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Applying the VFM framework to business case design and appraisal Introduction Given the large investments being made by DFID in adaptation through the ICF, and mainstreamed through the wider development budgets, there is a need for DFID to select and prioritise those activities that provide Value-for-Money (VfM). Since 2011, DFID has produced guidance for the economic appraisal of ICF climate change interventions. This includes guidance for appraising resilience-oriented business cases, particularly in the context of uncertainty associated with future climate change. However, the guidance does not provide ex-ante advice to design teams on what type of resilience interventions might provide early socio-economic returns prior to their appraisal. In response, DFID more recently commissioned work to identify potential approaches to identifying early VfM options. A report on Early VfM Adaptation was produced together with a VfM toolkit on how the framework could be applied (see Watkiss et al, 2014). The report and toolkit are built around the use of iterative climate risk management frameworks, as recommended in the recent IPCC 5th Assessment Report (IPCC, 2014). This framework allows for the sequencing of adaptation activities that address different time horizons, and helps to identify early actions that are likely to offer strong socio-economic returns on investment whilst still increasing resilience against future climate change. The report and toolkit were designed for a range of purposes, including both DFID-internal (e.g. country strategy development, climate portfolio management, adaptation mainstreaming) and external (e.g. supporting national governments and partners to improve planning processes (e.g. NAPAs, NAPs, sector strategies) and associated resource allocation. This note revisits some of the issues associated with appraisal of adaptation business cases with a view to identifying where the VfM framework may add value and what entry points exist for its application. It draws upon the experience of the application of the VfM framework to a number of ICF business cases (both ongoing and approved). The note is oriented towards the appraisal case within the DFID/HM Treasury 5 case model. The appraisal case examines how DFID will address the need set out in the strategic case, appraises the identified options, and identifies which of them are likely to deliver value for money. The note is also of relevance to the concept note/strategic case (in terms of framing the issues within a VfM context), the commercial case (in which a summary of VfM is set out) and the management case (where further VfM analysis can play a core role in the monitoring and evaluation (M&E) process). Summary of VfM Framework The Early VfM Adaptation framework sets out the latest thinking on iterative adaptation and how this can be used to identify early adaptation interventions that are likely to provide value for money1. Based on the framework, three categories of activities are identified that potentially offer early VfM. These are as follows: 1. Addressing the current adaptation deficit: A focus on low and no-regret actions that deliver benefits under both current climate variability and future climate change and address the 1 The VfM framework and toolkit reports (Watkiss et al 2014) provide a comprehensive overview of the suggested approach and this note should be read in conjunction with these documents. existing adaptation deficit. These may include development activities in climate sensitive sectors (e.g. agriculture, disaster risk response), or capacity building (e.g. institutions and information for climate change response). 2. Mainstreaming and risk screening: The consideration of resilience in short term decisions with longer-term implications. This may include climate mainstreaming within development strategies and planning (e.g. urban planning, land zoning) and risk screening for infrastructure investment. 3. Longer term planning: Iterative approaches that help to prepare for robust decision making around longer-term (and uncertain) climate change challenges, and planning towards potentially significant structural shifts in social, economic or environmental systems (e.g. strategic economic planning, livelihoods, settlement and migration planning) Figure 1: Iterative Framework for Climate Change and Adaptation Source: Watkiss et al. (2014) Applying the framework to the business case appraisal process Within the DFID business case process, the appraisal case provides the primary opportunity to explore and assess the VfM proposition (although a summary is often provided in the commercial case). The appraisal process allows the design team to review the rationale for the adaptation programme, sets out the potential activities and options for programme delivery, and assesses the relative costs and benefits of each option. More generally, it allows for the exploration of the assumptions underpinning the theory of change and can help test the robustness of the associated evidence base. The appraisal case provides recommendations that can help shape the final programme. Challenges of appraising adaptation A key part of the appraisal process is an economic appraisal which seeks to prioritise options on the basis of a cost-benefit (or cost effectiveness) analysis. For each option presented, a benefit-cost ratio (BCR) is normally calculated on the basis of the identified programme costs and associated socio-economic benefits, discounted at the appropriate rate. The CBA is normally subject to a degree of sensitivity analysis, testing the assumptions underpinning