,000 Habitat Units $ 1,000,000
10
Results of Incremental Cost Analysis
Results of Incremental Cost Analysis
Alter-natives Plans
Plan Costs
Plan
Outputs
Incre-mental Cost
Incre-mental Output
Incre-mental
Cost/ Unit Output
No Action Plan
$0 0 HU’s
$0
0 HU’s $0
Green Plan
$500,000 950 HU’s
$500,000
950 HU’s $526
Red Plan
$1,000,000 1000 HU’s
$500,000
50 HU’s $10,000
Alter-natives Plans
Plan Costs
Plan
Outputs
Incre-mental Cost
Incre-mental Output
Incre-mental
Cost/ Unit Output
No Action Plan
$0 0 HU’s
$0
0 HU’s $0
Green Plan
$500,000 950 HU’s
$500,000
950 HU’s $526
Red Plan
$1,000,000 1000 HU’s
$500,000
50 HU’s $10,000
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Who does CE/ICA?
Interdisciplinary Team
Who does CE/ICA?
Interdisciplinary Team
• Plan formulator• Biologist• Economist• Cost estimator• H & H specialist• Real estate specialist• Decision maker• Other disciplines• Other stakeholders!
• Plan formulator• Biologist• Economist• Cost estimator• H & H specialist• Real estate specialist• Decision maker• Other disciplines• Other stakeholders!
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Why is CE/ICA important to Why is CE/ICA important to YouYou? ? (Biologists and PMs)(Biologists and PMs)
• Understanding of CE/ICA concepts Understanding of CE/ICA concepts is needed for:is needed for:• Formulation of environmental Formulation of environmental
alternativesalternatives• Development of environmental outputsDevelopment of environmental outputs• MitigationMitigation• Conducting CE/ICA and using IWR-Conducting CE/ICA and using IWR-
Planning SuitePlanning Suite• Managing/monitoring contractors use Managing/monitoring contractors use
of CE/ICA and IWR-Planning Suiteof CE/ICA and IWR-Planning Suite• Reviewing CE/ICA resultsReviewing CE/ICA results
13
Applicability
Restoration and mitigation All scopes of problems All scales of projects All phases of work All types of resources Many agencies and interests
14
How do you do CE/ICA? How do you do CE/ICA?
• To start, you need:• Solutions that address project objective(s)
• Independent• Implementable• Different scales
• Costs should be comparable (same level of detail) among alternatives
• Outputs• Quantifiable and cost-related• Quality as related to significance
• Proper Preparation Essential
• To start, you need:• Solutions that address project objective(s)
• Independent• Implementable• Different scales
• Costs should be comparable (same level of detail) among alternatives
• Outputs• Quantifiable and cost-related• Quality as related to significance
• Proper Preparation Essential
15
Solutions Can Consist Of::
Solutions Can Consist Of::
• Management measures• Dredging, substrate improvement,
planting, removal of exotics, aerating, fencing, land management, water control structures, etc.
• Alternative plans• Fully-formulated alternatives• Different sites• Independent in nature
• Management measures• Dredging, substrate improvement,
planting, removal of exotics, aerating, fencing, land management, water control structures, etc.
• Alternative plans• Fully-formulated alternatives• Different sites• Independent in nature
16
Solutions Incur Costs and Produce Outputs
Solutions Incur Costs and Produce Outputs
0 20 40 60 80 100
OUTPUT
CCOOSSTT
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Environmental Costs and Outputs
Environmental Costs and Outputs
• Quantify cost for each measure• Measures are independent building blocks for
each alternative
• These costs are in dollars
• No universal environmental output metric
• OUTPUTS increase ecosystem value; productivity, quantity & quality
• Quantify cost for each measure• Measures are independent building blocks for
each alternative
• These costs are in dollars
• No universal environmental output metric
• OUTPUTS increase ecosystem value; productivity, quantity & quality
18
Measurements of Environmental Outputs
Can Include:
• Habitat units (HU’s and AAHU’s)Habitat units (HU’s and AAHU’s)• Physical dimensions (acres, LF Physical dimensions (acres, LF
of riverine habitat) of riverine habitat) • But must include But must include
quality dimensionquality dimension
19
Measurements of Environmental Outputs
Can Include (Cont.):
Measurements of Environmental Outputs
Can Include (Cont.):
• Population counts (# of birds, Kg of fish, # of adult salmon)
• Change in diversity(such as IBI)
• Resource quality must be considered as an indication of significance or resource
• Population counts (# of birds, Kg of fish, # of adult salmon)
• Change in diversity(such as IBI)
• Resource quality must be considered as an indication of significance or resource
20
Significance of Environmental Outputs
Significance of Environmental Outputs
• Qualitative info critical to determining “worth” of outputs
• Who or what says the resource is significant?• Institutional • Public • Technical
• Important info in “telling your story”
• Qualitative info critical to determining “worth” of outputs
• Who or what says the resource is significant?• Institutional • Public • Technical
• Important info in “telling your story”
21
Implementation: IWR-Planning Suite
Implementation: IWR-Planning Suite
Software version of CE/ICA procedures Automates tedious math
Allows you to do more complicated analyses
Creates tables & graphs as record of analyses Website: www.iwr.usace.army.milClick on “products,”then “software,”then “IWR Planning Suite”
22
Step-by-step Process:Step-by-step Process:
1. Formulate plan alternatives– Develop outputs– Develop costs
2. Perform cost effectiveness analysis
3. Perform incremental cost analysis4. Use results for decision-making &
justification of recommended plan
1. Formulate plan alternatives– Develop outputs– Develop costs
2. Perform cost effectiveness analysis
3. Perform incremental cost analysis4. Use results for decision-making &
justification of recommended plan
23
Cost Effective Plans:Cost Effective Plans:
• No other plan produces same level of output for less cost.
