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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

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risk and economic analysis of terrorism events
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

the department of homeland security
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
create background
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
create mission
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

other mission elements
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
why risk analysis
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
why economic analysis
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 enemy’s nodes.”

  • Small local terrorism attacks can have large regional and national economic impacts
  • Need for a complete cost-benefit analysis of countermeasures
create is a national center
CREATE is a National Center

U of Wisconsin, Madison

SDC/MIT

NYU

USC

create is an interdisciplinary center
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
create research framework
CREATE Research Framework

Risk Assessment

Threat

Assessment

Vulnerability

Assessment

Consequence

Assessment

create research framework11
CREATE Research Framework

Economic

Assessment

Risk Analysis

Threat

Assessment

Vulnerability

Assessment

Consequence

Assessment

Valuation

of Direct

Consequences

Assessment of

Indirect Econ.

Consequences

Cost-Benefit &

Decision

Analysis

create research framework12
CREATE Research Framework

Economic

Assessment

Risk Assessment

Threat

Assessment

Vulnerability

Assessment

Consequence

Assessment

Assessment of

Direct Econ.

Consequences

Response

Recovery

Assessment of

Indirect Econ.

Consequences

Protection

Prevention

Cost-Benefit &

Decision

Analysis

Risk Management

manpads consequences
MANPADS Consequences
  • Impacts of an Attack
    • Fatalities
    • Loss of Airplane(s)
    • Economic Impacts
  • Impacts of Countermeasures
    • False alarms
    • Capital Costs
    • Operation and Maintenance Cost
manpads economics
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
manpads conclusions
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
emerging themes
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
the main challenge how secure is secure enough
The Main Challenge:How 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
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