Flood-Damage-Reduction Project Evaluation with Explicit Consideration of Damage Cost Uncertainty

Abstract

AbstractFacing uncertain future conditions, flood-damage-reduction alternatives with large positive expected net benefits may be accompanied with high uncertainty. In decision-making under uncertainty, not only failure probability and failure consequences but also the cost of lost opportunity should be considered so as to enhance risk-informed decision-making for hydrosystem design, planning, and management. This paper proposes a risk measure, i.e., the expected opportunity loss (EOL), in a risk-based framework for flood-damage-reduction project design. The opportunity loss for a chosen alternative is the difference between the payoffs of this alternative and the best payoff of all alternatives. The risk measure of EOL can quantify the adverse consequences associated with making a wrong decision due to the uncertain state of nature and it can also capture the correlation effect of the net benefits of two competing design alternatives. Using EOL, alternatives can be ranked by the minimax regret principle. ...