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Managing stratetegic surprise


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Managing Strategic Surprise

The scope and applicability of risk management has expanded greatly over
the past decade. Banks, corporations, and public agencies employ its new
technologies both in their daily operations and in their long-term investments.
It would be unimaginable today for a global bank to operate without such
systems in place. Similarly, many areas of public management, from NASA
to the Centers for Disease Control, have recast their programs using risk
management strategies. It is particularly striking, therefore, that such thinking
has failed to penetrate the field of national security policy. Venturing into
uncharted waters, Managing Strategic Surprise brings together risk management experts and practitioners from different fields with internationally
recognized national security scholars to produce the first systematic inquiry
into risk and its applications in national security. The contributors examine
whether advance risk assessment and management techniques can be successfully applied to address contemporary national security challenges.
p a u l b r a c k e n is Professor of Management and Political Science at
Yale University. He is a member of the council on Foreign Relations and
works with private equity and hedge funds on using scenarios for

investment strategies.
i a n b r e m m e r is President of Eurasia Group, the world's leading political
risk consultancy. He is also Senior Fellow at the World Policy Institute and
Contributing Editor of The National Interest. His research focuses on states
in transition, global political risk, and US national security.
d a v i d g o r d o n is Director of Policy Planning at the US Department of
State. He previously served as Vice-Chairman of the National Intelligence
Council (NIC) in the Office of the Director of National Intelligence (DNI)
and is the former Director of the CIA's Office of Transnational Issues
(OTI). He has directed major analytic projects on country-level economic
and financial crises, emerging infectious disease risks, global demographic
trends, and the changing geopolitics of energy.



Managing Strategic
Surprise
Lessons from Risk Management
and Risk Assessment

Edited by
paul bracken
Yale University

ian bremmer
Eurasia Group

david gordon
United States Department of State


CAMBRIDGE UNIVERSITY PRESS

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Cambridge University Press
The Edinburgh Building, Cambridge CB2 8RU, UK
Published in the United States of America by Cambridge University Press, New York
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© Cambridge University Press 2008

This publication is in copyright. Subject to statutory exception and to the provision of
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without the written permission of Cambridge University Press.
First published in print format 2008

ISBN-13 978-0-511-42316-1

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ISBN-13

978-0-521-88315-3

hardback

ISBN-13

978-0-521-70960-6

paperback

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guarantee that any content on such websites is, or will remain, accurate or appropriate.


Contents

List of figures

page vii

List of tables

ix

List of contributors

x

Acknowledgements

xvii

1 Introduction

1

paul bracken, ian bremmer and
david gordon

2 How to build a warning system

16

paul bracken

3 Intelligence management as risk management:
the case of surprise attack

43

uzi arad

4 Nuclear proliferation epidemiology: uncertainty,
surprise, and risk management

78

lewis a. dunn

5 Precaution against terrorism

110

jessica stern and jonathan b. wiener

6 Defense planning and risk management in the
presence of deep uncertainty

184

paul k. davis

7 Managing energy security risks in a
changing world

228

coby van der linde

8 What markets miss: political stability frameworks
and country risk

265

preston keat

v


vi

Contents

9 The risk of failed-state contagion

287

jeffrey herbst

10 Conclusion: managing strategic surprise

302

paul bracken, ian bremmer and
david gordon

Index

311


Figures

2.1
2.2
2.3
2.4
4.1
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
6.9
6.10
6.11
6.12

6.13
6.14
7.1
8.1
8.2
8.3
8.4

A framework for warning
page 26
Risk management framework – example
32
Two risk management profiles for US defense
38
A warning value chain
40
WMD proliferation triad
88
DoD’s enduring decision space
187
An illustrative point scenario
196
Schematic of uncertainty-sensitive planning
201
Defense planning in a portfolio management framework
205
Exploratory analysis in a scenario space
211
Success tree for stylized defense of an ally
213
Exploratory analysis results showing benefits of a new
capability option
215
Steps in using a portfolio analysis tool
216
Composite cost-effectiveness as a function of view
218
An illustrative spider plot comparing options along
multiple dimensions
219
Schematic of a parametric outcome of exploratory
analysis using a capabilities model
222
Schematic use of DynaRank to build a program as a
function of cumulative cost savings desired, relative
to a baseline program
223
Creating portfolio views tuned to high-level
decision making
226
Summary of where decision makers want to be
227
Determinants of the risk landscape
242
The variables of Eurasia Group’s Global Political
Risk Index
267
Strength of government in Russia 1997–2000
270
Strength of opposition in Russia 1997–2000
271
Environment for the private sector and social tension
272

