ECONOMIC DECISION GUIDE

An Overview of the Community Resilience Economic Decision Guide 

for Buildings and Infrastructure Systems

Smart Choices
WHY AN ECONOMIC DECISION GUIDE 

FOR RESILIENCE PLANNING?

When communities decide to become more resilient, they need an approach that helps them to identify and prioritize options consistent with 

their overall goals. Ideally, the options will be based on the community’s 

social and economic needs as well as increase the likelihood that critical 

services will be provided as needed and expected before and after hazard 

events strike. 

The National Institute of Standards and Technology (NIST) Community 

Resilience Planning Guide for Buildings and Physical Infrastructure 

Systems (Community Resilience Planning Guide) helps communities 

do just that, by focusing on the role of the built environment in enabling 

the community to rapidly recover from disruption. It provides a process 

for communities to develop their resilience plans by engaging stakeholders, establishing performance goals for buildings and infrastructure 

systems, identifying priority gaps and options, and developing an implementation strategy. That kind of planning process creates a proactive 

approach to ensure critical social and economic functions of the community are supported. 

Simply identifying those goals, gaps, and options is a major step forward in 

resilience planning. But once options are developed, communities need to 

decide among alternatives. They want options that mitigate the risk of damage levels and speed recovery—while considering their available resources.

They must take economic considerations into account.

That can be difficult because buildings and infrastructure systems are 

themselves part of an interconnected system of systems and support 

social and economic functions, making standard benefit-cost analysis practices more challenging for community resilience planners and economists.

So NIST developed the Community Resilience Economic Decision 

Guide for Buildings and Infrastructure Systems (EDG) as a companion 

to the NIST Community Resilience Planning Guide (CRPG). It offers an 

easy-to-follow approach that captures cost and benefits for the variety of 

resilience options any community may be considering.

This brochure offers an overview of the Economic Decision Guide, which 

provides a mechanism to prioritize potential resilience solutions, while 

supporting the needs of the community.

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The Economic Decision Guide can be used as a standalone tool, but it 

is most useful as part of a more comprehensive planning process and in 

combination with the NIST Community Resilience Planning Guide. Like 

the Community Resilience Planning Guide, it aligns with the National 

Preparedness System.

1) Form a Collaborative 

Planning Team

2) Understand the

Situation

3) Determine Goals 

& Objectives

4) Plan Development

5) Plan Preparation, 

Review & Approval

6) Plan Implementation 

& Maintenance

HOW THE ECONOMIC DECISION GUIDE FITS INTO 

THE RESILIENCE PLANNING SIX-STEP PROCESS

1 SELECT CANDIDATE 

STRATEGIES

2 DEFINE INVESTMENT 

OBJECTIVE & SCOPE

3 IDENTIFY BENEFITS

& COSTS

4 IDENTIFY NON-MARKET 

(NON-ECONOMIC)

CONSIDERATIONS

5 DEFINE ANALYSIS 

PARAMETERS

6 PERFORM ECONOMIC 

EVALUATION

7 RANK STRATEGIES

EDG CRPG 

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SELECT CANDIDATE STRATEGIES

Once a community has identified projects that may improve its resilience to a disruption—perhaps using the NIST 

CRPG—the Economic Decision Guide can be used to 

compare candidate projects for increasing community resilience. The evaluation could be between a single option and 

the status quo, or it could involve multiple options—including choices across different infrastructure sectors.

For example:

• repair a bridge, 

• relocate a water treatment plant, 

• fortify a dam, 

• upgrade the structural performance of a school’s main 

assembly space,

• ...or a combination of options.

Based on existing studies, computer modeling, and expert judgment, the selection of candidate projects by the 

community’s collaborative planning team (see Step 1 of 

the CRPG) generally should identify those most likely to 

have the greatest overall benefit.

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DEFINE INVESTMENT OBJECTIVES & SCOPE

DEFINE ECONOMIC OBJECTIVES

The Economic Decision Guide is designed to identify community investment 

projects with the greatest net benefit, accounting for all factors that can be valued. 

A community will want to decide what additional factors—like increased access to 

a quality livelihood, education, and other 

social welfare resources—are important in 

choosing between and among alternative strategies. Furthermore, communities may choose a diverse approach to resilience planning that involves 

specific mitigation actions to reduce risk and steps to transfer risk, such 

as insurance investments.

