Accordingly, we addressed the following questions:  (1) What is FEMA’s process for developing and refining its cost  estimates for any given disaster? (2) From 2000 through 2006, how close have cost estimates been to the  actual costs for noncatastrophic natural disasters? (3) Given the findings from the first two questions and our relevant  past work, what steps has FEMA taken to learn from past experience  and improve its management of disaster-related resources and what  other opportunities exist? We determined that the data were sufficiently reliable for purposes  of this report. FEMA Uses Various Methods to Develop and Refine Cost Estimates Depending on Program Requirements

Once a major disaster has been declared, FEMA staff deployed to the joint  field office, along with state and local officials and other relevant parties  (e.g., private nonprofit organizations, other federal agencies, etc. Cost estimates for mission assignments are developed jointly by FEMA  staff and the performing agencies. FEMA officials told us that by 3 months after a  declaration the overall estimate of costs related to any given  noncatastrophic natural disaster is usually reasonable, that is, within 10  percent of actual costs. These results, however, cannot be generalized to disaster declarations for  which all financial decisions have not been made since we were only able  to compare estimates to actual costs for about one-quarter of the  noncatastrophic natural disasters declared from 2000 through 2006. First, the coding of incident type did not always  match the description of the disaster. FEMA Has Taken Steps to Learn from Past Disasters and Improve Its Management of Disaster-Related Resources but Further Opportunities Exist

FEMA officials identified several ways in which FEMA takes past  experience into account and uses historical data to inform its cost  estimation processes for any given disaster. FEMA  could review the effect its own processes have on fluctuations in its  disaster cost estimates and take actions to better mitigate these factors. For example, in  predicting costs for the Individual Assistance program, the usefulness of a  national average should be examined. FEMA’s opportunities to learn from past experience, especially from its  disaster cost data, could be hampered by some costs that are no longer  distributed to individual disaster declarations. FEMA has also taken steps to improve its management of disaster-related  resources, such as “leaning forward,” professionalizing and expanding the  responsibilities of its disaster comptroller cadre, and developing a model  to predict costs for category 3 or higher hurricanes prior to and during  landfall. For example, to improve data reliability FEMA  could develop standard operating procedures and training for staff  entering and maintaining disaster estimate data in the DFSR database. Recommendations for Executive Action

To better mitigate the effect of factors both beyond and within FEMA’s  control to improve the information provided to decision makers; to better  inform future estimates, including the ability to incorporate past  experience in those estimates; and to improve the management of FEMA’s  disaster-related resources, the Secretary of Homeland Security should  instruct FEMA’s Administrator to take the following nine actions:    Conduct sensitivity analyses to determine the marginal effects of key cost  drivers to provide a range for the uncertainty created by factors beyond  FEMA’s control.
Why GAO Did This Study

Public Law No. 110-28 directed GAO to review how the Federal Emergency Management Agency (FEMA) develops its disaster cost estimates. Accordingly, GAO addressed the following questions: (1) What is FEMA's process for developing and refining its cost estimates for any given disaster? (2) From 2000 through 2006, how close have cost estimates been to the actual costs for noncatastrophic (i.e., federal costs under $500 million) natural disasters? (3) What steps has FEMA taken to learn from past experience and improve its management of disaster-related resources and what other opportunities exist? To accomplish this, GAO reviewed relevant FEMA documents and interviewed key officials. GAO also obtained and analyzed disaster cost data and determined that they were sufficiently reliable for the purposes of this review.

What GAO Found

After a disaster is declared, FEMA staff deployed to a joint field office work with state and local government officials and other relevant parties to develop and refine cost estimates. The overall estimate comprises individual estimates for FEMA's assistance programs plus any related tasks assigned to other federal agencies (mission assignments) and FEMA administrative costs. The methods used to develop these estimates differ depending on program requirements including, in some cases, historical knowledge. FEMA officials told GAO that cost estimates are updated on a continuing basis. Decision makers need accurate information to make informed choices and learn from past experience. FEMA officials stated that by 3 months after a declaration estimates are usually within 10 percent of actual costs--which they defined as reasonable. GAO's analysis showed that decision makers did not have cost information within this 10 percent band until 6 months after the disaster declaration. These results cannot be generalized since this comparison could only be made for the 83 (24 percent) noncatastrophic natural disaster declarations for which final financial decisions had been made. Disaster coding issues also hamper FEMA's ability to learn from past experience. For example, in several instances the code for the incident type and the description of the disaster declaration did not match. Officials described several ways in which FEMA has learned from past disasters and improved its management of disaster-related resources. For example, FEMA uses a national average to predict costs for expected applicants for Individual Assistance. FEMA has also taken several actions to professionalize and expand the responsibilities of its disaster comptrollers. Nonetheless, FEMA could further learn from past experience by conducting sensitivity analyses to identify the marginal effect various factors have on causing fluctuations in its estimates. FEMA could improve its management of disaster-related resources by developing standard procedures for staff involved in entering and updating cost estimate data in its database.