vii


viii

List of figures

8.5 Stability index economy section variables for Russia
1997–2000
8.6 Price of Urals blend crude (FOB Med)
8.7 Index government scores and bond prices in Brazil
8.8 GDP growth, 5-year average 2002–2006
8.9 Average of government and society scores
8.10 Global Political Risk Index composite scores,
November 2006

273
274
275
276
276
280


Tables

5.1 Costs of the Iraq war: Nordhaus estimates
5.2 Costs and benefits of the Iraq war: Davis et al.
estimates
5.3 Costs and benefits of the Iraq war: Wallsten and
Kosec estimates
5.4 Deaths in selected wars
6.1 Balancing degrees of conservatism to manage risk
6.2 Illustrative surprises in foreign policy
6.3 Illustrative military shocks from WWII until now
6.4 An illustrative (notional) top-level portfolio-analysis
display
6.5 “Explanation” of higher-level result (capabilities for
2012 in Table 6.4)

page 153
155
156
162
190
198
199
218
220

ix


Contributors

editors
Paul Bracken is Professor of Management and Political Science at Yale
University. He teaches the required core course at the Yale School of
Management on Strategic Environment of Management; and also
teaches Business, Government, and Globalization which covers international political risk and its implications for business; and Seminar on
Grand Strategy.
A member of the Council on Foreign Relations, he was a visiting
professor at Beijing University. Professor Bracken works with private
equity and hedge funds on using scenarios for investment strategies.
Before joining the Yale faculty Professor Bracken was on the senior
staff of the Hudson Institute for ten years, where he directed the
management consulting arm of the Institute.
Professor Bracken received his PhD from Yale University in Operations
Research and his B.S. from Columbia University in Engineering.
Ian Bremmer is President of Eurasia Group, the political risk
consultancy. An expert on US foreign policy, states in transition, and
global political risk, Dr. Bremmer’s five books include The J Curve: A
New Way to Understand Why Nations Rise and Fall (2006), selected by
The Economist as one of the Best Books of the Year. In 2001, Bremmer
authored Wall Street’s first global political risk index, now the GPRI
(Global Political Risk Index), a joint venture with investment bank
Citigroup. Bremmer has also published over 200 articles and essays in
The Harvard Business Review, Survival, The New Republic, Fortune,
The Los Angeles Times, The Washington Post, The Wall Street Journal,
The Financial Times, and The New York Times. He is a regular
contributor for The International Herald Tribune and the webzine
Slate, contributing editor at The National Interest, and a political
commentator on CNN, Fox News and CNBC.

