The National Center for Risk and Economic Analysis of

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					The National Center for Risk
and Economic Analysis of
Terrorism Events (CREATE)
Detlof von Winterfeldt, Ph.D.
Director, CREATE
Professor of Industrial and Systems Engineering, VSOE
Professor of Public Policy and Management, SPPD


Isaac Maya, Ph.D., P.E.
Director of Research, CREATE

University of Southern California
Los Angeles, CA
The Department of Homeland Security


•   22 agencies
•   180,000 employees
•   $40 billion budget
•   Major science and technology effort ($1 billion)
•   Office of Research and Development ($800 million)
•   University Programs ($50 million)
•   Eight University-Based Centers of Excellence
    CREATE - Background


•   First DHS university center in a
    competition of 72 universities
•   Started operations in March of 2004
•   $4 million per year for three years    2004
•   Renewed for three more years
•   Focus and risk and economic analysis




                                           2007
Why Risk Analysis?
 •   “Risk based” prioritization of investments
      – Requested by Secretary Chertoff
“….We have to ... identify in Congress
       – Requested by many
and prioritize risks --
  • Need to quantify risks
understanding the threat,
       – Develop threat and attack scenarios
the vulnerability and the of attacks
       – Assess probabilities
consequence. And then we success, given an attack
       – Assess probability of
have to apply our resources of successful attacks
       – Assess consequences
in•a cost-effective
      Need to quantify risk reduction due to
manner….. “
      countermeasures
      – Protection
      – Prevention
      – Response and recovery
    Why Economic Analysis?
•   Our economy is a major terrorist target

    – “If their economy is destroyed, they will be busy with
      their own affairs rather than enslaving the weak
      peoples. It is very important to concentrate on hitting
      the US economy through all 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 terrorist attacks can have large
    national economic impacts
•   Concern about spending too much on security
             CREATE Mission
“Advancing risk and economic science to improve our
     Nation’s decisions to counter terrorism”

 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 –
Education and Outreach

• 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
CREATE is a National 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 Researchers
• 34 faculty members
   – 23 Professors, 3 Associate Professors, 3 Assistant Professors
   – 5 adjunct, research professors, etc.

• 20 Other Researchers
   – 4 Postdoctoral Research Associates
   – 16 research scientists, computer scientists, etc.

• Committees and Testimony
   – 18 major DHS related committees (NAS or similar)
   – Testimony before the House HS Committee

• Other Quality Indicators
   – Seven researchers with 1,000+ citations (ISI Web of Science)
   – One member of the NAS, two of the NAE
CREATE Research Framework

                   Risk
                Assessment




      Risk                    Economic
   Management                Assessment
CREATE Research Framework

               Risk Assessment

    Threat      Vulnerability   Consequence
  Assessment    Assessment       Assessment
CREATE Research Framework
                                               Economic
               Risk Assessment                Assessment
                                               Assessment of
    Threat      Vulnerability   Consequence
                                                Direct Econ.
  Assessment    Assessment       Assessment
                                               Consequences




                                               Assessment of
                                               Indirect Econ.
                                               Consequences




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




                                                 Assessment of
                                   Response
  Prevention       Protection                    Indirect Econ.
                                   Recovery
                                                 Consequences




                                                 Cost-Benefit &
                                                    Decision
                                                    Analysis
               Risk Management
  CREATE Case Studies – Year 1


                                        Case Studies

Modeling and Analysis Areas   MANPADS    Dirty Bomb    Electricity

Risk Assessment

Economic Assessment

Risk Management
  CREATE Case Studies – Years 2-3


                                             Case Studies

                                               Border       Risk-Based
Modeling and Analysis Areas   Bioterrorism
                                               Security      Allocation
Risk Assessment

Economic Assessment

Risk Management
CREATE Alignment with DHS Customers

                                                      D H S /S & T D iv is io n s
CREATE                                                 Com m and/
                                                                           B o rd e rs /   Hum an        In fra s tr./
M o d e lin g &   E x p lo s iv e s   C h e m /B io     C o n tro l/
                                                                           M a ritim e     F a c to rs   G e o p h ys .
A n a ly s is                                           In te ro p .