the appraisal, and reflecting the level of uncertainty associated with programme implementation. Undertaking an economic appraisal for no- and low regret resilience-oriented programmes presents a number of potential challenges and opportunities that can be addressed during the appraisal case: Challenges in appraising adaptation interventions There is no simple common metric to compare and prioritise adaptation interventions, unlike mitigation where there is a single measure (£/tCO2). The analysis of impacts requires more detailed understanding of exposure and local costs and benefits Baseline risks, and potential adaptation benefits, are site and context specific. There are issues of transferability (what worked well elsewhere, may not work well locally and costs may vary). Proxies for economic returns should therefore be used with care. Adaptation has to account for the dynamic and changing nature of climate change over time, i.e. the baseline impacts and the levels of adaptation benefits vary. This requires an additional time element as well as the consideration of interdependencies. There are a number of different challenges for adaptation to address, related to current climate variability, near-term mainstreaming, and future climate change. This requires portfolios of options, rather than a single, linear optimised solution (as with mitigation). There is high uncertainty associated with future climate change, impacts and thus with future adaptation benefits. This uncertainty cannot be ignored with the use of central projections and it needs to be included in the decision frameworks for prioritisation. Many promising early adaptation options are non-technical in nature (e.g. information, capacity building), or involve qualitative, ancillary or non-market sector making the analysis of outcomes and their valuation for economic appraisal more challenging. There is high variability in the baseline, for example with annual rainfall variability or extreme events (e.g. floods and droughts), making it difficult to evaluate short term outcomes due. Longer term outcomes extend beyond project monitoring cycles. There is an overlap between many adaptation activities and existing development, making the demonstration of additionality a challenge. Indeed, adaptation cannot be considered as a standalone activity and should be integrated (mainstreamed) with sectoral or development priorities. Figure 2: Challenges in appraising adaptation interventions Source: Watkiss et al. (2014) Different types of adaptation activities will be subject to different types of economic appraisal. Many programmes will be oriented towards funding investments in sectors that are exposed to current climate variability and where there is an existing climate deficit. Examples include investments in climate smart agriculture and water management. These options are often well suited to costbenefit analysis (although this can be more challenging where non-market sectors such as health are involved). These investments may often generate immediate economic returns by improving productivity and efficiency through infrastructure investment, location-specific programmes and technology roll-out. The immediate nature of the benefits is favourable from a cost-benefit analysis perspective, as it reduces the discounting effects associated with benefits that depend on future climate change. No regrets adaptation programmes are also likely to include some element of capacity building and information support activities. Typically, these activities are difficult to value from an appraisal perspective. Such activities may provide significant but less direct benefits than those found in other types of interventions. Their benefits arise from the capacity to improve the enabling environment and decision making processes associated with adaptation. The business case should seek to capture the extent to which such ‘soft’ activities buy an option on future benefits, whether in terms of an assessment of avoided future losses (detailing potential damages within a given sector that might be avoided), transformational or indirect network effects (i.e. better sector planning or governance), or attracting additional resources (increasing the credibility and capacity of governments to access large scale adaptation financing). A recent example from Tanzania is set out below: Figure 3: Tanzania ‘Aim 4 Resilience’ Business Case Tanzania ‘Aim 4 Resilience’ Business Case The VfM framework was applied to the recent Tanzania ‘Aim 4 Resilience’ business case. The business case took an integrated approach, identifying options to fund no- and low-regrets activities at a subnational level (e.g. agriculture, coastal protection) that would deliver immediate benefits, while building institutional capacity around national climate planning, sector mainstreaming and climate finance with a view to addressing longer term challenges. The appraisal drew upon the evidence base of benefit cost ratios as set out in the VfM framework, and this evidence was used as a proxy to assess the likely returns from investment in specific climate sensitive sectors. More challenging was to assess the benefits of the significant investment in institutions and capacity. The business case recognised that the ‘evidence base for the direct economic returns of institutional capacity building is relatively weak, due to the long results chains between upstream work and downstream benefits to vulnerable communities and infrastructure’. The economic appraisal explored potential approaches to overcoming this challenge. One approach was to assess the scale of existing sector budgets (agriculture, water) and