Download Applying the VFM framework to business case design and appraisal

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 ]