x


List of contributors

xi

Bremmer has spent much of his time advising world leaders on US
foreign policy, including US presidential candidates from both
Democratic and Republican parties, Russian Prime Minister Sergei
Kiriyenko, and Japanese Prime Minister Shinzo Abe.
Bremmer received his PhD in Political Science from Stanford
University in 1994. He went on to the faculty of the Hoover Institution
where, at 25, he became the Institution’s youngest ever National
Fellow. He has held research and faculty positions at Columbia University (where he presently teaches), the EastWest Institute, Lawrence
Livermore National Laboratory, and the World Policy Institute, where
he has served as Senior Fellow since 1997. He lives in New York.
David Gordon is Director of Policy Planning at the US Department of
State. He previously served as Vice-Chairman of the National Intelligence Council (NIC) in the Office of the Director of National Intelligence
(DNI) and is the former Director of the CIA’s Office of Transnational
Issues (OTI), an office that covers a broad array of critical national
security issues, including global energy and economic security, corruption and illicit financial activity, foreign denial and deception programs,
and societal and humanitarian conflicts.
Dr. Gordon joined the CIA in May 1998, when he was appointed
National Intelligence Officer for Economics and Global Issues on the
NIC. He directed major analytic projects on country-level economic and
financial crises, emerging infectious disease risks, global demographic
trends, and the changing geopolitics of energy, as well as provided
leadership for the NIC’s seminal “Global Trends 2015” report.
Prior to his earlier service on the NIC, Dr. Gordon was Senior Fellow
and Director of the US Policy Program at the Overseas Development
Council. He also served as a senior staff member on the International
Relations Committee of the US House of Representatives; and as the
regional economic policy advisor for the US Agency for International
Development, based in Nairobi, Kenya.
In the 1980s, Dr. Gordon pursued an academic career with a joint
appointment at the University of Michigan and Michigan State University. He has also taught at the College of William and Mary, Princeton
University, Georgetown University and the University of Nairobi.
Dr. Gordon is a graduate of Bowdoin College and undertook
graduate studies in both Political Science and Economics at the
University of Michigan, where he received his PhD in 1981.


xii

List of contributors

co n tr ibu to r s
Uzi Arad is Director of the Institute for Policy and Strategy (IPS) and
Professor of Government at the Lauder School of Government, Strategy
and Diplomacy at Herzliya’s Interdisciplinary Center. Concurrently, he
serves as Advisor to the Knesset Foreign Affairs and Defense Committee.
Between 1975 and 1999 Professor Arad served with Israel’s foreign
intelligence service, the Mossad, in senior positions both in Israel and
overseas. Among these he held the post of Director of the Intelligence
Division and that of the National Security Advisor to Prime Minister
Benjamin Netanyahu. Professor Arad obtained his PhD and MA degrees
from Princeton University, to which he came as a Fulbright Scholar,
and is a graduate of advanced executive courses at Harvard University.
Prior to joining the Mossad he was Professional Staff member of the
Hudson Institute in New York. His areas of specialization include
foreign and security affairs, intelligence and policy making. He is a
co-author of Sharing Global Resources, written for the New York
Council on Foreign Relations.
Paul K. Davis is a Senior Scientist and Research Leader at RAND, and
a Professor of Policy Analysis in the Pardee RAND graduate school.
His research areas include defense planning, planning under deep
uncertainty more generally, deterrence theory, and advanced methods
of analysis and modeling. Dr. Davis has published recent books on
capabilities-based planning, effects-based operations, the deterrence
and influence components of counterterrorism, model composability,
and virtual collaboration. He also serves on several national panels
dealing with planning, and with modeling, simulation, and analysis.
Dr. Davis holds a BS from the University of Michigan and a PhD
(Chemical Physics) from the Massachusetts Institute of Technology.
Lewis A. Dunn is a Senior Vice-President of Science Applications
International Corporation. Dr. Dunn served as Assistant Director of
the US Arms Control and Disarmament Agency from 1983–1987
(appointed by President Reagan and confirmed by the US Senate with
the rank of Assistant Secretary) and as Ambassador to the 1985
Nuclear Non-Proliferation Treaty Review Conference. Prior to joining
the Reagan Administration, he was a member of the staff of the Hudson
Institute. From 1969–1974, he taught Political Science at Kenyon
College. Dr. Dunn is the author of Controlling the Bomb (1982) and of
“Containing Nuclear Proliferation,” Adelphi Paper No. 263 (1992).


