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Dams Safety NSW

Guideline

Cost-benefit analysis for dams safety

Published by NSW Department of Planning, Industry and Environment

Dams Safety NSW

Cost-benefit analysis guideline

First published March 2020

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Dams Safety NSW

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Disclaimer: The information contained in this publication is based on knowledge and understanding at the time of writing (March 2020) and may not be accurate, current or complete. The State of New South Wales (including the NSW Department of Planning, Industry and Environment), the author and the publisher take no responsibility, and will accept no liability, for the accuracy, currency, reliability or correctness of any information included in the document (including material provided by third parties). Readers should make their own inquiries and rely on their own advice when making decisions related to material contained in this publication.

Dams Safety NSW Guideline – Cost-benefit analysis for dams safety

NSW Department of Planning, Industry and Environment | Dams Safety NSW | i

Table 1. Document change history

Version Approved date Approved by Notes

1 March 2020

Contents 1. Introduction and purpose of this document ................................................................................ 3

1.1. How to use this guideline .................................................................................................... 3

1.2. Interpretation of reasonably practicable and gross disproportion ....................................... 4

1.2.1. SFAIRP ....................................................................................................................... 4

1.2.2. Meaning of gross disproportion ................................................................................... 5

1.2.3. Including disproportion within the CBA ........................................................................ 5

2. Context for undertaking a CBA .................................................................................................. 5

2.1. Identification of practicable measures for new and existing dams...................................... 6

2.1.1. New dams ................................................................................................................... 6

2.1.2. Existing Dam ............................................................................................................... 7

3. The CBA process ....................................................................................................................... 7

3.1. Step 1 – Stating the objectives ........................................................................................... 7

3.2. Step 2 – Define the base case and develop options .......................................................... 8

3.2.1. Base case .................................................................................................................... 8

3.2.2. Upgrade/improvement options .................................................................................... 9

3.2.3. Numbering the options ................................................................................................ 9

3.3. Step 3 – Identify and forecast costs and benefits ............................................................... 9

3.3.1. Cost types ................................................................................................................... 9

3.3.2. Benefit types .............................................................................................................. 10

3.3.3. Period of analysis ...................................................................................................... 11

3.4. Step 4 – Value the costs and benefits .............................................................................. 12

3.4.1. Costs ......................................................................................................................... 12

3.4.2. Benefits ..................................................................................................................... 14

3.5. Step 5 – Identify qualitative factors and distributional impacts ......................................... 21

3.5.1. Qualitative factors ...................................................................................................... 21

3.5.2. Distributional impacts ................................................................................................ 21

3.6. Step 7 – Assess net benefits ............................................................................................ 21

3.7. Step 6 – Assess risks and test sensitivities ...................................................................... 22

3.8. Step 8 – Report the results ............................................................................................... 22

3.9. Step 9 – Undertake post evaluation ................................................................................. 22


NSW Department of Planning, Industry and Environment | Dams Safety NSW | ii

Appendix 1 Worked example .................................................................................................... 24

Introduction .................................................................................................................................. 24

Context for undertaking this CBA ................................................................................................ 24

Step 1 – Stating the objectives .................................................................................................... 25

Step 2 – Define the base case and develop options ................................................................... 25

Step 3 – Identify and forecast costs and benefits ........................................................................ 26

Costs ........................................................................................................................................ 26

Benefits .................................................................................................................................... 26

Step 4 – Value the costs and benefits ......................................................................................... 28

Costs ........................................................................................................................................ 28

Benefits .................................................................................................................................... 30

Potential Loss of Life ............................................................................................................... 30

Economic losses ...................................................................................................................... 32

Environment and cultural heritage ........................................................................................... 33

Step 5 – Identify qualitative factors and distributional impacts .................................................... 36

Qualitative factors .................................................................................................................... 36

Distributional impacts ............................................................................................................... 36

Step 7 – Assess net benefits ....................................................................................................... 36

Step 6 – Assess risks and test sensitivities ................................................................................. 37

Disproportion factor ................................................................................................................. 37

Discount rate ............................................................................................................................ 38

Cost sensitivities ...................................................................................................................... 38

Step 8 – Report the results .......................................................................................................... 38

Step 9 – Undertake post evaluation ............................................................................................ 39

Appendix 2 Abbreviations ............................................................................................................... 39


NSW Department of Planning, Industry and Environment | Dams Safety NSW | 3

1. Introduction and purpose of this document Dams Safety NSW is an independent regulator established under the Dams Safety Act 2015 (the Act). Dams Safety NSW is responsible for ensuring that dam owners achieve compliance with the Act and the Dams Safety Regulation 2019 (the regulation).

Dams Safety NSW ‘declares’ those dams which have a potential to threaten downstream life, or cause major property, environmental, or public welfare damage. Owners of declared dams must comply with the requirements of the Act and regulation.

Dams Safety NSW publishes guidelines to help declared dam owners comply with the requirements of the legislation. As they are intended to be an aid to industry compliance, the guidelines themselves do not contain compulsory requirements and compliance with the dam safety legislation may be achieved by adopting other methods if they fit better with a declared dam owner’s systems.

One of the objects of the Act is:

‘to encourage the application of risk management and the principles of cost benefit analysis in relation to dams safety’

and the Act lists one of the functions of Dams Safety NSW as:

‘to provide guidance to owners of declared dams in complying with the requirements of this Act relating to the safety, operation and maintenance of dams (including guidance in applying total risk management and the principles of cost benefit analysis for that purpose)’.

The regulation requires declared dam owners to develop and implement a safety management system that includes a risk management framework and a risk treatment process that: ‘…must identify risk reduction measures that are to be implemented to eliminate or reduce risks, but only in so far as is reasonably practicable. In determining whether it is reasonably practicable to implement a risk reduction measure, a cost benefit analysis may be carried out taking into account all relevant matters including the following:

(a) the likelihood of the risk occurring, (b) the degree of harm that may result from the risk, (c) the availability and suitability of the relevant risk reduction measure, (d) the cost of the relevant risk reduction measure.’

Dams Safety NSW has published guidance on what constitutes ‘so far as is reasonably practicable’ in a separate guideline: ‘The meaning of so far as is reasonably practicable (SFAIRP)’ The purpose of this guideline is to provide advice on how to apply cost-benefit analysis (CBA) to assist decision-making on whether it is reasonably practicable to implement a dam safety risk reduction measure.

1.1. How to use this guideline The NSW Government has published guidelines on how to conduct a CBA and this guideline follows the process set out in the NSW Government Guide to Cost-Benefit Analysis, TPP17-03 (NSW CBA Guidelines)1.

This guideline (Cost-benefit analysis for dams safety) should assist dam owners to undertake a CBA by providing guidance and a worked example to illustrate how the CBA process should be applied.

1 https://arp.nsw.gov.au/tpp17-03-nsw-government-guide-cost-benefit-analysis



Aligning with the NSW CBA Guidelines, this guideline follows nine steps, as shown in Figure 1.

Figure 1 - Steps in undertaking a Cost-Benefit Analysis

However, for a CBA for dams safety it is more appropriate to undertake NSW CBA guidelines’ step 7 (assess the net benefit) ahead of step 6 (assess risks and test sensitivities). To avoid confusion in aligning this guideline document with the NSW CBA Guidelines we have kept the step numbering as set out in the NSW CBA guidelines.

This guideline includes a worked example in Appendix 1 – which follows the nine-step process and shows the analysis undertaken for a hypothetical dam.

1.2. Interpretation of reasonably practicable and gross disproportion

1.2.1. SFAIRP As set out in the Dams Safety NSW SFAIRP guideline, the definition of ‘reasonably practicable’ is based on case law from the United Kingdom and has been supported by judgements in Australia.



The regulation takes the approach that the measure of ‘reasonably practicable’ may be determined through the application of CBA. Sensitivity analysis can be used to test the reasonableness of the SFAIRP position.

1.2.2. Meaning of gross disproportion The United Kingdom Health and Safety Executive (HSE) has provided substantial guidance on the interpretation of the case law – but the approach set out below would also apply in Australia and other jurisdictions that impose a duty of care to the extent that is reasonably practicable2.

The Health and Safety Executive provides guidance on the scale of the ‘disproportion factor’ that the Executive is likely to (but not definitively) consider appropriate for various industries and risks, with the onus on justifications for the relevant factor being provided by the operator. The Health and Safety Executive suggest that a disproportion factor is likely to be less than 103. This is also referred to in the ANCOLD (2003) guidelines as the ‘proportion factor’.

Based on proportion factors calculated by HSE for various safety regulations, ANCOLD (2003) considered a value of 10 as reasonably representative for the situation of persons living downstream of dams. However, there is no guidance from the law courts on what represents a level of gross disproportion. It falls upon the duty holder under the appropriate legislation to determine whether the cost is grossly disproportionate.