DETERMINE PLANNING HORIZON 

A planning horizon—the period over which alternatives are compared 

in terms of costs and benefits that occur—needs to be selected for the 

analysis. Does the community feel comfortable with a 10, 20, or 30 year 

planning horizon for improving resilience? Longer? There may be benefit 

in making the planning horizon the same as the time horizon considered in 

the community’s comprehensive plan.

IDENTIFY CONSTRAINTS

Political, legal, financial, and other considerations will influence which resilience projects a community can undertake, and can be hard to quantify. 

Nevertheless, it is vital to factor them into planning. Planners also often will 

need to consider ways to reformulate or present activities over time.

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DETERMINE BENEFITS

Benefits are determined primarily on the basis of the improvement in performance over the status quo for a hazard event. That includes reductions 

in the magnitude of damages (e.g., to property and livelihoods) from a 

disaster as well as lower costs during the response and recovery phases. 

Benefits also include the positive effects, or non-disaster-related benefits, 

from a resilience strategy that improves community function and value.

DETERMINE COSTS

Costs to implement a mitigation strategy may occur 

once or multiple times over a project’s life. In addition 

to initial costs, estimates should include all costs 

associated with owning, operating, maintaining, 

and disposing of goods and services related to the 

project. Non-economic costs, like environmental degradation due to construction, and social disruption due 

to displacement of a neighborhood/vulnerable population, 

also should be considered. (See Step 4)

VALUES CAN BE GROUPED IN SEVERAL WAYS

Benefits (including avoided losses and costs) and costs can be classified 

by their cause and to whom in the community it accrues, including: direct, 

indirect, and non-economic.

• Direct values are those that accrue to stakeholders without intervening 

factors or channeled through intermediaries. Examples include mitigation costs and avoided damages.

• Indirect values are those that accrue to stakeholders in a cascading 

manner. Examples include business interruption costs and the cost of 

unemployment payments due to disturbance-related job losses. 

• Non-economic values are those with no “market price.” (These can be 

direct or indirect.) Examples include fatalities and injuries.

IDENTIFY BENEFITS AND COSTS

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CONSIDER ALL THE VALUES

Importantly, resilience strategies may produce benefits whether or not hazard events occur. These can be analyzed using the same categories: direct 

benefits, indirect benefits, and non-economic benefits. They should take 

into account the benefits and costs that accrue during all phases associated with a hazard event, as well as under business-as-usual circumstances.

• An infrastructure project (e.g., a replacement sewage treatment plant 

or bridge) that reduces operation and maintenance costs would be a 

direct non-hazard-related benefit.

• A reduction in traffic delays due to highway improvements intended to 

improve its resilience to earthquakes or flooding would be an indirect 

non-hazard-related benefit.

Positive and negative externalities also should be taken into account. For 

example, improvements in a bridge’s durability also could cut the amount 

of greenhouse gas emissions due to reduced maintenance needs.

DON’T DOUBLE-COUNT!

Care needs to be taken to ensure that costs and benefits are not double-counted. For example, if savings on insurance premiums are tallied 

as part of the resilience strategy benefits (or deducted from the costs of a 

strategy), then the benefits need to be considered as payouts minus premiums paid.

In some cases, potential resilience projects may have overlapping costs 

or benefits. As is the case with many decisions, adopting one resilience 

measure may completely eliminate the possibility of, or the need for, other options.

Externalities are costs or benefits that impact a third party that 

are not part of the direct decision to implement a given strategy.

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IDENTIFY BENEFITS AND COSTS

THE RESILIENCE DIVIDEND AND CO-BENEFITS

Just the prospect of a hazardous event can make life difficult. For planners 

charged with helping communities to make wise decisions about investing in 

resilience, the uncertainties about how often a particular type of event might 

strike, its magnitude, and its timing can make conducting a benefit-cost analysis 

challenging. And it is not surprising that communities generally prefer capital 

investments based on first-cost considerations expected to produce certain 

outcomes in the immediate- or short-term. That is the business-as-usual case, 

and it reflects the reality of limited resources that all communities face. 

Nevertheless, there is a growing recognition that enhancing resilience on a 

community scale creates value, including co-benefits, even if a hazard event 

does not strike. Focusing on resilience investments can:

• Enable individuals, communities, and organizations to better withstand and 

recover from a disruption more quickly and effectively.

