Flood protection appraisals: guidance for SEPA and responsible authorities

11. Stage three: compare and select the most sustainable option

11.1. Introduction

11.1.1. Flood risk management decisions should be underpinned by an appraisal of economic, social and environmental impacts, whole life costs, and proper consideration of risk and uncertainty. By balancing these issues, the most sustainable solution should be identified.

11.1.2. The decision must be made in a clear, justifiable and transparent manner based on appropriate and robust information, such that it can be clearly and readily understood by those affected. A well-designed appraisal summary table will assist with this.

11.2. The decision process

11.2.1. When deciding on which option(s) to implement, there are several questions which should be borne in mind:

• Does the option meet the objectives?
• Does the option represent best value for money?
• Does the option deliver multiple benefits? What are the adverse impacts?
• What are the uncertainties and robustness in the appraisal? What are the risks in implementation?

11.2.2. It is important that all impacts (both positive and negative) of an option are taken into account during decision-making. It is therefore necessary to weigh up those impacts that have not been valued in monetary terms and consider whether they are significant enough to change the preferred option from that which would be chosen based on the economic criteria alone.

11.2.3. Decision-making can make use of a combination of approaches ( Section 5.2) and not depend on a single metric.

11.3. Meeting the objectives

11.3.1. All options under consideration should meet the agreed objective(s). Information on economic damages and damages avoided as well as quantitative or qualitative information e.g. reduction in risk to life, reduction in damages to environment and cultural heritage) should be used, where relevant, to assess the extent to which the options meet the objective.

11.4. Best value for money

11.4.1. Flood risk management aims to maximise the return on investment. Benefit-cost ratio can be used to identify the option that delivers the best value for money but this must be supported by full and evidenced considerations of non-monetised impacts.

11.4.2. Where there is a choice between options offering different standards of protection, the incremental benefit-cost ratio can be used to identify whether the increased investment in a greater standard of protection is actually the most beneficial choice ( Section 5.2). Where the incremental benefit-cost ratio of an option is greater than one, it indicates that the additional standard of protection delivers value for money.

11.4.3. Where the decision process leads to a preferred option that is not the optimum in terms of benefit-cost ratio, this should be clearly indicated in the appraisal report and a rationale given.

11.4.4. Because of the limitations inherent in comparing schemes by use of a single indicator, it is good practice to plot the changes in the different streams of benefits and costs over time (see Box 11.1). This will provide information on economic sustainability.

11.4.5. Value for money should not to be confused with the affordability of an option. Affordability is a separate matter relating to availability of funds. An awareness of potential funding mechanisms, however, is likely to be of relevance when making strategic decisions as it will dictate the path of progression for schemes and other actions.

11.5. Wider impacts and delivery of multiple benefits

11.5.1. As emphasised throughout this guidance, the consideration of wider impacts and the delivery of multiple benefits should be an integral part of decision-making. Potentially viable options should not be dismissed just because some of the benefits may be difficult to value. Options delivering the best solution in environmental and social terms should be considered unless they are justifiably unviable.

11.5.2. Partnership working and the early engagement of stakeholders can help to identify opportunities to deliver multiple benefits.

11.5.3. The results of any statutory environmental assessment (see Section 4.3) will need to be taken account in decision-making. Options may need to be revised or mitigation applied to avoid or minimise significant negative environmental impacts.

Box 11.1: Economic sustainability

The economic sustainability of different options can be examined by plotting the distribution of net annual benefits over time (i.e. the difference between expected annual benefits and costs for each year of the scheme life). Figure 11.1 shows three options with very different distributions of net annual benefits but very similar benefit-cost ratios ( BCRs) and net present values ( NPVs). Option 1 has (marginally) both the highest benefit-cost ratio and NPV. However, unlike the other two options, the net annual benefits of option 1 are negative in the long run. With option 2 there are some significant initial costs and the benefits are not immediately realised in full, but in the long-term stable benefits are achieved. Option 3, shows increasing benefits over time but also high recurrent costs. In such a case it would not be appropriate to attach significant weight to the relatively minor differences in benefit-cost ratio or net present value but rather to examine the wider area of economic sustainability, This will help to when considering the impacts of decisions for both current and future generations ( Section 1.2.2). Figure 11.1: Comparison of options with different expenditure profiles

11.6. Uncertainties and risks

11.6.1. Uncertainties and risks will exist at all stages of appraisal including estimates of flood hazard and risk ( Box 5.2), estimates of costs and benefits, effectiveness of actions and technical limitations. Section 1 of 'Delivering sustainable flood risk management' (Scottish Government 2011a) provides an overview of managing uncertainty.

11.6.2. The uncertainties in appraisal and the risk profiles of different options should be clearly presented, as these can play a major part in decision-making. The results of sensitivity analysis ( Section 11.7) can help to determine the level of risk.

11.7. Sensitivity analysis and robustness testing

11.7.1. The purpose of sensitivity analysis and robustness testing is to determine whether, within reasonable bounds of confidence and based on the assumptions made:

• The option is economically worthwhile;
• The economic return is likely to be achieved;
• The option choice is robust.

11.7.2. It is important to focus on differences between options as this will help identify which factors are influencing the choice of one option over another. (For major projects, it is particularly important to identify switching points where a change in the assumptions would alter the choice.) Informed judgments can then be made of the relative likelihood of the different outcomes to determine and justify the preferred option.

11.7.3. Having determined the most important factors, assessments of uncertainty should be made on the basis of experience and judgment. As a general guide, a range of possibilities should be considered for items such as:

• Hydraulic modelling or Lidar tolerances;
• Threshold of flooding (many schemes will be sensitive to assumptions about the level, and hence frequency, at which flood damage commences);
• Calculation of extremes and their probabilities;
• Residual flood risk;
• Any single large damage sources;
• Changes to major beneficiaries (for example consider how the damages would change if a major business in the benefit area ceased trading or relocated);
• Any weightings used in the appraisal (for example, social weightings - see Section 6.3);
• Future flood risk ( Section 9.8);
• Costs (whole-life capital, maintenance and management) based on the key costs elements and sensitivity to project risk (e.g. changes in costs of key materials or resources).

11.7.4. It can be useful to quantify the impacts of uncertainties on the benefit-cost ratios, particularly where the scale of the uncertainty is much larger than tangible difference between options. If, for example, the benefit-cost ratio is highest for an option where there is significant uncertainty, there may be a need to work to resolve the uncertainty. Any remaining uncertainty should be clearly understood in the decision-making process.

11.7.5. Where it is not possible to quantify the uncertainty associated with each variable, it should be possible to assess the relative scales of the uncertainties compared with the other options.

11.7.6. All major risks should be considered both singly and in combination.