R is k
Assessm ent

E c o n o m ic
Assessm ent

R is k
M anagem ent
Examples of Center Projects and
Products
         Applied Research Projects
         Analysis of dirty bomb attacks on ports
         Analysis of terrorist attacks on electrical grid
         Border security decision analysis
         Economic analysis of bioterrorism events

         Fundamental Research Projects
         Game theory extensions to terrorism problems
         Decision analysis with adaptive responses
         Probabilistic models of terrorist preferences
         Network reliability and failure models

         Software Development
         Risk Analysis Workbench (RAW)
         MANPADS Decision Tree Software
         National Interstate Economic Impact Model
         Emergency response models
 Conferences and Presentations

• Three Scientific Symposia
   – Economic Impacts of Terrorist Attacks
   – Risk Analysis
   – Economic Costs and Consequences of Terrorist
     Attacks
• Six Conferences
• 116 Conference Presentations
• 68 Outreach Presentations
Applied Relevance

• Case Studies
• Collaborative Projects
• Models and Software
Case Studies
•   Year 1 (completed)
    – MANPADS: two decision analysis models, three economic
      analyses (MANPADS Office)
    – Ports and dirty bombs: project risk analysis model, economic
      analysis (Customs and Border Protection, Coast Guard, LA
      Sheriff’s Office)
    – Electricity: Vulnerability assessments, economic impacts (Office
      of Infrastructure Protection, California Energy Commission)
•   Year 2 (in progress)
    – Bioterrorism (NBACC, California Dept. of Health Services., LA
      County Health Dept.)
    – Border Security (CBP, Immigration and Customs Enforcement)
    – Risk Based Allocation (Office of Infrastructure Protection,
      California Office of Homeland Security)
Collaborative Projects
• 16 projects in total
   – 6 with DHS operational units
   – 7 with State and local agencies
   – 3 with other centers
• Examples
   –   Performance Metrics for Infrastructure Protection (IP)
   –   Border Security Tabletop Exercise (CBP)
   –   Risk Training for Immigration and Customs Enforcement (ICE)
   –   Electricity Security and Reliability (CEC)
   –   Marina Del Rey Radiation Protection (LA Sheriff’s Dept.)
   –   Risk Analysis of Foot and Mouth Disease (FAZD)
CREATE Models
•   Risk Assessment
    – Probabilistic Risk Analysis
    – Game Theory
    – Models of Motivation, Capability and Intent
•   Economic Assessment
    – Advanced Input-Output Models
    – Computable Generalized Equilibrium Models
    – Models of Behavioral Responses and Resilience
•   Risk Management
    – Dynamic, Adaptive Decision Analysis
    – Optimal Resource Allocation Models
    – Emergency Planning Models
      Example Applications

•   Border Security
     – System-wide study of border security
     – Immigration and Customs leadership training
•   Transportation Security
     – MANPADS countermeasures
     – Radiological portals in sea ports
•   Infrastructure Protection
     – Dirty bomb attacks on sea ports
     – Allocating BZPP funds in California
•   Weapons of Mass Destruction
     – Prioritizing risks of biological attacks
     – Dirty bomb attacks on the LA/Long Beach harbors
•   Intelligence Analysis
     – Project risk analysis of radiological attacks
     – Analysis of motivation and intent of terrorists
Advisory Committees

