Business Case for Adaptation
Accompanying guidance for the methodology
Feb 2014
What is the purpose of the methodology?
This guide is intended to help the users to estimate the costs and benefits of investing in adaptation
measures to address of key climate risks to capital intensive developments during a project appraisal
process.
It does this by explaining how to conduct an economic appraisal of both the potential risks to a project from
different climate impacts, and of the different options that may be available to address those impacts.
Conducting such an appraisal will help ensure that climate risks and adaptation options are taken into
account during the project appraisal process and the outcome is more resilient to the impacts of a change
climate
The project appraisal process provides the perfect opportunity to consider adaptation in a proportionate
way alongside other investments required for a project. If climate risks are properly considered when new
projects are being planned, then appropriate adaptation options can be implemented at an early stage if
appropriate. This is likely to cost less than retrofitting changes to the project later. It will also be easier to
make the case for adaptation at the outset of the project, than at later stages of a project's implementation.
Intended users and necessary prior knowledge
The guide is for use by anyone in a business who is undertaking a project appraisal for a capital intensive
investment that might be at risk from future changes in climate, and who wants to appraise the costs or
benefits of investing in adaptation measures to increase the resilience of that development to climate risks..
Individuals within an organisation that would find this guide helpful would include:
 project managers and their sponsors
 sustainability practitioners
 business directors, such as chief executive officers, risk officers, financial officers and
managing directors
It could also be used by external stakeholders, such as investors and insurers, to assess the climate risks
to different projects and the measures a company may be taking to make those projects more resilient.
This guide will be most useful for those organisations that already have some appreciation of the risks they
may face from a changing climate. Awareness of the costs to your organisation of current climate risks
would be highly desirable, although this guidance does offer advice on where to get useful estimates for
this if you don’t already have them.
The economic appraisal process used in this methodology
Economic appraisal is typically used during the project appraisal process for defining problems and finding
solutions that ensure value for money. There are several ways of doing this, the main one being through a
cost benefit analysis (CBA).
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The primary aims of a CBA are to:
1) determine whether a project or decision is economically sound
2) provide a basis for comparing different projects and decisions
In a CBA, costs and benefits are expressed in monetary terms. As these may occur over a period of time
and could therefore be affected by inflation rates and other factors, a discount factor needs to be applied
so that all flows of estimated costs and benefits are expressed on a common basis in terms of their present
value.
By the end of the cost-benefit analysis process, it should be possible to compare the adaptation options in
terms of their net present value (NPV), which takes into account both their costs and benefits.
In some circumstances, it may not be appropriate to use a CBA to assess the viability of your project or
decision. If, for instance, you are unable to make a quantitative assessment of your climate risks and the
financial impact this may have on your organisation, you are unlikely to be able to provide the necessary
baseline data to carry out a CBA. In this case, you may wish to consider alternative guidance1 on a number
of decision-making methods, including:
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Maximin, which looks at the worst case scenario;
Robust decision making and info-gap decision theory, which look at the strength of a decision
across a range of scenarios;
Option theory, where information on the true state of the climate may be available.
For the purposes of this guidance, we will only look at those decisions which can be supported by a CBA.
Questions for feedback:
1) Would this guidance complement or enhance the current risk management/business
planning processes used in your organisation?
2) Is the guidance clear and easy to use? Are there parts of the guidance that could be left out,
or are there parts of the guidance that need further explanation?
3) How realistic is it that you would have the pre-requisite information for this guidance?
Which parts (if any) of the required information would you need more help in finding to use
the guidance effectively?
Thank you in advance for your feedback.
1
Guidance on non-CBA approaches to decision making can be found in , An Independent National Adaptation Programme for
England (March 2013) and Adaptation in the UK: a decision-making process (September 2010)
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