monitoring

UNCLASSIFIED
DEFENSE SCIENCE BOARD | DEPARTMENT OF DEFENSE
executing a successful attack 41 to replace probability in the classical formulation of risk, when
working with risk assessments of intelligent adversaries. Additionally, understanding the
readiness level of an adversary and the expected time to attack can also serve as a useful risk
proxy. Regardless of the exact risk metric or proxy used, risk (or some formulation of risk
proxies) is likely to be a “necessary evil” as it allows for disparate approaches to be transacted
together in cost‐benefit trade‐offs, and provides a consistent metric and method for analysis as
new information and options become clear.
A.9. Balancing Risk
A key role of a portfolio decision methodology is to identify investments in capabilities that
balance risks given the values of the decision maker. Investment risk does not only include cost
and technical risk, but also institutional decision factors. Institutional decision factors are
elements such as championship, mission, acceptance, and other factors that may prevent
investments from being successful if not present. While not often considered in formal decision
processes, they can have a large effect on the outcomes of decisions to acquire capabilities.
Accounting for these factors in an M&V portfolio decision methodology is recommended.
A method for achieving a “balanced” capability portfolio can be desirable to some decision
makers. For the purposes of this work, “balance” is defined as having an appropriate mix of
capability investments to maximize risk reduction in the outcomes, while being prudent about
the investment risks associated with each portfolio asset. As an analyst considers capability
options, a balanced portfolio may be very different given the values and risk tolerance of the
decision maker and the investing agency. For example, R&D focused organizations may have a
set of values that is more risk tolerant, and a balanced investment portfolio may be skewed
towards the long‐term, high risk, high payoff projects. At the same time, an operational
component may seek primarily commercial‐off‐the‐shelf solutions and a balanced investment
portfolio may be skewed towards incremental, low risk improvements. Formal and quantitative
methods for assessing the risk tolerance and the values of decision makers exist and should be
extended in formulating an M&V portfolio decision methodology.
41 Wyss, Hinton, et al, Risk‐Based Cost Benefit Analysis for Security Assessment and Investment Prioritization,
Sandia National Laboratories, 2011.
DSB TASK FORCE REPORT Appendix A: Unabridged Description | 90
Nuclear Treaty Monitoring Verification Technologies
UNCLASSIFIED