climate finance (OECD DAC, National climate budgets) that could be influenced by improved planning and mainstreaming capacity. The business case then made an assessment of the break-even point at which improvements in delivery would justify the programme. Another approach was to estimate the likely increase in climate flows from international sources due to more robust mainstreaming and planning processes (a key requirement of the Green Climate Fund) based on climate finance flows to other countries in the region, and to estimate the socio-economic benefits arising from these new and additional funds. The appraisal of investments in longer term adaptation raises a different set of issues. Most models indicate clearer climate impacts mid-century (c. 2050), when the climate signal begins to become distinguishable from current climate variability. As a result, the calculation of robust baselines (without project) and valuation of future benefits from improved resilience (particularly longer term) becomes more difficult. As these impacts arise in the future, the benefits of adaptation also arise (predominantly) in this time period. This means that the costs of early adaptation action (today) are high when compared to the future discounted benefits of adaptation (tomorrow). Indeed, at the conventional discount rates, these discounted future benefits are extremely small and therefore rarely justify early action now. Furthermore, in this context, it is important to balance resource allocations and benefits from financing current development versus investing in adaptation to deliver future benefits. Using the 3 E’s framework The appraisal process envisages an assessment of the programme from the perspective of the 3 E’s – Economy, Efficiency and Effectiveness. While most adaptation programmes are unlikely to differ from wider development programmes in relation to the Economy and Efficiency, VfM considerations play a central role in determining the Effectiveness of a given programme – i.e. is the programme likely to deliver the envisaged socio-economic returns and maximise its outcomes. Some of the key questions which can be explored as part of the appraisal using the three E’s framework are set out below: Figure 4: Applying the 3 E’s framework to adaptation business cases Economy Set out unit costs associated with the intervention (e.g. £/meteorological station, £/m of for a water saving technology,/£/ha of mangrove restoration etc.) and explain how these benchmark against similar interventions or against other market price data; Explain programme management or contractor costs as a % of overall budget and how these benchmark against DFID or other programmes in similar territories and sectors. Efficiency Highlight the key output indicators that will drive costs (and therefore determine VFM) for this type of intervention (e.g. number of meteorological stations installed and operational, number and extent of early warning systems products developed, area of agroforestry planted); Explain the potential barriers to these outputs being delivered (e.g. integration of technology with legacy systems, capacity of staff to interpret and manipulate met data), and show how these are being addressed (e.g. smart procurement, training); Show how commercial, management and M&E frameworks will support effective delivery and cost control (e.g. payment by results per monitoring station installed and operational after x years); Set out any 3rd party finance or in kind support being leveraged to deliver project outputs (e.g. matching funds from met office, access to WMO resources). Effectiveness Set out why the focus on a given (sub-)sector represents the most sensible use of funds (e.g. medium term agriculture forecasting vs. short term EWS) based on risk and vulnerability assessment and existing development baselines; Provide examples of the relevant logframe outcome indicators for this type of intervention? (e.g. # farmers changing agricultural practices based on medium range forecasts, # pre-emptive response actions based on EWS) Explain why the balance, type and volume of no regret activities/outputs represent the most effective route to achieving these outcomes. Do other routes exist to achieve the same goals (e.g. hard protective infrastructure)? Indicate if the chosen activities represent a necessary pre-condition for achieving other resilience or development aims (e.g. met services a pre-requisite for longer term agricultural infrastructure planning and land reclamation policy); How have potential barriers to no regret outcomes being achieved been addressed (e.g. negotiating private contracts with insurance sector to co-finance maintenance of station network over time, ensuring that information products designed with a clear end user profile based on market demand, training end users in using met data)? What are the transformational or indirect network effects expected as a result, particularly those not been modelled in the CBA (e.g. policy mainstreaming of risk data into sector planning, replication and scale up of EWS in neighbouring countries, mobilising additional finance into met services); Are the project specific CBA results in line with similar type interventions elsewhere (as demonstrated by the earlier evidence list)? What non-market benefits and equity considerations have not been included in the CBA that might make the case more attractive? What specific analysis might be built into the M&E or KM process to strengthen VFM understanding (e.g. user willingness to pay for information?) Differentiating between appraisal methods and timelines The VFM framework is structured around three different categories