List of contributors

xiii

Other recent publications are: “Must Acquisition Equal Employment:
Can al-Qaeda be Deterred from Using Nuclear Weapons?” (National
Defense University monograph, 2005); “Rethinking Deterrence: A
New Logic to Meet Twenty-First Century Challenges,” in Stephen
J. Cimbala (ed.), Deterrence and Nuclear Proliferation in the TwentyFirst Century; (with Victor Alessi), “Arms Control by Other Means,”
Survival, Vol. 42, No. 4 (Winter 2000–01); “Coordinated Security
Management,” Survival, Vol. 43, No. 3 (Autumn 2001); “The Case
for an Enforceable Consensus against NBC First Use,” The Nonproliferation Review (Fall/Winter 2002). He has a PhD in Political
Science from the University of Chicago. He is a member of the
International Institute for Strategic Studies and the Council on Foreign
Relations.
Jeffrey Herbst is Provost and Executive Vice-President for Academic
Affairs at Miami University. His primary research interests are in the
politics of sub-Saharan Africa, the politics of political and economic
reform, and the politics of boundaries. He is the author of States and
Power in Africa: Comparative Lessons in Authority and Control
(2000) and several other books and articles. He has also taught at the
University of Zimbabwe, the University of Ghana, Legon, the University
of Cape Town, and the University of the Western Cape. He is a Research
Associate of the South African Institute of International Affairs and was
a Fellow of the John Simon Guggenheim Memorial Foundation. He
received his PhD from Yale University.
Preston Keat is a Director of Research and head of the Europe & Eurasia
Practice Group at Eurasia Group. He holds a PhD in Political Science
from UCLA, an MSc from the London School of Economics, and a BA
from the College of William and Mary. Preston is an emerging Europe
and EU analyst, and he also played a key role in the development of the
Deutsche Bank Eurasia Group Stability Index methodology, a cutting
edge tool for global market risk analysis. He previously worked for the
German Marshall Fund of the US in Washington DC, where he worked
on the Fund’s programs for political and economic development in
Poland, Hungary, the Czech Republic, Slovakia, Romania, Bulgaria, and
Albania. Preston has spent several years living in the region, most
recently as a Fulbright Scholar in Poland. Preston has conducted
extensive field research in Poland, Hungary, the Czech Republic, Turkey,
Russia, and Slovakia. His academic research focuses on the process of


xiv

List of contributors

economic reform and enterprise restructuring, and he has profiled
numerous firms in a range of industrial sectors, including automobiles,
chemicals, coal, food processing, shipbuilding, steel, and textiles. He has
presented papers at numerous venues, including the Annual Meetings of
American Political Science Association, the Wharton School, and US
government agencies. Preston also teaches courses in Political Risk
Assessment and Management as a visiting professor at Columbia
University (SIPA).
Jessica Stern is Lecturer in Public Policy at Harvard University’s
Kennedy School of Government, where she teaches courses on
terrorism and on religion and conflict. She is the author of Terror in
the Name of God: Why Religious Militants Kill (2003), based on
surveys and interviews of terrorists around the world. She is also the
author of The Ultimate Terrorists (2001), and of numerous articles on
terrorism and proliferation of weapons of mass destruction. She served
on President Clinton’s National Security Council Staff in 1994–1995.
She has held fellowships at the Council on Foreign Relations and at
Stanford University’s Hoover Institution, and has worked as an
analyst at Lawrence Livermore National Laboratory. Dr. Stern
previously worked in Moscow, first as Assistant to the Commercial
Attache´, and later as a representative of a US company. She has a BA
from Barnard College in Chemistry, a MA from MIT in Technology
Policy (chemical engineering), and a doctorate from Harvard
University in Public Policy.
Coby van der Linde is Director of the Clingendael International Energy
Programme at the Netherlands Institute for International Relations
(“Clingendael”) and Professor of Geopolitics and Energy Management
at Groningen University in the Netherlands. Her research areas include
energy diplomacy, international oil and gas markets, energy policy, and
the political economy of energy producing countries. Dr. van der Linde
recently completed a study on Energy Security of Supply and Geopolitics
for the European Commission. She has also written on the influence of
the state in the oil market and various articles on energy markets and
energy relations in the world. She is a member of both the Energy
Council, an advisory board to the Dutch government, and the advisory
board to the Chairman of the International Gas Union (IGU). She holds
a MA in Political Science (International Relations) and a PhD in
Economics from the University of Amsterdam.


