The Business Case(s) for Resilience
Recently, the National Institute of Standards and Technology stood down its Community Resilience Panel. The Social and Economic Committee of the Panel had identified developing the business case for resilience as perhaps the most important gap in our knowledge of how to achieve greater community resilience. The Committee drafted a report that looked at what was needed to fill that gap. Since the report will never see the light of day any other way, I am posting it here.
A couple of key takeaways. If you believe in the “Whole Community” concept, then several – not just one – business case is needed, each tailored to a segment of the community. And while the message is important, the Messenger – the trusted voice that makes the case – may be even more important in gaining acceptance of the message. The Committee developed this report with the understanding that our knowledge of how to communities’ investment in their resilience is still at an early stage; we hope these ideas will help us all to climb higher on the learning curve.
Developing the “Business Case(s)” for Community Resilience
Getting community buy-in to invest in resilience is a hard sell. Some investments must be made by local government; some by the private sector; some by non-profits; and many by the public. For each of these, a “business case” – the rationale for making the investment – must be formulated.
In general, these investments are hedges against the perils a community faces. In that sense, they are often seen as discretionary expenditures that are not revenue-producing. Thus, investments in resilience must vie with others that produce revenue as well as against other non-revenue-producing expenditures.
In order for these investments to be made, a business case is needed for community resilience. Ideally, each part of the community will invest in resilience, both its own and the resilience of the entire community. Thus, the “business case” for resilience must resonate with each part of the community. In effect, this means not one business case but several. In the following, the Social and Economic Committee of NIST’s Community Resilience Panel discusses what is needed to develop those business cases.
When we speak about a “business case” we mean the justification for spending money on specific projects or programs. In general, a business case is based on a cost-benefit analysis (CBA) of the project or program. While CBAs are generally couched in financial terms, investments in community resilience will also have social and operational ramifications; these should also be reflected in the CBA.
But when we speak about a business case, we must also look beyond the CBA. If investments are to be made across the community, then CBAs should be aimed at each potential investor. Each of these targeted CBAs should include both the costs and the benefits of the investment for that specific investor.
A business case is prepared to gain buy-in from investors. It is important to recognize that investments are made only partially on a rational basis. A solid business case for resilience is thus necessary but not sufficient. The case must be made by a source trusted by the investor. All things being equal, people invest in those they trust. If things are unequal, people look for reasons to invest in those they trust. Thus, the business case – the “message” – is important, but the messenger – the trusted voice – is just as important.
There are a few examples of a business case for resilience investments, most notably that produced by the Multihazard Mitigation Council (MMC) of the National Institute of Building Sciences. The MMC made the case that one dollar spent by the federal government for mitigation before a disaster saved four dollars of post-disaster spending. While this is a good start, it does not address:
- Resilience more broadly;
- The range of investments needed for resilience;
- The diversity of the investors; nor,
- Who pays and who benefits from the investments.
MMC’s analysis was also not specific to any community, and did not include community investments. Further, the MMC is unknown to most segments of the public. It cannot be considered a trusted voice. These points in no way invalidate the excellent analysis performed by the MMC. However, they point out that analyses such as this need to be community- and investor-specific, and should be introduced to the community through trusted voices. In the following, we suggest some promising avenues to follow.
Community- and investor-specific CBAs – Getting the message right
The tools available for cost-benefit analysis are reasonably good for well-defined risks and for financial costs, but do not reflect the human impacts. Thus, better methods of quantifying risks vs rewards are needed. In particular the results of these methods must better resonate with groups such as NGOs and the public at large. This implies that means must be found to reflect factors such as the social return on investment.
The risk perception and tolerance of each type of investor should be determined.
More attention is needed on “who benefits” vs “who pays?” In the aftermath of Hurricanes Irene and Sandy many communities desired that power lines be buried. However, while there would be significant benefit to the communities the costs would have to be borne by the electric utility.
The concept of a “resilience dividend” should be considered as a means to frame the discussion.
The social and behavioral sciences community should provide case studies specific to each type of investor and investment. The insurance industry has provided some valuable and relevant case studies (esp. for businesses). Resilient Organisations in New Zealand has also done some excellent work relating to the Christchurch earthquake. In addition, looking at the investments such as those being made in south Florida to reduce flooding, and the costs and benefits of improved building codes in Moore, OK, would be most useful.
Trusted Voices – We can’t forget the messenger
Overhanging this entire issue is our spotty knowledge of what compels people to take action. The excellent work of Thaler points out the essential irrationality of investors; these results need to be projected onto the resilience dividend. Applications of his “Nudge Theory” might be most useful.
The Committee also has observed that many more relevant and meaningful narratives are needed. Stories can be powerful tools for making a compelling case. They also can help to exert a sort of peer pressure on a community – “Community X did this and see how much better they became? Why can’t we do that?”
Related to this is the question of what voices do people listen to. Research strongly indicates that in a crisis neighbors often listen to neighbors first. Absent a crisis, to whom does each group of investors listen? The “trusted voices” for each group of investors should be identified and messages tailored for them.
In some communities there are “translational leaders” – champions for resilience who are trying to change their communities. Tools are needed to help them lead their communities in building its own business case.
For any community, achieving greater resilience requires investment, ideally by every part of the community. Our knowledge of how to spur communities to invest in their own resilience is still at an early stage. The Social and Economic Committee offers these ideas to help us all climb higher on the learning curve.
 Multihazard Mitigation Council, Natural Hazard Mitigation Saves: An Independent Study to Assess the Future Savings from Mitigation Activities, Volumes 1 and 2, Report to U.S. Congress on behalf of the National Institute of Building Sciences, Washington, D.C., 2005.
Learn More About the Author: Dr. John Plodinec
John Plodinec, Ph.D is the Associate Director for the Community and Regional Resilience Institute (CARRI) at Meridian Institute.
In this role, he is responsible for identifying and evaluating technologies useful for enhancing community resilience.
He also is playing a leading role in development of CARRI’s Community Resilience System. He has also been heavily involved with CARRI’s engagement with the Charleston, SC, region. John recently retired from the US Department of Energy’s Savannah River National Laboratory (SRNL), as its Science Advisor. In this position, he led SRNL’s Laboratory-Directed Research and Development program, as well as developing strategic partnerships in areas aligned with the laboratory’s primary thrust areas.
As part of this effort, he developed CARRI’s Resilient Home Program, aimed at improving the survivability of American homes to disaster. This built on earlier work he did while at Mississippi State University, where he led the University’s efforts to establish programs related to severe weather. Dr. Plodinec helped his research group become the first entity in the state of Mississippi – and one of the first in the nation – to win a competitive award from the Department of Homeland Security… (learn more)