The gross disproportion factor also assists in addressing the uncertainty of the analysis. In all quantified analysis there is a level of uncertainty. However, where there is a high level of uncertainty in the assessment then the gross disproportion factor should be increased accordingly.

Ultimately, professional judgement by the dam owner should set the level of gross disproportion. The implementation or otherwise of a control remains a decision made by the dam owner based on the analysis undertaken; the analysis does not make the decision. This is consistent with the onus of responsibility under the Act resting with the dam owner.

1.2.3. Including disproportion within the CBA United Kingdom Health and Safety Executive sets out that additional expenditure to reduce risks is not reasonable if: costs/benefits > 1 x disproportion factor4.

This equation can be rearranged to be written as additional expenditure to reduce risks is not reasonable if: costs > disproportion factor x benefits.

Using the re-arranged equation, a disproportion factor can be applied to a CBA.

The analysis should initially be completed without weighting (i.e. using a disproportion factor of 1). Alternative values for the disproportion factor can then be incorporated in the sensitivity analysis.

2. Context for undertaking a CBA The CBA should be undertaken once the critical hazards relating to the dam have been established and all practicable measures have been identified.

2 Health and Safety Executive, ‘Cost Benefit Analysis (CBA) checklist’, 2016. Refer to: www.hse.gov.uk/risk/theory/alarpcheck.htm 3 ibid 4 Health and Safety Executive, ‘Cost Benefit Analysis (CBA) checklist’, 2016. Refer to: www.hse.gov.uk/risk/theory/alarpcheck.htm



The CBA is then used to assess the practicable measures to identify the measure that most cost effectively reduces the risks SFAIRP.

A generalised flow chart showing the CBA as the central decision step is shown in Figure 2.

Figure 2 Decision-making process leading to a CBA

2.1. Identification of practicable measures for new and existing dams

A CBA may be required for either new or existing dams and the likely process triggering the need for the analysis is set out below.

2.1.1. New dams Based on industry best practice, the initial design for a new dam would be developed using a risk-based or a standards-based approach for dam design. The dam owner is responsible for setting the design criteria for the dam depending on the dam consequence category, considering the latest industry knowledge and guidance, such as ANCOLD guidelines, (eg. as defined in the ANCOLD Guidelines on the Consequence Categories for Dams (2012)5).

Having identified the initial design, the safety of the proposed dam can be considered using a Failure Modes, Effects and Criticality Analysis (also known as FMECA)6 and subsequently identifying all practicable measures.

Practicable measures are identified and prioritised using the ‘hierarchy of controls’ - which are discussed in the Dams Safety NSW SFAIRP guideline. The CBA is then used to test the adequacy of the initial design to confirm whether it meets the SFAIRP criteria for risk reduction.

5 https://www.ancold.org.au/?product=guidelines-on-the-consequence-categories-for-dams-october-2012 6 Guidance on this process is available in the ANCOLD Guidelines on dam safety management (2003)



As set out in step 2 below (see Section 3.2), the CBA will consider the base case against identified additional controls. In this instance, the initial design would form the base case (option 1) and any identified practicable measures to further reduce risks would form the alternative options for consideration through the CBA (option 2, option 3 etc.). If a risk-based approach is adopted the alternative risk positions/options would be considered through the CBA.

2.1.2. Existing Dam The regulation requires that a safety review is carried out at least once every 15 years or as soon as practicable after a deficiency or weakness is identified in the dam, if there is a change (other than a minor change) to the accepted technology or methods used in one of the relevant specialities involved in the dam design, a change in the design criteria for dams, or the consequence category of the dam is changed.

A safety review may also be triggered if either routine surveillance, operations or maintenance activity identifies that the likelihood of failure of the dam has materially increased. An analysis of Failure Modes, Effects and Criticality Analysis would be undertaken as part of the risk management process associated with the safety review.

Following the Failure Modes, Effects and Criticality Analysis, all practicable measures to reduce the risk of dam failure would be identified and assessed. The practicable measures are then used as the options for consideration through the CBA.

In this instance, the current dam would form the base case (option 1) and the identified practicable measures would form the alternative options for consideration through the CBA (option 2, option 3 etc.).

3. The CBA process

3.1. Step 1 – Stating the objectives Following the NSW Government CBA Guidelines, the initial step in undertaking the CBA is to state the objective or desired outcome of the analysis. The recommended objective is the same for both a new or existing dam and can be summarised as:

Dam owners need to identify the appropriate risk management options to reduce the risk of failure SFAIRP. Reducing dam failure risks to this level will ensure that the dam meets the requirements under the Act and regulation. At this level the dam owner appropriately balances the residual risk of the dam and the cost of further upgrades.

A slightly more precise wording of the objective can be written for dams where it is specific to new or existing dams:

New dam: Review the dam design to assess whether it has reduced risks SFAIRP and if not, then identify further features that will result in a dam design that has reduced the risk of failure SFAIRP.

Existing Dam: Review the current risks of the existing dam structure and verify that any proposed risk reduction measures (in conjunction with the operations and maintenance plan for the dam) have reduced the risk of failure SFAIRP.

The NSW Government CBA Guidelines proposes a program logic approach identifying the need for analysis and aligning the outputs to the desired outcome. A generalised program logic that applies to all dams – whether new or existing – is set out in Table 2.



Table 2: Program logic

Need Dam owners need to ensure that the subject dam is designed and operated to reduce the risks SFAIRP.

Option Various design options exist for each dam – and will vary from dam to dam. The options to be considered will be the practicable measures identified through an assessment of the hierarchy of controls

Project scoping and inputs

Key inputs will include:

Failure Modes, Effects and Criticality Analysis Hydrology – Australian rainfall and runoff data Modelling on areas of inundation from storm events

Output A CBA of each option may identify that some options may not reduce the risks sufficiently while others are excessively expensive for the benefit gained.

Outcome Dam owners identify the appropriate risk management options to reduce the risks SFAIRP. This will ensure that the dam meets the requirements under the Act and regulation.

3.2. Step 2 – Define the base case and develop options

The CBA will consider the Net Present Value of the costs and benefits of each upgrade option in comparison to the base case. In this way, the analysis focuses on the change in costs and benefits that would arise for each upgrade option compared to the base case.

A key preliminary step in undertaking the CBA is to clearly define the base case and the upgrade options for analysis.

The proposal to upgrade the dam in question can be considered in terms of a choice – with two or more options. One option, referred to as the “base case”, is to not make any upgrades and continue the current management practices.

As set out above (section 2), the identification and assessment of practicable measures occurs in the steps before the analysis is commenced. For this reason, this step is merely the clarification of the base case and options to be assessed in the CBA.

Each of the practicable measures that are identified form the upgrade, or improvement, options.

3.2.1. Base case Traditionally, the “without project” or “no change” option is considered the base case and is numbered “option 1”7. For dam safety assessments the base case is likely to be defined as the current or proposed dam without further upgrades.

For dam safety assessments of an existing dam – the base case would typically be defined as the continuation of the current dam operations unchanged and without any upgrade measures.

7 The base case is also sometimes described as what is reasonable to expect would happen under “business as usual” circumstances



Under this option the dam is retained with no substantive change in the dam construction, the operations and maintenance program or the risk management approaches. Although it is labelled “option 1”, it is important to recognise that the base case represents the baseline for comparative purposes. Depending on the circumstances, this option may not fulfil the dam owner’s obligations under the Act and regulation.

For a new dam, the base case would be the dam being built using the existing design approach. It should be noted that when assessing a new dam from a safety perspective that the base case is not “no dam” but instead is the proposed dam being built. The business case analysis of the “no dam” option should be assessed as part of the overall project justification but does not require consideration from a dam safety perspective.

3.2.2. Upgrade/improvement options Having identified a short-list of practicable measures prior to commencing the CBA8, the upgrade or improvement options for assessment are defined here and are numbered Options 2 onwards.

Ideally around three upgrade or improvement options are identified through the assessment of practicable measures using the hierarchy of controls. Depending on the circumstances, some possible options may be upgrades such as:

increased spillway capacity increased dam wall height non-structural measures such as increased alerts/alarms, or a combination of some or all of the identified measures.

3.2.3. Numbering the options Traditionally, the base case is numbered option one (1) and provides the point of reference against which the other options can be compared. Other options are then numbered option two onwards.

Using this approach, we focus on the incremental change in risk between Option 1 and each of the other options (Option 2, Option 3 etc.) and the incremental change in cost between Option 1 and each of the other options. The focus on the incremental changes allows any attribution from pre-existing trends and external factors to be avoided.