ADJUST TIME HORIZON

Moreover, if a proposed action that is part of the strategy ends before the 

planning horizon is reached, the projected benefits need to be adjusted 

accordingly. For example, a community’s overall resilience planning horizon may extend 50 years out, but a structure built as part of those plans 

may only have a service life of 30 years. Likewise, if the strategy includes 

an element that extends beyond the end of the planning horizon, then its 

residual value needs to be determined. Of course, it is possible that the 

residual value may be negative. An example: a structure may have served 

its purpose after 30 years; the community then may incur a cost if it needs 

to be demolished and hauled away.

Enhancing resilience on a community scale creates value, 

including co-benefits, even if a hazard event does not strike.

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IDENTIFY NON-MARKET CONSIDERATIONS

Externalities and other impacts may or may not be quantifiable. Some 

externalities carry more obvious dollar values than others. Residents of 

homes near a transportation project that is part of a resilience plan may 

suffer from noise, dust, degraded air quality or traffic restrictions during or 

after construction.

Economists have several methods for determining and placing a value on 

this category of costs. They can be determined and considered as “contingent values,” based on a survey of homeowners and prospective homeowners in the area, for example. While contingent valuation is based on 

direct or stated preferences, “hedonic valuation” is an indirect or revealed 

preference approach to non-market valuation. The Economic Decision 

Guide offers more options and details.

Regardless of the method selected, it is important that communities put 

their own values on these non-market/non-economic considerations, 

which may or may not be captured as part of Step 3. For example, the 

value of tourism lost due to a hazard event may differ from one community 

to another; if tourism is a vital part of one community’s economy, a much 

greater value should be placed on potential benefits or losses related to its 

resilience planning.

• Lessen impact of chronic stresses—like crime, poverty, and unemployment—

and improve a community’s ability to maintain essential functions.

• Improve the community’s attractiveness to residents and businesses by 

adding features and facilities and/or increasing the likelihood of continuity in 

the face of a hazard event.

This “resilience dividend,” as it has been dubbed, means that investment in 

financing and resources for future resilience yields current economic benefits. 

Those may include co-benefits like increased jobs and enhanced reliability of 

an infrastructure system, improving the community even in the absence of a 

hazard event. Taking less obvious benefits into account as part of the economic 

analysis will help to answer the question: “If the adverse event doesn’t happen, 

was the investment still worthwhile?”

Moving elements of the resilience dividend into upfront benefit-cost 

assessments of capital investments for resilience projects will likely bolster the 

case for mainstreaming resilience and help create less vulnerable communities.

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DEFINE ANALYSIS PARAMETERS

SELECT DISCOUNT RATE

Generally, communities and individuals consider 

one dollar to be worth more today than one year 

from now. Communities considering resilience options that require significant funding need to select 

a “discount rate.” This decision is crucial in selecting candidate resilience strategies; the discount rate 

will affect affordability at a particular point in time. 

There are several sources for information on typical ranges for discount rates, 

including the U.S. Government Accountability Office (GAO), which recommends a 7% rate for cost-benefit studies. For life-cycle cost analyses, GAO 

recommends a rate tied to the U.S. Treasury’s borrowing rate. The federal 

Office of Management and Budget (OMB) also provides voluntary guidance 

on discount rates to be used in economic analyses, as do other agencies. 

Private companies tend to use higher discount rates. For most jurisdictions, 

the cost of obtaining capital is the most reasonable choice for discount rate. 

It also is important to keep in mind that different types of infrastructure projects may require different discount rates in any analysis.

DEFINE PROBABILITY DISTRIBUTIONS

The Economic Decision Guide treats extreme hazard events as discrete, 

relatively rare events with significant long-term consequences. Still, the 

HAZARD LEVELS FOR PLANNING

The CRPG encourages communities to define three hazard levels for planning 

purposes: routine, design, and extreme. 

• Routine hazard: A high-frequency/

low-consequence event. It is 

expected to occur more often than 

the design hazard, but result in 

a stress on the built environment 

below the design level causing 

little/no damage or disruptions. 

• Design hazard: The level designed 

for in the codes and standards 

for buildings, bridges, and similar 

infrastructure systems. Some 

disruption can be tolerated at 

this level. 

• Extreme hazard: Low-frequency/

high-consequence event. It 

is expected to occur far less 

often than the design hazard, 

but produce shocks on the built 

environment far exceeding their 

designed capability. 

$ $

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frequency and hazard level of multiple disruptive events clearly matter and 

should be factored into economic analysis. 

