Using portfolio optimisation to calculate the efficient relationship between maritime port security residual risk and security investment

Abstract

The research employs an adaptive cross-disciplinary research strategy in an industrial example to address container port facilities’ inability to assess whether their security systems are efficient. The research combines subjective assessments of the performances of the port facilities’ security systems with estimates of terrorism risk from a specialist terrorism underwriter. The research constructs the optimum theoretical portfolio of the three different security systems (access control, biometrics and detection systems) drawn from six different container port facilities owned by a major international ports company to calculate the efficient relationship between maritime port security residual risk and security investment. The research builds on the existing literature and proposes new definitions of security, port security, port security risk and port security risk management. The research also highlights the managerial impact of a chief financial officer’s ability to assess the efficiency of security budget allocation through the residual risk – security investment ratio. The contribution which the research makes is in terms of modelling and measurement of the impact of the introduction of new port security technology and changes to background port security threat levels. The research also juxtaposes for the first time the performance of port security systems with estimates of terrorism risk from a specialist Lloyd’s terrorism underwriter.