3.3. Step 3 – Identify and forecast costs and benefits Having identified and clearly defined the options for consideration, the third step in the NSW CBA Guidelines is to identify and itemise types of costs and benefits that will arise under each option.

3.3.1. Cost types Direct costs of upgrades or changes in practices will fall to the dam owner and will be based on engineering and management estimates. Direct costs will include:

capital expenditure – the cost of upgrading the dam including design, approvals, construction and commissioning. The analysis will focus on the marginal cost (the increase or decrease) compared to the base case

operating and maintenance costs – the operating and maintenance costs that will arise during the duration of the assessment. These costs would include any change in operating or maintenance staff compared to the base case. As a dam is an asset with a

8 It is recommended that the development and selection of the short-list is fully documented capturing the long-list of options considered and the appraisal undertaken to determine the short-list of feasible options for further consideration



long life, there will be future refurbishment or asset replacement costs that need to be considered over the duration of the analysis (30 years as discussed in section 3.3.3). For an existing dam these costs will only need to be included if they vary between the options

indirect costs – some dam upgrades may also include indirect costs which may fall to groups other than the dam owner. An example of an indirect cost could be that raising the dam wall could result in the inundation of land above the dam – which may result in a loss of economic, environmental and cultural values from areas that are inundated. As any inundation would be planned, there is potential to time the inundation to minimise the costs. It is not common for the CBA to include short term indirect costs such as the impact of noise or air pollution on local residents. However, if the construction were likely to result in long term issues (such as production of dust with potential to chronic disease) then these costs could be included as indirect costs and may be considered qualitatively.

In considering all categories of costs, care should be taken to ensure that “sunk costs” are not included in the analysis. Sunk costs are costs that have already been incurred and cannot be recovered. This includes depreciation of capital assets.

3.3.2. Benefit types

3.3.2.1. Identifying types of benefits

The benefits of a new dam or potential dam upgrades (to an existing dam) will arise from a reduced likelihood of dam failure and/or reduced consequence of the failure. These benefits will be expressed as an avoided cost (or a reduced cost). These avoided costs will be quantified using Expected Values9 or Average Annual Damages comparing each option with the base case.

Key categories of benefits that will arise from possible dam upgrades will include a reduction in impacts from a dam failure event. These may include:

mortality losses economic losses environmental and Cultural Heritage losses.

In addition to impacts of a dam failure event, it may be necessary to consider the ongoing costs that would arise from the loss of the dam such as the replacement cost of the dam and the loss of divertible water during the reconstruction process.

If the event would result in the loss of the dam then the replacement cost of the dam can be included as well as the lost benefits of the dam water, during rebuilding.

A range of example benefit types and the nature of the avoided costs are set out in Table 3.

Table 3. Description of likely benefit types and the method for estimating the avoided costs

Benefit type Estimation method

Mortality (deaths) Estimate of the incremental change in the potential loss of life and the value of a statistical life

Morbidity (injury and illness)

Estimate of incremental change in injury and illness for surviving members of the population impacted by a dam failure

Economic costs - Buildings

Estimate of incremental change in repair or replacement costs for various building types and its contents (so excluding the unimproved land value):

9 An expected value is calculated by multiplying each of the possible outcomes by the likelihood each outcome will occur, and summing all of those values.



Benefit type Estimation method

private dwellings

community buildings such as schools and nursing homes

factories and retail facilities

Benefits may also arise from avoided short term costs – such as rental of alternative accommodation.

Economic costs – lost production

Estimate of incremental change in lost production for industry and retail facilities

Economic costs – critical infrastructure

Estimate of incremental change in lost production and replacement costs for critical infrastructure which may impact a broader area such as power generation or water treatment facilities

Economic costs – lineal infrastructure

Estimate of incremental change in repair or replacement costs for infrastructure:

roads, rail lines, and bridges.

power and telecommunication lines or towers

Benefits may also arise from avoided short term costs – such as traffic delays.

Environment Estimate of incremental change in environmental values such as wetlands and waterways, areas of native vegetation, rare flora or fauna

Cultural Estimate of incremental change in the cultural values – such as:

indigenous sacred and heritage sites and

cultural and heritage sites of importance to other part of society

Longer term impacts Replacement cost of the dam can be included as well as the lost benefits of the dam water, during rebuilding

3.3.3. Period of analysis The NSW CBA Guidelines suggests an analysis period of 20-30 years, although a longer evaluation period may be adopted if it is considered justified. Given the long life of a dam asset and any upgrades a 30-year analysis period appears reasonable for most dam safety projects.

It is recognised that the economic life for the structural elements of a dam may be 50+ years (particularly for concrete dams) with a shorter economic life for mechanical, electrical and other elements.

If the assets are expected to still retain some economic life at the end of the analysis period, then the residual value of the assets may need to be estimated and included in the final year of the analysis.

For dams with a long (or indefinite) remaining economic life - such as drinking water dams – the accepted approach is to not consider the residual value of the dam or upgrade works. Instead, the typical approach is to restrict the value consideration to the analysis period. However, for dams with a short economic life (such as a tailings dam), it may be appropriate to consider the residual value of the dam and/or future costs that arises outside the analysis period. Similarly, if some of the upgrade options were to significantly alter the remaining economic life (such as an upgrade option that would increase the economic life from 50 years to 150 years), then it would be appropriate to consider the residual values of each option in the CBA.



The best method for calculating residual values will vary depending on the circumstances and applying a consistent approach would be more important than the method for calculating the residual value10.

3.4. Step 4 – Value the costs and benefits In step 4, costs and benefit streams are estimated at their current value for the year of analysis. This is referred to as “real” prices11.

A likely cost and benefit profile is that the project will incur significant costs during the construction phase and then following commissioning will deliver a net benefit every year. The annual benefit that arises may be offset slightly by any increase in operational costs.

It is important to note that as the CBA results compare net present values, the timing of costs and benefits is important.

3.4.1. Costs

3.4.1.1. Operational phases

While all costs are treated equally, to ensure that all costs are captured, it can be useful to group the costs by timing (e.g. design phase, construction phase, operational phase) or by cost type (e.g. capital expenditure, operating and maintenance expenditure).

Any option involving construction will have multiple phases – such as:

a design phase (for example year 0-1) a construction phase (for example years 1-3) and an operational phase which would continue from the commissioning of any dam

construction or upgrades to the end of the analysis period (for example years 4 to 30).

The costs that are relevant to the CBA are the change in costs between the base case and each option. This is also referred to as the marginal cost. In this way the base case will have a cost of zero ($0). However, it may be simpler in some situations to identify the total cost of each option. This may be useful for particular circumstances such as:

for a new dam – when option 1 would incur significant costs when the timing of cost impacts vary between base case and the options – making it

harder to identify the change in expenditure when some of the options shift expenditure between capital and operating.

As described in detail below, the analysis can be undertaken using either the marginal costs or the total cost for each option across the analysis period. As long as the approach is applied consistently, either approach will achieve the same outcome.

As noted above the only costs that are not included are sunk costs. These are costs that have already been incurred and cannot be recovered.

3.4.1.2. Capital expenditure

It is likely that most of the capital expenditure will occur during the construction phase. However, some capital costs (such as capital replacements) may then arise during the operational phase of the project. Renewal or replacement costs that occur during the operational phase should be identified and incorporated in the assessment. These are discussed further below.

10 An approach that would be consistent with the NSW CBA Guidelines is to take into account future avoided replacement costs as a benefit. These would be included at the end of the analysis period and would be based on the current estimate of the future replacement cost, discounted back to the assessment period 11 These vary from “nominal” prices which estimate the future price based on the current price plus inflation.



For an existing dam the increase in capital expenditure may be easily identified – as it may be that no expenditure occurs under the base case (option 1).

For a proposed dam it is generally easier and more transparent to identify the total cost of each option and then subtract the cost of the base case (option 1) from the options that include additional works (options 2 – onwards). This may be done by estimating the total cost for each year for each option and focussing on the change in net present value – as set out in step 7 (section 3.6).

When identifying costs it is important to include the full cost of each option including any additional planning and approval costs. As the CBA will calculate and compare net present values, the timing of any expenditure will impact on the total value.

Capital replacement

Within the analysis period it may be necessary to replace some capital items (such as pumps). These cost items and their timing should be included in the analysis. The analysis should consider whether the alternative options would impact (either increase or decrease) the timing and value of capital replacement.

3.4.1.3. Maintenance and operational costs

The analysis needs to consider the change in maintenance and operating costs (marginal costs) for each of the options other than option 1. However, it may be easier to identify the full maintenance and operating costs of each option and then subtract the cost of the base case (option 1) from the options that include additional works (options 2 – onwards).

