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 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 Consequence Assessment Vulnerability Assessment Risk Assessment

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

CREATE Research Framework Threat Assessment Consequence Assessment Vulnerability Assessment Assessment of Indirect Econ. Consequences Response Recovery Prevention Protection Cost-Benefit & Decision Analysis Risk Assessment Economic Assessment Risk Management Assessment of Direct Econ. Consequences

CREATE Case Studies – Year 1

CREATE Case Studies – Year 2

MANPADS - Weapons US REDEYE USSR SA

Close Call

MANPADS Decision Tree 2

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 Interface

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: $ billion

Passenger Volume after 9/11

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: