10. Identify, quantify and value impacts

This section explains how you can describe, quantify and value all relevant and significant positive and negative impacts over the life of your FCRM options. It also explains how to record and present them in an appraisal summary table.

Use the appropriate level of detail

You should describe, quantify, and value impacts to suit the stage of appraisal you are at.

You should use enough detail to allow you to:

• compare between different your FCERM options
• select a preferred option when appropriate
• support your application for FCERM GIA or other sources of funding

You should identify if there are risks and uncertainties in the information or methods you have used. If these are likely to be significant to your assessment of impacts you should consider improving the quality. Alternatively, you may use sensitivity analysis to show that these effects do not change your appraisal outcomes.

When presenting impacts you should always put them in the context of the appraisal stage when they were assessed and record your underlying assumptions.

Use the appraisal summary table (AST)

You must record the impacts in your AST. A standard AST is provided which you should adapt to best suit your project needs. As your appraisal progresses you will be able to update your AST with more and improved information.

Your AST will help you:

• in your communications with the local community and partners
• reduce the time and cost needed in your project
• support your project decisions

Assess option impacts

You must understand and separate the different types of impacts.

National economic impacts are impacts which qualify as counting benefits under Green Book rules. These are impacts where there is a net overall positive or negative impact on the national economy, environment or society.

They include:

• direct impacts from flooding or erosion like property damage
• indirect impacts from flooding or erosion such as on people’s mental health or disrupting education
• natural capital and environmental positive and negative benefits
• wider benefits achieved by measures for FCERM such as possible enhanced amenity provided by a new a flood storage area

Local partner impacts occur at a local level. They do not have a net positive or negative impact on the nation as a whole. This is usually because the impacts in the project location will be offset by changes to other places in the UK. For example, a project which benefits tourism by enhancing a sea wall or protecting a beach will probably attract tourists away from other destinations in the UK - this means there is a neutral impact at the national level.

It’s important that you record both national and local impacts in your AST as they will help direct the development of your project.

You must identify when an impact is likely to happen. Impacts may be immediate, delayed or happen progressively but not necessary steadily over time. You will need to develop a profile of all your impacts over the life of your project. You must record your assumptions.

When impacts occur will also help you refine the design of your options.

Environment and ecosystems benefit

Natural capital describes the natural assets in the world around us, such as plants, rivers, soil and animals. Ecosystem services describe the flow of benefits which we gain from this natural capital.

You should use enabling a natural capital approach (ENCA) as a framework for categorising the elements of nature which you should consider in your appraisal. Not all impacts are addressed by a natural capital approach, for example historic environment, however it can inform your ecosystem services-based valuation.

You should consider the timing of any changes and how changed ecosystems will mature over time.

Reflect risk in your impact assessment

Your impact assessment must be informed by your assessment of flood and erosion risk.

You should include:

• changes in risk over time from influences such as climate change and FCERM asset deterioration
• your baseline option
• your assessment of how that risk can be modified by adopting your different FCERM options, with evidence you have collected on their anticipated performance

Value economic impacts

You must assess the:

• direct and indirect damages of flooding and erosion
• positive impacts or benefits as they represent an improvement over your baseline
• negative impacts that represent a loss of your baseline such as the loss of amenity value as a consequence of a given FCERM option

You will need to:

• value impacts using the same price base as that used when estimating option costs
• calculate whole life value of benefits impacts for your baseline and other options which will include all damages, damages avoided and positive and negative impacts
• use whole life discounted benefits, your whole life benefits reduced to a single present value figure

You should not include inflation when assessing the value of future impacts.

Discounting benefits is more complex than discounting whole life costs. This is because different discount rates apply to risk to health and life values compared to other impact values. See FCERM grant-in-aid: discount rates, price indices and capping to work out which discount rate to use for each impact category.

Value net carbon impacts

You should have designed your options to reduce the carbon impact of FCERM. You must value this carbon impact and include it in your economic appraisal.

