Process industries, the finance industry and OBASHI

Process industries, like Oil & Gas and nuclear, have for many years been using information technology to create clarity about how the business works, to optimise performance and to minimise risk.

In control rooms all around the world the flow of product is represented by the flow of data. This is possible because every component that supports the flow of product has a digital sensor attributed to it.  And the industry knows exactly how all the pieces are put together to enable that flow - 'joining the dots' [more].  Computer systems monitor the flows and the assets that support the flows in real-time and warn operators of any problems, or automatically trigger safety systems, to prevent accidents before they occur.

That is why disasters in these industries are very rare, despite businesses performing extremely dangerous tasks every minute of every day.

But when things do go wrong, they often go wrong spectacularly. In the last thirty years, for example, Chernobyl and Piper Alpha have become bywords for disaster. 

In 2010, the Gulf of Mexico oil spill resulted in the deaths of 11 people, huge environmental damage, and a total cost that will run into tens of billions of dollars.  As the global oil supply runs out, deep-water drilling is pushing technology and people to the limit - it may well be that the well-proven business practices of Oil & Gas are being tested to breaking point; only time will tell.  The recently published U.S. Oil Spill Commission report is a wake-up call for both the industry and legislators in the United States.

That said, Oil & Gas, nuclear and other process industries are at least a decade ahead of sectors like, for example, finance, when it comes to understanding how people, process and technology interact, and understanding the risks associated with critical flows.

In finance, 'critical flows' means flows of money, which in today's world means flows of data.  But, as said here before, the finance industry is struggling to understand how people, process and technology interact with these flows. [more]  Last year I wasn't shocked at all to discover that a major financial institution had found a very large amount of money on a computer, and that for years no-one had known the money was there.  And I'm talking battleship numbers.

The trouble is no-one really understands precisely how the financial system works.  Which means it's difficult to accurately assess systemic risk.

So it was interesting to read that the FTs Tim Harford visited a nuclear power station last year to investigate if the industry could teach finance anything about safety.   He discussed risk with people who have studied industrial accidents, including a psychologist, a physicist, a sociologist and industry employees.  One of the points Harford makes is that in finance problems arise because decision-makers are often "supplied with information that [is] confusing and inadequate."

Ben Wilson of Intellect, a body which represents the UK technology industry, makes a similar point in his discussion of the recent Senior Supervisors Group (SSG) report about the global financial industry, 'Observations on Developments in Risk Appetite Frameworks and IT infrastructure' [pdf]. The SSG is made up of financial services authorities from 10 countries, including the U.S.A and the UK.  Of the report, Wilson says,

"As has been the case in the majority of consultations, statements and papers emanating from regulatory authorities and policy-makers in recent months, a significant piece of the jigsaw has been overlooked.  The SSG is right to focus upon the shortcomings of individual institutions in gathering data from across businesses so that risk can be calculated, but what of systemic risk across the wider financial system?  There remains a key challenge, as yet unaddressed and largely dismissed in the ongoing reform of the financial system - that regulators also need access to this information from all the SIFIs [systematically important financial institutions] so that they can monitor and, where necessary act to mitigate the build up of systemic risk across the whole of the financial system.  The challenge here is that information standards and formats differ from financial institution to institution and finding a means of standardising this information (and facilitating its sharing and analysis by regulators) is a complex and time consuming task - one that has not really been considered by the UK's regulatory authorities so far.    In short, the plumbing of the financial system needs some serious repair work."

Of course, just like Oil & Gas pipes or nuclear power station pumps, plumbing supports a flow.  And plumbers, like their engineering counterparts, understand precisely how everything is put together to enable the flow because their standards and practices have been developed over centuries.

What we have created here at OBASHI is a method that provides clarity about flows of data through people, process and technology.  A simple way of understanding, analysing and communicating how a business works.  Without such an understanding of digital flow, the problems in finance (and other sectors) are going to continue. 

But some financial policy-makers have a vision of what is needed.  In the FT article, for example, Andrew Haldane of the Bank of England looks forward to the day when the financial system can be mapped like the electricity grid, so that stresses on the system are clear.  But, he says, "We're a million miles away from that at the moment."

A real-time system may be a little way down the road, but it's not a million miles away.  For forward thinking financial services businesses, OBASHI offers a fast track to increased clarity, better understanding, less risk and greater competitive advantage.

Although the path may not yet be apparent to everyone, what is clear is that in today's data-driven world complex industries, even long-established highly-regulated ones, have to constantly understand precisely how they work.  If not, they will continue to court disaster.