WRM 2000 Decision-Making Process

Introduction

The economic impacts of repairing or removing a dam are important to consider during your decision-making process. The most obvious of these economic considerations is the cost of hiring an engineering contractor and a construction company to do the repair or demolition work. Another item of possible concern is potential business opportunities, such as the development of lake or new river property that may allow your community's economic base to grow. Yet another factor is the importance to the community of retaining a particularly popular or beautiful dam pond, which seems to resist the application of a precise dollar figure, but which has, nonetheless, an obvious value to many people.

The costs and benefits of the decision to either repair or remove a dam can be estimated. The process of assigning a specific value to a given economic consideration should be left to each individual community undertaking this exercise. It will primarily be the people in your community who have to live with the consequences of any decision made, so it should be these same people who take charge of the decision-making process. For example, to determine the cost of demolition, contact a knowledgeable person who has seen your dam firsthand. Similarly, only people in your community can determine how valuable a dam pond or a free-flowing river is to them. Many of these costs are tangible, such as materials and labor; many of the benefits are not, such as the aesthetic value of how an impoundment or free-flowing river looks. Another module in this document includes a survey form that may help you gauge community economic values along with other opinions. (See Appendix C of the Issue Identification module.) As you look through the rest of this guidance document, other strategies are set forth that may help you create a productive, community-wide dialogue on issues like economic values with respect to dam repair and removal.

Identifying many of the costs and benefits that might be relevant to your dam can give you the framework for evaluating your economic situation. Each dam presents a unique set of economic issues; therefore, the real challenge to your planning effort will be taking relevant information and using it in a way that makes it applicable to your own case. Most likely, you will discover that many of these considerations apply to your situation and should be investigated further, but that some items are not relevant to your particular case and need not be considered at all. The relevant economic considerations and the various examples from other communities that support each section of this module may give you a clearer picture of your own situation.

It is critical to start this process of planning, information gathering, and analysis as early as possible. Repairing or removing a dam will cost time and money and, in either case, will have long-term financial and community impacts. The unpleasant prospects of cost over-runs, hidden and continuous maintenance fees, or disappointing project results that do not live up to expectations can be avoided or minimized by early planning efforts.

Choosing to neither repair nor remove your dam is also a decision that will have long-term ramifications. This "do-nothing" option is not formally included in the following analysis, but is closely related in terms of ultimate impacts to the repair/remove considerations. For instance, if nothing is done with respect to a dam in need of repair, a future cost to your community may be that a state regulatory agency someday makes a decision for you about the fate of your dam. (See the Deerskin case study in the Appendix of the Decision-Making Process module for an example.) An even worse scenario would be the case where a crumbling dam one day fails and someone is injured or killed; in this case, in addition to the obvious tragedy, the community may be held financially liable. A different type of consequence to doing nothing may be the lost opportunity to economically develop your community.

You may make rough comparisons of the economic considerations between the repair and removal options on the worksheet provided (see Appendix of this module). The most logical decision rule would be to compare the net cost (the difference between gains and costs) of the different options, and the option with the lowest net cost would be the economically preferable option. The comparison is imprecise, so in the event that your worksheet calculations show that net costs for each option are relatively close, you might reasonably conclude that the options are economically equivalent, and your ultimate decision would have to turn on other factors. On the other hand, this module will be most useful when a significant difference in net benefits results from your economic analysis. In this case, you can be more confident that you've identified a significant economic difference between the repair and removal options that should be considered in your decision-making process.

There are some things you will not see in the following analysis that are probably worth brief discussion. You will need to add any economic factors that do not appear in this module (to your analysis and the worksheet) where you deem them relevant. There is no adjustment made in this module for the time-value of money. That is, as with many projects that last for many years, costs and values are frequently adjusted in terms of present-day dollars by considering factors like inflation, interest rates, or reasonable investment rates. This did not seem necessary for purposes of this module, which is not designed to produce precise monetary figures for strict comparison.

Similarly, there is no explicit treatment of risk in this module. The values of certain events may reasonably be adjusted to account for the fact that the event may not occur. For example, perhaps you estimate that if a certain type of fish returns to your river after the dam is removed that it will result in $10,000 in fishing and tourism business to your town, but let’s say you also estimate that there is only a 50% chance that the fish species in question will ever actually return. In this scenario, you might reasonably estimate the net fishing and tourism benefit (or expected value) to be $5,000 ($10,000 x 50%) to account for the risk that the benefit will never accrue. You should be guided by your own instincts when making these valuations by keeping the estimated likelihood of a given event in mind. Of course, you can always hire an economic consultant to help you do a more precise accounting of various economic factors, including risk.

The value of your time and effort in completing this economic analysis has not been formally included in this module. These costs are real, but may best be considered in an informal way before you even begin this exercise.

A benefit that may emerge from using this module is that, whatever your ultimate choice, you have created a coherent record of your efforts to make a good decision. Whether dealing with the government, the private sector, or other citizens, it may be to your advantage to be able to show that your entire community has made a competent, thorough, and deliberate decision. In that way, if for any reason the decision (including the "do-nothing" option) about your dam does not turn out the way you expected, you will already have a record documenting your attempts to make a responsible choice.

Next section: Construction costs

URL: http://www.ies.wisc.edu/research/wrm00/econintro.htm