List of contributors

xv

Jonathan B. Wiener is William R. and Thomas L. Perkins Professor of
Law at Duke Law School, Professor of Environmental Policy at the
Nicholas School of the Environment & Earth Sciences, and Professor
of Public Policy Studies and the Sanford Institute of Public Policy, at
Duke University. He also served as the founding Faculty Director of
the Duke Center for Environmental Solutions from 2000–2005. Since
2002 he has been a University Fellow of Resources for the Future
(RFF), the environmental economics think-tank. In 2003, he received
the Chauncey Starr Young Risk Analyst Award from the Society for
Risk Analysis (SRA) for the most exceptional contributions to the field
of risk analysis by a scholar aged 40 or under. In 1999, he was a
visiting professor at Harvard Law School, and in 2005–2006 he was a
visiting professor at l’Ecole des Hautes Etudes en Sciences Sociales and
at the environmental economics think-tank CIRED in Paris. Before
coming to Duke, he worked on US and international environmental
policy at the White House Council of Economic Advisers, at the White
House Office of Science and Technology Policy, and at the United
States Department of Justice, serving in both the first Bush and Clinton
administrations. He attended the Rio Earth Summit in 1992. He has
written widely on US and international environmental law and risk
regulation, including numerous articles and the books The Reality of
Precaution (forthcoming 2007), Reconstructing Climate Policy (2003,
with Richard B. Stewart) and Risk vs. Risk (1995, with John D. Graham).



Acknowledgements

Managing Strategic Surprise was the work of many people without
whom it would not have been possible to launch such an ambitious
exploratory effort. We would especially like to express our sincere
gratitude to the many individuals who contributed to this endeavor,
both those who attended our meetings and those who met with us to
give us ideas about the science and practice of risk management.
First and foremost, thank you to the authors, who came to this
project with open minds and a willingness to trespass in fields outside
of their own well-established expertise.
In order for us to confidently traverse in unfamiliar terrain, we relied
upon the knowledge and counsel of the many individuals listed above as
Members of the Conversation on Risk and National Security. We are very
grateful to have had the input of these individuals who offered valuable
information, insight and feedback at various stages of the project as we
explored ways of applying concepts and methods from their fields to our
own. We would specially like to thank Michael Sherman, Martin Shubik,
Adm. Henry Gehman (USN, ret.), Jacques Aigrain, Ken Knight, Dan Esty,
Ken Minihan, Alf Andreassen, Sam Forman, and Garry Brewer.
Special respect must also be paid to Ross Schaap, Alexsandra Lloyd
and others at Eurasia Group, who managed this endeavor throughout
its various phases.
Finally, we are very fortunate to have had the support of our editor,
John Haslam, at Cambridge University Press, who recognized the
significance of this book at its early stages and made it possible for us
to contribute this work to the dialogue on National Security and Risk.
The views expressed in this book belong solely to the editors and
chapter authors and do not represent the organizations with whom
each are affiliated.
p a ul b ra c ke n
i a n br e m m e r
d av i d g o rd o n

xvii



1

Introduction
PAUL BRACKEN, IAN BREMMER AND DAVID GORDON

The timing couldn’t be better for a book on risk management and
international affairs. Risks from weapons of mass destruction (WMD)
proliferation, terrorism, energy availability, failed states, and from
other sources are growing. The failure to anticipate major risks in
the Iraq war has had enormous consequences, to say the least. And
the continuing debate about how the intelligence community and the
executive branch of government assess risk make it central to any
discussion of foreign and defense policy.
For all of these reasons it is an opportune time to focus on how risk
is assessed and managed in international affairs. But there is a second
reason why the timing is right for a book on this subject. Separate
from all of the above considerations is the emergence of risk management as a distinctive field of study which has transformed one
discipline after another, in finance, business, engineering, environmental protection, and epidemiology. Today, it would be unthinkable
for a company to invest money without first putting it through a risk
“screen” to see what could go wrong. Assessment of an epidemic,
likewise, entails a thorough-going risk analysis to see where interventions to stop it should be made. And analysis of engineering failures like
the Columbia shuttle crash make a lot more sense when looked at from
a risk management framework than from the customary practice of
finding someone to blame it on.
Yet thinking systematically about risk has barely touched the world
of national security and international affairs. Whether in the intelligence
or defense communities, or in energy policy, non-proliferation, or terrorism, the systematic consideration of risk has hardly advanced beyond
truisms. This project brings together for the first time these two clusters
of thinking: the risks of international affairs, and the risk management
frameworks which have transformed so many other disciplines.
The need for better risk management in international affairs is
acknowledged by virtually everyone. We find no disagreement either
1