• Scientific Advisory Committee
• Three regional government advisory
  committees
• Industry advisory committee
Examples of Education Activities
•   Students, Research Assistants and Post-docs
     –   53 students received CREATE funding
     –   35 Ph.D. students
     –   Many will write Ph.D. theses on terrorism, homeland security issues
     –   Six post-doctoral scholars
•   Degree Programs and Courses
     –   New Masters Degree in Systems Safety and Security
     –   New Certificate in Systems Safety and Security
     –   New Aviation Security program
     –   Many new or modified courses
•   Visitor and Diversity Programs
     –   Seven DHS scholars
     –   Four summer visiting faculty and six students from minority serving institutions
•   Internship Program
Programs and Courses
• New programs
   – Masters degree in Systems Safety and Security
   – Certificate degree in SSS
   – Aviation Safety and Security Program
• New Courses
   – Risk Analysis
   – Terrorism an Public Policy
   – Aviation Security
• Twelve modified courses
Visiting Programs

• DHS Scholars and Fellows
   – Four students in 2005
   – Five students in 2006
   – Two students in 2007
• DHS minority research program
   – Three teams in 2005
   – Three teams in 2006, one at NYU
   – One of the teams is receiving continued funding from
     CREATE
Diversity

• Continuing visiting researchers and scholars
  program
• Active search for collaborators at minority serving
  institutions
• Collaboration with the minority-serving Thomas
  Rivera Policy Institute at USC
• Collaboration with minority-serving high schools
  in Los Angeles
Outreach and Communication

    •   Events
    •   Presentations
    •   Website
    •   Newsletter
    •   Database
    •   Brochures
    •   Media Relations
    •   External Organizations
    Communications Tools

•   Brochures
     – Center Overview
     – Aviation Program
     – Masters Program
•   Newsletter
•   Contact Database
•   Website
Technology Transitioning

• Tools and Models Transferred to User
  Communities
• Horizontal Network of DHS contacts to
  transfer knowledge through collaborations
• Risk Analysis Workbench
• Graduating Students
Integration

• Within CREATE
• With Other Centers
• With External Clients
Integration Within CREATE

• Case studies are the main integration vehicle
• Integration Meetings
• Lead coordinators for three modeling and
  analysis areas
• New executive committee
• Role of RAW as an integrator
Integration with Other Centers

• CREATE-FAZD collaboration
• CREATE-NCFDP collaboration
• CREATE leads two Inter-Center activities
   – Risk Perception
   – Economics
• Many collaborations with the National Labs
Integration with External Clients

• Case studies linked to specific clients
• “Horizontal networking” with DHS units
• Clients are exploring new collaborations
Emerging Themes
 •   Risk assessment is difficult
     – Too many attack scenarios
     – Adversaries seek vulnerabilities and high impact
     – Probabilities of threats and attacks shift with our action
 •   Some risk assessment tasks are easier
     – Screening can significantly reduce attack scenarios
     – Relative probabilities can be assessed
     – A terrorist attack is a multistage project – use project risk analysis
 •   Indirect economic impacts are important
     – Can overshadow direct impacts
     – Can be reduced by policy interventions
     – Can be reduced by risk communication
 •   Focus on risk management helps
     – Multiple defenses and interventions
     – Not all countermeasures are cost-effective
     – Conclusions are often robust with respect to “soft” inputs
The Main Challenge:
How Secure is Secure Enough?

• We will never be completely secure
• The costs of increasing security increase
  dramatically as the risks are reduced to their
  minimums
• Increasing security creates other risks,
  inconveniences, and restricts civil liberties
      The Future of CREATE

•   Vision and Mission
•   Five Year Strategy
•   Focusing the Research Mission
•   Enhanced Educational Mission
Five Year Strategy – Building
on Our Strengths

• Develop a CREATE research model focused on
  supporting policy and decision making
• Build on successful mix of fundamental and applied
  research
• Enpand and integrate the educational component
• Develop a transitioning strategy building on RAW
Expanding the Research Mission:
Building on Our Lessons
•   Probabilities assessment is hard
    – Use of expert judgment and secondary probability distributions
    – Dynamic and stochastic decision trees and games
    – Models of terrorists’ motivation and intent
•   Terrorist attacks are multistage projects
    – Project risk analysis tools
    – Systematic analysis of effectiveness of interventions
•   Policies and public responses to terrorism affect
    economic impacts of terrorist events
    – More focus on decision and policy analysis
    – Add behavioral research component
•   Focus on risk management feedback loop
    – Developing a decision focused research framework
Expanding the Research Mission:
Meeting the Challenges