Once again, the timing of the costs will impact on the present value and so needs to be identified.

3.4.1.4. Indirect costs

As noted in section 3.3.1, some dam enhancements may impose costs on groups other than the dam owner. For example – raising a dam wall may result in the inundation of land upstream of the dam wall.

If the land is privately owned, then any land purchase payment or compensation payment made is a reasonable estimate of the value of the lost land.

If the land has cultural or environmental values, then these may be harder to estimate. If an estimate of the community’s willingness to pay is available (either based on the site in question or a similar site), then this may be used to quantitatively estimate the value of the cost. The valuation of costs and benefits used for the analysis must be supported by robust evidence and justification.

Alternatively, if no estimate of the value of the loss can be identified, then the cost should be included as a qualitative element – under step 5.

3.4.1.5. Total costs

For each option the present value of the cost elements is calculated over the analysis period (such as 30 years) using the discount rate (7%)12.

For each option the present value of the total costs is calculated as the sum of the Present value of the costs for each element. This will produce a summary table as set out in Table 4.

12 Discount rates are discussed in step 7



Table 4. Summary of the total costs

Capital expenditure (Present Value)

Operating and maintenance expenditure (Present Value)

Indirect costs (Present Value)

Total cost (Present Value)

Option 1 (base case) $0 $0 $0 $0

Option 2 $X $Y $Z =X+Y+Z

Option 3 $U $V $W =U+V+W

Note: Table 3 shows the base case as having a zero cost. This will occur if the analysis focusses on the marginal cost. If the analysis focusses on the total cost then, the marginal cost of each option can be identified by subtracting the total cost of option 1 from each of the other costs

3.4.2. Benefits

3.4.2.1. Types of benefits

Most benefits that would arise from possible dam safety upgrades are reduced losses that would occur under different flood events and/or reduced likelihood of failure under a sunny day failure.

Dam owners should consider the full range of impacts that would occur under any failure event. This guidance focusses on a range of benefits – but others may also be relevant. Benefits considered here include reductions in:

loss of life (mortality) economic losses from asset replacement (homes, commercial buildings, roads) etc. economic losses from loss of use of capital assets during repair and replacement works

This could include critical infrastructure such as water treatment or electricity generation. environmental and cultural values.

For each of these benefit types the process is to identify the number of people or units impacted for each option (e.g. number of dwellings inundated) and the value attributed to each person or unit. The total value of the impact will be the number multiplied by the unit value.

This approach aligns with the NSW CBA Guidelines which sets out that when estimating costs and benefits, a clear distinction should be drawn between:

forecasting volume impacts – For instance, change in the number of passenger trips, social housing tenants, working age population and so on, who benefit from (or bear the costs of) a proposal

placing a dollar value per unit of volume on the costs or benefits of the proposal.

This disaggregation of the benefits is useful for estimating the impact of a dam failure under various scenarios and these two elements can be considered in terms of the following equation:

Volume (or number of units) x dollar value per unit = Total value of impact

For dam failure analysis, estimates of the volume (number of units impacted) for each category of benefit can be based on maps of the area of inundation.

Once the total value of each benefit type under each inundation map has been estimated, the benefit will be the change in the value between the base case (option 1) and each of the upgrade options (options 2 onwards).



3.4.2.2. Identifying the area of inundation under each option under different events

For the identified failure type (such as sunny day failure or flood event), the dam owner should model and map the area of inundation for each dam investment option based on hydrographs and dam breach routing. For dam failures arising from flood events, maps of the area of inundation should be repeated for flood events occurring at differing Average Recurrence Intervals (ARI). When assessing changes in risks based on a flood event it is necessary to consider the area of inundation and potential losses under a range of rainfall events corresponding to the Flood Consequence Category, such as:

1,000 year ARI 10,000 year ARI 100,000 year ARI 1,000,000 year ARI Probable Maximum Precipitation Flood Probable Maximum Flood

The upper range of rainfall events to be considered will depend on the Flood Consequence Category of the dam. The fallback flood capacity is set out in Table 513.

Note: depending on the catchment there may be limited difference between a 100,000 year ARI, a 1,000,000 year ARI and a Probable Maximum Precipitation Flood. For this reason, dam owners may wish to use their discretion in determining the number of flood events considered.

Table 4. Range of rainfall events to be considered for each Flood Consequence Category of the dam14

Flood Consequence Category

Range of rainfall events to be considered

Low 1:1,000 year ARI

Significant 1:10,000 year ARI

High C Probable Maximum Precipitation Flood or 1:100,000 year ARI

High B Probable Maximum Precipitation Flood or 1:1,000,000 year ARI

High A Probable Maximum Precipitation Flood

Extreme Probable Maximum Flood

Flood damages vary with flood levels and frequencies. All damage categories are estimated for each of these flood frequency intervals for option 1 and then for each of the upgrade options.

Note: Generating an inundation map for each rainfall event and each option will result in a number of inundation maps being produced. Using the simplified example shown here, the six flood events (listed above) and the three options (shown in Table 6) would result in eighteen inundation maps being produced.

13 Table 8.1, Fallback Flood Capacity, ANCOLD Guidelines on Selection of an Acceptable Flood Capacity for Dams (March 2000) 14 Source: Fallback Flood Capacity, ANCOLD Guidelines on Selection of an Acceptable Flood Capacity for Dams (March 2000). This table is used here as accepted industry practice.



Table 6. Example tabulation of infrastructure at risk for a particular flood type under three upgrade options

Flood Event

Infrastructure impacted

Option 1

(No investment) Option 2 Option 3

1,000 year ARI

School 1 0 1

Houses 100 20 40

Factories 2 1 1

Roads (km) 100 20 40

Critical infrastructure 0 0 0

Note on cross jurisdictional impacts

In assessing whether a dam owner has fulfilled their duty of care under the Act and regulations, the assessment should consider all potential impacts – including those that may arise outside of New South Wales. However, if funding of the dam upgrade project is to be considered by a New South Wales Government decision maker, an analysis that separately identifies New South Wales and interstate impacts should be undertaken.

3.4.2.3. Total mortality costs

For each of the inundation maps the total cost attributed to loss of life can be calculated by estimating the Potential Loss of Life and multiplying this by the value of a statistical life. Each of these steps are described in detail below applying current best practice. Further guidance is provided by ANCOLD.

Estimate of Potential Loss of Life

A currently accepted process for estimating the Potential Loss of Life is shown in detail in Table 7. Dam owners should note that there are alternative methods for calculating Potential Loss of Life based on the Population at Risk. If the dam impacts a large Population at Risk then it may be appropriate to use multiple methods for estimating Potential Loss of Life as part of the sensitivity analysis set out in section 3.7.



Table 7. Process steps to identify potential loss of life for each flood type and each option15

Step Detailed description

1 Select appropriate time categories (e.g. day/night, seasonal, weekend/weekday, etc.)

2 Estimate flood severity range based on the depth and velocity (DV range) for the flooded areas. Some towns or river reaches may have Population at Risk (PAR) in multiple DV ranges, depending on the flood characteristics (see Step 3 discussion below). Justify the estimates.

3 Estimate the population at risk (PAR) within each reach for each failure scenario, DV range and time category. Justify the estimates and provide any referenced resources.

4 Estimate when dam failure warnings would be initiated (depends on many factors, suggest using range; see Step 6 discussion below). Estimate the warning time categories for flooded areas (e.g. little to no warning, adequate warning, or between the two; see Step 6 discussion below). Justify the estimates.

5 For each PAR reach, use the graphical approach to estimate an appropriate fatality rate range based on DV values, warning time and other considerations. Justify the estimates.

6 Estimate life loss range for each PAR reach by applying appropriate fatality rate range limits to each PAR. Sum the life loss estimates for each PAR to get the total estimated life loss range. Estimate life loss range for different dam failure scenarios as needed in Step 1.

7 Evaluate how uncertainties and variability in various parameters affect overall uncertainties in life loss estimates. Perform sensitivity studies if needed. Identify areas of higher and lower uncertainty.

Value of a Statistical Life

Under the guidance provided by the Commonwealth Office of Best Practice Regulation, the value of a statistical life was estimated to be $4.2 million in 201416, which equates to $4.5 million in 2018.

The historical values can be converted to current day values using the Reserve Bank of Australia inflation calculator (https://www.rba.gov.au/calculator/).

3.4.2.4. Economic costs

Economic costs include loss of economic value such as damage to dwellings, commercial and industrial property, critical infrastructure and transport infrastructure. For each area of inundation, identify and value current land uses17:

residential and commercial properties likely to be damaged/affected any transport infrastructure (main roads, bridges, railways) that could be affected (both

travel delays and repair/replacement costs) the replacement value of the dam asset itself any critical infrastructure – utilities assets (power, gas, water), communications assets,

hospitals, police, fire and ambulance stations – that could be affected agricultural land that would be affected and other factors.

