One of the most difficult decisions faced by Homeland Security organizations is how to allocate finite resources against a broad spectrum of needs and priorities. Risk-based allocation techniques provide a commonsense framework for prioritization that:

• Reflect your leadership’s management philosophy and strategy
• Provide quantitative justification for resource allocation
• Align with national strategies and best practices
• Account for the uncertainty in Homeland Security risk analysis

What Is Risk-Based Allocation?
Developing an Risk-Based Allocation Methodology
The Three Risk-Based Allocation Attributes
The Benefits of Risk-Based Allocation

What Is Risk-Based Allocation?

Risk-based allocation (RBA) maximizes the return on your Homeland Security investments by using algorithms to prioritize terrorism, natural hazard, and other risk factors for each eligible jurisdiction. Because RBA is informed by risk, higher risk areas generally receive the greatest investments over time. In addition to risk, factors considered in the RBA process include:

• Need (i.e., the capability levels required to mitigate risks)
• Current jurisdictional capability levels
• Historical funding
• Cost to acquire needed capabilities
• Expected effectiveness of the initiative
• Alignment with higher level strategies
• Other factors determined by you

Developing an Risk-Based Allocation Methodology

You can construct a risk-based allocation methodology using a two-by-two matrix to evaluate candidate proposals or investment portfolios. Matrices serve as a quantitative and qualitative framework for analyzing investment quality. They are particularly useful for gaining group consensus on investments and prioritizing investment decisions.

This widely-used analytical tool provides your organization with the following benefits:

• Enables you to visualize your allocation challenge. A matrix can show you, for instance, which areas represent the greatest return on investment.
• Allows you to evaluate investments using four different management objectives (one in each quadrant)
• Provides your policymakers with a simple lens through which to view the decision space while still employing a sophisticated model to drive final allocations
  

The Three Risk-Based Allocation Attributes

You can develop a repeatable process and algorithms for evaluating alternatives that reflect your organization’s strategic objectives by carefully defining the three RBA attributes:

1. Management Objectives. The methods you use to manage risks, priorities, portfolio diversification principles, and fixed business costs are the guiding principles that will lead you from analysis to portfolio allocation. No two organizations have the same RBA objectives. You must clearly define, communicate, and defend the objectives of your specific RBA process. If your objectives are defensible, your processes and algorithms will be much easier to defend.
   
2. Risk Measure. Some organizations only evaluate terrorism risk. Others employ an all-hazards-based RBA process. Both approaches require a high-level methodology that analyzes threats, vulnerabilities, and consequences to critical infrastructures and populations. Ideally, your methodology should align with national best practices and provide a level of detail appropriate for an RBA process.
   
3. Measure of Effectiveness or Return for Candidate Investments. Using the two-by-two matrix, you can develop a measure based on your management objectives to balance against risk. One well-known example is the peer-reviewed Expected Effectiveness measure employed in the Homeland Security Grant Program. You can establish a similar effectiveness measure or return on investment measure based on an investment’s ability to “buy down risk.”

Using the two-by-two matrix approach, you can determine risk and effectiveness thresholds (i.e., higher versus lower in the matrix) and spending for projects or organizations within each quadrant. 

The Benefits of Risk-Based Allocation

A well-defined RBA process can mitigate a wide variety of Homeland Security risks by maximizing your available dollars. Additionally, it provides these benefits:

• Removes subjectivity from the allocation process
• Creates transparency for all stakeholders
• Involves stakeholders in the risk management process
• Builds accountability in government