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 enemy’s 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 Vulnerability Assessment Consequence Assessment

11. 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

12. 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

13. CREATE Case Studies – Year 1

14. CREATE Case Studies – Year 2

15. USSR SA-7 --- 1968 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

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 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

27. Website: www.usc.edu/create