The loss estimates are based on volume estimates from the inundation maps and dollar value estimates for each unit. These estimates will vary from area to area depending on building type and standard. The level of inundation can be used to estimate whether a building would require repair or replacement.

15 Source: U.S. Bureau of Reclamation, Reclamation Consequence Estimating Methodology Interim Guidelines for Estimating Life Loss for Dam Safety Risk Analysis, July 2015 https://www.usbr.gov/ssle/damsafety/documents/RCEM-Methodology2015.pdf 16 Office of Best Practice Regulation - Best Practice Regulation Guidance Note: Value of statistical life, 2014 17 The assessment of economic cost is a reflection on the current conditions and does not consider future developments.



Volume (or number of units) x dollar value per unit = Total value of impact

The dollar value per unit is calculated from the repair and replacement costs as well as lost productivity from short term loss of use. Table 17 provides an example of the estimates that may be required depending on the assets impacted in each inundation map. An example table is shown in Table 8 and would be populated based on an assessment of property values and rental values in the region.

Table 8. Damage cost estimates for each community asset type

Asset type Average repair value Average replacement

value Average value per

week lost production

School

Dam asset

Residential house & contents

Factories

Roads (km)

Additional factors – travel delay and critical infrastructure

Two additional factors may be relevant to a flood: impacts on travel time from loss of roads and the loss of critical infrastructure.

Impacts on large arterial roads may result in impacts on travel times for people and goods that travel through the impacted area and so may be significant.

Similarly, damage to critical infrastructure such as water and power utilities may impact on a wide region and so these impacts should be considered separately.

In each case the total cost can be estimated based on the repair/replacement cost and the loss of production while the assets are replaced.

3.4.2.5. Environmental and cultural values

The inundation mapping may identify impacts on environmental or cultural assets. Where impacts of this kind are identified they may be included quantitatively (if reasonable estimates of the values exist) or may be treated qualitatively (see step 5).

Environmental and cultural assets are hard to value as there is no direct market for the sale of these products or services. For this reason, they are referred to as non-market assets and the NSW CBA Guidelines includes a description of alternative valuation approaches such as:

Revealed preference for example, analysis of property values near a lake may reveal an increase in values due to the amenity and recreational benefits the lake provides.

Stated preference methods survey analysis such as choice modelling or contingent valuation techniques.

Benefit transfer reviewing existing studies that measure specific benefits of other previous projects or programs, and using measures from those other studies as proxy values of benefits being analysed.

If there are sites of high value – such as a wetland of national or international significance or a culturally significant site – then there may be suitable estimates of the value for these sites.

If values for assets of this kind are not able to be identified, then it may be appropriate to treat these benefits qualitatively (i.e. described but not included in the CBA).



3.4.2.6. The Average Annual Damages approach

Having identified the change in estimated damage for each of the dam upgrade options under each of the flood events, it is necessary to develop an overall metric that considers the full range of storm events under all modelled probabilities and the associated damages.

The recommended approach is to calculate the Average Annual Damages (AAD). The AAD provides the expected value for each benefit type that incorporates the likelihood and consequence of each rainfall event.

Mathematically AAD = the sum of the expected annual damages from floods of all possible frequencies considered in Section 3.4.2.2, e.g. from 1 in 1,000 year flood up to PMF.

AAD = ∑pidi

where p is probability of a specified flood level, d is associated damage and there are i = i…n possible levels of flood damages.

Drawn as a graph the AAD can be identified from estimates of damages for specified flood recurrence intervals and is calculated as the area under each of the curves – as shown in Error! Reference source not found..

Figure 3. Example graph of mortality damages for each flood frequency

Calculation of benefits based on a reduction in the Average Annual Damage

For each flood frequency (ARI) and each of the dam upgrade options the values of each loss type can be summarised in a table such as Table 9 and can be displayed graphically as shown in Figure 3 (above).



Table 9. Summary of estimated losses each option under flood events

Type of event Value type Option 1 – Base case Option 2 Option 3

1,000 year ARI

Mortality … … …

Economic losses … … …

Cultural and environmental losses

… … …

10,000 year ARI




… … …

100,000 year ARI


Economic losses … … ..


… … …

1,000,000 year ARI




… … …

Probable Maximum Precipitation Flood




… … …

The AAD for each dam upgrade option and each loss type is calculated as the area under the loss curve. If the loss curve were known precisely as a formula, then the area under the curve could be calculated using numerical integration. However, the area can be estimated by approximating the curve as a series of geometric shapes and a suitable equation is shown in the worked example (see Equation 1).

The total AAD for each option is the sum of the AAD for each loss type – as set out in Table 10.

The marginal AAD is then able to be calculated by comparing the total AAD for each upgrade option (such as options 2 and 3) with the AAD for Option 1. The change in AAD compared to the base case represents that annual benefit that each dam upgrade option would deliver during the operational phase of the project (once construction is complete and running until the end of the analysis period).

Table 10. Average Annual Damages

Value type Option 1

Base case Option 2

Raise dam wall Option 3

Auxiliary spillway

Mortality A D G

Economic losses B E H

Cultural and Environmental losses

C F I

Total AAD X= A+B+C Y=D+E+F Z= G+H+I

Change in AAD compared to base case

X-X =$0 Y-X Z-X



3.5. Step 5 – Identify qualitative factors and distributional impacts

Step 5 in the NSW CBA Guidelines is to consider qualitative factors and distributional impacts. Elements of this step that are likely to be relevant to dam upgrades are described below.

3.5.1. Qualitative factors Impacts that cannot be quantified should be accounted for qualitatively. The two most likely impacts to be considered qualitatively are environment and cultural values that have not been estimated quantitatively.

It should be noted that there may be qualitative environmental and cultural values both as a:

cost of dam upgrades (such as inundation of an area above the dam wall) and benefit of dam upgrades (such as reduced likelihood of flooding under a dam breach or

rainfall event).

All qualitative impacts should be identified and listed along with a description that provides the direction of impact (i.e. cost or benefit); and the likely environmental and cultural significance (based on the area of impact the damage to the site and the importance of the area).

3.5.2. Distributional impacts As set out in the NSW CBA Guidelines, the analysis should consider the impacts by stakeholder groups. Key stakeholder groups which may be impacted by dam safety upgrades include:

dam owner dam customers or users (including recreational users, if applicable) Population At Risk (PAR) under a dam failure event (as the beneficiaries of dam

upgrades).

Primarily any dam safety upgrades would impose costs on the dam owner and would deliver benefits to the PAR under a dam failure event. However, consideration should be given to factors such as whether the:

cost of dam upgrades is likely to be passed on to customers and PAR under a dam failure event overlap with the customers or users of the dam.

3.6. Step 7 – Assess net benefit The CBA focuses on the present value of benefits and costs by discounting the value of future costs and benefits. The key results of the CBA are:

Net Present Value (NPV) – The difference between the present value of benefits and the present value of costs

Benefit Cost Ratio (BCR) – The ratio of the present value of total benefits to the present value of total costs.

The CBA results are easily calculated in a spreadsheet which presents the costs and benefits by category for each year. The net cost or benefit for each year can then be identified as the sum of the costs and benefits for that year. The Net Present Value over the life of the analysis is then calculated as the sum of the discounted net cost and benefit for each year over the assessment period.



The NSW CBA Guidelines stipulates use of a discount rate of 7%, however, sensitivity analysis should be undertaken using a lower and higher discount rate (3% and 10%)18.

As described in step 4, a likely flow of costs and benefits would be to incur the upgrade costs in the early years and then also incur some smaller maintenance and operating costs over the life of the analysis. In contrast the benefits would be incurred steadily once the upgrades are operating. The analysis will also include any residual value of the asset in the final year of analysis (year 30).

3.7. Step 6 – Assess risks and test sensitivities The NSW CBA Guidelines states19:

Sensitivity testing should be informed by the key risks identified and how these affect the costs and benefits of the proposal.

The analysis of dam safety upgrades includes a number of estimates that are fundamental to the analysis of the costs and benefits. Because of the nature of these estimates, an analysis of risks and sensitivities should consider the uncertainties that are included in the estimation of inputs such as:

costs of engineering upgrades (P10, P50 P90 estimates) likelihood and scale of rainfall events dam failure routing and modelling of areas of inundation and discount rates for assessment of future costs and benefits.

Sensitivity analyses should be undertaken using each of the inputs that are estimated and have the potential to significantly impact the CBA result. The sensitivity analysis should also include consideration of whether the inclusion of a Disproportion factor would alter the result.