• Develop an integrated research model
  – Start with decisions, policy and management options
    to reduce risks
  – Evolve risk and economic research where needed to
    make better decisions
• Advance economic research
  – Risk perception and behavioral economics
  – Experimental games
  – Agent-based modeling
Emerging Topics

• Terrorist motivations and capabilities
• Understanding and measuring resilience
• Behavioral adjustments in response to
  disasters
• Bundling public goods
• Public values and preferences for measures
  to reduce terrorism and disaster risks
Enhancing the Educational Mission

• Recruit more US Ph.D. students, especially
  minorities, using available scholarship funds
• Modify Master’s requirements and aggressively
  recruit Master’s students
• Expand collaborations with minority serving
  institutions
   – on topics that matter to minorities
   – using expertise that resides with minority scholars
It Takes a Center….
•   to bring multiple perspectives and scientific approaches to
    bear on terrorism issues
•   to innovate and integrate research at the cutting edge of
    science
•   to provide continuity in a rapidly changing environment
•   To leverage resources and link homeland security to a
    broad network of academic and private institutions
•   to be a trusted and credible source of information for the
    public
•   to build an enduring base of knowledge and to educate the
    leaders for the future
Website: www.usc.edu/create
MANPADS – Decision Analysis Case Study

•   To evaluate the cost-effectiveness of MANPADs
    countermeasures
     – Infrared jammers installed on commercial planes
     – Life cycle cost between $10 billion and $30 billion
•   Clients/Users:
     – Support for DHS MANPADS Countermeasures Office
     – Congress
•   Main Products:
     – Interactive Cost-Benefit Model
     – Economic Impact Assessments
       MANPADS - Weapons

US REDEYE ---              USSR SA-7 ---
1967                       1968
        Bad Guys




                        STINGER
                        STINGER


          SA-14
          SA-14



SA-18
SA-18              Chechnya 2000
Close Call
MANPADS Decision Tree


                                                                    Fatal Crash
                                                   Hit                             x
                                                                          r
                                                           h        Safe Landing
                             No Interdiction                                       x
                                                                         1-r
                                   1-q
      Attempted Attack                             Miss
                                                                x
             p                                            1-h
                             Interdiction
                                               x
                                    q
      No Attempt
                         x
            1-p
MANPADS – Direct
Consequences




• Fatalities
• Injuries
• Loss of Airplane(s)
MANPADS Indirect
Consequences




• Aviation System Shutdown
• Reduced Airline Passenger Volume
• Fears and worries
           Airline Passenger Volume after 9/11
Passenger Number (m.)                            DOMESTIC (Actual)
                                                 INTERNATIONAL(Actual)
  70
                                                 DOMESTIC (Forecast)
                                                 INTERNATIONAL(Forecast)
  60




  50




  40




  30




  20




  10




   0




                                                                       Month
 MANPADS –
 Indirect Economic Impacts

• Shutdown of all airports
   – Lave: $1.5 billion/day
   – USC model: $1 billion/day
• 9/11 economic impacts (2 years)
   – Santos and Haimes: $40-80 billion
   – USC model: $200 to 400 billion
MANPADS Countermeasures


•   Flares
•   Directed Infrared Countermeasures (DIRCMS)
•   Perimeter control
•   Hardening airplanes
•   Pilot training
•   Under development – Ground based systems
MANPADS – Countermeasures
Link to MANPADS Movie


