Risk and Economic Analysis of Terrorism Events Detlof von Winterfeldt Professor of Public Policy and...
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Risk and Economic Analysis of Terrorism Events
Detlof von WinterfeldtProfessor of Public Policy and ManagementDirector, Center for Risk and Economic Analysis of Terrorism EventsSchool of Policy, Planning, and DevelopmentUniversity of Southern California
Presentation at theCenter for Systems and Software EngineeringMarch 14, 2006
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
• 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
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
• 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?
• “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?
• 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
USC
U of Wisconsin, Madison
NYU
SDC/MIT
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
Threat Assessment
ConsequenceAssessment
VulnerabilityAssessment
Risk Assessment
CREATE Research Framework
Threat Assessment
ConsequenceAssessment
VulnerabilityAssessment
Valuation of Direct
Consequences
Assessment ofIndirect Econ.Consequences
Cost-Benefit & Decision Analysis
Risk AnalysisEconomic
Assessment
CREATE Research Framework
Threat Assessment
ConsequenceAssessment
VulnerabilityAssessment
Assessment ofIndirect Econ.Consequences
ResponseRecovery
Prevention Protection
Cost-Benefit & Decision Analysis
Risk AssessmentEconomic
Assessment
Risk Management
Assessment ofDirect Econ.
Consequences
CREATE Case Studies – Year 1
Case Studies
Modeling and Analysis Areas MANPADS Dirty Bomb Electricity
Risk Assessment
Economic Assessment
Risk Management
CREATE Case Studies – Year 2
Case Studies
Modeling and Analysis Areas BioterrorismBorder
SecurityRisk-Based Allocation
Risk Assessment
Economic Assessment
Risk Management
MANPADS - Weapons
US REDEYE --- US REDEYE --- 19671967
USSR SA-7 --- USSR SA-7 --- 19681968
Close Call
MANPADS Decision Tree 2Fatal Crash
(1-g)*rx
Safe Landing1-(1-g)*r
x
Hit(1-e)*h
Miss1-(1-e)*h
x
No Interdiction(1-f)*(1-q)
Interdiction1-(1-f)*(1-q)
x
Attempt(1-d)*p
No Attempt1-(1-d)*p
x
Countermeasures
Fatal Crashr
x
Safe Landing1-r
x
Hith
Miss1-h
x
No Interdiction1-q
Interdictionq
x
Attemptp
No Attempt1-p
x
No Countermeasures
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 – User InterfaceProbabilities Base Case Min Max
Attempted Attack in 10 years 0.50 0.25 0.00 1.00
Interdiction|Attempt 0.00 0.00 0.00 0.10
Hit|Attack 0.80 0.80 0.00 1.00
Crash|Hit 0.25 0.25 0.00 1.00
Effectiveness of CountermeasuresDeterrence Effectiveness 0.50 0.50 0.00 1.00
Interdiction Effectiveness 0.00 0.00 0.00 1.00
Diversion/Destruction Effectiveness 0.80 0.80 0.00 1.00
Crash Reduction Effectiveness 0.00 0.00 0.00 1.00
ConsequencesFatalities|crash 200 200 0 400
Cost of the Plane (millions) 200 200 0 500
Loss to Economy|Fatal Crash (billions) 100 100 0 500
Percent of Loss|Hit and Safe Landing 25% 25% 0% 50%
Percent of Loss|Miss 10% 10% 0% 25%
Number of False Alarms/Year 10 10 0 20
Cost of Countermeasures (billions) 10 10 5 50
TradeoffsValue of Life (millions) 5 5 0 10
Cost of a False Alarm (millions) 10 20 0 100
Outputs of Manpads ModelTotal Crash Econ Loss CM Cost
Expected Costs w/ Countermeasures (millions) w/CM 13,932$ 7$ 1,925$ 12,000$
Expected Costs w/o Countermeasures (millions) w/o CM 9,318$ 68$ 9,250$ -$
EXPECTED COSTS OF MANPADS
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
w/CM w/o CM
DECISION
Eq
uiv
ale
nt
Ex
pe
cte
d C
os
ts (
Mill
ion
s)
CM Cost
Econ Loss
Crash
Tornado Diagram
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
Passenger Volume after 9/11
0
10
20
30
40
50
60
70
Month
Passenger Number (m.) DOMESTIC (Actual)
INTERNATIONAL(Actual)
DOMESTIC (Forecast)
INTERNATIONAL(Forecast)
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
• 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?
• 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
Website: www.usc.edu/create