Economic capital is the estimated amount of money that a firm must have available to cover ongoing operations, deal with worst-case outcomes, and survive. While many of the concepts of integrated or enterprise risk management can also be applied to DHS (particularly governance, process, and culture), there is currently no single measure of risk analogous to economic capital that is appropriate for DHS use. Thus, DHS must use comparative risk management—specifically multiple metrics to understand and evaluate risks. It is worth noting that most nonfinancial services firms implementing ERM adopt the philosophical concepts but have several metrics for comparative risk across operations. For example, nonfinancial services firms evaluate risks using comparative metrics such as time to recover operations, service-level impact over time, potential economic loss of product or service, number of additional temporary staffing (reallocated resources) to restore operations to normal levels, and other factors. These metrics are much more in line with DHS’s needs to focus on response and recovery.

Comparative analysis works because the conceptual breakdown of risk into threat, vulnerability, and consequence can be applied to any risk. Rather than seeking an optimal balance of investments—and certainly rather than trying to do so through one complex quantitative model—DHS should instead use analytical methods to identify options that are adequate to various stakeholders and then choose among them based on the best judgment of leadership. It seems feasible for DHS to consider a broad collection of hazards, sketch out mitigation options, examine co-benefits, and develop a set of actions to reduce vulnerability and increase resilience. A good collection of risk experts could help execute a plan like that.



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