2

Paul Bracken, Ian Bremmer and David Gordon

that risk management is an important, indeed central, framework for
thinking about problems in fields like finance, business, epidemics, or
power grid crashes. The rub comes in the next step: that some of the
ideas from these fields might have application in international affairs.
On this point there is major controversy and resistance. We believe
that the resistance to such intellectual trespassing, trying to import
ideas from one field into another where they have never been tried
before, is itself interesting and revealing.
Our take is that the actual practice of how risks are handled in
international affairs by the United States has been in decline since the
1990s. Before that, the stark dangers of the Cold War and the threat of
nuclear annihilation enforced a kind of discipline on Washington, and
on the international system. On big issues it paid to be cautious. In the
1990s, with the disappearance of the Soviet Union, this “fear constraint” was lifted. The United States in the 1990s was by far the most
powerful country in the world. And this one-sided power led to a
sloppiness when it came to managing risks. Across ideological lines it
was thought that whatever might go wrong, US power could easily
make it right. Whether in dollars or military action, power was mistakenly thought to be a substitute for good thinking about risk.
The other source of resistance to importing concepts from risk
management in to international affairs comes from the natural tendency of international affairs specialists to stick with what they
already know and to hone this to increased specialization.1 New
conceptual frameworks, broadly speaking, are not very welcome. In
recent years risk management in international affairs, beyond simpleminded truisms, has become almost an alien concept. In fact, in the
many meetings and conversations we had on this project more time
was spent with international affairs experts on why risk management
“can’t possibly work” in their particular field than on trying to
understand how these approaches might be usefully applied.
But the purpose of this book isn’t to criticize anyone. Rather, it’s to
start a productive conversation on how risk management can be applied
to international challenges in the twenty-first century. For nearly two
years we worked with domain experts in various international security
1

An exception here is the interesting use of risk concepts in M. V. Rasmussen, The
risk society at war, terror, technology and strategy in the twenty-first century
(Cambridge University Press, 2007).


Introduction

3

fields to introduce them to risk management concepts and frameworks
from outside fields. The intent was to see how risk management
thinking might change the frameworks used in their areas of domain
expertise.
But before we describe the mechanics of the project, it’s necessary to
understand what we mean by the term risk management.

Risk management defined
One of our earliest discoveries in this project was that risk management
means different things to different people. More, that there is relatively
little cross-fertilization among specialized fields which do risk management, like finance, environmental protection, and epidemiology.
Engineers studying the safety of nuclear power plants have developed
a high art of risk management. They look at complex processes, flows
of information and materiel, through large networks of pipes and
reactors. Wall Street financial analysts have a different notion of risk
management. They focus on changes in currency values and stock prices
using probability and stochastic processes. Each does risk management.
And each has its own frameworks, vocabulary, and set of distinctions.
There is nothing wrong with this. Each field, whether engineers
interested in nuclear plant safety or Wall Street analysts worried about
the value of their portfolios, has certain recurrent tasks that they have to
manage. They develop techniques and distinctions which work for them.
Yet this diversity makes defining risk management across disciplines
an important thing to get right if we are to raise the level of conversation about risk in international affairs.
Our solution to this problem was to go back to the historical
development of risk management, because all of the specialized risk
management done today in finance, engineering, and environmental
protection emerged from the same intellectual roots. Modern risk
management grew out of the application of statistical methods in mass
production in the 1920s and 1930s.2 It later developed in World War
II, with the application of mathematical concepts in the military effort,
2

A classic book in this regard was W. A. Shewhart, Statistical method from
the viewpoint of quality control (Washington, DC: Graduate School of the
Department of Agriculture, 1939). (Republished in 1986 by Dover
Publications, Mineola, NY.)