of interventions: Each category of early VfM adaptation has different types and timing of potential benefits. In turn these benefits will require different types of appraisal. No and low regret options addressing the adaptation deficit tend to have quantitative -based outputs that deliver immediate economic benefits, with capacity building and information providing economic benefits through the value of information. Medium and longer term options deliver future benefits which require greater consideration of discounting and uncertainty. These differences are important when considering how to assess the options in subsequent appraisal, e.g. in the expected results and for subsequent monitoring and evaluation frameworks. Figure 5: Identifying benefits of early VfM adaptation measures Source: Watkiss et al. (2014) Dealing with Uncertainty There is a significant degree of uncertainty associated with climate change and impacts. This is in part due to uncertainty about future emission GHG pathways, but also due to differences between the different climate models and the difficulty in projecting complex effects such as rainfall. As a result, climate models can give different results for the same scenario and location. Although resolution is improving with regional climate models (down to 25km grids), models can often not provide sufficient resolution to reflect local topographical or climatic conditions at a given project location. While many no regrets measures are robust under all climate scenarios, uncertainty is still a key factor in relation to longer term mainstreaming and transformational change. The appraisal should explicitly differentiate between those measures for which current climate variability is robust and costs and benefits can be accurately modelled, and those where longer term climate change and economic uncertainty play a greater role. Uncertainty should be reflected in the use of sensitivity analysis, potentially differentiating between shorter and longer term measures in its application. A number of different techniques are available for covering the full range of adaptation options and to consider uncertainty. This may require additional support tools to CBA. As examples, a number of options (particularly in relation to infrastructure, e.g. water supply and or quality) will need to meet national standards - from this perspective, cost effectiveness analysis (finding the least cost option of meeting the standard) can be an appropriate support tool. For qualitative or non-market options, there is the potential to use multi-criteria analysis. Finally, for some of the more forward looking options, it may be appropriate to use robust decision making, real options or iterative management approaches, noting the potential for simpler approaches as illustrated in the DFID Topic Guidance on Uncertainty. Reviewing intervention rationale It is recommended that the appraisal case include a short review of the strategic case from a VfM perspective. The strategic case forms the first part of the DFID business case and is normally an expanded version of the concept note. It sets out the intervention rationale, theory of change (without intervention), impacts and outcome. Key questions that should be addressed are as follows: Have market failures been adequately identified? The strategic case should set out clearly those market failures that are being addressed by the programme. A limited understanding of the market failures is likely to result in poor options design and weak VfM. The appraisal should assess to what extent those market failures identified reflect the key challenges associated with adaptation, or whether others may also exist. The VfM framework provides a comprehensive overview of the potential market failures associated with adaptation that can be drawn upon for this purpose. Are impacts and outcomes aligned with proposed activities: The appraisal should review programme impacts and outcomes to ensure that proposed activities are aligned in terms of timing and outcome. Often resilience-oriented business cases assume ambitious long-term goals in their results frameworks (associated with addressing the impacts of future climate change) but then propose activities that are more focused on dealing with current climate variability and addressing the existing adaptation deficit. The VfM framework offers a clear framework into which impacts, outcomes and activities can be mapped against time horizons to ensure alignment and consistency. Reviewing intervention options The appraisal case will usually set out a range of potential options for addressing the need identified in the strategic case. These options may have different objectives, or simply offer different delivery mechanisms to achieve the same objective. The VfM framework and toolkit can be useful in reviewing these options prior to economic appraisal to assess their suitability, both in terms of responding to the market failure and in terms of their likely VfM profile. The VfM framework recognises that there may be many adaptation options available in order to address a specific climate risk (e.g. water deficit for agriculture). The challenge is for the business case to demonstrate a strategic approach to differentiating between potential options to pursue those that offer the greatest VfM benefits. Key questions that should be addressed are: Are the options identified likely to offer early VfM? The VfM toolkit provides an extensive overview of adaptation interventions, across a range of sectors that are likely to provide early VfM. These are often termed ‘no- or low regrets’ options in that they provide immediate benefits