In the risk‐based design for hydraulic structures, the major task is the evaluation of the annual expected damage costs caused by floods. Due to the use of a limited amount of data in flood frequency analysis, the computed flood magnitude of a specified return period is subject to uncertainty. A methodology to integrate such uncertainty in the evaluation of annual expected flood damage is developed and illustrated through an example in culvert design. The effect of uncertainty in estimating flood magnitude using different hydrologic probability models with different sample sizes on the annual expected damage cost is examined. Results of the study show that the effect of the uncertainty in a flood magnitude estimate on annual expected damage is quite significant and is sensitive to the sample sizes and the probability distribution models used.