Identification of Relevant Benefits and Costs

The identification of benefits and costs depends on the particular project under consideration. Thus, in the case of fire prevention or control activities, the benefits are based on fire losses prior to such activities. Fire losses may be classified as direct or indirect. Direct economic losses are property and contents losses. Indirect losses in-clude such things as the costs of injuries and deaths, costs incurred by business or industry due to business inter-ruption, losses to the community from interruption of ser-vices, loss of payroll or taxes, loss of market share, and loss of reputation. The direct costs of fire protection activ-ities include the costs of constructing fire-resistive build-ings, installation costs of fire protection systems, and the

costs of operating fire departments. Indirect costs are more difficult to measure. They include items such as the constraints on choice due to fire protection requirements by state and local agencies.

A major factor in the identification of relevant bene-fits and costs pertains to the decision unit involved. Thus, if the decision maker is a property owner, the relevant benefits from fire protection are likely to be the reduction in fire insurance premiums and fire damage or business interruption losses not covered by insurance. In the case of a municipality, relevant benefits are the protection of members of the community, avoidance of tax and pay-roll losses, and costs associated with assisting fire victims. Potential benefits, in these instances, are considerably greater than those faced by a property owner. However, the community may ignore some external effects of fire incidents. For example, the 1954 automobile transmission plant fire in Livonia, Michigan, affected the automobile industry in Detroit and various automobile dealers throughout the United States. However, there was little incentive for the community to consider such potential losses in their evaluation of fire strategies, since they would pertain to persons outside the community. It might be concluded, therefore, that the more comprehensive the decision unit, the more likely the inclusion of all relevant costs and benefits, in particular, social costs and benefits.

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