This tool is a framework that helps to identify important risks and opportunities (e.g. for co-financing) and ways to integrate them in the cost-estimates of a project. Cost-effectiveness and cost-efficiency are important criteria that often govern decision-making. Usually the costs are calculated after the design alternatives have become available. However, costs are also an important design criterion, so interaction between designing and costing is important. Yet, this interaction is often not included in the design-process. This tool contributes to the assessment of the financial implications of different design alternatives, by taking different possible scenarios and related risks into account. This framework requires only limited background knowledge in costing and designing. Essential is that different disciplines (especially finance and design) work together in order to make more integrated assessments.
Costing addresses various components, such as costs related to the implementation, and costs for subsequent maintenance and operation, usually over the functional life-cycle. In the Netherlands, as in many other countries, costing is done according to formal formats, to ensure that all relevant cost-components are addressed and the same discount rates are used. Uncertainties find their way into the cost-estimates, usually on the basis of a risk assessment procedure.
Valuation and costing of uncertainties and specific BwN qualities will identify the project components with major repercussions on:
This way, needs and opportunities for project optimisation and possibilities for co-financing become apparent. A more recent development is the use of total life cycle costs, which enables comparing project alternatives over a longer time frame with a focus on functional performance.
Building with Nature interest
Costing and valuation are important in all project phases. As they may put alternative solutions into a financial perspective, it is already relevant in the project initiation phase. Later it may help decision-making and securing co-financing. Examples of cases in which considering uncertainties and long-term life cycle costing is relevant are:
Although the Dutch standards for costing (SSK) offer a comprehensive framework, some aspects that are important in BwN-type projects merit more attention. To mention the most important ones:
This framework requires more analysis than standard costing procedures. Quantifying uncertainties and risks is far from trivial, but their absolute quantification is not always necessary. Relative risk assessments may be enough to choose between alternatives, and identifying the most important risks may suffice for further project optimisation. As valuing uncertainties and specific qualities is a complex task, this conceptual framework indicates how to handle and value BwN qualities and related uncertainties. It involves the following steps:
Often costing and budgeting is done by experts that have little or no expertise in the technical and practical aspects of a project. Stimulating them to interact, yields better assessments, as the process becomes more iterative and interactive and it also safeguards consistency.There are therefore various levels of using the framework. Most important is an overview of relevant cost key figures for the main design components. For many BwN projects, earth-moving and working with sand and clay are major cost components. Therefore, one needs to have an overview of the possible costs involved, and of the variables that determine these costs, such as transport distances for earth-moving.
1. Risks and qualities
This step comprises analysing and identifying uncertainties, risks and qualities. Uncertainties and risks are related to e.g. market price variations and trends, modelling, design, implementation, (uncertain) performance and environmental design conditions and their time-evolution. Qualities are mainly related to ecosystem services and related functions. This step consists of 2 parts:
2. Prices and performance
Market – related:
Performance - related:
The assessment should focus on the most relevant risks and qualities only, i.e.:
For scenario analysis also the number of relevant scenario parameters should be limited. This can be done by clustering relevant scenario variables that generate similar kinds of uncertainties and have similar effects on long-term performance.
3. Valuation and costing
The next step is to integrate the results of these assessments in the costing sheets. Often this can be done within the standard costing sheets. Long-term performance can be expressed in terms of a “performance premium” in order to enable comparison of different alternatives. Uncertainties can be addressed as:
4. Design and communication
The logical next step is to see how cost figures may hint to design optimisation by identifying those components that represent the largest investments, cost uncertainties and/or additional benefits.
Innovative elements compared with the ongoing practice of costing are:
Advice and recommendations
Costs are an important argument in decision-making and consequently should also be important in the design process. Uncertainties, risks and qualities that govern costs and benefits are therefore important, as well, and should be given due attention. Most large projects should start with a risk assessment in order to identify major project management needs. There are possibilities to connect these risks assessments with design frameworks and costing sheets, which will help to identify important risks that need to be handled. Also in the initial and scoping stage of a project, risk analysis will help to identify major risk components as a design challenge. Often risk analysis starts when a project has already been designed. However, risk analysis can and should start by assessing risks in the existing (ecological, economic and social) system, yet without a proposed intervention, as a starting point.