4

Paul Bracken, Ian Bremmer and David Gordon

called operations research. By the 1950s a distinct discipline of decision sciences had developed, and within this a common conception of
risk management emerged.3
Stated simply, risk is defined as the product of two things: likelihood
and consequences. Risk separates out the likelihood that some event
will take place from the consequences if it does. This is the definition
of “risk” used throughout the book.4
This definition allows for three conversations. One about likelihood. One about consequences. And a third about the management of
the two. Each of these conversations can quickly get complicated. But
since the world is complicated, this isn’t much of a surprise. Still, the
simple act of recognizing that there are three conversations has proven
to be extraordinarily useful. It means that a financial institution doesn’t
focus its risk management attention only on predicting currency and
stock prices. The track record for doing this is poor, and has been
known to be so for decades. Instead a financial institution will bundle
its total exposure in to a portfolio, and then stress test this against
different shocks to see what the overall effect is on its value. One
method for doing this is called value at risk (VaR). But the choice of
methods for doing these calculations is less interesting for our purposes than is borrowing the insight from finance that there are better
ways to manage risk than trying to predict the future. We think that
bundling a number of foreign policy strategies together, and subjecting
them to stress testing, is a very useful insight. It would highlight interactions. It would focus attention on important consequences, leaving
aside for the moment their likelihood, which is often a matter of dispute. And it would provide an overall way to structure alternatives
which are rarely clear in advance.
Risk management necessarily involves how risk is perceived, and
how it’s processed by individuals, groups, and organizations. This
is a very complicated and interesting subject. Not only do different
3

4

See, for example, L. J. Savage, The foundations of statistics (New York: Wiley &
Sons, 1954); and R. D. Luce and H. Raiffa, Games and decisions, introduction
and critical survey (New York: Wiley & Sons, 1957).
In economics there is a distinction between risk and uncertainty. Risk is used
if there is a known probability distribution about a likelihood. Uncertainty
describes cases where there isn’t such a distribution. We do not take this as
our fundamental definition, although we think it an important distinction and
use it in the project.


Introduction

5

individuals assess likelihood in different ways, they often also see the
consequences of what could take place differently as well. No methodology will ever overcome these tendencies. But being able to lay
them out for clear discussion, with an appropriate vocabulary, is a step
toward a more productive discussion.

Our project
Recognizing the need to incorporate risk management in to some very
important fields we conceived the idea to connect the diverse areas of
risk management to the fields of national security and international
affairs. With the financial support from the National Intelligence
Council, part of the Director of National Intelligence (DNI), we held
meetings over two years bringing together experts in risk management
together with domain experts from various fields of international
affairs. Small group conversations were held as well. Meetings were
held in New York, New Haven, Washington, DC, and Tel Aviv.
Paul Bracken, Professor of Management and Political Science at
Yale University, brought management and operations research skills
to the project. Ian Bremmer, President of the Eurasia Group and an
academic political scientist by training, brought expertise on emerging
markets and global political risk as it applies to financial, corporate,
and government entities. And David Gordon, from the national
intelligence community brought real world experience in national
security risk management to the table. To identify risk management
concepts we spent many days in meetings and discussions with
experts, selecting those that might be salient to security problems.
A word about objectives is in order. Using risk management in
international affairs is an exceedingly ambitious goal, and we recognize this. Our view was that a search for the solution to the myriad
challenges in international affairs was futile. We had no expectation of
finding a computing formula for stopping the spread of WMD or for
stopping terrorist attacks. Rather, we believe that it is possible to
understand the processes associated with these dynamics better, and
define alternatives for managing them.
Our goal was to raise the level of conversation about important
subjects using a risk management framework. Major decisions always
have an element of risk in them, and decision makers and their staff
acknowledge this. But too frequently there is only the lightest


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