• No other plan produces more output for same or less cost.
• Unique regarding least cost per level of output.
• No other plan produces same level of output for less cost.
• No other plan produces more output for same or less cost.
• Unique regarding least cost per level of output.
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Formulate All Plan CombinationsFormulate All Plan Combinations
2,048 plans2,048 plans
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Cost Effectiveness AnalysisCost Effectiveness Analysis
92 CE plans92 CE plans
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Best Buy Plans:Best Buy Plans:
• Lowest incremental cost per unit of output
• Form a subset of cost effective plans• Most efficient in production at given
levels of output• Greatest increases in output for least
increase in cost• Incrementally the most cost effective
plan at a given level of output
• Lowest incremental cost per unit of output
• Form a subset of cost effective plans• Most efficient in production at given
levels of output• Greatest increases in output for least
increase in cost• Incrementally the most cost effective
plan at a given level of output
27
Incremental Cost AnalysisIncremental Cost Analysis
11 Best Buy Plans11 Best Buy Plans
A = Sugar Hill A = Sugar Hill G = Woodstock PkG = Woodstock Pk
B = Carolanne FarmsB = Carolanne Farms H = Lancelot DrH = Lancelot Dr
C = Somme Ave C = Somme Ave I = Grandy VillageI = Grandy Village
D = ScuffletownD = Scuffletown J = ODU DrainageJ = ODU Drainage
E = NW Jordan BrE = NW Jordan Br K = Prtsmth City PkK = Prtsmth City Pk
F = Crawford BayF = Crawford Bay
EE+I+I +B+B +F+F
+J+J+D+D +G+G +H+H
+K+K
+A+A
+C+C
28
Is the alternative worth it?Is the alternative worth it?
Decision making guidelines:Decision making guidelines:
Output target.Output target. Output thresholds.Output thresholds. Cost limit.Cost limit. Breakpoints.Breakpoints. Does it make sense? Does it make sense? Remember there is no BC Remember there is no BC consideration !consideration !
29
A = Sugar Hill A = Sugar Hill G = Woodstock PkG = Woodstock Pk
B = Carolanne FarmsB = Carolanne Farms H = Lancelot DrH = Lancelot Dr
C = Somme Ave C = Somme Ave I = Grandy VillageI = Grandy Village
D = ScuffletownD = Scuffletown J = ODU DrainageJ = ODU Drainage
E = NW Jordan BrE = NW Jordan Br K = Prtsmth City PkK = Prtsmth City Pk
F = Crawford BayF = Crawford Bay
EE+I+I +B+B +F+F
+J+J+D+D +G+G +H+H
+K+K
+A+A
+C+C
Output TargetOutput Target
Targ
et
Targ
et
30
Total Cost Limit
Cost LimitCost Limit
31
A = Sugar Hill A = Sugar Hill G = Woodstock PkG = Woodstock Pk
B = Carolanne FarmsB = Carolanne Farms H = Lancelot DrH = Lancelot Dr
C = Somme Ave C = Somme Ave I = Grandy VillageI = Grandy Village
D = ScuffletownD = Scuffletown J = ODU DrainageJ = ODU Drainage
E = NW Jordan BrE = NW Jordan Br K = Prtsmth City PkK = Prtsmth City Pk
F = Crawford BayF = Crawford Bay
EE +I+I +B+B +F+F+J+J+D+D +G+G +H+H
+K+K
+A+A
+C+C
Breakpoints
BreakpointBreakpoint
32
Additional Decision Considerations!
• Significance* • Region of concern, priority urban • area, exceptional resource area, etc., • -*don’t forget institutional, technical • and public significance consideration!
• Scarcity • Historic habitat loss, few “available” sites, low
diversity, threatened and endangered species, etc.
• Acceptability • Watershed Action Team, Coastal America, etc.
• Effectiveness • Addresses multiple problems, large geographic
area, interconnected to natural system, creates habitat corridors, etc.
• Efficiency • Passes tests of CE/ICA
33
Common Pitfalls • Project goals should not be too limiting.
• Selection of the plan with the lowest cost or greatest output must be supported by environmental criteria.
• Plans which do not support the project goals should not be carried through the analyses.
• The formulation of plans should ensure that more than one plan meets the goal (or mitigation target).
34
Take Away Points CE/ICA are required for all ecosystem
restoration and mitigation projects
Environmental outputs must be significant and linked to resource quality
CE/ICA do not “pick” the selected plan, they simply aid in decision making
For additional Information see CE/ICA Tutorial on your disk.