Application of the inoperability input-output model (IIM) for systemic risk assessment and management of interdependent infrastructures

Abstract

Our modern era is characterized by a large-scale web of interconnected and interdependent economic and infrastructure systems, coupled with threats of terrorism. This paper demonstrates the value of introducing interdependency analysis into various phases of risk assessment and management through application of the Inoperability Input-Output Model (IIM). The IIM estimates the cascading inoperability and economic losses that result from interdependences within large-scale economic and infrastructure systems. Based on real data and the Nobel Prize-winning W. Leontief economic model, the IIM is a computationally efficient. inexpensive, holistic method for estimating economic impacts. Three illustrative case studies are presented. The first and second illustrate how the supply- and demand-side IIM is used to calculate higher-order effects from attacks to vulnerabilities and implementation of risk management policies in large-scale economic systems. The final case study illustrates a more general use for interdependency analysis: to evaluate risk management options against multiple objectives. This study calculates a Pareto-optimal or efficient frontier of solutions by integrating a simplified model of the costs of recovery to the Power sector derived from open-source data with the IIM. Through these case studies, which use a database from the Bureau of Economic Analysis, we illustrate the value of interdependency analysis in the risk assessment and management process as an integral part of systems engineering. ©2005 Wiley Periodicals, Inc.