3.8. Step 8 – Report the results The CBA should be summarised in a report – which should set out the analysis undertaken. This would include a summary of:

the base case and the dam upgrade options assessed dam failure modes costs and benefit types identified and the total value of each cost or benefit (such as

AAD) for each option all critical assumptions used in the analysis and the evidence supporting the use of

these assumptions the results measuring the net social benefit of a project or program, particularly:

o Net Present Value o Benefit Cost Ratio

the impact of sensitivity analysis and the inclusion of a disproportion factor.

3.9. Step 9 – Undertake post evaluation Following the implementation of the preferred option the dam owners will continue to undertake their dam safety management regime on a regular basis - in line with industry standards.

If some funding of the dam upgrade project is provided by the New South Wales Government, then a post evaluation review of the upgrade process may be sought after the project is complete. An evaluation of this kind would align with NSW Government Program Evaluation Guidelines20 and would compare the actual upgrade costs and timings against the estimates

18 See page 45 of the NSW Government Guide to Cost-Benefit Analysis (TPP17-03). 19 NSW Government Guide to Cost-Benefit Analysis (TPP17-03), Page 18 20 https://www.dpc.nsw.gov.au/tools-and-resources/evaluation-toolkit/evaluation-in-the-nsw-government/



used in the cost benefit analysis. The evaluation may also review whether the benefits that were predicted have been achieved.



Appendix 1 Worked example

Introduction This worked example is provided to illustrate the application of these guidelines in undertaking a CBA.

The worked example is for a hypothetical existing concrete gravity dam with a chute spillway on a hypothetical river with part of a regional town lying within the river valley, downstream of the dam.

Context for undertaking this CBA The preceding steps that brought the dam owner to undertake a CBA are:

1. It was identified that the consequence categories may have altered following a change in Population At Risk (PAR) downstream of the dam and a revision of hydrology data.

2. An update of the consequence assessment confirmed that the Flood Consequence Category (FCC) had increased from ‘Significant’ to ‘High A’. It is assumed that the Probable Maximum Precipitation Flood (PMPF) has a return period of less than 1:1,000,000 for the purposes of this example.

3. The dam owner undertook a comprehensive dam safety review and quantitative risk assessment – including Failure Modes, Effects and Criticality Analysis (FMECA). Guidance on this process is available in the ANCOLD Guidelines on dam safety management (2003).

4. The comprehensive dam safety review identified that the existing spillway arrangement is inadequate to safely pass the updated Acceptable Flood Capacity (AFC) flood. For the purposes of simplifying this example, dam break scenarios have not been included and the comparative downstream impact is based on the inundation caused by spillway releases under various flood events.

5. An assessment of the practicable measures to reduce the risk of dam failure has identified the following two preferred dam safety upgrade options: a) Construction of a new auxiliary spillway to increase the flood capacity of the dam and

maintain the existing freeboard to the dam crest level without increasing the risk of overtopping or

b) raising of the existing dam crest to achieve an acceptable freeboard whilst the Acceptable Flood Capacity is passing through the existing spillway arrangement.

6. The dam owner is now undertaking a CBA to help inform the decision-making process around which of the options should be implemented and determine whether the risks have been reduced So Far As Is Reasonably Practicable (SFAIRP).

This process leading to the CBA is shown in the flowchart in Figure 4.



Figure 4. Decision making process leading to a CBA

The remaining sections of this worked example follow the nine steps set out in the NSW Government Guide to Cost-Benefit Analysis21.

Step 1 – Stating the objectives The objective of the analysis is to assess the reasonableness of the identified practicable measures and ensure that risks are minimised SFAIRP.

Step 2 – Define the base case and develop options As set out in section ‘Context’, above, the identification and assessment of practicable measures occur in the steps before the CBA is commenced. For this reason, this step is merely the clarification of the base case and options to be assessed in the CBA.

Traditionally, for dam safety improvement projects, the “no upgrade” or “no change” scenario is considered the base case and is set as option 1.

In this manner, option 1 (the base case) provides the point of reference against which the other options can be compared. Using this approach, we focus on the change in risk between option 1 and each of the other options and the change in cost between option 1 and each of the other options.

In summary, the three options that will be assessed through the CBA are:

Option 1 (Base case) – retain the current dam without any structural or non-structural changes

Option 2 – raising of the existing dam crest Option 3 – construction of a new auxiliary spillway.

21 NSW Government Guide to Cost-Benefit Analysis (TPP17-03) March 2017 https://arp.nsw.gov.au/sites/default/files/TPP17-03_NSW_Government_Guide_to_Cost-Benefit_Analysis_0.pdf



Step 3 – Identify and forecast costs and benefits In this step we identify the types of costs and benefits that would arise under each option.

Costs The key categories of costs are identified in this step. This project has three key cost types – which will vary depending on the option selected:

capital expenditure – the cost of upgrading the dam including design, approvals, construction and commissioning. The analysis will focus on the marginal cost (the increase or decrease) compared to the base case

operating and maintenance costs – the operating and maintenance costs that will arise during the duration of the assessment. These costs would include any change in operating or maintenance expenditure compared to the base case

indirect costs – costs that are not incurred by the dam owner - such as raising dam wall (option 2) could result in the inundation of land above the dam – which may result in loss of economic, environmental and cultural values from areas that are inundated.

For each of the costs types we focus on the change in cost compared to the base case.

Benefits Likely benefits include those that arise from any reduction in costs compared to the base case. The key categories of costs that would arise from the dam safety improvement works relate to:

mortality – based on any change in the Potential Loss of Life and the value of a statistical life

economic – loss of economic value such as property damage, critical infrastructure and transport infrastructure

environment – enhancement or reduction in loss of environmental values cultural Heritage – enhancement or reduction in loss of cultural values.

It is anticipated that both option 2 and option 3 would result in a reduction of these losses under some flood events. This reduction in losses (compared to the base case) can also be described as avoided costs and are the key benefits that would arise from implementing option 2 or option 3.

Identifying the area of inundation under each option

The likely benefits can be identified for each option based on a map of the area of inundation. Due to the range of flood events that are relevant for this example it is necessary to produce several inundation maps to identify the impacts of each rainfall event on the dam – following any augmentation works.

As set out in Error! Reference source not found.1, a total of 14 inundation maps are required for this case study. This is based on:

five maps for the base case (500 Year, 1,000 Year ARI, 10,000 Year ARI, 100,000 Year ARI, Probable Maximum Precipitation Flood)

four maps for option 2 (1,000 Year ARI, 10,000 Year ARI, 100,000 Year ARI, Probable Maximum Precipitation Flood) and

five maps for option 3 (500 Year, 1,000 Year ARI, 10,000 Year ARI, 100,000 Year ARI, Probable Maximum Precipitation Flood).



Table 11. Summary events that may result in property damage or loss of life

Rainfall event

Option 1

Base Case

Option 2

Raising dam wall

Option 3

Auxiliary spillway

Up to 500 Year ARI Spillway discharge with no property damage or loss of life

1,000 Year ARI Spillway discharge with incremental property

damage but no loss of life

Spillway discharge with no incremental property damage or loss of life

Spillway discharge with increasing incremental property damage and

loss of life (but lower than base case)

10,000 Year ARI

Overtopping of dam with increasing

incremental property damage and loss of life

Spillway discharge with increasing incremental property damage and

loss of life (but lower than base case)

100,000 Year ARI

Probable Maximum

Precipitation Flood

A map of the area of inundation for the base case under a 1 in 100,000 year rainfall event is shown in Figure 5

Figure 5. Area of downstream inundation under a 100,000 year ARI event for the current dam22

Based on the inundation mapping resulting from the spillway discharges during each rainfall event and each dam safety option, the key community infrastructure that are impacted are set out in Table 12.

22 Source: Adapted from Ordnance survey OS Maps, accessed November 2018



Table 12. Impact of rainfall events on community infrastructure

Rainfall event

Community infrastructure impacted

Option 1 Base case

Option 2 Raise dam wall

Option 3 Auxiliary spillway

1,000 year ARI

School 2 0 0

Houses 200 0 0

Factories 10 1 2

Roads (km) 200 100 150


10,000 year ARI

School 2 1 2

Houses 700 150 250

Factories 20 4 4

Roads (km) 400 150 200


100,000 year ARI

School 2 1 1

Houses 1000 250 400

Factories 50 2 2

Roads (km) 600 150 150



School 4 2 3

Houses 4000 600 1000

Factories 75 4 4

Roads (km) 800 200 200


In this case the critical infrastructure is a water treatment facility and a peaking power generation facility.

Step 4 – Value the costs and benefits

Costs For each of the options we identify the total cost over the duration of assessment (25 Years was used for the purposes of this example as the central estimate).

