Risk Management Technology in Financial Services

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84 Risk management technology in financial services

The lifespan of a pipe, valve or storage tank can vary. Moreover, within any mature

field there’s going to be a mix of brand new and old. A study published in June 2006,

however, found that 18 per cent of 406 wells tested in Norway’s section of the North

Sea had weaknesses and 6 per cent had faults that demanded they be shut.

Reliability studies are most important in keeping under lock and key the cost of

failure. Pipelines and pumping stations are elements in series and the reliability of

every component must be extremely high to reach targeted system reliability. A system

with even 500 components connected in series must have at least 0.99995 reliability

per component part, to reach 0.95 at system level. Oil pipelines have thousands of

components (see also Chapter 16).

5.3 Telecom Italia. Political risk

In the go-go 1990s, the privatization of state-owned telephone monopolies in Britain,

Germany, Holland, France, Italy and other European countries has been by no means

an outstanding success. The bureaucrats put in charge took too many risks they could

not manage, and in less than a decade more or less all of them have been in crisis,

confronted by plenty of questions to which they cannot provide a clear answer. For

example:

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In five or six years what will be the future of fixed data services, mobile services

and voice telephony?

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If these technologies converge, as is likely, who will be the provider of an integrated

service? The provider of content?

By now, more or less all telcos appreciate that modern technology makes con-

vergence feasible, but this does not mean it will happen the way they want it. The

best technology provider is not necessarily the best service provider, and a good

service provider may not be well positioned to manage the network’s technological

infrastructure.

Several technology experts think that in the next half-dozen years the playing field

for current incumbents will probably have undergone a complete transformation.

Particularly, being big will not necessarily be the same as being powerful. In fact,

several of the former telco monopolies are already feeling the impact of these change

criteria and are scrambling for solutions on how to reposition themselves.

Repositioning, most evidently, requires a thoroughly studied strategic plan, iden-

tification of risks and opportunities, as well as plenty of money the telcos can only

find by increasing their debt. One of the telcos in the sickbed is Telecom Italia (TI).

Through its main product channel and its subsidiaries, the company offers fixed

line and mobile telephony, also data transmission services, along with access and

teleconferencing services in Italy and abroad. However, Telecom Italia also has:



A capitalization of E40 million ($50 million), and

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An astronomical debt of E41 million ($51.25 million).

One of the reasons for such a lopsided ratio is that TI’s equity has fallen by

50 per cent since 2001. The company’s financial situation, however, is not as bleak