• http://www.youtube.com/watch?v=I5n-
  e_NITHY
MANPADS – Countermeasures Costs
•   Capital Cost Estimates
    – RAND: $1-3 million per plane
    – DHS: $1-2 million per plane
•   Operation and Maintenance Cost
    – RAND: $500,000 per plane year
    – DHS: $240,000 per plane per year
•   Total 10-year Life-Cycle Cost for 5,000 planes
    – RAND: $35 billion
    – DHS: $22 billion
•   Round trip cost
    – 700 million enplanements/year
    – $5/enplanement or $10-20 per round trip
Decision Tree with Countermeasures
                                                                                       Fatal Crash
                                                                   Hit                                x
                                                                                          (1-g)*r
                                                                         (1-e)*h       Safe Landing
                                             No Interdiction                                          x
                                                                                         1-(1-g)*r
                                                (1-f)*(1-q)
                           Attempt                                 Miss
                                                                                   x
                              (1-d)*p                                1-(1-e)*h
      Countermeasures                        Interdiction
                                                               x
                                               1-(1-f)*(1-q)
                           No Attempt
                                         x
                             1-(1-d)*p
                                                                                       Fatal Crash
                                                                                                      x
                                                                   Hit                       r
                                                                           h           Safe Landing
                                             No Interdiction                                          x
                                                                                            1-r
                                                   1-q
                           Attempt                                 Miss
                                                                                   x
                                 p                                        1-h
      No Countermeasures                     Interdiction
                                                               x
                                                    q
                           No Attempt
                                         x
                               1-p
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
Probabilities                                   Base       Case         Min                           Max
   Attempted Attack in 10 years                   0.50       0.25        0.00                          1.00                                                       EXPECTED COSTS OF MANPADS
   Interdiction|Attempt                           0.00       0.00        0.00                          0.10
   Hit|Attack                                     0.80       0.80        0.00                          1.00                                             $16,000
   Crash|Hit                                      0.25       0.25        0.00                          1.00




                                                                                                                 Equivalent Expected Costs (Millions)
Effectiveness of Countermeasures                                                                                                                        $14,000
   Deterrence Effectiveness                       0.50       0.50        0.00                          1.00
                                                                                                                                                        $12,000
   Interdiction Effectiveness                     0.00       0.00        0.00                          1.00
   Diversion/Destruction Effectiveness            0.80       0.80        0.00                          1.00                                             $10,000
   Crash Reduction Effectiveness                  0.00       0.00        0.00                          1.00                                                                                     CM Cost
Consequences                                                                                                                                             $8,000                                 Econ Loss
   Fatalities|crash                                200        200             0                         400                                                                                     Crash
   Cost of the Plane (millions)                    200        200             0                         500                                              $6,000
   Loss to Economy|Fatal Crash (billions)          100        100             0                         500
                                                                                                                                                         $4,000
   Percent of Loss|Hit and Safe Landing           25%        25%          0%                           50%
   Percent of Loss|Miss                           10%        10%          0%                           25%                                               $2,000
   Number of False Alarms/Year                      10         10             0                             20
   Cost of Countermeasures (billions)               10         10             5                             50                                             $-
Tradeoffs                                                                                                                                                            w/CM              w/o CM
   Value of Life (millions)                          5          5             0                             10                                                              DECISION
   Cost of a False Alarm (millions)                 10         20             0                         100

Outputs of Manpads Model
                                                           Total    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   $         -
Tornado Diagram
Life-Cycle
Cost = $10 billion
Life-Cycle
Cost = 30 billion
MANPADS - Conclusions

•   At current costs, MANPADS countermeasures can be cost-
    effective
    – if the probability of an attack is greater than 0.50 in ten years
    – if economic impacts are greater than $200 billion
•   The economic consequences depend on policy and public
    responses to an attack
•   However, terrorists may shift to other weapons, if
    MANPADS countermeasures are installed
•   Additional work needed
    – Better cost estimates
    – Better threat assessments
    – Better understanding of how threats shift, dynamic decision modeling
      of shifting terrorist attack modes