The costs include the following key elements:

capital expenditure operating expenditure + maintenance expenditure indirect costs: economic, environmental or cultural values that are impacted by the

implementation of any option above the dam (for example this would be areas inundated if a dam height is increased).

The costs are recorded based on current values – without accounting for inflation. As we collate the cost using a present value calculation, we need to identify the timing and scale of each cost over the duration of the assessment.



Capital expenditure

Capital cost and timing of capital expenditure over time.

Table 13. Capital expenditure for each option ($millions in $2019 values)

Option 1

(base case) Option 2

(raise dam wall) Option 3

(auxiliary spillway)

Year 1 $0 $25 $14

Year 2 $0 $20 $10

Year 3 $0 $15 $0

Year 4 $0 $0 $0

Present Value (7% over 25 years)

$0 $56.8 $23.3

Operating expenditure + maintenance expenditure as well as externality costs

This approach is repeated for operation and maintenance costs and also for any externality costs (economic, environmental and cultural values) that are incurred as one of the options.

It is identified that raising the height of the dam will inundate a small area of upstream farmland during the dam crest flood event (option 2).

The estimated value of this inundation is $2 million (as a one-off cost) – which would occur at year 3 of the project - before the dam is full again after construction.

Collated costs

The collated costs for each option are set out in in Table 14.

Table 14: Summary of the costs for each option (Present value $ millions)

Capital expenditure

(Present Value)

Operating and maintenance expenditure

(Present Value) Indirect costs

(Present Value) Total cost

(Present Value)

Option 1 (base case) $0 $0 $0 $0

Option 2 (raise dam wall)

$56.8 $1.9 $1.7 $60.4

Option 3 (auxiliary spillway)

$23.3 $4.50 $0.00 $27.9

Note – based on 7% discount rate and 30 years



Benefits

Approach used

The approach used to develop an overall metric of damages is to identify the Average Annual Damages, (AAD) which sums the probability of floods of varying levels and associated damages.

AAD = the sum of the expected annual damages from floods of all possible frequencies, from 1 in 1,000 year floods up to PMF frequency floods (as appropriate for the Flood Consequence Category of the dam)

AAD = ∑pidi

where p is probability of a specified flood level, d is associated damage and i = i…n possible levels of flood damages.

For each flood event (e.g. 1 in 1,000 year, 1 in 10,000 year etc) we identify the component elements:

life (mortality) costs economic loss environment cultural Heritage

Potential Loss of Life For each of inundation maps we follow the steps set out in Table 15 to identify the potential loss of life. The estimate is a function of the population at risk (PAR) and the flood severity – as measured by the depth and velocity (shortened to DV) rating.

Table 15. Process steps to identify potential loss of life for each flood type and each option23

Step Detailed description

1 Select appropriate time categories (e.g. day/night, seasonal, weekend/weekday, etc.)

2 Estimate flood severity range based on the depth and velocity (DV range) for the flooded areas. Some towns or river reaches may have Population at Risk (PAR) in multiple DV ranges, depending on the flood characteristics (see Step 3 discussion below). Justify the estimates.

3 Estimate the population at risk (PAR) within each reach for each failure scenario, DV range and time category. Justify the estimates and provide any referenced resources.

4 Estimate when dam failure warnings would be initiated (depends on many factors, suggest using range; see Step 6 discussion below). Estimate the warning time categories for flooded areas (e.g. little to no warning, adequate warning, or between the two; see Step 6 discussion below). Justify the estimates.

5 For each PAR reach, use the graphical approach to estimate an appropriate fatality rate range based on DV values, warning time and other considerations. Justify the estimates.

6 Estimate life loss range for each PAR reach by applying appropriate fatality rate range limits to each PAR. Sum the life loss estimates for each PAR to get the total estimated life loss range. Estimate life loss range for different dam failure scenarios as needed in Step 1.

7 Evaluate how uncertainties and variability in various parameters affect overall uncertainties in life loss estimates. Perform sensitivity studies if needed. Identify areas of higher and lower uncertainty.

For each flood event under each dam enhancement option, the Potential Loss of Life (PLL) requires calculating. This is calculated by multiplying the PAR by the proposed fatality rate. The fatality rate is obtained from Figure 6. The DV (depth x velocity) values are a product of the flood inundation mapping.

23 Source: U.S. Bureau of Reclamation, Reclamation Consequence Estimating Methodology Interim Guidelines for Estimating Life Loss for Dam Safety Risk Analysis, July 2015 https://www.usbr.gov/ssle/damsafety/documents/RCEM-Methodology2015.pdf



For example, for a 1,000 year AEP flood event, a DV of 100ft²/sec is obtained from the flood mapping. This gives an estimated fatality rate of 0.1. This value is multiplied by the PAR (estimated as 10 people), giving an expected mortality rate of 1 person.

Figure 6. Graph of DV Values to identify fatality rates

Table 16. Potential Loss of Life

Type of event Option 1

(base case) Option 2

(raise dam wall) Option 3

(auxiliary spillway)

1,000 year ARI 160 1 5

10,000 year ARI 670 88 143

100,000 year ARI 1,680 103 140

Probable Maximum Precipitation Flood (PMPF)

5,980 230 360

Under the OBPR guidance, the value of a statistical life was $4.2 million in 201424 which equates to $4.6 million in 2019.

24 Office of Best Practice Regulation - Best Practice Regulation Guidance Note: Value of statistical life, 2014



Economic losses For each area of inundation, we identify and value:

residential and commercial properties likely to be damaged/affected any transport infrastructure (main roads, bridges, railways) that could be affected (both

travel delays and repair/replacement costs) any critical infrastructure – utilities assets (power, gas, water), communications assets,

hospitals, police, fire and ambulance stations – that could be affected agricultural land that would be affected (not included in this example as none was

identified) other factors.

The loss estimates are based on repair and replacement costs as well as lost productivity from short term loss of use. The relevant costs adopted for this worked example are set out in Table 7, based on an assessment of property values and rental values in the region. In practice, appropriate local costs should be determined.

Table 17. Damage cost estimates for each community asset type

Asset type Average repair value Average replacement

value Average value per

week lost production

School $3,000,000 $30,000,000 $5,000

Residential house & contents

$75,000 $750,000 $300

Factories $300,000 $3,000,000 $10,000

Roads (km) $200 $2,000

Critical infrastructure $3,000,000 $30,000,000 $200,000

For the purposes of this example, we assumed that properties where the water level had reached 1 metre, or above, over floor level required replacement, while other properties where flood water was less than 1m required repair. Consideration of the building type and construction will be required to capture an appropriate estimate of the repair versus replacement costs within the affected area.

The total cost for each asset type under each rainfall event and dam augmentation option are set out in Table 18.

Table 18. Itemisation of economic costs

Rainfall event Asset type

Option 1

Base case

Option 2

Raise dam wall

Option 3

Auxiliary spillway

1,000 year ARI

School $19,580,000 $0 $0

Houses $49,230,000 $0 $0

Factories $10,550,000 $1,055,000 $2,110,000

Roads (km) $130,000 $65,000 $97,500

Critical infrastructure $0 $0 $0

10,000 year ARI

School $33,140,000 $16,570,000 $33,140,000

Houses $291,690,000 $62,505,000 $104,175,000

Factories $35,800,000 $7,160,000 $7,160,000

Roads (km) $440,000 $165,000 $220,000

Critical infrastructure $38,600,000 $0 $19,300,000

100,000 year ARI

School $33,140,000 $16,570,000 $16,570,000

Houses $416,700,000 $104,175,000 $166,680,000



Rainfall event Asset type

Option 1

Base case

Option 2

Raise dam wall

Option 3

Auxiliary spillway

Factories $89,500,000 $3,580,000 $3,580,000

Roads (km) $660,000 $165,000 $165,000

Critical infrastructure $38,600,000 $0 $0


School $66,280,000 $33,140,000 $49,710,000

Houses $1,666,800,000 $250,020,000 $416,700,000

Factories $134,250,000 $7,160,000 $7,160,000

Roads (km) $880,000 $220,000 $220,000

Critical infrastructure $77,200,000 $0 $19,300,000

Environment and cultural heritage If there is strong evidence on the value of avoided environmental costs and cultural costs – such as existing ‘willingness to pay’ surveys – then these elements can be included quantitatively here. This is most likely to occur where there are high values for key “icon” sites – such as areas of national or international significance. Some examples of data sources to identify these sites are:

environmentally sensitive coastal wetlands - listed under State Environmental Planning Policy 14

areas of Outstanding Biodiversity Value declarations - listed under the NSW Biodiversity Conservation Act 2016

wetlands declared under the Ramsar convention of 1971 Aboriginal places of significance (collated by the NSW office of Environment and

Heritage) and modern cultural sites (collated by the Commonwealth Department of Environment and

Energy).