for current climate variability, or have low costs but potentially significant benefits in relation to future climate change (increased capacity, improved information, better decision making), or incorporate flexibility to deal with climate change uncertainties. The VfM toolkit can provide a useful reference point for assessing, and potentially expanding the type of interventions that might be supported within a given sector. The appraisal case can draw upon this evidence base to review the likelihood of positive socio-economic returns on specific interventions. Do the options address more than one objective in an integrated way? The VfM framework seeks to present adaptation in terms of an iterative framework. Early VfM is likely to include a range of activities, including no and low regrets, together with mainstreaming and longer term planning. DfID ICF programmes will often include activities in two or more of these categories. The VfM framework indicates that all of the three response areas are an essential part of early adaptation, i.e. for decision and investments over the next 5 – 10 years and that a VfM adaptation programme will comprise of a portfolio of interventions that cover all of these different aspects. The appraisal case should identify to what extent are seeking to integrate these approaches into a single programme, and what the potential co-benefits or sequencing requirements are. Identifying evidence of socio-economic returns for VfM adaptation measures The economic appraisal for no- and low-regrets measures (particularly category 1) is often required to value to the costs and benefits of downstream sector measures (e.g. climate smart agriculture investments or investments in water management and protection). These measures address an existing issue (current climate variability and the existing development deficit, whilst also providing benefits against future climate change). For these types of programmes, the specific investments that will be made are often subject to a design and build phase after approval. At the time of appraisal, little is known about the actual costs or potential benefit. The VFM framework explores the existing evidence base for economic returns on no and low cost measures (i.e. those studies where economic appraisal or cost benefit analysis has been undertaken. Over recent years, the strength of the evidence base of Value for Money (VfM) for investment in climate resilient development has been increasing. A significant number of studies have been undertaken at a global, national, sector and project level to quantify the costs and benefits of adaptation. A forthcoming EU-funded study (ECONADAPT 2015) has identified more than 500 relevant sources with cost and benefit data, and a recent OECD publication (OECD 2015) summarises much of the emerging evidence from both developed and developing countries. Further insights continue to be generated by the on-going appraisal, evaluation and ex-post analysis of resilienceoriented climate funds (including by the UK International Climate Fund). The economic returns associated with climate resilient development are reported in the literature as positive for the overwhelming majority of sources reviewed (i.e. benefit-cost ratios of >1). In most cases, benefits are identified as being significantly in excess of the costs (i.e. BCRs in excess of 3:1 and in some cases as high as 50:1). Projects across all sectors report positive returns, including disaster risk reduction, social protection and livelihoods, investment in resilient infrastructure and public goods (e.g. flood prevention), and climate smart agriculture. A summary of the evidence is set out below: Figure 6: Summary of Socio-Economic Returns Enhanced These studies assess the value of information and the benefits from improved meteorological and hydrological data, information and monitoring Capacity building including institutional strengthening and awareness raising Disaster risk prevention and management plans and emergency response Farm level climate resilience Climate smart agriculture (e.g. conservation agriculture, soil and water conservation, agroforestry) Early warning systems Water efficiency use and leakage control Integrated water resource management: Information and risk mapping Integrated (sustainable) land-use planning Ecosystem based adaptation for watershed and flood management Ecosystem based adaptation for coastal buffer zones Social protection Improved water and sanitation (water quality and health); Maintenance regimes Building codes meteorological data, and subsequent use in forecasting, warning, etc. A review of the literature is provided by Clements (2013) and with updates, a total of 39 studies were identified, though there was a bias towards OECD countries and agriculture (seasonal forecasts). The studies indicate benefit-cost ratios of between 2 and 36, though ratios vary according to sector, and whether non-market benefits are quantified. Note that benefits vary strongly with the assumptions about use of information and uptake. Analysis of benefits challenging due to the quantitative nature. Cartwright et al (2013) report high BC ratios for disaster risk management plans (contingency, awareness) and institutional strengthening (e.g. a cross-sectoral disaster forum) – and found these had amongst the highest BC ratios of all options considered. A number of studies report higher benefit: cost ratios when capacity building/institutional strengthening are combined with outcome orientated adaptation options. Evidence from World Bank (2011) also suggest high BC ratios (4: 1) for emergency plans shelters, developing accurate weather