1 Cost Effectiveness (CE) and Incremental Cost Analyses (ICA) “IWR-Planning Suite” Http:// Ch 6...

1

Cost Effectiveness (CE) and Incremental Cost Analyses (ICA)

“IWR-Planning Suite”

Http://www.iwr.usace.army.milCh 6 Mod 5

ENVIRONMENTAL PLANNINGENVIRONMENTAL PLANNING

http://www.iwr.usace.army.mil/

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

7

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)

8

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


Plans

Plan Outputs

Plan Costs



Blue Plan 950 Habitat Units $ 750,000


9

Results of Cost Effectiveness Analysis

Results of Cost Effectiveness Analysis


Plans

Plan Outputs

Plan Costs





Plans

Plan Outputs

Plan Costs




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

11

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!

12

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

17

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


Can Include (Cont.):


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”

http://www.iwr.usace.army.mil/

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.

24

Formulate All Plan CombinationsFormulate All Plan Combinations

2,048 plans2,048 plans

25

Cost Effectiveness AnalysisCost Effectiveness Analysis

92 CE plans92 CE plans

26

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







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







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.

1 Cost Effectiveness (CE) and Incremental Cost Analyses (ICA) “IWR-Planning Suite” Http:// Ch 6...

Documents

Transcript of 1 Cost Effectiveness (CE) and Incremental Cost Analyses (ICA) “IWR-Planning Suite” Http:// Ch 6...