How can I assess the cost-effectiveness of NBS?

The question behind the question

Cost-effectiveness is usually asked when the budget is already fixed and the decision is about what to spend it on. It is a different question from whether an intervention is worth doing at all: it compares options that are all intended to achieve the same objective, and it asks which achieves it for least, or how much of it each achieves for the money available.

Two things have to be settled before the comparison means anything. The objective has to be defined in a measurable way, because effectiveness is measured against it and a vague objective makes every option look equivalent. And the options have to be comparable over the same period and the same area, which requires the cost side to be built on a consistent basis rather than from whatever figures each option happened to come with.

How to do it

Define the objective in physical terms — a reduction in expected annual damage, a volume of additional storage, a change in the frequency of a given event — and state the period over which it is to be delivered. Then build the cost of each option over its whole life, not its construction cost: preparation, installation, operation, maintenance, renewal and the treatment of the asset at the end. Then express the result as cost per unit of effectiveness, and examine how sensitive that ratio is to the assumptions that carry the most uncertainty.

Where an option delivers more than one thing, effectiveness can be assessed against a weighted set of objectives, or one objective can be treated as the primary one and the others reported alongside. Either is defensible provided it is stated; what is not defensible is presenting a ratio that depends on a weighting nobody has agreed to.

The presentation matters as much as the arithmetic. A graphical comparison of options against cost and effectiveness, including the range on both, is more useful to a decision-maker than a ranking, because it shows which options are dominated under every plausible assumption and which are genuine choices.

What to watch for

Cost-effectiveness comparisons are most often distorted by an inconsistent treatment of maintenance, by comparing options at different scales, and by omitting the costs that fall on parties other than the one commissioning the assessment. All three make the cheaper option look cheaper than it is. The life cycle costs methodology exists to prevent the first and the third, and the economic framework to prevent the second.