forecasts, issuing warnings, and arranging for their evacuation. Williams (2002) highlights that preparing a house before a hurricane (e.g. by covering windows) can reduce damage by up to 50%. Earlier studies of disaster risk management cite a benefit: cost value of 8:1, though the evidence for this was weak, drawing on a single paper. More recent review (Mechler, 2012) report that benefits outweigh the costs on average, by about four times the cost (in terms of avoided and reduced losses), with value of 3.9 for wind-storms and 5.0 for floods, based on a review of ex ante and ex post studies. Estimates are available from standard agronomic economics literature. Studies report high benefit to cost ratios. These options generate yield benefits and have additional environmental or livelihood benefits. Studies generally indicate benefit-cost ratios of >1, though this depends on coverage, and discount rate due to the longer-term nature of benefits (e.g. on soil structure). Review identified around 7 studies, though range of values across different BC ratios with location, even for same individual option. These options also have important opportunity or policy/transaction costs McCarthy et al (2011), which need to be included and can change the BC ratios. These systems have low costs and high benefits (World Bank, 2012), though a need to factor in met data, capacity and training, institutional, dissemination and awareness raising. The benefits arise from reduced fatalities and injuries (non-market) and reduced damage, thus benefits depend on health valuation. Review identified 10 studies for flood early warning and 6 studies for coastal wind-storm/storm-surge. Wide range of BC ratios, but values of 2 to 5 are common, with even higher values for highly vulnerable areas (e.g. Bangladesh). Estimates are available from standard economics literature. Studies report high BCRs Benefits from value of information, improved water management (downstream users) and reduced flood risks that arise, which high compared to the costs. One BCR of 2.5 Benefits focused around value of information, but no explicit studies identified. Benefits from amenity benefits (e.g. public space), reduced externalities (reduced flooding, heat) from land-use planning, though issue of opportunity costs where land-use planning constraints introduced Benefits from reduced flow/improved water management, and wider ecosystem service benefits (though these often challenging for valuation). Capital costs lower than hard protection, but costs can be high due to acquisition, opportunity costs (especially in urban areas) and maintenance costs, plus policy costs to ensure conservation. 7 economic studies identified, though show high benefits, but all OECD Benefits are large due to high ecosystem service value, e.g. associated with mangrove, seagrass, coral, etc. Cost of restoration low, thus high BC ratios. 7 studies found, which generally report high BC ratios though a wide range (2:1 to 50:1), noting Cartwright (2013) reports lower values in Durban due to acquisition costs for land. DFID guidance on measuring and maximising value for money in cash transfer programmes (2011) provides estimates of VFM including CBA ratios. Hunt (2011) reviews CBA studies, reporting on 7 studies. Wide range depending on option and context (OECD vs LDC). BC ratios high, with values of 2-3:1 in most studies, but with one study reporting 5 –12:1 for LDC context. Highlighted by World Bank (2011) and number of studies focusing on flood/storm drainage maintenance report good BC (3:1, e.g. ECA, 2009). Number of studies in flood context, which indicate high BCRs, e.g. 7:1 in Guyana (ECA, 2009); Risk transfer including insurance Critical infrastructure protection Set-back zones IIASA et al (2009) report flood-proofing brick houses in India and raising houses (by 1 metre) in Jakarta, with BC ratios of 7:1 and 4:1 respectively). Lower BC ratios found in coastal windstorm context (five studies), with 3 studies finding BCs <1, and 2 >1, thus option highly site (and risk) specific, even to individual locations in same country. Benefit to cost ratios available for insurance. Number of estimates in LDC context, reporting favourable BC ratios, e.g. of 2 for drought (index based insurance in India) (2009). Highlighted as highly beneficial by World Bank (2011), though need to ensure list of critical infrastructure highly focused. In coastal context (storm-surge), four studies report very high BCrs (e.g. ECA, 2009; Cartwright et al, 2013), with highest values amongst all options considered. Transferability of evidence There is growing evidence of the costs and benefits associated with low regrets adaptation measures. As set out above, this evidence can be useful in identifying suitable proxies for use in the economic appraisal, or for providing context of the likely positive returns on an individual investment. However, care should be taken in transferring BCR data directly for use in the economic appraisal. The evidence base for no and low regrets adaptation measures is highly location- and project-specific in terms of costs and benefits. Costs of labour and materials vary substantially between countries, and even within a given country. Likewise, economic benefits, such as those associated with increased water availability and improvement in agricultural yields will be site specific (dependent on crop choice, soil fertility and market prices), and vary with time. Many of the earlier studies with higher BCRs used classic impact assessment of technical options and did not take into account uncertainty associated with future climate change. There is some evidence that more recent studies