Rethinking Risk in National Security : Lessons of the Financial Crisis for Risk Management

This book examines the role of risk management in the recent financial crisis and applies lessons from there to the national security realm. It rethinks the way risk contributes to strategy, with insights relevant to practitioners and scholars in national security as well as business. Over the past few years, the concept of risk has become one of the most commonly discussed issues in national security planning. And yet the experiences of the 2007-2008 financial crisis demonstrated critical limitations in institutional efforts to control risk. The most elaborate and complex risk procedures could not cure skewed incentives, cognitive biases, groupthink, and a dozen other human factors that led companies to take excessive risk. By embracing risk management, the national security enterprise may be turning to a discipline just as it has been discredited. "Cover"--"Half Title"--"Title Page" -- "Copyright Page" -- "Table of Contents" -- "List of Tables and Boxes" -- "Acknowledgments" -- "Part I Background" -- "1 Risk, Judgment, and Uncertainty" -- "2 Defining Risk" -- "3 Approaches to Risk in National Security" -- "Part II Lessons of the Crisisâ#x80;#x94;The Character of Risk" -- "4 Risk and Uncertainty" -- "5 Risk Is What We Make of It" -- "6 Indifferent to Consequences" -- "7 The Swans to Worry About Are Gray" -- "8 Risk Becomes Personalized" -- "9 What You Donâ#x80;#x99;t Know Can Destroy You: Ignorance and Correlated Risk" -- "10 Risk, Incentives, and Culture" -- "Part III Toward Improved Risk Practices" -- "11 The Role of Risk in Strategy" -- "12 Outcome Assessment of the Emerging US National Security Strategy" -- "13 Principles of Effective Risk Management" -- "14 Managing Uncertainty" -- "Notes" -- "Bibliography." This book examines the role of risk management in the recent financial crises and applies the lessons learned to the national security realm. It rethinks the way risk contributes to strategy, with insights relevant to practitioners and scholars in national security as well as business. Over the past few years, the concept of risk has become one of the most commonly discussed issues in national security planning. And yet the experiences of the 2007-2008 financial crises demonstrated critical limitations in institutional efforts to control risk. The most elaborate and complex risk procedures could not cure skewed incentives, cognitive biases, groupthink, and a dozen other human factors that led companies to take excessive risk. By embracing risk management, the national security enterprise may be turning to a discipline just as it has been discredited Front Matter....Pages i-ix Front Matter....Pages 1-1 Risk, Judgment, and Uncertainty....Pages 3-18 Defining Risk....Pages 19-34 Approaches to Risk in National Security....Pages 35-47 Front Matter....Pages 49-49 Risk and Uncertainty....Pages 51-64 Risk Is What We Make of It....Pages 65-75 Indifferent to Consequences....Pages 77-88 The Swans to Worry About Are Gray....Pages 89-99 Risk Becomes Personalized....Pages 101-112 What You Don’t Know Can Destroy You: Ignorance and Correlated Risk....Pages 113-123 Risk, Incentives, and Culture....Pages 125-139 Front Matter....Pages 141-141 The Role of Risk in Strategy....Pages 143-155 Outcome Assessment of the Emerging US National Security Strategy....Pages 157-173 Principles of Effective Risk Management....Pages 175-187 Managing Uncertainty....Pages 189-206 Back Matter....Pages 207-246 Cover 1 Half Title 2 Title Page 4 Copyright Page 5 Table of Contents 6 List of Tables and Boxes 8 Acknowledgments 10 Part I Background 11 1 Risk, Judgment, and Uncertainty 12 2 Defining Risk 28 3 Approaches to Risk in National Security 44 Part II Lessons of the Crisis—The Character of Risk 57 4 Risk and Uncertainty 58 5 Risk Is What We Make of It 72 6 Indifferent to Consequences 83 7 The Swans to Worry About Are Gray 95 8 Risk Becomes Personalized 106 9 What You Don’t Know Can Destroy You: Ignorance and Correlated Risk 118 10 Risk, Incentives, and Culture 129 Part III Toward Improved Risk Practices 144 11 The Role of Risk in Strategy 145 12 Outcome Assessment of the Emerging US National Security Strategy 158 13 Principles of Effective Risk Management 175 14 Managing Uncertainty 188 Notes 206 Bibliography 231 Index 239