Pragmatic cost–benefit analysis for infrastructure resilience
Organisations including the World Bank, the OECD, the UK’s National Infrastructure Commission, and Infrastructure Australia emphasise the importance of considering resilience in infrastructure business case assessment – investing in more resilient infrastructure is robust, profitable, and urgent and its benefits can greatly outweigh repair and reconstruction costs. Internationally, infrastructure agencies also recognise that to properly value resilience, improved approaches to cost-benefit analysis are needed. This true for the numerous day-to-day infrastructure decisions about local roads and bridges, power transformers, and drainage culverts just as it is for the few multi-billion-dollar investments where intensive state-of-the-art decision analysis is feasible.
This article in Nature Climate Change identifies four simple adjustments to the application of cost-benefit analysis for infrastructure decisions that would greatly improve decision-making for future infrastructure resilience:
- Reframe mindsets and culture to focus on ‘assets in context’, rather than the asset itself. Frame the decision context to consider the integral role of infrastructure in the social, economic, and environmental systems that influence the resilience of communities and economies, instead of narrowly focusing on managing risks to infrastructure assets.
- Consider a wide range of scenarios when exploring infrastructure options and assessing outcomes. Use exploratory scenarios to:
- Design and choose robust infrastructure options that support good outcomes across the range of plausible exploratory scenarios
- Test options to ensure that decisions are robust across possible futures and that residual vulnerabilities are manageable
- Identify opportunities to build resilience for low-probability, high-consequence events and support the development of contingency and business continuity plans
- Account for the benefits and value created by investing in adaptation and resilience, not just the future costs avoided by risk mitigation. Strengthen the case for resilience investment:
- Pay attention to the contribution of infrastructure to the resilience of the systems it supports
- Identify opportunities for climate adaptation to create value for a wider set of beneficiaries
- Monetize some values as potential financing or revenue streams where appropriate
- Always report the sensitivity to discount rates. Update business case development and procurement procedures to include sensitivity analyses with low or zero discount rates, or a declining rate. This is important because it adds transparency to infrastructure decisions with long-term consequences such as path dependency, future repair costs, and consequences for future generations.
See “Pragmatic cost-benefit analysis for infrastructure resilience” or contact Dr Russell Wise for more information.