may provide more realistic (although still positive) assessment. The evidence base is weaker for investments in capacity building, reflecting the upstream enabling nature of such activities. There remain gaps in the evidence base, particularly in relation to developing countries and some sectors (e.g. business services, eco-systems). Where proxy BCR assumptions are taken from the evidence base, the economic appraisal should explore how assumptions might differ in the programme location, given potential differences in climate impacts, vulnerability, GDP, asset exposure, per capita income etc. Sensitivity analysis should be used in order to assess the robustness of returns based on such proxy BCR inputs. Where large knowledge gaps exist, the economic appraisal should identify these and link them explicitly to the M&E strategy and results framework, with a view to using the project as a learning exercise. Climate Information Services for Africa Business Case The VfM framework was used in undertaking the economic appraisal of the Climate Information Services for Africa (CIASA) business case. Climate information services are identified within the VfM framework as a key low regret investment, as they support an iterative planning process and can help address both short and longer term risks. They underpin the decision base around other low-regret options, and allow for better decision making around national and sector development planning decisions. They can improve the cost effectiveness of other investments and as a result can have potentially significant multiplier effects. However, investment in climate information services tends to be upstream of those communities and sectors who receive the benefits. While some measures are technical, much of the investment is associated with analysis, communication and dissemination, and also with the levels of capacity and institutional effectiveness. This can make the economic analysis of such options more difficult. The CIASA business case used a number of approaches to appraise the returns on this investment. Topdown approaches focused on assessing the scale of programme outcomes required in order to justify the investment. This was done in relation to avoided climate impacts (due to better planning and response) and improved allocation and coordination of climate finance. Bottom up approaches drew upon the evidence base of economic returns for climate information services programmes (from 2-5:1), and used these to estimate the likely BCRs associated with the investment. Recognising the potential for overlap with existing initiatives and the uncertainty associated with these benefits, adjustments were made for the additionality of the programme, and sensitivity analysis undertaken on key assumptions (including BCRs). Figure 7: Climate Information Services for Africa (CIASA) business case Assessing the additionality of measures No and low regrets measures (particularly those relating to the first category set out earlier) may be more closely aligned with traditional development activities than other longer term climate finance activities. Measures may be identified that would (or should) likely be undertaken under a good development baseline, and which may therefore already be included in existing government plans, or be pursued by private sector actors. For example, the VfM framework was recently used to help develop the Ethiopia Climate Resilient Strategy for Agriculture. A review of existing government programmes found that 63% of the Ministry of Agriculture budget was already oriented towards resilience-type activities, and that 38 of the 41 priority options identified were already being implemented in part through existing government programmes. The economic appraisal should set out how this consideration has been addressed. Care should be taken to ensure there is no overlap with existing government plans and that DFID programming is not simply displacing other funding, or bringing forward activities that would have been funded by other means at a later date. Within the appraisal, the design team may like to choose higher business-as-usual baseline assumptions to reflect that these activities may be part of existing sector development plans (although this is likely to reduce the BCR). Otherwise, evidence should be provided that such measures are likely to be additional (due to existing funding constraints within sector budgets or due to lack of existing sector planning frameworks). Social distribution of costs and benefits: For some types of low-regret/VfM options, the distribution of costs and benefits will not be uniform. Many development-oriented measures targeted at improving resilience are focused on vulnerable populations (agriculture, water supply, sanitation, social protection), and are likely to provide significant benefits to poorer population segments. Where climate change adaptation is only one of a number of development outcomes associated with a project, it might be possible to apply an equity weighting, reflecting the positive distributional effect delivered by no-regrets activities, thereby increasing the expected socio-economic returns; Sources Watkiss, P.; Hunt, A.; Savage, M. Early value-for-money adaptation: Delivering VfM adaptation using iterative frameworks and low-regret options. Evidence on Demand, UK (2014) 57 pp. [DOI: http://dx.doi.org/10.12774/eod_cr.july2014.watkisspetal] Watkiss, P.; Hunt, A.; Savage, M. Early VfM Adaptation Toolkit: Delivering value-for-money adaptation with iterative frameworks & low-regret options. Evidence on Demand, UK (2014) 122 pp. [DOI: http://dx.doi.org/10.12774/eod_cr.july2014.watkisspetala ]