1. Case Sand Engine
In the design process of the Sand Engine several alternatives were compared with respect to costs and effects as part of the EIA procedure. Costing was done using a standard budgeting protocol. The most important cost components are the mining, transport and deposition of the sand and subsequent operation and maintenance. Adjacent sections of the coast need additional nourishment until the moment the sand is delivered by the Sand Engine. Other operation and maintenance costs relate to safety (because of rip tides), monitoring and nature management. A significant part of the budget consists of contingencies that cover the potential costs of mitigating measures in case undesirable effects take place. One example is mud sedimentation on recreational beaches, another formation of a fast flowing lagoon feeder channel next to the beach.
Most uncertainties relate to morphological development. The morphological development of the sand engine was predicted using a regional long-term model. In order to run the model over a 20-year period, input parameters such as incoming wave and wind conditions and sand properties of the existing shore and the nourishment were simplified. As a consequence, predictive capacity of the model was limited, especially for the timescale of the morphological evolution.
This case was used for an ex post -evaluation focusing on uncertainties in the comparison of different alternatives in the EIA. Applying the framework showed the following:
Step 1: Uncertainties, risks and qualities
Step 2: Prices and performance
Step 3 Costing and valuation
Step 4 Design and communication
2. Case Long-term nourishment strategy
Another example for which the framework has been used is the long-term nourishment strategy for the Dutch coast. This is an ongoing project. The framework was mainly used in order to define costs and identify cost-related optimisation aspects.
Step 1 Uncertainties, risks and values
Step 2 Prices and performance
Step 3 Valuation and costing
Step 4 Design and communication
Overall one may state that decisions and assumptions regarding price development and discount rates are more important to the comparison of long-term nourishment strategies with strategies that involve more frequent forms of nourishment than fine-tuning morphological projections.
The cost-efficiency of a nourishment-based strategy is mainly related to volume, location and longevity of the nourishments. From a coastal maintenance point of view the most relevant locations can easily be pointed out, but whether these also fit local socio-economic and environmental ambitions regarding the coast is another issue.
Mega-nourishments that are maintained are far less efficient than nourishments that are allowed to erode and contribute most of their volume to coastal maintenance. Purely on the basis of costs and benefits of maintaining the coastline, a more permanent character of a mega-nourishment is usually not defendable. One possible exception are urban areas on the coasts, with expensive hardware such as boulevards and hotels, another one is a wave-attenuating shallow sandy foreshore in front of a dike that one does not want to raise.
The optimal volume from a coastline maintenance point of view depends on the coastal erosion rate, nourishment efficiency, costs and discount rates. Erosion rate estimates can be based on past experience, the efficiency of a nourishment depends mainly on its location and longevity. The costs of nourishment are to a certain extent related to the economy of scale, but contract conditions are also important.
Larger nourishments at a single location are substantially less costly if they are placed on the beach, but overall foreshore nourishments are the cheapest to place, but they are usually less efficient in terms of the percentage of sand reaching the dry beach.
Discount rates are the most important economic factor, but also a matter of principle. So one may state that financial aspects, such as contract conditions and discount rates, are the key factors that drive a decision between nourishment-based coastal maintenance strategies, more so than long-term morphological projections.
The monetary benefits to other functions are small compared to the costs of a nourishment, so decisions based on economic considerations will be largely determined by the primary function, in this case coastline maintenance.
For long-term strategies there are many factors that may influence the functional performance of a strategy. However if individual mega-nourishments involve volumes that anticipate expected nourishment needs for periods up to 20 or 25 years, there still is ample opportunity to steer and redirect if the expected performance does not materialize. So implicitly the relevant uncertainties consist mainly of the uncertainties in the expected lifetime of the initial project. The influence of uncertainties increases as this expected lifetime is longer, so with increasing volume. Hence in the case of very dynamic coasts, comparatively smaller mega nourishments are the better proposition.