In addition, while the economic analysis should consider all possible consequences of an event, the Economic Decision Guide recommends using 

three hazard levels—routine, design, and extreme—to provide key points 

on the hazard probability distribution. The Economic Decision Guide

provides guidance on the actual probability distribution communities may 

employ based on codes and standards, as well as the scenarios the community may have developed for resilience planning purposes.

Since analysts need to estimate expected costs and benefits associated with 

competing investment scenarios, assumptions about benefits (for example, 

the expected reduction in losses) must take into account the uncertainties of 

disaster occurrences and outcomes. Of course, typical uncertainties related 

to estimating cost also must be factored in. Some of those uncertainties will 

depend on the timing and severity of the disaster itself, like response and recovery costs. The Economic Decision Guide offers specific guidance about 

performing probability analyses, including sensitivity considerations. 

DEFINE RISK PREFERENCE

For a community that is risk neutral, a 10% chance 

of a $1 million disaster is equally distasteful as a 1% 

chance of a $10 million disaster. But most jurisdictions are likely to be more averse to the consequences of a few, large disruptive events than to many 

small events. 

Risk aversion may change over time in response to experience and exposure to actual hazard events, and when insurance is taken into account. Still, 

some measure of the degree of risk aversion is needed—that is, the level 

of uncertainty the community is willing to accept in expected outcomes, or 

returns to investments made against hazard events. Risk aversion is sensitive 

to risk attitudes, but also to budget constraints and competing investment 

options. Once quantified, incorporating risk aversion is straightforward using 

standard economic methods. The basic approach is to employ “utility”—the 

usefulness or satisfaction that people get out of a certain level of consumption rather than value. The Economic Decision Guide provides additional 

detail about options for determining risk.

RISK

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PERFORM ECONOMIC EVALUATION

The “meat and potatoes” of the economic analysis of community resilience 

options involves performing the economic evaluation. The Economic Decision Guide offers several approaches:

• Compute Present Expected Value. This part of the analysis will answer the key question, “How do you value resilience strategies?” 

• Alternative Formulations. “Expected utility” is a popular economic 

strategy for choosing between alternative approaches when there is 

uncertainty in the potential outcomes. The Economic Decision Guide

presents commonly used techniques that are especially relevant to the 

NIST Community Resilience Planning Guide. 

• Evaluate Impact of Uncertainty. There 

are many uncertainties in estimating 

the present expected net benefits for a 

mitigation strategy, including:

- The timing and likelihood of future hazards.

- The amount of damage a future hazard will cause.

- Future costs of mitigation strategies.

- The discount rate preferred by the community.

- The degree of risk-aversion held by the community.

- Uncertainty about the validity of models used to estimate present 

expected net benefits.

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RANK STRATEGIES

The final step is to rank strategies for implementation—after accounting for relative net benefits and considering constraints and non-market considerations.

The optimal choice is the combination of actions whose total cost is 

affordable and offers the greatest net benefit. If five resilience planning 

options have been assessed, perhaps three will be possible to implement 

given a community’s constraints. These three resilience options may have 

planning elements in common – these duplications should be removed 

before implementing the resilience plans. In some cases there are interactions between resilience options. For example, if one plan calls for building a seawall then other parts of resilience options to be implemented, 

such as beach nourishment or breakwaters, are no longer needed.

With the baseline benefit-cost analysis and sensitivity analyses completed, 

the remaining portions of Step 7 can begin.

PLAN PREPARATION, REVIEW, AND APPROVAL

Each alternative community resilience strategy consists of actions likely to 

be staged over time so they can be worked into the community’s capital 

budgeting process. It is vital that the economic analyses are integrated 

into the community’s resilience and other planning documents to promote an understanding of its merits by decision makers and stakeholders. 

That includes:

• Recommending a cost-effective resilience investment strategy.

• Providing a rationale for the recommendation considering the baseline 

and sensitivity analyses.

• Explaining why an alternative still ranks high if it did not have the best 

measure of economic performance.

PLAN IMPLEMENTATION AND MAINTENANCE

The plan must be a living document. New information on costs and benefits—including unforeseen spillover benefits and unintended consequences—

will emerge and should be integrated into the resilience plan as well as the 

community’s economic development and other long-range plans.

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THE ECONOMIC DECISION GUIDE

IN ACTION

The NIST Community Resilience Planning Guide uses a fictional community, Riverbend, USA, to illustrate the planning process. The Economic Decision Guide selects two candidate strategies under consideration by Riverbend to address an issue with its transportation and water infrastructure: a 

four-lane interstate bridge between Riverbend and a neighboring community. 