In this example there is no clear evidence on the values impacted and so these values are included qualitatively in Step 5.

Collation of estimated losses and calculation of Average Annual Damages Using the approaches set out above, each category of losses can be estimated for each ARI flood event and under each option can be collated – as set out in Table 19.

Table 19. Summary of estimated losses each option under flood events

Type of event Value type Option 1

Base case Option 2


Auxiliary spillway

1,000 year ARI Mortality $728,000,000 $2,275,000 $22,750,000

Economic losses $79,490,000 $1,120,000 $2,207,500

10,000 year ARI Mortality $3,048,500,000 $398,125,000 $648,375,000

Economic losses $399,670,000 $86,400,000 $163,995,000

100,000 year ARI Mortality $7,644,000,000 $466,375,000 $637,000,000

Economic losses $578,600,000 $124,490,000 $186,995,000

PMPF Mortality $27,209,000,000 $1,046,500,000 $1,638,000,000

Economic losses $1,945,410,000 $290,540,000 $493,090,000



The damage estimates for different flood events can be converted into AAD using the probability values for each event. We use the formula in the box below to calculate AAD. In the formula: ‘d’ denotes flood damage per event and ‘P’ denotes the annual probability of occurrence for the flood event.

Calculation of AAD25

The purpose of the equation is to calculate the area under the loss curve that can be identified for each benefit type and under each option. The curves for mortality costs for this worked example are shown in Figure 7.

25 Source: Adapted from Chalak, M., Florec, V., Hailu, A., Gibson, F. and Pannell, D.J (2017) Economic analysis of flood mitigation options for the Brown Hill and Keswick creeks catchment in Adelaide: integrating non-market values, Working Paper 1702, Agricultural and Resource Economics, The University of Western Australia, Crawley, Australia.



Figure 7. Loss curve for mortality costs

The AAD for each event under each option is set out in Table 20.

Table 20. Average Annual Damages

Value type Option 1

Base case Option 2


Auxiliary spillway

Mortality $2,701,426 $227,028 $381,461

Economic losses $310,747 $51,302 $94,750

Total AAD $3,012,173 $278,330 $476,210

Change in AAD compared to base case

$0 $2,733,844 $2,535,963



Step 5 – Identify qualitative factors and distributional impacts

Qualitative factors As environmental and cultural values were not considered quantitatively, they are included here as qualitative factors.

The description of the factors are:

Environmental values

The riverine environment below the dam has limited environmental values due to the high level of development in the area and the altered water flows.

The riparian vegetation is degraded, and the local Council’s approach has been to grass the areas around the creek line to encourage community use of the land.

Cultural values

The traditional owners identify the river as an important cultural site – and there are middens that are evident at some points along the river.

Distributional impacts The costs of dam enhancements will initially be incurred by the dam owners – but it is anticipated that these costs will be passed on to customers.

Benefits, in the form of reduced losses, will fall to members of the community that live and work downstream of the dam.

Step 7 – Assess net benefit The benefits and costs for each of the options are set out in Table 21.

Option 2 and 3 are compared to the base case (option 1). For each option the table sets out the:

• Net Present Value (NPV) – The difference between the present value of benefits and the present value of costs; and

• Benefit Cost Ratio (BCR) – The ratio of the present value of total benefits to the present value of total costs.

Table 21 shows that option 2 has higher costs than benefits – but the values are similar.

In contrast option 3 has significantly higher benefits than costs (by $11.9 million) and the benefits outweigh the costs by a ratio of 1.43. This implies that for every $1 invested the community, return is around $1.43.

Table 21. Summary of costs and benefits for each option

Option 1 Base case

Option 2 Raise dam wall

Option 3 Auxiliary spillway

Benefit (PV) $0 $28,622,000 $28,766,000

Cost (PV) $0 $60,425,000 $27,883,000

NPV $0 -$31,803,000 $883,000

BCR 1 0.47 1.03

On the basis of the analysis, option 3 is the preferred option – as it has the highest net benefit and most favourable BCR.



Step 6 – Assess risks and test sensitivities For this CBA we have tested sensitivities around:

the use of a disproportion factor alternative discount rates and cost sensitivities.

These are set out in turn below.

Disproportion factor In line with case law around the term “reasonably practicable” we applied alternative disproportion factors to the benefits to identify whether they alter the assessment of the CBA26. The UK Health and Safety Executive suggests using a disproportion factor up to the value of 1027.

In this example we used disproportion factors of 1, 3, 6, and 10 and the results are set out in Table 22.

Table 22. Sensitivity analysis using alternative disproportion factors

Disproportion factor Result

Option 2

Raise dam wall

Option 3

Auxiliary spillway

1 (central case) NPV -$31,803,000 $883,000

BCR 0.47 1.03

3 NPV $25,441,000 $58,415,000

BCR 1.42 3.10

6 NPV $111,307,000 $144,713,000

BCR 2.84 6.19

10 NPV $225,795,000 $259,777,000

BCR 4.74 10.32

Option 2 delivers a net benefit under each alternative sensitivity – but not under the central case (with a disproportion factor of 1). Option 3 delivers a net benefit under all sensitivities and remains the preferred option under all disproportion factors.

26 Edwards v. National Coal Board [1949] established the concept of reasonably practicable 27 UK Health and Safety Executive, Reducing Risks, Protecting People - HSE’s decision-making process, 2001, p. 12. Available at: http://www.hse.gov.uk/risk/theory/r2p2.pdf



Discount rate We tested the CBA under higher and lower discount rates of 3%, 7% (central estimate) and 10% – and the results are set out in Table 23.

Table 23. Sensitivity analysis using alternative discount rates

Discount rate Result

Option 2

Raise dam wall

Option 3

Auxiliary spillway

7% (central case) NPV -$31,803,000 $883,000

BCR 0.47 1.03

3% (low case) NPV -$22,483,000 $9,490,000

BCR 0.65 1.31

10% (high case) NPV -$38,788,000 -$10,516,000

BCR 0.31 0.66

Option 2 does not deliver a net benefit under any of the discount rates considered. In contrast, option 3 delivers a net benefit under a 3% and 7% discount rate and remains the preferred option these sensitivities. However, under a 10% discount rate Option 1 is indicated to be the preferred option but does not satisfy the dam safety requirements.

Cost sensitivities Due to uncertainties in the estimation of engineering costs we applied a range of sensitivities to these costs. The sensitivities applied varied from savings of 10% to cost increases of 30% as set out in Table 24.

Option 2 delivers a net cost under all scenarios. In contrast Option 3 delivers a net benefit under all scenarios.

Table 24: Sensitivity analysis using cost sensitivities

Cost increase Result

Option 2

Raise dam wall

Option 3

Auxiliary spillway

0% (central case) NPV -$19,563,000 $11,939,000

BCR 0.68 1.43

-10% (cost decrease)

NPV -$13,520,500 $14,727,300

BCR 0.75 1.59

+10% (small cost increase)

NPV -$25,605,500 $9,150,700

BCR 0.61 1.30

+30% (large cost increase)

NPV -$37,690,500 $3,574,100

BCR 0.52 1.10

Based on these results the recommendation would be to implement Option 3 – increase dam spillway.

It should be noted that, while Option 3 - the construction of an auxiliary spillway is the recommended option in this worked example, the recommended option will vary depending on the circumstances of each dam considered.

Step 8 – Report the results Based on the CBA option 3 (auxiliary spillway) is the preferred option as it delivers the highest net benefit. As option 2 does not deliver a net benefit and is a higher level of investment, we



can conclude that option 2 does not meet the criteria to be considered SFAIRP when using a disproportion factor of 1.

The dam owners will retain a summary of the assessment to assist in any later review and provide evidence that their decision was defendable if required.

Step 9 – Undertake post evaluation Following the implementation of the preferred option (auxiliary spillway), the dam owners will continue to undertake reviews on a regular basis in line with industry standards.

Appendix 2 Abbreviations AAD Average Annual Damage

AFC Acceptable Flood Capacity

ALARP As Low As Reasonably Practicable

ANCOLD Australian National Committee on Large Dams

ARI Average Recurrence Interval

CBA Cost Benefit Analysis

FCC Flood Consequence Category

FMECA Failure Modes, Effects and Criticality Analysis

PMPDF Probable Maximum Flood Precipitation Design Flood

PMF Probable Maximum Flood

SFAIRP So Far As Is Reasonably Practicable

Documents

Dams Safety NSW Guideline Cost-benefit analysis for dams ... · Dams Safety NSW Guideline – Cost-benefit analysis for dams safety NSW Department of Planning, Industry and Environment