Methodology

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All Hazards Risk Assessment

This review takes on an 'all hazards' approach to national security. That is to say it assumes from the outset that the armed forces have a role in all forms of major national emergency and the protection and enforcement of New Zealand's rights as a sovereign nation. The study's all hazards methodology is to examine all the dangers facing New Zealand, assess their potential threat to the nation- ideally in terms of impact on gross domestic product, their probability of occurring and the degree to which the armed services can mitigate that risk. The purpose of this is to determine a reasonable level of defence expenditure.

Study Period

In order to determine risk values and a capital cycle the study requires a fixed assessment period. Although many military capital equipment items ( ships for instance) will have a long useful life many other capital items will have a short life. The longer the assessment period the greater the degree of uncertainty - particularly regarding political change - for projections. Thus the review has chosen a 25 year study period from 2010 to 2035 for the purposes of both risk assessment and capital acquisition. Such a period is about the length of most capital items useful life. This is also chosen to provide the study with heuristic value to policy-makers over that timeframe.

Study Period Risk

All armed services are operated on the basis of contingency. That is to say that over any period they may not be used at all. As such they are a form of insurance which on a day-to-day basis must find other ways to keep themselves useful.

This analysis requires that the total risk of all hazards in the study period is established. Only by knowing the quantum at stake can one determine whether the investment made to mitigate the negative effects of that risk are proportionate.

The risk assessment is based on a notional first year loss due to the potential event. This value is based on a worst case scenario compared to similar events in history. The recovery period is also estimated from similar events in history. The total loss over the recovery period is assessed on a straight line recovery over a given period. The historical frequency is based on the number of similar events that have occurred in history or are expected to occur in future. The probability of the event occuring during the study period provides half the weighting for the contribution. The other half is an estimate of the proportion of the effort required to mitigate the losses due to the event that might be expected from the armed services. Thus the result is the MAXIMUM share of the risk that it is reasonable to attribute to the armed services.