That bridge is the only crossing that carries traffic, including emergency 

vehicles, and clean water into the city. It is vulnerable to flood and earthquake 

events. The Riverbend planning team‘s options address concerns about the 

bridge and aim to improve overall community resilience. 

The first option: Upgrade the bridge, which is scheduled and budgeted for 

a deck replacement in 10 years. Upgrading the bridge included completing 

a seismic update, elevating the bridge deck, and mitigating against scour 

at the piers. Replacing the deck requires closing the bridge, which will force 

a longer route for emergency services and regular traffic. The costs that 

users will incur from a detour and the deterioration of alternate route roads 

are classified as indirect costs.

The second option: Add a bridge designed to the most current codes and 

intended to last 125 years. This second crossing would relieve congestion 

during high traffic periods and also provide additional water supply, which 

will be a co-benefit to Riverbend’s long-term development plans. The new 

bridge would allow traffic to be shifted when the existing bridge is replaced, 

reducing the detour and its associated costs, and providing better performance in case of an earthquake. This option also would introduce multiple 

benefits associated with providing a path for pedestrians and bicyclists. 

The chart to the right summarizes the economic evaluation of these two 

options, using the Economic Decision Guide’s process.

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Economic Evaluation for Resiliency of

Bridge Options in Riverbend, USA

STEP CONSIDERATIONS

Select Candidate Strategies Option 1: Retrofit

Option 2: New Construction

Define Investment Objectives 

& Scope

Define Economic Objective Function

Define Planning Horizon

Identify Constraints

Maximum Net Benefits

50 year

None

Identify Benefits & Costs 

Identify Costs & Losses

Identify Savings & Benefits

Option 1: Construction costs; business interruption costs

Option 2: Construction costs; business interruption 

costs; maintenance costs

Option 1: Reduced (direct) bridge damage; reduced 

response costs; reduced recovery costs; reduced 

(indirect) business interruption

Option 2: Reduced response costs; reduced recovery costs; reduced (indirect) business interruption; 

shortened commute time

Identify Non-Market Considerations Value of a Statistical Life: $7.5 million (M)

Define Analysis Parameters

Select Discount Rate

Define Probability Distribution

Define Risk Preference

5%

Disaster Reoccurrence: 25 years (4% annual probability)

Disaster Magnitude: Direct damage ~ 1/16 replacement 

cost

Option 1 Costs: $3M direct; $0.5M indirect

Option 2 Costs: $4.25M direct; $0.05M indirect; 

$0.025M maintenance 

Option 1 Benefits: $0.26M direct loss reduction; $2M 

indirect loss reduction; $0.6M response & recovery 

cost reduction; 0.1 fatalities averted

Option 2 Benefits: $3.5M indirect loss reduction; $1M 

response and recovery cost reduction; 0.2 fatalities 

averted; $0.1M non-disaster related benefits

Risk neutral

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WHAT TO EXPECT

The National Institute of Standards and Technology is committed to its 

investment in community resilience planning, ensuring that its Guides are 

relevant and used to achieve impact. To meet this goal: 

• The Guide and companion documents and tools can be downloaded at 

www.nist.gov/el/resilience.

• NIST has released the EDGe$ (Economic Decision Guide Software) 

Tool based on the methodology in the EDG. The EDGe$ Tool is a 

powerful software-based technique for electing cost-effective, infrastructure-based community resilience projects. EDGe$ helps to identify 

and compare relevant present and future resilience costs and benefits 

associated with identified investment alternatives versus maintaining 

a community’s status quo. More information about the software can 

be found at: https://www.nist.gov/services-resources/software/

edge-economic-decision-guide-software-tool.

• Multiple communities—of different jurisdictional type and sizes—across 

the country are now using the Guide to plan for improved resilience 

as they address a variety of potential hazard events. See the Success 

Stories capturing the highlights of their experiences, including lessons 

learned at www.nist.gov/el/resilience.

OTHER ASSISTANCE

Improving community resilience must take economic considerations into 

account, and analyzing those factors isn’t easy. The NIST Community 

Resilience Economic Decision Guide for Buildings and Infrastructure Systems is likely to help. Get it at www.nist.gov/el/resilience. 

This brochure offers a quick overview of that process. For more information, answers to your questions, and to receive regular updates, contact 

resilience@nist.gov. Have a suggestion? Please forward your observations 

and ideas to resilience@nist.gov.

December 2018