Risk and Economic Analysis of Terrorism Events

1
Risk and Economic Analysis of Terrorism Events

• Detlof von Winterfeldt
• Professor of Public Policy and Management
• Director, Center for Risk and Economic Analysis
  of Terrorism Events
• School of Policy, Planning, and Development
• University of Southern California
• Presentation at the
• Center for Systems and Software Engineering
• March 14, 2006

2
The Department of Homeland Security

• 22 agencies
• 180,000 employees
• 40 billion budget
• Major science and technology effort (1 billion)
• University Programs (70 million)
• Seven Centers

3
CREATE - Background

• USC was selected as the first DHS university
  center in a competition of 72 universities
• Started operations in March of 2004
• Focus on risk and economic analysis
• 4 million per year for three years
• Five other centers have been awarded
• Integrated Network of Centers

4
CREATE Mission
To develop advanced models and tools for the
evaluation of the risks, costs and consequences
of terrorism and to guide economically viable
investments in homeland security
5
Other Mission Elements

• To educate the next generation of homeland
  security professionals in the areas of risk and
  economic analysis
• To reach out to a broad constituency concerned
  with risks and economic consequences of terrorism

6
Why Risk Analysis?

• Risk based prioritization of investments
  requested by the Secretary and Congress
• House Committee on HS, Subcommittee on
  Intelligence Analysis, Information Sharing, and
  Terrorism Risk Analysis
• Need to quantify risks and risk reduction due to
  countermeasures and recovery measures

7
Why Economic Analysis?

• Osama Bin Laden (2002)
• (We need to) concentrate on striking the
  American economy with every possible means.
• The young men (of the jihad) need to seek out
  the nodes of the American economy and strike the
  enemys nodes.
• Small local terrorism attacks can have large
  regional and national economic impacts
• Need for a complete cost-benefit analysis of
  countermeasures

8
CREATE is a National Center
U of Wisconsin, Madison
SDC/MIT
NYU
USC
9
CREATE is an Interdisciplinary Center

• Social Science
• Economics
• Psychology
• Political Science
• Public Policy and Planning
• Engineering
• Industrial and Systems Engineering
• Electrical Engineering
• Civil Engineering
• Computer Science

10
CREATE Research Framework
Risk Assessment
Threat Assessment
Consequence Assessment
Vulnerability Assessment
11
CREATE Research Framework
Economic Assessment
Risk Analysis
Threat Assessment
Consequence Assessment
Vulnerability Assessment
Valuation of Direct Consequences
Assessment of Indirect Econ. Consequences
Cost-Benefit Decision Analysis
12
CREATE Research Framework
Economic Assessment
Risk Assessment
Threat Assessment
Consequence Assessment
Vulnerability Assessment
Assessment of Direct Econ. Consequences

Assessment of Indirect Econ. Consequences
Response Recovery
Protection
Prevention
Cost-Benefit Decision Analysis
Risk Management
13
CREATE Case Studies Year 1
14
CREATE Case Studies Year 2
15
MANPADS - Weapons
US REDEYE --- 1967
16
Close Call
17
MANPADS Decision Tree 2
18
MANPADS Consequences

• Impacts of an Attack
• Fatalities
• Loss of Airplane(s)
• Economic Impacts
• Impacts of Countermeasures
• False alarms
• Capital Costs
• Operation and Maintenance Cost

19
MANPADS User Interface
20
Tornado Diagram
21
(No Transcript)
22
MANPADS - Economics

• Shutdown of all airports
• Lave 1.5 billion/day
• USC model 1 billion/day
• 9/11 economic impacts (2 years)
• Santos and Haimes 28-80 billion
• USC model 250-400 billion

23
Passenger Volume after 9/11
24
MANPADS - Conclusions

• MANPADS countermeasures can be cost-effective, if
  the probability of a multiple attack is greater
  than 0.50 in ten years and if economic costs are
  greater than 200 billion
• The economic consequences depend on policy and
  public responses to an attack
• Terrorists may shift to other weapons, if MANPADS
  countermeasures are installed
• Additional work
• Value of information to continue MANPADS research
• Dynamic decision model of shifting terrorist
  attack modes

25
Emerging Themes

• Adversarial risk is unlike natural risk
• Adversaries seek our weakest links
• Difficult to estimate probabilities of attack
• Probabilities shift with our action
• Screening attack modes and targets is easier
• A terrorist attack is a multistage project
• Multiple intervention opportunities
• Upstream interventions are best
• From risk analysis to risk management
• Not all countermeasures are cost-effective
• Prioritization of investments across threat areas
  is needed
• Multi-hazard emergency preparedness response
• Use DHS funds as leverage
• Make sure the investment pays for itself by
  reducing other risks

26
The Main ChallengeHow Secure is Secure Enough?

• We will never be completely secure
• The costs of increasing security increase
  dramatically when we get close to zero risk
• Increasing security may create other risks,
  inconveniences, and restrict civil liberties

27
Website www.usc.edu/create