Review of available methods for cost assessment

The report identifies methods and techniques for adaptation options appraisal and decision analysis in the climate change context. We discuss the major methods such as cost-effectiveness analysis (CEA), the cost-benefit analysis (CBA) and the multi criteria analysis (MCA) and identify the different circumstances of applications of these methods. CEA is suitable for options that are difficult to value. Examples of application of CEA include health issues, freshwater systems, coastal and river flood risks, stream weather events and biodiversity and ecosystem services. When there are alternative adaptation options are considered, a full CBA can be used to calculated the Net Present Value (NPV) of alternative projects and select the one with the highest NPV. Examples of application include the assessment of raising dikes against sea-level rise, freshwater systems and agricultural sector. MCA can be used in cases where a variety of criteria is used to assess the alternative options and identify a priority ranking for adaptation options. It is especially preferred to CBA when benefits cannot be quantified and valued. In the case of risk and uncertainty, other methods such as scenario analysis and its combination with portfolio analysis, or robust decision theory and real options approach can be used.