The Environment Agency uses a net carbon benefit approach to capture the carbon costs, carbon emissions avoided and any carbon sequestration of FCERM. This uses the Green Book approach to carbon costing combined with specific research on the carbon emissions avoided and carbon sequestration that FCERM can provide.

You must add the monetised net carbon value over the life of your option to your other option benefits.

Adjust benefits for inflation

As you progress through the stages of appraisal you should update your monetised benefit values. You should do this in the same way as you did when updating costs using the Gross Domestic Product deflators.

Estimate damages and benefits

The benefits of a FCERM option are calculated as the difference between the damages for your baseline option, typically do-nothing and damages after implementing your do-something option.

Damages are determined considering the probability that a given flood event will occur and the consequence of that event. You must assess a range of events with different probabilities and severity and combine these into an annual average damage (AAD).

You should use the MCM online tool to estimate AAD and benefits. The more detailed MCM provides comprehensive descriptions and methods for calculating a wide range of impacts.

When estimating benefits and damages you will need to apply:

• capping – this limits the damages from flooding or erosion to the market value of the affected asset
• write-off – properties very frequently affected by flooding may be written off and damages based upon their risk free regional market price

Coastal erosion benefits

You can estimate losses from erosion using the probability and timeline of erosion for each option.

Your assessment of erosion rates may be informed by:

• historic erosion rates and contours
• forecasts from models
• the performance of FCERM assets designed to reduce or avoid or delay erosion
• the condition and remaining life of FCERM assets

You can use the national coastal erosion risk mapping tool to make simple checks of predicted erosion rates. You will need to do a more detailed assessment if erosion losses are highly uncertain or where the potential impacts are large.

The benefits of coastal erosion relate to:

• the value of the impact
• when it is forecast to occur
• how it occurs - for example immediately, delayed or progressively over time

The benefits of coastal erosion typically result from reducing the rate of erosion so that it postpones significant impacts into the future. You can calculate these by taking the value of expected damages under your option and deducting the value of damages estimated from your baseline option.

Use sensitivity analysis to test your assumptions

There will be uncertainties in your assessment of impacts. You should use your knowledge of uncertainties to test alternative assumptions or changes in important parameters. This will provide alternative values of impacts for your options.

Your sensitivity analysis should normally test changes in:

• expected asset deterioration and remaining life
• rates of coastal erosion and timing of significant impacts
• performance of FCERM options, particularly those adopting innovative approaches

If your sensitivity analysis shows significant changes in the overall benefits of your FCERM option you should consider whether reducing uncertainties would provide good value for money and enable more robust decisions.

Inputs to describe, quantify and value impacts

Before assessing the impacts, you should have:

• understood the need for your project to enable an early assessment of the impacts to complete your problem definition and project scope, from section 5
• understood the type of project appraisal so that you know the baseline option, from section 7
• included a description of your FCERM options in sufficient detail that enables impacts to be described, quantified or estimated in the level of detail needed for your stage of appraisal
• identified each option as necessary in your AST to inform your assessment and record and present any revised information
• accessed specialist advice, partners and stakeholders

Checkpoints to describe, quantify and value impacts

After assessing the impacts you should:

• assess if it is worth continuing with your appraisal, particularly if baseline FCERM impacts are low - see section 5
• consider if your objectives need reviewing, considering the baseline or other options impacts identified - see section 6
• review and refine your options including the need for any new options, particularly where significant adverse impacts remain - see section 8

Outputs to describe, quantify and value impacts

This step in the appraisal process is complete when you have:

• described, quantified and, where possible, valued the impacts of your baseline and any other options relevant to your stage of appraisal
• recorded how you estimated your options impacts including all your assumptions
• updated your AST
• applied discounting to estimate the whole life present value benefits for your economic appraisal
• informed stakeholders of the conclusions of the impact assessment and identified next steps

Read the full technical guidance

If you need to understand the full technical content you should see section 10 – identify, quantify and value impacts in the FCERM technical guidance.