Risk Framework for an Organizational System With Major Components.

Area of Science:

• Organizational Risk Management
• Systems Engineering
• Decision Analysis

Background:

• Large organizations rely on interconnected components, where dependencies can lead to systemic risk propagation.
• Assessing and aggregating risk across diverse organizational components presents significant challenges.

Purpose of the Study:

• To present a novel risk assessment framework integrating risks across organizational components.
• To address challenges in aggregating risk, estimating component interdependencies (including cycles), and propagating risk.

Main Methods:

• Developed a framework aggregating risk assessments using a value function for severity, scaled by risk tolerance.
• Introduced a novel approach for establishing relationships between organizational components.
• Developed and compared three network risk propagation models to characterize overall organizational risk.

Main Results:

• The framework effectively integrates diverse risk assessments and models component interdependencies.
• The network risk propagation models provide a characterization of overall organizational risk.
• The U.S. Air Force applied this framework, informing billions in strategic investment decisions.

Conclusions:

• The presented framework offers a robust method for assessing and managing complex organizational risks.
• This approach enhances the evaluation of systemic risks and supports strategic decision-making.
• The successful application by the U.S. Air Force demonstrates the framework's practical value.